Q2 2022 InnovAge Holding Corp Earnings Call
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Speaker 1: Good day and thank you for standing by. Welcome to the Innovate Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Ryan Kubota, Director of Investor Relations. Please go ahead.
Good day and thank you for standing by welcome to the innovative second quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question answer session.
Quick question during the session you will need to press star one on your telephone.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your speaker today like Kubota.
Investor Relations. Please go ahead.
Thank you operator.
Speaker 2: Thank you, operator. Good afternoon, and thank you all for joining InnovAges Fiscal 2022 second quarter earnings call.
Good afternoon, and thank you all for joining innovators fiscal 2022 second quarter earnings call.
Speaker 2: With me today is Patrick Blair, the new president and CEO who joined the company on December 1st.
With me today is Patrick Blair, the new President and CEO , who joined the company on December one.
Speaker 2: Barb Gutierrez, CFO , and Dr. Melissa Welch.
We're a bit here as CFO and Dr. Lisa Welch.
Speaker 2: Chief Medical Officer, who will be joining the Q&A portion of the call.
<unk> Medical officer, who will be joining the Q&A portion of the call.
Speaker 2: Today, after the market closed, we issued a press release containing detailed information on our quarterly results.
Today after the market close we issued a press release containing detailed information on our quarterly results.
Speaker 2: you may access the release on our company website, innovage.com.
You may access the release on our company website Innovates Dot com.
Speaker 2: For those listening to the rebroadcast of this presentation, we remind you that the remarks made herein are as of today, Wednesday, February 9, 2022, and have not been updated subsequent to the initial earnings.
For those listening to the rebroadcast of this presentation. We remind you that the remarks made in made herein are as of today Wednesday February 19, 2022 and have not been updated subsequent to the initial earnings call.
Speaker 2: During this call, we will refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our Physical Second Quarter 2022 Press Release, which is posted on the investor relations section of our website.
During this call we will refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our fiscal second quarter 2022 press release, which is posted on the Investor Relations section of our website.
Speaker 2: We will also be making forward-looking statements, including statements related to our growth prospects, regulatory, and other expectations.
We will also be making forward looking statements, including statements related to our growth prospects regulatory and other expectations.
Speaker 2: Listeners are cautioned that all of our four statements involve certain assumptions that are inherently subject to risks and uncertainties that can cause our actual results to differ materially from our current expectations.
Listeners are cautioned that all of our forward looking statements involve certain assumptions that are inherently subject to risks and uncertainties that can cause our actual results to differ materially.
Our current expectations.
Speaker 2: We advise listeners to review the risk factors discussed in our Form 10-K annual report for fiscal year 2021 and subsequent reports filed with the SEC.
Advise listeners to review the risk factors discussed in our Form 10-K annual report for fiscal year 2021, and subsequent reports filed with the SEC.
Speaker 2: After the completion of our prepared remarks, will we open the call to take your questions?
After the completion of our prepared remarks, we'll open the call to take your questions I will now turn the call over to our President and CEO Patrick Blair Patrick. Thank you very much Ryan I'd like to start with a warm welcome to everyone on the call.
Speaker 3: I will now turn the call over to our president and CEO , Patrick Blair. Patrick? Thank you very much, Ryan. I'd like to start with a warm welcome to everyone on the call. And before jumping in, I first want to express my gratitude to our innovation employees who have persisted bravely and selflessly, pursuing critically important work in the face of some unprecedented obstacles. And to our federal and state partners for their partnership during one of the most challenging times any of us have ever faced.
Before jumping in on the first one and express my gratitude to our innovation employees, who have persisted bravely and selflessly pursue critically important work in the face of unprecedented obstacles to our federal and state partners for their partnership during one of the most challenging times any of us enable things into our shareholders.
Speaker 3: and to our shareholders and investment community for their continued commitment, support, and interest in the company.
Desperate community for their continued commitment and support and interest in the company.
Speaker 3: Although my understanding of the organization is still evolving, I've already come to realize what our employees and participants already have.
Although my understanding of the organization is still evolving I have already come to realize what our employees and participants already now.
Speaker 3: Innovate H is a special organization working tirelessly and heroically to help some of the nation's most vulnerable Americans.
The agency special organization, working tirelessly and heroically to help some of the nation's most vulnerable Americans.
Speaker 3: As many of you know, this is my first conference call as Interv8 CEO . I joined the company as president on December 1st and was appointed to CEO on January 1st.
As many of you know this is my first conference call as into the HCM I joined the company as President on December one and was appointed CEO on January one.
Speaker 3: This is a pivotal and important time for the company, and I'm genuinely proud, excited, and prepared to be here.
This is a pivotal and important time for the company and I'm genuinely proud excited and prepared to be here today.
Speaker 3: I'll say more momentarily, but you could say I've been preparing my whole career for this particular role at this particular time. It's truly a privilege to be a part of something so important with an organization that has so much to offer our participants and government partners. We're going to take a slightly different...
I'll say more raw materials, which you can say I've been preparing my whole career for this particular role at this particular time.
It is truly a privilege to be part of something so important with an organization that has so much to offer all participants and government partners.
We wanted to take a slightly different approach to the call today.
Speaker 3: I will begin with opening remarks and ended off to Barbara, who will provide a more detailed review of our quarterly results.
We'll begin with opening remarks, and then hand, it off to Bob who will provide a more detailed review of our quarterly results. I will then provide remarks on our path forward before moving to Q&A you can expect this new agenda going forward.
Speaker 3: I will then provide remarks on our path forward before moving to Q&A. You can expect this new agenda going forward.
Speaker 3: Before briefly describing my background and what I've been up to in the last couple of months, I'd like to share the key reasons why I joined in an age. And in doing so, touch on the opportunities we have in front of us.
Before briefly described me my background and what I've been up to in the last couple of months I'd like to share. The key reasons why I joined in <unk>.
And in doing so touch on the opportunities we have in front of us.
Year for the same reason I think most people join companies like to have a transformational impact on People's lives and to embrace the doctrine of doing well by doing good in such an important arena.
Speaker 3: to have a transformational impact on people's lives and to embrace the doctrine of doing well by doing good. It's such an important arena.
Speaker 3: Having seen firsthand the fragmentation health care and the vaccine challenge of helping our most vulnerable seniors to live healthy and independent lives, and the difference well-run integrated models
Have you seen firsthand the fragmentation healthcare in the vaccine challenge of helping our most vulnerable seniors to live healthy and independent lives.
And the difference well run integrated models of care can make I.
Speaker 3: I feel strongly we have responsibility to bring the pace model to more seniors across the country. While I'm still
I feel strongly we have a responsibility to bring the pace model to more seniors across the country.
While I'm still coming up the learning curve on pace. It is.
Speaker 3: It's clear we are fortunate to operate in a large and growing market with a steady tailwind. And to be positioned at the intersection of where the federal and state governments increasingly need us most. Offering lower cost, better quality, value-based, home and community care.
Clear, we are fortunate to operate in a large and growing market with a steady tailwind it.
And to be positioned at the intersection of where the federal and state governments increasingly need us most offering lower cost better quality value based wholesale to retail.
Speaker 3: Despite our challenges, I believe in age possesses the elements to continue to lead the way.
Despite our challenges I believe innovate possesses the elements to continue to lead the way.
Speaker 3: years of operation experience, distinctive capabilities, and equipment to
The people years of operational experience distinctive capabilities in.
And our commitment to high quality care.
Speaker 3: have allowed innovation to become a market leader. And those things are still very much intact. What's more, we're fortunate to be
Have allowed into the H become a market leader.
And those things are still very much intact.
What's more we're fortunate to possess a strong balance sheet.
Speaker 3: Undergirded by an attractive operating margin that produces strong cash flow, allowing us to invest robustly in our leaders, workforce, processes, tools, infrastructure, and to innovate our offering.
<unk> by the attractive operating margin that produces strong cash flow, allowing us to invest robustly in our leaders workforce processes tools infrastructure and to innovate our offerings in other words. The company has a sturdy foundation and great potential.
Speaker 3: In other words, the company has a sturdy foundation and great potential.
Speaker 3: I also want to clearly acknowledge that while I fully embrace the company's advantages and potential, my principal focus right now must be on addressing the deficiencies identified in the recent CMS and state audits. While the situation we find ourselves in is a serious one.
I also want to clearly acknowledged that while I fully embraced the companys advantages and potential my principal focus right now must be on addressing the deficiencies identified in the recent CMS and state audits.
While the situation we find ourselves in is a serious one and.
In one I'll be laser focused on.
Speaker 3: From what I witnessed to my last 60 days, I believe the deficiencies and opportunities for improvement identified by our regulatory partners.
And what I'd witness to my last 60 days I believe the deficiencies and opportunities for improvement.
<unk> by our regulatory partners are addressable.
Speaker 3: Before I provide some second quarter highlights, I'd like to share my fondness for programs focused on frail seniors and people's disabilities. On both the acute and homing communities.
Before I provide some second quarter highlights I would like to share my fondness for programs focused on frail seniors and people disabilities on both the acute holding community sides of the house.
Speaker 3: I've had a few times around the track with these types of businesses. Having spent the last few years at meeting government sponsored health plans, and the nation's largest nonprofit home health care.
I had a few times around the track with these types of businesses having spent the last few years that median government sponsored health plans and the nation's largest nonprofit health care provider.
Speaker 3: These experiences have given me many opportunities to work closely with federal and state officials, frail seniors, their caregivers and advocates, community-based organizations, medical providers, and investors.
As an experienced instead given the many opportunities to work closely with federal and state officials frail seniors their caregivers and advocates community based organizations medical providers and investors.
Speaker 3: I've drawn genuine inspiration from these experiences and this fueled a career long passionate for improving the minds of our most vulnerable seniors.
I've drawn genuine inspiration from these experiences and has fueled a career long passion for improving the lives of our most vulnerable seniors.
Speaker 3: What's perhaps most distinguishing is that I pursued this mission by building passionate, high-performing teams and continually striving for peak clinical and operational performance which naturally leads to attractive financial results.
What's perhaps most distinguishing is did I pursued this mission by building passionate high performing teams and continually striving for Pete clinical and operational performance, which naturally leads to attractive financial results.
Speaker 3: Since joining the company, I've spent my first two months getting the label and visiting our centers, meeting with hundreds of employees across the company to get a diverse front line input around our biggest opportunities in town.
Since joining the company I've spent my first two months getting the labeling.
Getting north centers meeting with hundreds of employees across the company to get a diverse frontline input around our biggest opportunities and challenges.
Speaker 3: part of getting grounded, I've also been in deep into the recent survey results to specifically understand employee perspectives on a broad range of issues. And as
As part of getting grounded I've also been doctored deep into the recent survey results to specifically understand employee perspectives with a broad range of issues.
And is absolutely essential.
Speaker 3: I've been actively engaging with state officials in each of our existing states, and an active expansion states to convey the seriousness of our commitment to be a model partner as well as details around our approach and progress. To share a few initial observations from the first 60 days.
I have been actively engaged with state officials and each of our existing states and inactive expansion states to convey the seriousness of our commitment to be a model partner as well as details around our approach and progress.
To share a few initial observations from the first 60 days I've been impressed with our people and our model of care.
Speaker 3: We're committed to improving quality of life, increasing the autonomy and dignity of seniors, by helping them live in their own homes, their own communities, and in many cases preserving the integrity of their family youth.
We're committed to improving quality of life increasingly autonomy and dignity seniors, we're helping them live in their own homes their own communities and in many cases preserving the integrity of their family units.
Speaker 3: The Care Delivered Myrificicians, Nurses, Social Workers, Physical Therapists, Occupational...
<unk> care delivered by our physicians nurses, social workers physical therapists occupational therapist dentist hygienist and pharmacists is compassionate comprehensive and participants centered.
Speaker 3: Dentist, hygienist, and pharmacist is compassionate, comprehensive, and participant-centered.
Speaker 3: It's really been energized to see us delivering a fully integrated into-in value-based model of care. Day in and day out across 18 centers for more than 7,000 participants.
It's really been energizing to see us delivering a fully integrated into in value based model of care day in and day out across 18 centers for more than 7000 participants that other providers payors and specialty companies.
Speaker 3: that other providers, payers, and specialty companies prior to replicate.
Tried to replicate.
Speaker 3: There are, however, bonafide opportunities for improvement, specifically in the areas of care coordination and care doctors.
There are however, bonafide opportunities for improvement specifically in the areas of care coordination care documentation are regulators identified the need for better coordination of care between specialty providers and facilities. For example, we were inconsistent in our ability to transport participants scheduled follow ups with coordinating entities and community.
Speaker 3: Our regulators identified in a better coordination of care between specialty providers and facilities. For example, we were inconsistent in our ability to transport participants, schedule follow-ups with coordinating entities, and communicate exchange information between our care teams and third party.
Exchange information between our care teams and third parties.
Speaker 3: Our government partners also identified documentation as another category for these.
Our government partners also identified identified documentation is another category for remediation as.
Speaker 3: As we're expected to document all aspects of care in the medical record, consistent standards of practice in the community, and standards set forth by each state and CMS.
As we're expected to document all aspects of care and the medical record consistent standards of practice and community and standards set forth by each state and CMS.
We clearly need to do better here.
Speaker 3: That all said, I'll reiterate that I believe these deficiencies are addressable with strong leadership, focus, and execution, all of which we plan to supply thoroughly. I will now-
That all said I'll reiterate that I believe these deficiencies are addressable with strong leadership focus execution, all of which we plan to supply thoroughly.
I will now provide a brief update on the status of our <unk>.
Speaker 3: As I mentioned earlier, I've been working closely with the compliance operations and clinical teams and collaboratively with our regulators as we seek to remediate the deficiencies that were identified in the audit.
As I mentioned earlier I've been working closely with the compliance operations and clinical teams and collaboratively with our regulators as we seek to remediate the deficiencies that were identified in the audience.
Speaker 3: In Sacramento, our corrective action plans were accepted by the state in CMS in early January . And we've moved into the monitoring phase of the sanction process.
In Sacramento, our corrective action plans were accepted by the state and CMS in early January and we've moved into the monitoring phase of the sanction process.
Speaker 3: Once the corrective action plans have been implemented, we will be allowed to operate independently for a period of time before our regulators retest our operations to ensure the deficiencies that were identified in the audit have been correct.
Once the corrective action plans have been implemented we will be allowed to operate independently for a period of time before our regulators recast our operations to ensure the deficiencies that were identified in the audit have been corrected.
Speaker 3: once determined to be sufficiently corrected, only then will the sanctions be lifted.
Once determined to be sufficiently corrected holdings in with the sanctions being lifted.
In Colorado, we are in the process of submitting and obtain approval for each of our corrective action plans with state and federal agencies. Once the plans have been approved we anticipate that the process to correct. The deficiencies will be similar to the process. We are undertaking in Sacramento.
Speaker 3: In Colorado, we're in the process of submitting an obtaining approval for each of our corrective action plans with state and federal agents.
Speaker 3: Once the plans have been approved, we anticipate that the process to correct the deficiencies will be similar to the process we're undertaking in sacrament.
Speaker 3: Get in the nature of these processes. We not predict how long we'll take to resolve these issues, identify and to lift the sentient.
Given the nature of these processes, we cannot predict how long it will take to resolve the issues identified and to lift the sanctions.
Speaker 3: Last quarter, we mentioned that New Mexico would begin a routine audit initiated by CMF.
Last quarter, we mentioned that new Mexico would begin a routine audit initiated by CMS.
Speaker 3: The initial audit work, which preliminary identified deficiency similar to Sacramento and Colorado, is still underway and currently in the audit validation process.
The initial audit FERC, which preliminarily identified efficiency similar to sacramental and Colorado is still underway and currently in audit validation process.
Speaker 3: Lastly, in July of last year, we received a civil investigative demand or CID from the Attorney General for the State of Colorado, under Colorado Medicaid False Cleanse Act.
Lastly in July of last year, we received a civil investigative demand from the attorney General for the state of Colorado, Colorado, Medicaid False claims Act.
Speaker 3: We continue to fully cooperate with the attorney general and for that, the requested information documentation.
We continue to fully cooperate with the attorney general and produce the requested information and documentation.
Speaker 3: This month, we also received a civil-investing gave-demand from the Department of Justice for DOJ under the Federal False Claims Act, similar in subject matter to the C-
This month, we also received a civil investigative demand from the department of Justice or Doj under the federal false claims Act.
Similar in subject matter to the Cie in Colorado.
Speaker 3: Federal demand requests information and documents and can be exchanged with all the company's pay scrolls.
Federal demand request information and documents and connects with all of the company's pace programs. We are fully cooperating with the Doj to produce the requested information and documentation and we're currently unable to predict the outcome of either investigation.
Speaker 3: We are fully cooperating with the DOJ to produce the requested information and documentation and we're currently unable to predict the outcome of either investigation.
Speaker 3: and Kim and I are laser focused on working collaboratively with our regulators to strengthen relationships, to work diligently through our corrective action plans, and to regain trust.
The team and I are laser focused on working collaboratively with our regulators to strengthen relationships to work diligently through our corrective action plans and to regain trust.
Speaker 3: I'm committed to seceding the opportunity to strengthen our operations and having been part of organizations that have done this successfully, I'm confident we are prepared to overcome these challenges.
Im committed to seizing the opportunity to strengthen our operations and have you been part of organizations that have done. This successfully I am confident we are prepared to overcome these challenges.
Speaker 3: Not to over simplify, but I strongly believe the quickest road to recovery begins with a renewed energy and focus on the basics. Are people...
Not to oversimplify, but I strongly believe the quickest road to recovery begins with a renewed energy and focus on the basics are people quality and service.
Speaker 3: If our employees are properly positioned to deliver high quality care and service, financial stability and growth will naturally result. With that, I'll transit...
If our employees are properly positioned to deliver high quality care and service financial stability and growth will naturally result.
With that I will transition to review the second quarter business drivers. We ended the quarter serving approximately 7050 participants. This represents an increase of five 6% compared to the second quarter of fiscal year 2021, after including the sacramental census, which was consolidated in the same fiscal quarter from a year ago. We.
Speaker 3: We ended the quarter serving approximately 7,050 participants. This represents an increase of 5.6% compared to the second quarter of fiscal year 2021. After including the Sacramento Census, which was not consolidated in the same fiscal quarter from a year ago. We reported second quarter revenue of $175.4 million.
Reported second quarter revenue of $175 4 million.
Speaker 3: an increase of nearly 11.5% compared to the previous fiscal year because of census growth and an increase in rate.
An increase of nearly 11, 5% compared to the previous fiscal year because of census growth and an increase in rates.
Speaker 3: We also reported a center level contribution margin of more than $41.4 million and a corresponding center level contribution margin ratio of 23.6%.
We also reported a senior level contribution margin of more than $41 4 million and a corresponding suite level contribution margin ratio of 23, 6%.
Speaker 3: The Omicron variant has led to another surge in COVID infections among innovation employees and participants. This surge began in December as continued into the fiscal third quarter of 2022. As a result of this new wave, we're seeing an anticipated seen elevated participant cost trends. Specifically,
The Omicron Baron has led to another surge in Covid infections, among <unk> employees and participants. This surge began in December has continued into the fiscal third quarter of 2022.
As a result of this new ways, we're seeing it and anticipate some elevated participant cost trends specifically inpatient.
Speaker 3: Medical and social respite costs related to skilled nursing facilities are increasing due to higher more metady resulting from code
Medical and social rest of the costs related to skilled nursing facilities are increasing due to higher morbidity, resulting from COVID-19 .
Speaker 3: Increase mobility is driving higher external provider costs, primarily related to specialty costs as COVID complement kids underlying conditions.
Increased morbidity is driving higher external provider costs, primarily related to specialty cost as COVID-19 complicates underlying conditions.
Speaker 3: Since we reopened our centers in early spring of 2021, we have continued to see rising outpatient and specialist costs as would be expected. Due to delays in care experience across the healthcare system, seen throughout 2020.
Since we reopened our centers in early spring of 2021, we are continuing to see rising outpatient and specialist costs as would be expected due to the delays in care experienced across the health care system seen throughout 2020.
Speaker 3: While it returned to a pre-COVID baseline as an ideal scenario, we might not see a return to pre-COVID levels in the near future.
While the return to a pre COVID-19 baseline is an ideal scenario, we might not see a return to pre COVID-19 levels in the near term as.
Speaker 3: As we look to the second half of fiscal year 2022, we expected center level costs will remain elevated.
As we look to the second half of fiscal year 2022, we expected senior level costs will remain elevated associated with the need for more durable medical equipment oxygen personal protective equipment as well as incremental costs associated with Covid protocols at our centers as the search continues.
Speaker 3: associated with the need for more durable medical equipment, oxygen, personal protective equipment, as well as incremental costs associated COVID protocols at our centers as the service continues.
Speaker 3: While we have continued to grow our senses, we've started to see enrollment growth pressure, particularly towards the end of the second quarter, as a result of the recent surge of COVID. Specifically, COVID has impacted our ability to interact directly with potential new participants, for instance, to verify eligibility documentation, and has caused associated delays in the enrollment process.
While we have continued to grow our sensus, we started to see enrollment growth pressure, particularly towards the end of the second quarter. As a result of the recent surge of Covid, specifically COVID-19 has impacted our ability to interact directly with potential new participants for instance to verify eligibility documentation and has caused associated delays.
And the enrollment process.
Speaker 3: Despite the surge in elevated cost, we're not anticipating the level of disruption we experienced in early days of the pandemic. All centers remain open and our employings are fully vaccinated.
Despite the surge in elevated cost, we're not anticipating the level of disruption we experienced in the early days of the pandemic.
All centers remain open and our employees are fully vaccine.
Speaker 3: Labor will remain a key focus, though asymptomatic cases allow for employees to safely return to work sooner, consistent with CDC guidelines, and it helped us maintain more consistent staffing links.
Labor will remain a key focus though asymptomatic cases allow for employees to safely return to work sooner consistent with CDC guidelines and have helped us maintain more consistent staffing levels.
Speaker 3: Now I will turn the call over to Barb to provide some additional detail under quarterly results. Barb.
Now I will turn the call over to Barb to provide some additional detail on our quarterly results.
Speaker 4: Thank you, Patrick. I want to provide some highlights from our second quarter fiscal year 2022 performance. Given the impact on our results due to the recent surge of COVID transmission rates during the period, in some cases, I will refer to sequential comparisons to our first quarter of fiscal 2022 in order to provide a more meaningful picture of our performance.
Thank you Patrick I wanted to provide some highlights from our second quarter fiscal year 2020 Tampa format.
Given the impact on our results due to the recent surge of Covid transmission rates during the period in some cases I will refer to a sequential comparison to our first quarter of fiscal 2022 in order to provide a more meaningful picture of our performance.
Speaker 4: We ended the second quarter with 18 centers and a census of approximately 7,050 participants as of December 31st, 2021.
We ended the second quarter with 18 centers in a census of approximately 7050 participants as of December 31 2021.
Speaker 4: Compared to the prior year period, when including Sacramento Census, which was not consolidated in the fiscal second quarter of 2021, this represents an ending census increase of 5.6%.
Compared to the prior year period, when including Sacramento.
Was not consolidated in the fiscal second quarter of 2021. This represents an ending census increase of five 6%.
Speaker 4: Compared to the first quarter of fiscal year 2022, this is an increase of approximately one percent.
Compared to the first quarter of fiscal year 2022. This is an increase of approximately 1%.
Speaker 4: We reported nearly 21,200 member months for the second quarter, a 6.1% increase over the prior year, with including Sacramento Census, and an increase of 1.4% over the first quarter of fiscal 2022.
We reported nearly 21200 member months for the second quarter.
Six 1% increase over the prior year, when including Sacramento Santos and an increase of one 4% over the first quarter of fiscal 2022.
Speaker 4: An enrollment growth in the second quarter started off strong. However, towards the end of the quarter, we experienced an increase in deaths, which is not uncommon during the winter months. Coupled with enrollment growth pressure as a result of the recent COVID surge, both of which have continued into the fiscal third quarter.
And enrollment growth in the second quarter started off strong.
However towards the end of the quarter, we experienced an increase in debt, which is not uncommon during the winter months, coupled with enrollment growth pressure as a result of the recent COVID-19 search both of which have continued into the fiscal third quarter.
Speaker 4: The COVID surge has impacted our ability to interact directly with potential new participants and has caused delays and lengthening of the enrollment process.
Covid surge has impacted our ability to interact directly with potential new participants and has caused delays and lengthening of the enrollment process.
Revenue in the second quarter of fiscal year, 2022 increased to $175 4 million.
Speaker 4: Revenue in the second quarter of fiscal year 2022 increased to $175.4 million, or approximately 11.5% compared to the second quarter of fiscal year 2021.
Or approximately 11, 5% compared to the second quarter of fiscal year 2021.
Speaker 4: The drivers of this growth are an increase in census, coupled with an increase in Medicaid rates.
The drivers of this growth or an increase in census, coupled with an increase in Medicaid rates.
Speaker 4: Additionally, we received a temporary fiscal year 2022 rate increase from the American Rescue Plan Act or ARPA for Virginia in December , which included a true up of ARPA funds for July through November .
Additionally, we received a temporary fiscal year 2022 rate increase from the American Rescue Plan Act or ARPA for Virginia in December which included a true up of ARPA Fund for July through November .
Speaker 4: We are in discussions with our other states regarding further our parade increase.
We are in discussions with our other states regarding further ARPA rate increases.
Speaker 4: Looking forward, we receive notifications from the state of California that calendar year 2022 rates will experience a low to mid-single digit decrease effective January 1st, 2022.
Looking forward, we received notification from the state of California. The calendar year 2022 rates will experience a low to mid single digit decrease effective January one 2022.
Speaker 4: We have requested the state revisit their rate setting methodology to exclude calendar year 2020 experience. As we believe the rates are understated due to the shutdowns during the pandemic.
We have requested the state revisit their rate setting methodology to exclude calendar year 2020 experience as we believe the rates are understated due to the shutdowns during the pandemic.
Speaker 4: Other states, such as Colorado and Virginia, excluded 2020 experience in setting their fiscal year 2022 rates.
Other states, such as Colorado and Virginia.
<unk> 2020 experienced in setting their fiscal year 2022 right.
Speaker 4: Regarding Medicare rates, effective January 1st, 2022, we will see a mid-single-digit rate increase as a result of an increase in risk-core as well as higher-county rates.
Regarding Medicare rates effective January 1st 2022, we will see a mid single digit rate increase as a result of an increase in risk score as well as higher accounting right.
Speaker 4: External provider costs in the second quarter were $91 million. A 21.1% increase compared to the second quarter of fiscal year 2021.
External provider cost in the second quarter were $91 million.
A 21, 1% increase compared to the second quarter of fiscal year 2021.
Speaker 4: Similar to my comments last quarter, while some of this variance is due to census growth, we continue to experience higher per participant cost in three areas.
Similar to my comments last quarter, while some of this variance is due to census growth, we continue to experience higher per participant cost in three areas.
Speaker 4: One, outpatient and specialist care, as participants catch up on services that were delayed as a result of the pandemic.
One outpatient and specialist care as participants catch up on services that were delayed as a result of the pandemic.
Speaker 4: to increase inpatient and respite utilization as a result of the Omicron surge. Three, increased housing rates as mandated by certain states.
<unk> increased in patient and respite utilization as a result of the omicron Serge.
Three increased housing rate as mandated by certain states.
Speaker 4: External provider costs in the second quarter of fiscal 2022 increase slightly by 1.1% compared to the first quarter. The PENTF demand for outpatient and specialist care that we experienced in the fourth quarter of fiscal 2021 and the first quarter of fiscal 2022 is leveling off, but is offset by costs associated with the Omicron Serbs.
External provider costs in the second quarter of fiscal 2022 increased slightly by one 1% compared to the first quarter.
Pent up demand for outpatient and specialist care that we experienced in the fourth quarter of fiscal 2021, and the first quarter of fiscal 2022 is leveling off but is offset by costs associated with the on the chrome search.
Speaker 4: Our cost of care, excluding depreciation and amortization, was $42.9 million for the second quarter. A 12.7% increase over the second quarter of fiscal year 2021, driven by an increase in census and increase in the overall cost per participant.
Our cost of care, excluding depreciation and amortization was $42 9 million for the second quarter of.
12, 7% increase over the second quarter of fiscal year 2021.
Driven by an increase in census, and increase in the overall cost per participant.
Speaker 4: Her member per month increase is associated with annual merit and market increases, coupled with an increase in operational costs due to the reopening of our centers.
Per member per month increase is associated with annual merit and market increases coupled with an increase in operational cost due to the reopening of our centers.
Speaker 4: As reported in previous calls, the cost of care in the second quarter of fiscal 2021 was a typically low as a result of our center closures during the pandemic.
As reported in previous calls the cost of care in the second quarter of fiscal 2021 was a typically low as a result of our center closures during the pandemic.
Speaker 4: Cost of care increased by 5.4% over the first quarter of fiscal 2022, primarily due to wage inflation as a result of the current labor market conditions. Occupancy related costs such as repair and maintenance and an increase in fleet expenses that correlates to an increase in average daily attendance.
Cost of care increased by five 4% over the first quarter of fiscal 2022, primarily due to wage inflation as a result of the current labor market condition occupants.
Occupancy related costs, such as repair and maintenance.
And an increase in fleet expenses that correlate to an increase in average daily attendance.
Speaker 4: Center-level contribution margin, which we define as total revenue less external provider costs and cost of care, excluding depreciation and amortization, with $41.4 million for the second quarter compared to $44.1 million in the second quarter of fiscal 2021, and $42.3 million in the previous quarter of fiscal 2022.
Center level contribution margin, which we define as total revenue less external provider costs and cost of care, excluding depreciation and amortization was $41 4 million for the second quarter compared to $44 $1 million in the second quarter of fiscal 2021 and 42.
$2 $3 million in the previous quarter at fiscal 2022.
Speaker 4: As a percentage of revenue, center-level contribution margins for the quarter was 23.6%. Compared to 28% in the second quarter of fiscal 2021 and 24.5% in the previous quarter of fiscal 2022.
As a percentage of revenue center level contribution margin for the quarter was 23, 6%.
<unk> to 28% in the second quarter of fiscal 2021, and 24, 5% in the previous quarter of fiscal 2022.
Speaker 4: While leveling off, as we mentioned on the last earnings call, we continue to see elevated utilization levels as participants catch up on medical services delayed as a result of the pandemic.
While leveling off as we mentioned on the last earnings call. We continue to see elevated utilization levels as participants catch up on medical services delayed as a result of the pandemic.
Speaker 4: This medical cost normalization dynamic coupled with the increased utilization and cost from the recent Omicron surge are the primary drivers of the year-over-year decline in center-level contribution margin as a percent of revenue.
This medical cost normalization dynamic coupled with the increased utilization and cost from the recent omicron search are the primary drivers of the year over year decline in center level contribution margin as a percent of revenue.
Speaker 4: We also experienced an increase in cost of care and other occupancy related expenses.
We also experienced an increase in cost of care and other occupancy related expenses.
Speaker 4: Compared to the prior quarter, the major driver of the decline in center-level contribution margin as a percent of revenue is related to an increase in cost of care as Deach failed earlier.
Compared to the prior quarter the major driver of the decline in central level contribution margin as a percent of revenue is related to an increase in cost of care as detailed earlier.
Speaker 4: Sales and marketing expense for the second quarter was $6.7 million, and increase of $2 million compared to the second quarter of fiscal 2021. Primarily due to an increase in head count and costs associated with marketing campaigns to support bringing paid services to more seniors.
Sales and marketing expense for the second quarter was $6 7 million.
An increase of $2 million compared to the second quarter of fiscal 2021.
Primarily due to an increase in head count and costs associated with marketing campaigns to support bringing paid services to more seniors.
Speaker 4: Corporate General and Administrative Expense for the Second Quarter was $28.5 million. An increase of $12.8 million compared to the Second Quarter of fiscal 2021.
Corporate general and administrative expense for the second quarter was $28 5 million.
An increase of $12 8 million compared to the second quarter of fiscal 2021.
Speaker 4: The increase was primarily due to company growth bringing paid services to more seniors. Additional costs associated with becoming a publicly traded company, compliance related expenses, higher expected legal expense during the quarter, and executive recruiting and severance costs incurred during the quarter.
The increase was primarily due to company growth, bringing pay services to more seniors additional costs associated with becoming a publicly traded company compliance related expenses higher than expected legal expense during the quarter and executive recruiting and severance costs incurred during the quarter.
Speaker 4: Net income for the second quarter was $1.1 million compared to net income of $9.6 million in the second quarter of fiscal 2021.
Net income for the second quarter was $1 1 million compared to net income of $9 $6 million in the second quarter of fiscal 2021.
Speaker 4: We reported earnings per share for the fiscal second quarter of one cent on both a basic and deluded basis.
We reported earnings per share for the fiscal second quarter of <unk>.
On both a basic and diluted basis.
Speaker 4: Our fully diluted share count was 135,516,513 shares for the fiscal second quarter ending December 31, 2021.
Our fully diluted share count was $135 million 516513 shares for the fiscal second quarter ending December 31 2021.
Speaker 4: Adjusted EBITDA, which we calculate by adding interest taxes to appreciation and amortization, one time adjustments for transaction and offering related costs, and other non-recurring or exceptional cost to net income, was $14.8 million for the second quarter, a 34.5% decrease year over year, and a 19% decrease quarter over quarter.
Adjusted EBITDA, which we calculate by adding interest taxes, depreciation and amortization, one time adjustment for transaction and offering related costs and other nonrecurring or exceptional costs net income was $14 8 million for the second quarter a $34.
5% decrease year over year, and a 19% decrease quarter over quarter.
Speaker 4: Our adjusted EBITDA margin was 8.4% for the second quarter compared to 14.5% for the second quarter of fiscal year 2021 and 10.5% for the first quarter of fiscal year 2022.
Our adjusted EBITDA margin was eight 4% for the second quarter compared to 14, 5% for the second quarter of fiscal year, 2021, and 10, 5% for the first quarter of fiscal year 2022.
Speaker 4: The quarter-over-quarter change in adjusted EBITDA and adjusted EBITDA margin is primarily a function of one increased cost of care and two higher SGNA as a result of growth and higher than anticipated legal expense in the quarter.
The quarter over quarter change in adjusted EBITDA and adjusted EBITDA margin is primarily a function of one increased cost of care and to higher SG&A as a result of growth and higher than anticipated legal expense in the quarter.
Speaker 4: We do not add back any losses incurred in connection with our Denovos Centers in the calculation of a justity bidet. Denovos Center losses, which we define as net losses related to pre-opening and startup ramps through the first 24 months of Denoval operations, were $0.6 million for the second quarter.
We do not add back any losses incurred in connection with our de Novo centers and the calculation of adjusted EBITDA.
<unk> centre losses, which we define as net losses related to Preopening and startup ramps through the first 24 months of de Novo operations were $6 million for the second quarter.
Turning to our balance sheet.
Speaker 4: We ended the quarter with $218.5 million in cash and cash equivalents and had $87.1 million in total debt on the balance sheet, representing debt under our senior secured term loan plus capital leases and other commitments.
We ended the quarter with $218 $5 million in cash and cash equivalents and had $87 $1 billion in total debt on the balance sheet, representing debt under our senior secured term loan plus capital leases and other commitments.
Speaker 4: and a secured net leverage ratio of 0.95 times has calculated pursuant to our credit agreement.
And our secured net leverage ratio of nine five times as calculated pursuant to our credit agreement.
Speaker 4: For the second quarter ended December 31, 2021, we generated $11 million of cash from operations, and we had $8.6 million of capital expenditures.
For the second quarter ended December 31, 2021, we generated $11 million of cash from operations, and we had $8 6 million of capital expenditures.
Speaker 4: For the quarter, we had free cash flow of $2.4 million defined as cash from operations less capital expenditure.
For the quarter, we had free cash flow of $2 $4 million defined as cash from operating operations less capital expenditures.
Speaker 4: Late in the quarter, we announced that we withdrew guidance following the sanction we received in Colorado and the subsequent enrollment freeze. At this time, we do not believe it is prudent to provide updated guidance due to the existing audit. We can, however, provide some insight into the trends we are seeing today, specifically related to the recent Omicron surge and the impact it is having on our business in several key areas.
Late in the quarter, we announced that we withdrew guidance following the sanction we received in Colorado and the subsequent enrollment freeze.
At this time, we do not believe it is prudent to provide updated guidance due to the existing audits. We can however provide some insight into the trends we are seeing today, specifically related to the recent omicron search and the impact it is having on our business in several key areas.
Speaker 4: Starting with revenue, the recent COVID surge is likely to lengthen the time it takes us to enroll participants into the program due to disruption from potential or actual exposure for employees and potential participants.
Starting with revenue the recent Covid surge is likely to lengthen the time it takes us to enroll participants into the program due to disruption from potential or actual exposure for employees and potential participants.
Speaker 4: From a medical expense perspective, we expect elevated external provider costs due to on the front.
From a medical expense perspective, we expect elevated external provider cost data on the front.
Speaker 4: Specifically, we expect inpatient costs and medical and social respite costs of skilled nursing facilities to remain elevated due to higher morbidity of our participants.
Specifically, we expect inpatient costs and medical and social respite cost at skilled nursing facilities to remain elevated due to higher morbidity of our participants.
Speaker 4: In some of our markets, where assisted living facilities are locked down, participants who have transitioned to short-term skilled nursing facilities, and are ready to return to assisted living, are unable to do so. Due to the frailty of the population that we serve, we also expect speciality costs to continue at current levels due to the existing underlying conditions that many of our participants already have.
And some of our markets, where assisted living facilities are locked down participants who have transitioned to short term skilled nursing facilities and are ready to return to assisted living.
To do so due.
Due to the frailty of the population that we serve we also expect specialty cost to continue at current levels due to the existing underlying conditions that many of our participants already have.
Speaker 4: Finally, from a cost of care perspective, COVID protocols that we have put in place such as enhanced cleaning requirements at each of our centers will also continue. In addition, the ongoing surge will exacerbate the negative impact of the existing tight labor market as we manage our employee base to meet the needs of our participants.
Finally from a cost of care perspective, Covid protocols that we have put in place such as enhanced cleaning requirements at each of our centers. We will also continue in.
In addition, the ongoing surge will exacerbate the negative impact of the existing tight labor market as we manage our employee base to meet the needs of our participants.
Speaker 4: As a reminder, we included market wage adjustments when we provided our initial guidance. However, we are continuing to closely monitor wages to ensure we remain competitive.
As a reminder, we included market wage adjustments when we provided our initial guidance. However, we are continuing to closely monitor wages to ensure we remain competitive.
Speaker 4: As Patrick mentioned, participants and employees safety remain our top concern. And we are closely monitoring all aspects of the recent search to ensure we can continue to provide high-quality care to our participants.
As Patrick mentioned participant and employee safety remains our top concern and we are closely monitoring all aspects of the recent surge to ensure we can continue to provide high quality care to our participants.
Speaker 4: We believe the ongoing pandemic validates the need for pace even more, and that the PACE program will continue to grow as we build market awareness among eligible participants and the communities we serve.
We believe the ongoing pandemic validates the need for pace, even more and Thats a pays program will continue to grow as we build market awareness among eligible participants and the communities we serve.
Speaker 3: I will now turn the call back to Patrick for his comments on our past forward. Patrick? Yes, thank you, Barb. While our near-term attention will remain on remedial audit deficiencies, we remain steadfast in our commitment to in-process expansion plans.
I will now turn the call back to Patrick for his comments on our path forward Patrick Thank you Barb.
While our near term attention will remain on Remediated audit deficiencies, we remain steadfast in our commitment to in process expansion plans.
Speaker 3: I recognize the potential dissonance of remediating efficiencies while also pursuing the expansion of
Recognize the potential distance of Remediated efficiencies, while also pursuing expansion efforts.
Speaker 3: I want to reiterate, focusing on really eAgen audit findings is unquestionably our top priority. And fully separate teams are engaged to ensure that critical focus isn't diminished in any way. That said, the future mission of the organization also rests on expanding service.
I want to reiterate focusing on Remediated audit findings is unquestionably our top priority and.
And fully separate teams are engaged to ensure the critical focus isn't diminished in any way that said the future mission of the organization also risks on expanding service to the countless more individuals across the country, who can benefit from pace programs.
Speaker 3: to the countless more individuals across the country who can benefit from peace program.
Speaker 3: We remain on track to open two denotals centers in Florida, Campa, Orlando.
We remain on track to open two de Novo centers in Florida, Tampa and Orlando in.
Speaker 3: In addition, in November , we announced that we received approval from the state of Indiana to develop a program to serve eligible seniors in and around the Tarahot area. And we expect this center will be operational in fiscal year 2024.
In addition in November we announced that we received approval from the state of Indiana to develop a program to serve eligible seniors in and around the Terre Haute area and we expect this center will be operational in fiscal year 2024.
Speaker 3: We've been evaluating additional denobo locations in California to further expand our existing state footprint. However, due to the current enrollment freeze in Sacramento, our regulators suspended our approval to expand pending the resolution of the St. Sacramento.
We've been evaluating additional de novo locations in California to further expand our existing state footprint.
However, due to the current enrollment freeze in Sacramento, our regulator suspended our approval to expand pending the resolution of the Sage and Sacramento.
Speaker 3: Just today, we also received notice from the regulator in Kentucky stating that they no longer intend to enter into an agreement with us to be a paint provider in the state.
Just today, we also received notice from the regulator in Kentucky, stating that they no longer attend to enter into an agreement with us to be a payment provider in the state.
Speaker 3: Given that we just received this notice, we don't have more details to share at this point. I intend to properly meet with and work closely with the regulators to better understand and attempt to address the nature of the concerns that may have pro-proped this change of position.
Given that we just received this notice we don't have more details to share at this point.
Tend to promptly meet with and work closely with the regulators to better understand and attempt to address the nature of the concerns that may have put prompted this change of position.
Speaker 3: Reinforce the compliance will define our near term priority.
I'll reinforce the compliance will define our near term priorities.
Speaker 3: This is where the greatest urgency exists. We must restore confidence and innovate among all of our stakeholders and earn the right to restart enrollment as soon as possible in Sacramento and Colorado.
This is where the greatest urgency exist, we must restore confidence and innovate among all of our stakeholders and earn the right to restart enrollment as soon as possible and Sacramento and Colorado.
Speaker 3: We also must and will address the long-term goals of building and scaling innovative capabilities that will enable us to better serve participants, better manage costs and quality, and get or initiate ourselves in a marketplace in which we seek to leave.
We also must and will address the long term goals of building and scaling innovative capabilities that will enable us to better serve participants better manage cost and quality and differentiate ourselves in the marketplace in which we seek to lead.
Speaker 3: While this priority will be executed with purpose in parallel, it cannot be at the expense of interterm compliance priorities.
While this priority will be executed with purpose in parallel.
<unk> it will be at the expense of near term compliance priorities.
Speaker 3: In tandem with these broader objectives, I will also be focused on a careful evaluation of our organizational structure, leaders, workforce, processes, tools, and infrastructure. Getting the right people in the most mission-critical jobs, aligning the organization behind both our short-term objectives, as well as a bold aspiration for the company.
In tandem with these broader objectives I will also be focused on a careful evaluation of our organizational structure leaders workforce processes tools and the infrastructure getting the right people and the most mission critical jobs aligning the organization behind both our short term objectives as well as the bold aspiration for the company.
Speaker 3: Building an even stronger care ever culture and creating the culture and mechanisms to execute flawlessly on a mangeable set of focused priorities.
Building, an even stronger carryover culture, and creating the culture and mechanisms to execute flawlessly on a manageable set of focused priorities in.
Speaker 3: In the coming months, I'll continue to meet with and seek input from leaders and frontline employees across the organization to deepen my knowledge of innovative strengths, weaknesses, opportunities and challenges to thoughtfully inform the path forward.
In the coming months I will continue to meet with and seek input from leaders and frontline employees across the organization to deepen my knowledge of innovative strengths weaknesses opportunities and challenges to thoughtfully inform the path forward.
Speaker 3: While we must be thorough, the speed of marketplace change requires us to be nimble, action oriented and willing to reevaluate any aspect of our culture or our organization that inhibits our effectiveness.
While we must be thorough the speed of marketplace change requires us to be nimble action oriented and willing to reevaluate any aspect of our culture, where our organization that inhibits our effectiveness.
Speaker 3: A quick but important thought on diversity, equity and inclusion. We have an amazingly diverse organization, both at the senior leadership level and in our markets. And we're very proud of this.
A quick but important thought on diversity equity and inclusion we have an amazingly diverse organization both at the senior leadership level and in our markets and we're very proud of this this will be a critical factor in our future success and it is my commitment to continue building on this strong foundation.
Speaker 3: This will be a critical factor in our future success. And it is my commitment to continue building on this strong foundation.
Speaker 3: In summary, I strongly believe we're starting down the right path and I'm very encouraged by the goals we're establishing and all the activity we have underway. While we might address the issues we're facing and we'll do so with seriousness and discipline, we will also be dedicated to building stable capabilities for the future to position us to serve more people.
In summary, I strongly believe we're starting down the right path and I'm very encouraged by the goals, we're establishing and all the activity we have underway, while we must address the issues, we're facing and we will do so with seriousness and discipline. We will also be dedicated to building scalable capabilities for the future to position us to serve more people.
Speaker 3: I'm prepared for an excited by this challenge, as much today as I was when I decided to join the company.
I'm prepared for and excited by this challenge as much today as I was when I decided to join the company.
Speaker 3: My confidence derives from believing in the importance of what we do that our employees, participants and their families are counting on us. And for knowing that I have been an integral part of organizations that have successfully navigated periods like this and have gone on to be more successful. And now, operator will...
Confidence derives from believing and importance of what we do that our employees participants and their families are counting on us and from knowing that I have been an integral part of organizations that have successfully navigated periods like this and have gone on to be more successful.
And now operator, we'll open the call for questions.
Speaker 1: As your mind are to ask a question, you will need to press star one on your telephone and to withdraw your question, just press the power key. Please send by or we can pause.
As a reminder to ask a question.
I need to press star one on your telephone and toy try your question just press the pound key.
Please stand by while we compile the Q&A roster.
Yes.
Speaker 1: Our first question will come from the line of Grayson, Consortia from City. It may begin.
Our first question comes from the line.
Jason Soto from Citi you may begin.
Speaker 5: Great, good afternoon. Thanks for taking my questions. I guess
Great. Good afternoon. Thanks for taking my questions I guess just to start I mean, given what's happened with the Sacramento, Colorado audits. The initial read within new Mexico audit.
Speaker 5: just a start i mean given what happened with the sacramental carada audits initial read with a new mexico audit and uh... now with that i guess the stop of the denobo facility in Kentucky uh... maybe he just help with the lessons you're learning at this point and from these audits and issues and how you're thinking about applying these lessons maybe to the rest of your centers are you see any of them at risk at this point or they believe that they're adequately compliant i just get it out of the rest of your center footprint at this point would be helpful
Now with I guess, a stop of a de Novo facility in Kentucky, maybe can you just help with the lessons you're learning at this point and from these audits and issues and how youre thinking about applying these lessons maybe for the rest of your centers or do you see any of them at risk at this point or do you believe that they are adequately compliant.
On the rest of your.
Center footprint at this point would be helpful. Thanks.
Speaker 3: Well, thank you for your question. There's certainly a lot included in there. Let me start with, we definitely have issues. We must address.
Well. Thank you for your question, there's certainly a lot included in there.
Let me start with we definitely have issues, we must address.
Speaker 3: And certainly as someone new to the company, I am keenly interested in trying to identify whether there are themes in what we're seeing. And as I mentioned in my opening remarks, I think there are areas certainly that we have to improve specifically in areas of care coordination and care documentation. Our regulators specifically identified these two areas.
And certainly as someone new to the company.
Keenly interested in trying to identify.
Whether theyre scenes and what we're seeing and as I mentioned in my opening remarks, I think there are areas certainly that we have to improve specifically in the areas of care coordination and care documentation.
Our regulators specifically identified these two areas.
Speaker 3: As areas that we need to get much better at, clearly we need to improve our ability to communicate exchange information between our care teams and third parties. And then documentation plays an important role in all of the...
As areas that we need to get much better at.
Clearly, we need to improve our ability to communicate exchange information between our care teams and third parties and then documentation plays.
<unk> role in all of this.
Speaker 3: There's very high documentation standards for pace programs that were fully committed to meeting those standards. Exists both at the CMS level and the state level. I would also say that the challenge posed by the pandemic and the workforce challenges have contributed to the challenges with care coordination and documentation. We clearly need to do better in both areas.
There's very high documentation standards for pace programs that we are fully committed to meet new standards exist both at the CMS level and the state level I'd.
I would also say that the challenge posed by the pandemic and the workforce challenges have contributed to the challenges with care coordination and documentation, we clearly need to do better in both areas.
Speaker 3: I'll reiterate that, you know, I believe these deficiencies are all addressable with strong leadership, folks and execution.
I'll reiterate that I believe these deficiencies are all addressable with strong leadership focus and execution.
Speaker 3: I've been through this in my prior life. It's a very challenging and difficult.
I've been through this in my prior life, it's a very challenging and difficult.
Speaker 3: But for those of us who lived through it, we got to see that we became a better company. And I believe that's exactly what's going to happen at the end of age. That's sort of a perspective on what we're seeing, the question around.
But for those of US who lived through it we got to see that we became a better company and I believe that's exactly what's going to happen at the end of.
So that's sort of a perspective on what we're seeing the question around.
Speaker 3: The question around, do we expect to see different outcomes in other states? I think it's important to take away that there are nuances in every state, so it's difficult to extrapolate outcomes from one state to the next.
The question around.
Do we expect to see different outcomes in other states I think it's.
It's important to take away that there are nuances in every state so it's difficult to extrapolate outcomes from one state to the next.
Sacramento was group.
Speaker 3: routine audit and Colorado was an audit as a result of a complaint and Mexico was a routine audit like Sacramento and so we're working hard to understand all the issues and with time I'm have complete confidence that we'll be able to figure it out. I'm gonna ask Melissa to weigh in as well
Routine audit and.
Colorado was orders as a result of a complaint and new Mexico was a routine audit like Sacramento and so we're working hard to understand all the issues with time.
Complete confidence that we'll be able to figure it out and I'm going to ask Melissa to weigh in as well.
Speaker 6: Yeah, I think one of the other parts of your question was, what are we doing proactively in all of our regions? As you know, we added incremental resources to our compliance teams as well as brought in a new compliance officer and one of the benefits of doing that.
One of the other parts of your question was what are we doing proactively and all of our REIT as you know we added incremental resources to our compliance team as well as brought in a new compliance officer and one of the benefits of doing that is all around being proactive and so we are proactively auditing self auditing and <unk>.
Speaker 6: is all around being proactive. And so we are proactively auditing, self auditing in every region around all of our disciplines and all of our workflows and processes to make sure and anticipate that we're not seeing the same systematic findings and that if we do, we start intervening now and not waiting.
Every region.
Around all of our disciplines and all of our workflows and processes to make store and anticipate that we're not seeing the same systematic finding and that if we do we start innovate intervening now and not waiting.
Speaker 5: Okay, got it. Thanks. I really appreciate the color there. Maybe just a switch gears a little bit here. I'm just giving the labor backdrop and I'll barbie talk a little bit about that, but maybe can you just give us an update around employee retention and the recruitment efforts? Following your your wage adjustments, you discussed last quarter and on this call. How are those bearing as just as the labor backdrop, I guess, is seeing incremental pressure? Are you seeing pressure or issues around?
Okay got it. Thanks, I'll really appreciate the color there maybe just to switch gears a little bit here just given the labor backdrop, I know, Bob you talked a little bit about that but maybe can you just give us an update around employee retention and the recruitment efforts.
Your wage adjustments, we discussed last quarter and on this call.
Barry.
The labor backdrop, I guess youre seeing incremental pressure are you seeing pressure issues around retention.
Speaker 5: or any incremental recruitment effort at this point or in ways that you're maybe helping to combat those would be helping.
Incremental recruitment efforts at this point or are in ways that may be helping to combat those would be helpful. Thanks.
Speaker 3: Yeah, this Patrick, I'll start thanks to the question. I'll start in-hand it to Barb. Maybe I start with hiring, with respect to recruiting and attracting talent, I don't believe our situation is having a material impact on our ability to attract people to the company. But it is something that we'll have to watch. It's such a mission driven company and people who work here want to improve the lives of seniors and we haven't come up short on finding people who sort of share those same goals.
Yeah. This is patrik I'll start thanks for the question I'll start and then hand it to Barb.
Maybe I'll start with hiring with respect to recruiting and attracting talent.
We believe our situation is having a material impact on our ability to attract people to the company, but it is something that we will have to watch it's such a mission driven company and people who work here to improve the lives of seniors and we haven't come up short on finding people who share those same goals and I also think.
Speaker 3: And I also think for folks who have worked in Medicare and Medicaid for a while, I think they understand that the great companies can be out of compliance for a period of time and still be a great place to work.
For folks who have worked in Medicare and Medicaid for a while I think they understand that.
The great companies can be out of compliance for a period of time and still be a great place to work.
Speaker 3: The larger headwind in my mind's eye is related to the impact of the pandemic.
The larger headwind in my mind's eye as related to the impacts from the pandemic and the supply and demand dynamics around the.
Speaker 3: supply and demand dynamics around the workforce. But overall, I think our turnover has kicked up a bit. We've quoted voluntary turnover around 25% in the past. And it's...
The workforce, but overall I think our.
Turnover has ticked up a bit.
Quoted voluntary turnover around 25% in the past and it's ticked up but I think we primarily attributed to the strength of the pandemic and the supply issues. So im looking closely at it and so as Barb and so I'll ask Curtis if you works yep. So so yes, Patrick said, we believe it's related to the strength of the pandemic and if the overall tight labor.
Speaker 3: kicked up but i think we primarily attributed to the strain of the pandemic and supply issues so i'm looking closely at it and so is barb and so i heard say if you work so so yeah patrick said um... you know we believe it's it's related to the trade of the pandemic and the overall tightly remarket
Speaker 4: We did indicate in the prepared remarks and wanted to flag for you that
Market.
We did indicate in the prepared remarks I wanted to flag for you that we are.
Speaker 4: We are seeing some way to pressures that we incurred in the second quarter and we believe it'll continue a bit into the back half of the year. And so we are actively addressing that, as again as we said in our guidance.
Are seeing some some wage pressures at <unk>.
<unk> incurred in the second quarter, and we believe that will continue a bit into the back half of the year and so we are actively addressing that.
As again as we said in our guidance we had included market.
Speaker 4: We had included market adjustments some time ago, and we're continuing to look at the, especially the mission critical positions, and make sure we're addressing those from a market perspective.
Adjustments, some time ago, and we're continuing to look at the especially the mission critical positions and.
And make sure we're addressing those firms.
Market perspective.
Okay, great. Thanks for all the color I appreciate it.
Speaker 1: Our next question on Comfort Line Elf Stereo James from Park Lays. You may begin.
Our next question will come from the line of Sparrow James from Barclays. You may begin.
Speaker 7: Thank you. I wanted to go into more depth on the self audit. So just understanding how you guys are.
Yes.
Hi, Thank you I wanted to go into more depth on the self audit. So just understanding how you guys are institutionalizing.
Speaker 7: If you implement any technology that flags the key metrics up to the corporate level, how often are you auditing each market and how long is the data lagged? So I guess I'm trying to understand how quickly you can catch and address issues if they happen in current.
Did you implement any technology that flags key metrics.
The corporate level.
Often are you auditing each market and how long is the data lag. So I guess I'm trying to understand how quickly you can catch and address issues if they happen.
Current <unk>.
<unk> markets are in the one.
Well I'll start and then I'll have some Alicia maybe weigh in.
Speaker 3: First we've made a lot of progress identifying the root cause of the deficiencies in sacrament when we call a rattle. So that's really where it all starts. And then we've begun to execute on the work to fit the deficiencies, you know, wherever they exist in the company.
First we've made a lot of progress identifying the root cause of the deficiencies in Sacramento in Colorado, So thats really where it all starts and then we began to execute on the work to fix the deficiencies wherever they exist in the company.
Speaker 3: In terms of how we've done it, we've mobilized a cross-functional team at every level of the organization, representing compliance and quality and operations, technology and regulatory. And we've definitely created a variety of tools that have helped with the tracking, monitoring and monitoring of everything we're learning from CMS and our state partners.
In terms of sort of how we've done it we mobilized a cross functional team at every level of the organization, representing compliance and quality and operations technology and regulatory and we definitely creating a variety of tools that have helped with.
The tracking and.
And monitoring of everything we're learning from CMS and our state partners and we're making sure that we're putting in place the right people and process and technology.
Speaker 3: And we're making sure that we're putting in place the right people in process and technology to address.
To address it.
Speaker 3: We've also retained some highly experienced external partners to help us, you know, assist us in these efforts.
We have also retained some highly experienced external partners to help us assist in these efforts.
Speaker 3: And I'm very pleased with the agility and speed of which we're moving. And I think the police should play as you call it. Yeah, I was going to extend those comments to say that.
I'm very pleased with the agility and speed at which we're moving and I think <unk> play out some color to that.
Just extend those comments to say that we.
Speaker 6: We've taken the tools that, for example, we've submitted for the Sacramento TMS Corrective Action Plan that has been recently accepted and we're applying those same tools across all of our markets in all the regions.
We've taken the two of that for example, we've submitted for the.
Sacramento.
As corrective action plan that has been recently accepted and we're applying those same tools across all of our markets and all of the region and this is being driven by our compliance department.
Speaker 6: And this is being driven by our compliance department so that we're gonna be held accountable to the same standards that CMS are holding us accountable to in our corrective action plans that have been accepted.
So that we are going to be held accountable to the same standards that CMS are holding us accountable to in.
In our proactive action plans that have been accepted.
Got it.
Speaker 7: Then can you walk us through the moving pieces and enrollment? How much?
And then can you walk us through the moving pieces in enrollment.
Much.
Speaker 7: or involuntary disenrollment that you see.
Sharon or involuntary dis enrollment did you see.
Speaker 7: in the market where you are sanctioned and then how should we think about the impact of growth from digital channels this quarter and I guess, to your overall long-term organic.
In the markets, where you are sanctioned and then how should we think about the impact of growth from digital channels. This quarter.
I guess to your overall long term organic growth rate.
Speaker 4: Sure, this is barbell. I'll take the first part of that and then Patrick can chime in on the digital. So we've disclosed before that on average, our overall disenrollment rate on average is around 2%. Very's a little bit depending on the time of the year and a little bit depending on the market.
Sure. This is Bob I'll take the first part of that and then Patrick can chime in on on the digital so we've disclosed before that on.
On average our overall dis enrollment rate on average at around 2%.
There is a little bit depending on the time of the year and a little bit depending on the markets.
Speaker 4: So as we, as I indicated in the prepared remarks, we did see a little bit higher disenrollment rate for the end of December and into the early part of Q3 related to death, which is not unusual in the winter months coupled with some of the strength from the Omicron variant.
So as we as I indicated in the prepared remarks, we did see a little bit higher this enrollment rate towards the end of December and into.
The early part of Q3 related to death, which is not unusual in the winter months coupled with.
The strained from the Omicron variant.
Speaker 4: As it relates to what we expect in the markets, like Colorado and Sacramento, we expect those typical attrition rates at roughly 2% a month, give or take depending on the time of the year. So that's what we expect during the time period we're understaging.
As it relates to what we expect in the market like Colorado in Sacramento, We expect those typical.
<unk> rates at roughly 2% a month.
Give or take depending on the time of the year. So that's what we expect.
During the time period were undertaken.
Speaker 3: Yeah, thank you, Barbara. I think I would just only add that as it relates to our digital marketing progress, you know, we make sense for investments in the digital channels, like a programmatic display and video or TV. I think we're starting to see some points to appointments in our acquisition cost for channels where this has been efficiency.
Thank you Bob I think I would just only add that as it relates to our digital marketing progress. We made some smart investments in new digital channels like programmatic display and video are two that I think we're starting to see some sequential improvements in our acquisition cost per Chamberlain's would you spend efficiency it still.
Speaker 3: It's still early, I think, in our capability building this area, we need a couple more quarters to have confidence. We have the right channels, the right KPIs, and the right benchmarks. But I probably would add to that, that's important to note that friends and family continue to be our largest referral source, which speaks to how much of our service continues to impact individuals in communities and care for.
Early I think in our capability build in this area, we need a couple more quarters to have confidence that we have the right channels the right Kpis.
Benchmarks.
I, probably would add to that that its important to note that friends and family continues to be our largest referral source, which speaks to how much of our service continues to impact new individuals and communities in Q4.
Okay. Thank you.
Speaker 1: Our next question on the outline of Jeff Garrow from PiperStenber. You may begin.
Our next question comes from line of Jeff Garro from Piper Sandler you may begin.
Speaker 5: Like good afternoon, thanks for taking the question. Maybe start off on a higher level. Patrick, if you mentioned that you've been hearing from frontline workers and you've been reviewing the survey results and you've also been getting input from state level partners and different geographies. So maybe you could touch on what are some of the commonalities and some of the differences that you might have heard from those different areas.
Good afternoon, and thanks for taking the question maybe start off on a higher level. Patrick you mentioned that you've been hearing from frontline workers and you've been reviewing the survey results that you've also been getting input from state level partners in different geographies. So maybe you could touch on what are sort of the commonalities.
The differences that you might have heard from those different areas.
Speaker 3: Thank you for the question. Let me start with what's called State Partners. As I mentioned earlier, it's been the number one priority for me to engage with our regulatory partners and get out there and reinforce our commitment to advance the goals of the peace program. They have, of course, expressed concerns about the audit.
Hello, Thank you for the question.
Let me start with.
It's called State partners as we mentioned earlier, it's been the number one priority for me to engage with our regulatory partners.
Get out there and reinforce our commitment to advance the goals of the pace program. They have of course expressed concerns about the audit findings, but I've also been highly encouraged by the discussions the level of collaboration supported in this inclusion of me personally.
Speaker 3: But I've also been highly encouraged by the discussions. The level of collaboration, the supportiveness, it included me personally, they clearly want us to be successful. But they also want to see us address the issues as soon as possible. You know, we didn't communicate with our partners as well as we should have in the past, and we're going to fix that. And I'm really excited about working with our states to help us become the best partner we can be. I think you asked about our employees.
They clearly want us to be successful, but they also want to see us address the issues as soon as possible.
We didn't communicate with our partners as well as we should have in the past and we're going to fix that and I'm really excited about working with our states to help us become the best partner we can be.
I think you asked about our employees.
Speaker 3: I'd say first I couldn't be more pleased with just how welcoming and supportive the organization has been to me since joining the company.
I'd say first I couldn't be more pleased with just how welcoming and supportive the organization has been to me since joining the company.
Speaker 3: It's obviously a tough time for employees. No one wants to be under sanctioned.
It's obviously a tough time for employees no one wants to be under sanction.
Speaker 3: But I'm humbled by how focused the organization is on doing everything we can to deliver the participant care. I see teams across the organization pulling together. There's just such a strong commitment to making the necessary...
But I am humbled by how focused the organization is on doing everything we can to deliver participant tier our teams across the organization pulling together, there's just such a strong commitment to making the necessary changes.
Speaker 3: and working collaboratively with our regulatory partners. There's just a real desire to work closely with our partners to become a better company. I've spoken with hundreds of employees and I just sense a really deep willingness to do whatever it takes.
And working collaboratively with our regulatory partners to assist a real desire to work closely with our partners to become a better company I've spoken with hundreds of employees and I just said, so a really deep willingness to do whatever it takes.
Speaker 3: with all hands on deck attitude. And I think the mission orientation of the company is a big advantage. It creates a genuine reciprocal, emotional connection between the workforce and the company. And I'm really excited to do this.
With an all hands on deck attitude and I think mission orientation of the company is a big advantage it creates.
Genuine reciprocal emotional connection between the workforce of the company.
Really excited to do this with them.
Speaker 5: So that helps. And maybe to follow up, want to ask about the, you know, really the blocking and tackling of remediating the deficiencies that have been identified. And the consequences of that, you know, mostly on the financial side. So really I guess the question is, what will improving care coordination or other deficiencies identified in the audit result in higher fixed cost? And maybe most specifically higher staffing levels.
Excellent that's helpful.
Maybe to follow up wanted to ask about the really the blocking and tackling of remediated. The deficiencies that have been identified.
The consequences of that mostly on the financial side.
Really I guess the question is.
While improving care coordination or other deficiencies identified into the audits result in higher fixed costs, and maybe more specifically higher staffing levels.
Thank you for the question.
Sure.
Speaker 3: I think what now my focus is, is really making sure.
I think right now my focus is really making sure that our centers have everything they need to.
Speaker 3: that our centers have everything they need.
Speaker 3: to address the deficiencies that we're seeing. This is a super important area that we just ensure that everyone has everything they need, people, process, technology to be successful in the market. I think it's a little too early for me to really know about
Dress the deficiencies that were seeing.
This is a super.
Super important area that we just ensure that everyone has everything they need people process technology to be successful in the market I think it's a little too early for me to really know about.
Speaker 3: Does it change our cost structure? I think I'm certainly focused. Ensuring we just have the right people, the right resources in place to do or committed to do. In the short,
Does it change our cost structure.
Im certainly focused.
Ensuring we just have the right people the right resources in place to do we're committed to do.
In the short time that I've been here.
Speaker 3: I've certainly identified opportunities to rebalance resources and to invest more in field-based functions and perhaps run a little more efficiently in some of the corporate areas. And as you'd expect, we're looking very closely at non-center level cost, non-labour cost, overhead cost. I mean, sort of all those categories, just the goal here is to match our cost structure to our business conditions. And I'm committed to doing that. Thank you.
Certainly identified opportunities to rebalance resources and to invest more in field based functions and perhaps run a little more efficiently than some of the corporate areas.
As you would expect.
We're looking very closely at non center level cost non labor cost overhead cost I mean sort of all of those categories.
The goal here is to match our cost structure to our business conditions and I'm committed to doing that.
Okay.
Great. Thanks for taking the question.
Speaker 1: Thank you, Arnett's question, come from line of Lisa Gill from J.P. Morgan. We may begin.
Thank you. Our next question will come from the line of.
Lisa Gill from Jpmorgan you may begin.
Speaker 8: for a month to get up to noon. Patrick, I just wanted to go back to when you talked about kind of the three areas. Inpatient specialty costs.
Great. Thanks, very much good afternoon, Patrick I just wanted to go back to when you talked about kind of the three areas and patient specialty cost.
Speaker 8: and patient respiratory due that to COVID and then increased housing costs.
And patient raspberry respiratory due to Covid and then increased housing costs I wanted to focus on the first one which is the outpatient specialty cost as we think about.
Speaker 8: I want to focus on the first one, which is the outpatient specialty cause. As we think about, you know, Omicron, I would expect that those costs would have come down. Are you thinking about this now that the centers are back, open post 2020? Are we moving more towards the traditional baseline of those costs, or are you seeing?
Omicron I would expect that those costs would have come down are you thinking about this now that the centers are back open post 2020.
Moving more towards the traditional baseline of those costs or are you seeing accelerated cost because there was some type of pent up demand how do I think about those costs on a go forward basis.
Speaker 8: Accelerated costs because there were some type of pent up demand. How do I think about those costs on a go-forward basis?
Speaker 6: Yeah, it's a duck-a-lothed, I'll start and then I'll hand it over to Barb. So one of the things that I think that people forgot, because on the prime kind of tip over the muses, we did have Delta.
Yes, <unk> I'll start and I'll hand, it over to Barb.
So one of the things that.
Think that people forgot because on the prime kind of tip over the news is we did have delta.
Speaker 6: So about a day at a time when our actually our trends were going downward. And then Omapron hit the last part of December predominantly and has continued to peak into the most of January and is now starting to subside.
About the game at a time land are actually our trends were going downward.
And and then omicron hit the last part of December predominantly and it's continued to peek into the most of January and is now starting to subside, but when you think about the expenditures that go with that I think about it.
Speaker 6: So when you think about the expenditures that go with that, think about it as during COVID, everybody kind of went indoors. We didn't have a vaccine and we couldn't really do anything, right? We started opening up. We got a vaccine in early part of 21. We were able to start to open our centers, get everybody back in and all that pent up demand of services started to happen. We started to see those costs about three months later starting.
During that everybody kind of letting doors, we didn't have a vaccine.
And we Couldnt really do anything right. We started opening up without a vaccine in early part of 'twenty. One we were able to start to open our centers get everybody back in and all of that pent up demand of services started that's happened and you start to see those cost about three months later start to hit so that takes us to July 21.
Speaker 6: So that takes us to July 21, right? The summer things start to come down. Then you see Delta and Omicron hit.
The summer things start to come down then you see Delta and Omicron hit and then those costs are starting to go back up because of the complexity of our participants.
Speaker 6: And then those costs are starting to go back up because of the complexity of our participants. And it's gonna be seen first in inpatient.
And it's going to be seen first an inpatient so theyre very sick. They go into the hospital or people are all in their chronic conditions that Morris.
Speaker 6: So they're very sick. They go into the hospital. Our people are, you know, all of their chronic conditions get more sick. They come out of the hospital and unlike pre-COVID where we could send them home with home support, they're way too sick to go home. So we start to keep those off then shift to rest bit.
They come out of the hospital and unlike <unk>, where we can send them home to help support their wages danone. So we start to see the authentic to rested and skilled nursing facilities, while we're still seeing the specialty costs because of the complexity of the cases and with that I'll turn it over to Barb.
Speaker 6: and skilled nursing facilities while we're still seeing a specialty cost because of the complexity of the-
Speaker 6: And with that, I'll turn over to Barb. Yeah, and I highly support. So just to...
So just to put the numbers to it so as Melissa said, we did see this leveling off that we saw the peaks in Q4 'twenty. One in Q1 of 'twenty, two with that pent up demand demand for outpatient specialists and other we saw that kind of leveling off and then a new surge hit so that some other cost increases.
Speaker 4: Put the numbers to it. So as Melissa said, we did see this leveling off. So we saw the peaks in Q4, 21.
Speaker 4: and Q1-22 with that pens up demand for outpatient specialists and other. We saw that kind of leveling off and then a new surge hit. So then some other costs increased. So the core over quarter are costs in that area were fairly flat, up about 1%, but they were fairly flat. So what you're seeing is really the offset of those two trends. And, you know, as Melissa said, you know, some hurry over into January , but the good news is we're also, you know, seeing that taper off already in this.
Quarter over quarter, our costs in that area were fairly flat up about 1%, but they were fairly flat. So what youre seeing is really the offset of those two those two trends.
And as Melissa said, some carryover into January but the good news is we're also.
Seeing that taper off already in this quarter.
Speaker 8: And, Barb, I know you're not giving forward guidance, but how do I think about that trend, you know, as we move forward from here?
And Bob I know youre, not giving forward guidance, but how do we think about that trend.
As we move forward from here.
Speaker 4: Yeah, we think some of that will continue to wane. That being said, there's still a lot of, our participants have a lot of chronic conditions. There's still a lot of care, a lot of the high specialist care. And one thing I mentioned to the prepare remarks, some of the things that we're facing is,
Yes.
We think some of that will continue to wane that being said.
There is still a lot of.
Our participants have a lot of chronic conditions are still a lot of care a lot of the high specialist care.
And the one thing I mentioned in the prepared remarks, some of the things that we're facing is.
Speaker 4: You know, also this medical and social respite as people are kind of trying to get back to their normal way of living. There is a delay there for us to be able to get those folks back into their community setting because of the third party housing company.
Also the medical and social risk that as people are kind of trying to get back to their normal way of living there is a delay there for us to be able to get those folks back into their community setting because of the third party housing companies.
Speaker 6: The last part of that is we don't know what's going to happen now that the Omelcrods going down. Will there be another variant we just can't predict that? So that's always an unknown out there. For all of us. Thanks.
Last part of that is no.
What's going to happen now that the AUM across going down will there be another area. We just can't predict that so thats always an unknown out there.
For all of Us.
Sorry about that I guess steves comments.
Speaker 1: etics questions of Lioness genuinely first will go into that, you may begin
Our next question comes the line of Jamie <unk> from Goldman Sachs You may begin.
Speaker 9: Hey, good afternoon and Patrick, welcome to the team. I wanted to start with a question maybe for you.
Hey, good afternoon.
Welcome to the team I wanted to start with a question maybe for you.
Speaker 9: You mentioned having identified root cause of some of these issues, given that it's now in four markets. It seems somewhat systemic. So I'm hoping we could go back to like, have you got your hands around what the root cause is? How did we kind of get to this?
You mentioned, having identified the root cause of some businesses given that it's now.
Market it seems.
Somewhat systemic.
I was hoping we could go back to like have you got your hands around what the root cause is how did we kind of get to this point to the technology that people leadership.
Speaker 9: point to the technology that people leadership, but what were the kind of things that led to all these audits kind of returning similar findings? Just again, a question on the root cause analysis that he does.
What were the kind of things that led to.
All of these.
Audits.
Turning to similar findings.
Just again a question on the root cause.
Our system.
Well, I think certainly still learning and processing and learning.
Speaker 3: Well, I think I'm certainly still learning and processing and learning what were some of the contributors to the challenges we have today. And I don't have my...
What were some of the contributors to the challenges we have today and I don't have my sort of arms fully around all the history, what I did share about trying to simplify it seems into buckets around care coordination.
Speaker 3: sort of arms fully around all the history. What I did share about trying to simplify things into buckets around care coordination, communications, there's a lot that goes into those. And...
Communications, there's a lot that goes into those and but my job is to help people.
Speaker 3: But my job is to help people organize their thoughts, organize our resources around big buckets of sort of high impact work. And I do believe those are two high impact areas that can make a disproportionate impact to our company if we continue to address those two issues.
Organize their thoughts and organize our resources around big buckets of sort of high impact work.
Do believe those are two high impact areas that can make a disproportionate impact to our.
Our company if we continue to.
Address those two issues.
Speaker 3: The other thing that I think I would say is,
The other the other thing that I think I would.
I would say is.
Speaker 3: When you read, and I'm sure you do, when you look at audit findings, it is important to understand that audit findings are generally organized in the higher level category.
When you read.
Sure you do when you look at audit findings. It is important to understand that audit findings are generally organized.
Higher level categories.
Speaker 3: And you can have findings that align to similar categories in different states, but the specific sort of participant case level details within those categories can vary significantly.
And you can have findings that align to similar categories in different states, but the specific sort of participate case level details within those categories can vary significantly.
Speaker 3: and could ultimately lead to very different outcomes, the difference between having sanctions and just having corrective actions that you need to resolve in the course of your work with CMS in the state. So I believe wholehearted, there's a level of detail here that we have to be tuned into before assuming that we see in Sacramento or what we see in Colorado, applies everywhere. But back to, I think if we do a great job with documentation in Kierob...
And could ultimately lead to very different outcomes the different difference between having sanctions and just having corrective actions that you need to resolve in the course of your work with CMS and state so.
I believe wholeheartedly theres a level of detail here that we have to be tuned into before assuming that we see in Sacramento and what we see in Colorado applies everywhere, but back to I think if we do a great job with.
Documentation and care coordination.
Speaker 3: Those two things can make a big impact.
Those two things can make a big impact going forward.
Speaker 9: Okay. And then just, you know, thinking about the model going forward, I know you're not giving guidance, but with the enrollment freezes in place, and we know what this enrollment looks like.
Okay.
And then just thinking about the model going forward I know you are not.
Giving guidance, but with the.
The enrollment freezes in place and we know what enrollment looks like.
Speaker 9: for the patient population you serve. What's your ability to flex the cost structure, how much variable costs are there as?
The patient population you serve.
Your ability to flex the cost structure, how much variable costs are there.
Speaker 9: to the extent that revenue comes down as, as you face some sense of pressure over this enrollment pre-spirited.
To the extent that.
That revenue comes down as you face some senses pressure.
Our over this enrollment period.
Speaker 4: Hi, Jane, it's Barb. So as you recall with our model, it's really a highly variable cost model. So in round numbers, 50% of our revenue round numbers here relates to our external provider cost.
Hi, Dana it's barb.
So as you recall with our model, it's really have a highly variable cost model. So.
Round numbers.
50% of our revenue round numbers here relates to our external provider costs.
Speaker 4: So that's a very large variable component and then there's about 25% right in cost of care and of that 25% you know most of it is variable and particularly in areas like Colorado and Sacramento where we own the facilities we're not paying release payment so you know the the thing that our fix will be you know things like insurance and property taxes and the like so it's a very small relatively small component that actually fixed at the center level.
So that's a very large variable component and then there's about 25% rate and cost of care and of that 25%. Most of it is variable and particularly in areas like Colorado in Sacramento, where we own the facilities, we're not paying the lease payment.
The thing that our fixed will be things like insurance and property taxes.
Mike.
It's a very small relatively small component that actually effects at the center level.
Speaker 4: And we don't believe that these sanctions will last forever. We don't believe they're permanent. And so we'll be able to...
And we don't believe that this these sanctions will last forever. We don't believe they are permanent and so.
We'll be able to.
Speaker 4: grow back into those covering those fixed costs in the over the time period once the sanctions are lifted.
Grow back into those covering our fixed costs.
Over the time period once the sanctions are lifted.
Speaker 9: Okay, just to follow up on that, I guess I probably should have been more specific. I get that the external provider across our completely side to patients and so variable in nature. The cost of care at the center, can you describe the fixed for variable components there a little bit more? I mean, you still have to employ your whole disciplinary team and support the existing patients. And so, can you just...
Okay, just to follow up on that.
I, probably should've been more specific that I get that the external provider costs R. R.
Completely size the pace so variable in nature.
The cost of care at the center can you describe.
Fixed versus variable components, there a little bit more I mean, you still.
Play your whole.
Culinary team.
Support the existing patients.
Speaker 9: Help us understand for, I guess, cost of care, sales and marketing, GNA.
Can you just help us understand for I guess cost of care sales and marketing and G&A.
Speaker 9: How much of those costs are flexible over the next couple quarters to the extent these be in real life?
How much of those costs are flexible.
Over the next couple of quarters to the extent these enrollment for persist.
Speaker 4: Yep, sure. So in that cost of care component, you know, our staff is based on staffing ratios. And so it's also variable to a large degree. Things like supplies are variable. Things like, you know, fleet costs or fuel costs if we're doing less transportation. So in that cost of care bucket, it is largely variable. There's really very little in terms of fixed costs. So the things I mentioned are layer like insurance and property taxes. You
Yeah sure so in that cost of care component. Our staff is based on on staffing ratios and so it's also variable to a large degree things like supplies are variable things like.
Fleet at fleet costs, our fuel costs, if we're doing less transportation. So in that cost of care bucket is largely variable. There is really very little in terms of fixed costs. So the things I mentioned earlier like insurance and property taxes.
Speaker 4: you know, things of that nature are fixed at the center level.
Things of that nature are fixed at the central level in terms of sales and marketing we also stack.
Speaker 4: in terms of sales and marketing. We also, you know, staff and
<unk> and <unk>.
Speaker 4: and have our advertising expenditures really relative to what we're doing in those markets. So as we cannot enroll, we're not going to be spending advertising dollars in those markets.
And have our advertising expenditures really relative to what we're doing in those markets. So as as we cannot enroll we're not going to be spending advertising dollars in those markets.
Speaker 4: So that is somewhat variable as well. A lot of the GNA is variable, but that's where the fixed component is. And as Patrick said, we're looking at our cost structure just to make sure that it aligns to the size of our business, all the way from really from top to bottom.
So that is somewhat variable as well a lot of the G&A is variable, but that's where the fixed component is and as Patrick said, we're looking at our cost structure just to make sure.
It aligns to the size of our business all the way from really from top to bottom.
Okay. Thank you I appreciate the color.
Okay.
Speaker 1: On the next question, we'll come to line up Gary Taylor from Caller. You may begin.
Our next question will come from the line of Gary Taylor from Cowen You May begin.
Speaker 2: Good evening. A lot of my questions have been asked. I guess maybe...
Hi, good evening.
A lot of my questions have been.
Just I guess maybe.
Speaker 2: I wanted to start on just a few financial things, you know, far, but you're talking about some revenue pressures from mortality and enrollment delays, some elevated medical costs and some higher center level costs. Are all of those things getting worse?
Wanted to start on just a few financial things.
But you are talking about some revenue pressures from mortality than enrollment delays, some elevated medical costs and some higher center level costs.
Are all of those things getting worse.
Speaker 2: sequentially it sounds like you know with with Delta a lot of those were impacting this fiscal quarter obviously the Colorado enrollment freeze was not that was very late in the quarter but are you are you are you telling us that we should be contemplating that that some are all three of those are really deteriorating sequentially into fiscal third quarter
Sequentially, it sounds like with with Delta.
A lot of those were.
We're impacting.
This fiscal quarter, obviously, the Colorado enrollment freeze was not that was very late in the quarter, but are you.
Are you telling us that we should be contemplating that that some or all three of those are really deteriorating sequentially into the fiscal third quarter.
Speaker 4: So clearly, you know, the sanctions for Colorado actually start effective, they really are effective at February because we were able to enroll through the end of December which is in rolling in January .
Alright, so so clearly the sanctions for Colorado.
Ill start effective.
It really effective at February because we were able to enroll through the end of December which is enrolling in January .
Speaker 4: So that's the impact there. So in the third quarter, we did see in the end of December and into January some higher mortality, but that's not necessarily atypical. And it's also coupled with the Omicron surge and probably the tail end of the Delta surge as well. And then I think you had a third thing.
So that's that's the impact there so in the third quarter.
Did see in the end of December and into January .
Higher mortality.
But thats not necessarily atypical and it's and it's also coupled with the.
Omicron search and probably that the tail end of the Delta search as well.
And then I think you had a third thing sorry, Gary.
Speaker 2: uh... it was the center costs you know you talk about some of the code protocol the mean uh... you know maybe that was more intense during delta and maybe continuing with uh... mcron but just trying to get a sense of should we be be looking at uh... higher sequentially or just staying at a higher level yet yet not higher sequentially just you know staying at a fairly
We have a center costs you talked about some of the Covid protocols I mean.
Maybe that was more intense during delta and maybe continuing with micron, but just trying to get a sense of should we be looking at.
That.
Higher sequentially or just staying at a higher level, yes, yes, not higher sequentially, just staying at a fairly flat level.
Speaker 2: and then two other just quick ones on financials on the uh... virginia are a payment it sounds like you're saying July through November so it's kind of five months of of payment is there a dollar amount you can
And then two other just quick ones on financials on the.
The Virginia.
ARPA payment it sounds like you are saying July through November so, it's kind of a five months.
Payment is there a dollar amount you can share.
Speaker 4: It's about 700,000. I will tell you the other way to think about it. And that was the catch-up payment, because that's when we received it. But we will receive it the entire year of 22. And it's about a 2.5% increase for it.
Yeah.
It's about.
About 700000.
We'll tell you the other way to think about it and that was the catch up payment because that's the only received it yet we will receive the entire year of 2002, and it's about a two 5% increase for us.
Speaker 4: And then we're discussions with other states, active discussions, we're trying to figure out how to allocate their ARPA funds.
And then we are in discussions with other states active discussions we're trying to figure out how to allocate their ARPA funds.
Speaker 2: And then my last one would just be Colorado, low single digit rate decline. It sounds like you're asking them to reconsider that.
And then my last one would just be Colorado low single digit rate decline it sounds like you're asking them to reconsider that.
Speaker 2: Could you quantify what that dollar amount impact is?
Could you quantify what that dollar.
Mount impact us.
Speaker 4: Yeah, no, I probably won't be able to quantify the dollar amount, but it's California not Colorado. And California on a fiscal year, sorry, calendar year. And so...
Yes.
Probably won't be able to quantify the dollar amount, but it is California not Colorado.
And California on a fiscal year fiscal year, sorry calendar year end.
So it's.
Speaker 4: They, it's in the neighborhood of, you know, low single digit decline. But again, we have asked the state to reconsider because they have used 2020 encounter data, which we believe is artificially low. So we've asked the state to reconsider CalPACE, which is the organization of page programs in California, have also asked the state to reconsider. So we just don't have an update at this point. And then I will also tell you other states did not use 2020 nor did CMS. So we're just asking the state to reconsider.
It's in the neighborhood of low single digit decline, but again, we have asked the state to reconsider because they have used 2020 and calendar data, which we believe is artificially low.
So we've asked the state to reconsider Cal pace, which is the organization that pace programs in California have also asked the state to reconsider but we just don't have an update at this point and then I will also tell you. Other states did not use 2020, northern sand that so we're just asking let's take care of it.
Okay. Thank you.
Okay.
Speaker 1: Thank you. Our last question, a Comfort line of Nat Laro from William Blair. You may begin.
Thank you our last question will come from the line of Matt Larew from William Blair You may begin.
Speaker 9: Hi, good evening. First I just want to take through a couple of the other dates.
Hi, good evening.
First wanted to tick through a couple of the other day.
Speaker 9: So on New Mexico, given that the preliminary findings.
So on new Mexico, given that the preliminary findings.
Speaker 2: were similar to those in Colorado and Sacramento. Should we expect it 30?
Or similar to those in Colorado, Sacramento should we.
Expect that 30 million enrolled.
And enrollment periods.
Speaker 1: there on Virginia and Pennsylvania could you let us know when?
They're on Virginia, and Pennsylvania could you, let us know when.
Speaker 9: the most recent and the next scheduled routine audit, sir.
The most recent and the next scheduled routine audits are.
Speaker 3: You know, I know Mexico, it's too early to know what the outcome of that audit we could be. We are of course working very collaboratively with the state, but in a certain phase, the audit will be waiting for feedback and have no indication what the outcome of that audit could be.
In new Mexico.
It's too early to know what the outcome of that audit we could be we are.
Of course, working very collaboratively with the state.
Or in a certain phase of the audit were waiting for feedback and have no indication with the outcome of that on it could be.
Speaker 3: The second question was related to the other states. What? Perfect. So, you know, we have no information. The CMS is entirely in their discretion of when to audit. And it could happen at, you know, anytime, based on their discretion. So we have no information about audits.
The second question was related to the other states.
Sure.
Because we do so.
We have no information.
The the CNS.
It's entirely in their discretion.
When the audit and it could happen.
Based on their discretionary so we have no information about audits.
Okay, and then Patrik your comments earlier in terms of corporate margins not really beyond the point, where you could.
Speaker 1: corporate margins, not really the end of the point where you could give your opinion as to what those might look like relative to the struggles. But I'm curious, at least I'm
You give your opinion as to what those might look like relative to the historical but I'm curious at least on.
Speaker 1: center level contribution margin. We have been asked this couple quarters ago.
The center level contribution margin.
I think we asked this a couple of quarters ago.
Speaker 9: and I thought maybe they would be consistent long term but just based on everything you're saying about the need to
And I felt like maybe they would be consistent long term, but just based on everything you're saying about the need to go.
Speaker 9: and combinations of people processes technology.
Combination of the people processes and technology.
Speaker 2: I can't understand how the market profile wouldn't be lower at a center level. Given the investments that are going to be required for you to come into compliance.
I guess I'm trying to understand how the market profile would be lower at the center level.
Given the investments that are required for you to come into compliance.
Speaker 3: I think a couple things. One, still worked to be done to really understand what are one-time investments versus what are recurring investments.
Well I think a couple of things one.
Still work to be done to really understand what are the one time investments versus what a recurring the students what investments could be inventory so to speak.
Speaker 3: One of the investments could be, you know, amateurized, so to speak, you know, more capital in nature versus ensuring, you know, that we have a different level of staffing. So, you know, my view on just sort of the, go forward and mark and profile for the business is, you know, the last two years have been extortary times of the pandemic, and I think we just got to be careful.
More capital in nature versus insuring.
We have a different level of staffing so.
My view on just sort of go forward margin profile for the business is the last two years have been extraordinary times with the pandemic and I think we just got to be careful carrying forward too many assumptions into the future in the five years prior to the pandemic. The company has been able to achieve sufficient margins that.
Speaker 3: carrying forward too many assumptions into the future. In the five years prior to the pandemic, the company has been able to achieve sufficient margins that allowed for robust investment in the business. And we couple this with the growing demand for pace programs. I have a great deal of confidence that the margin profile of the business at the sooner level and overall will continue to be attractive as the market grows.
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Couple this with the growing demand for <unk> programs.
Have a great deal of confidence that the margin profile of the business sooner level and overall.
Continue to be attractive as the market grows.
Okay. Thank.
Thanks for the question.
Speaker 10: Thank you.
Thank you.
Thank you.
Speaker 1: And this will conclude today's Q&A, as well as today's conference. Thank you for joining everybody. You may now disconnect. Everyone, have a great day.
And this will conclude today's Q&A.
Today's conference. Thank you for joining everybody.
May now disconnect everyone have a great day.
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