Q1 2022 Cano Health Inc Earnings Call
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Good morning, and good morning.
First part of June .
Thank you Ed.
Thank you.
Thank you.
Yes.
Good morning, and welcome to kind of help first quarter 2022 earnings call.
Currently all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Please be advised that today's conference is being recorded.
Hosting todays call are Doctor Barlow, Hernandez, Chairman and Chief Executive Officer.
Brian copy Chief Financial Officer.
So you can do how press release webcast link and other related materials are available on the Investor Relations section of kind of how its website.
These statements are made as of May nine 2022, and in fact management's views and expectations at this time and are subject to various risks uncertainties and assumptions.
As a reminder, this call contains forward looking statements regarding future events and financial performance, including our guidance for the 2022 fiscal year. We intend. These forward looking statements to be covered by the safe Harbor provisions for forward looking statements contained in section 27.
<unk> of the Securities Act and section 21 E of the Securities Exchange Act, we caution you that the forward looking statements reflect our best judgment as of today based on factors that are currently known to us and actual future events or results could differ materially.
During the call we will also discuss non-GAAP financial measures.
non-GAAP financial measures, we'll discuss today are not prepared in accordance with GAAP.
Conciliation of the GAAP and non-GAAP results is provided in today's press release and on Investor Relations section of our website.
With that I'll turn the call over to Dr. Marlowe Hernandez, Chairman and Chief Executive Officer of Cano House. Please go ahead.
Good morning.
Thank you and welcome to the call. We appreciate your joining us today.
I'd like to take this opportunity to thank the entire kind of health team for their hard work and dedication to our mission with.
With strong growth in membership revenue and adjusted EBITDA kind of a whole team delivered yet another strong quarter and continued to position the company for future growth, all while providing quality health care outcomes for now more than 269000 members.
This quarter once again demonstrates the continued momentum of our business.
We drove top line revenue growth of 156% year over year by continuing to execute on a build buy and manage growth strategy.
Further we achieved adjusted EBITDA growth of 157% year over year, even while making big investments required by our fast pace of growth.
This is an important validation of the fundamental earnings power for our business model. We have just begun to build scale and density in many new markets, which we believe will provide us with the opportunities to leverage our investments and generate additional earnings for further growth in a virtuous cycle.
Our national care platform has proven to add value to the entire populations a key demographic we serve this Medicare patients.
Ended the quarter with more than 160000 total compensated Medicare members, which included over 119000, Medicare advantage members and over 41000, Medicare direct contracting entity or TCE members.
We're excited about the significant growth in our D. C. A membership in 2022, which broadens our potential to provide value based primary care to Medicare patients who were formerly super shirts.
<unk> members were above our January one level by approximately 11000 members.
<unk> 2022 roster of reconciliations.
The majority of our D. C. Members are served by our 1000 plus of Soviet decisions, allowing us to serve more patients gain market insights in places like New York, New Jersey, and Arizona, where we don't presently have owned medical centers and build scale and density as quickly and efficiently.
We expect D C to be marginally accretive to EBITDA in 2022, and expect margins to improve over time as more intensive primary care leads to fewer hospitalizations and better overall health outcomes.
Our Medicare advantage membership grew sequentially in the first quarter, but lower than our generated one estimates due to ongoing management of our Puerto Rico affiliates retaining those affiliates that are most committed to value based primary care and due to timing of conversions of fee for service Medicare patients to Medicare advantage in new markets, which we expect to pick up in the.
Second half of this year combined Medicare advantage and Medicare DCE membership represented 60% of our total membership compared to 56% in Q4, even with natural attrition and BCE membership during the year. We expect total membership in Medicare to remain about 60% of total members through 2020.
Due to growth in our Medicare advantage membership.
Turning to own medical centers, we ended the quarter with 137 medical centers up from 130 at the end of Q4.
As we have done historically the majority of our new centers will be added in the second half of the year to coincide with the annual enrollment period also has in the past, we're continuing to grow organically by building sensors, and adding tuck ins through the integration of existing affiliate can small independent practices, which based on some facilities are blended with our own nearby medical centers.
The average cost with talking to medical center is about $1 $5 million lower than the roughly $1 8 million with typically spend to build a new medical center generally we expect tuck in medical centers to breakeven on an EBITDA basis in year, one as we add services and offer value based Medicare programs to fee for service Medicare patients and.
Turn profitable in year, two with a significantly faster ramp than ground up builds.
Let me tell you about two of our recent tuck ins.
One of this quarter's tuck ins as an independent medical center and a rapidly growing Las Vegas market.
The center is run by a well respected physician who has been serving her community for many years and search primarily commercial and fee for service Medicare patients as we add services to this center, we expect to increase the number of value based catheter Medicare members at this center.
<unk> is an affiliate medical center in South, Florida that will move to an under construction kind of helped the novel by the end of this year. This now former affiliate had about 260 members already contracted with US and brings at least 500 additional fee for service Medicare members again, as we add services for patients.
The medical center, we expect to increase the number of value based Medicare members we serve.
Let me now highlight some of our clinical results healthy heart cardiovascular prevention program has significantly improved statin use among participating patients with diabetes <unk> cardiovascular disease, increasing the number of patients at an LDL goal of less than 70 by 108% in <unk>.
Addition, our clinical operations team is making measurable progress in reducing the progression of chronic kidney disease or <unk> their protocols, which are now integrated into panel Panorama, maybe more effective than approved drugs to treat <unk> such as <unk> two inhibitors.
Just a few of the clinical activities underway to support our demonstrated success in reducing hospital admissions ER visits and improving significantly mortality rates.
Overall, our performance this quarter reinforces our confidence in kind of helps national care platform, which is designed to improve access quality and wellness and our growth strategy of building buying and managing medical centers to achieve scale and density which in turn produces profitable growth. We're proud of the critical role kind of help place in transforming the.
U S health care system, and redefining primary care, particularly for underserved needs.
Yes, we're only just beginning I look forward to share with you our vision of the future at our upcoming Investor Day on June seven now.
Now I will turn the call over to our CFO , Bryan Coffey, who will walk you through.
Our financial performance and outlook.
Yeah.
Thank you Marla and thanks, everyone for joining us today.
Total membership increased 130% fair to approximately 269000 members in the first quarter.
This represents an increase of more than 150000 members from the first quarter of 2021.
In the first quarter, 44% of our members, where Medicare advantage, 15%, where Medicare DCE <unk>.
25%, where Medicaid and 15% where HCA.
Total revenue for the quarter was approximately $704 million.
From approximately $275 million, a year ago and $492 million in the fourth quarter.
Total capital revenue was approximately $674 million in the quarter up from approximately $465 million in the fourth quarter.
Is 45% sequential increase was driven by a mix shift toward Medicare members, a 22% increase in member months and a 19% increase in total capitate. It revenue per member per month RPM P. M.
Our Medicare P. M P M in the quarter was $1283.
Which is in line with the estimated $1280 <unk> for 2022, we discussed on our fourth quarter call.
Additional information about our membership mix and R. P. M. P M or revenue per member per month by line of business is available in our press release and updated financial supplement slides posted this morning on our website.
Our medical cost ratio or MCR in the quarter was 79, 5% compared to 74, 6% a year ago, driven by the significant increase in new DCE members.
Excluding DCE or MCR was 74%, which was below our Q1 2021 MCR pri.
Prior to the start of the DCD program.
As we have discussed in the past DCE members initially haven't M.
MCR in the mid to high <unk>, which we expect to decline over time as we provide value based primary care services to improve management of chronic conditions.
For 2022, we expect to maintain.
Or in the range of 76% to 76, 5% as discussed on our fourth quarter call.
This reflects our expectation that total MCR in the second half will be significantly lower than the total MCR in the first half.
This is primarily due to the positive impact of stop loss insurance as members with higher cost medical conditions reached the maximum amount. We are responsible for under our policies. In addition to lower elective procedures during the holidays and the continued integration of DCE patients into our population health platform.
Direct patient expense was eight 6% of revenue this was lower than the usual, 11% to 12% we see each quarter, primarily as a result of higher Medicare DCE revenue, which has lower direct patient expense than other capitation revenue.
SG&A in the quarter was 13, 9% of revenue or 11, 7% excluding stock based compensation.
Adjusted EBIT in the quarter was $45 million up from $17 5 million a year ago, producing an adjusted EBITDA margin of six 4%.
Now, let me turn to our cash flow and liquidity. We ended the first quarter with about $113 million in cash and our $120 million revolving line of credit was undrawn.
Total debt at the end of the first quarter was $938 million and includes long term debt capital leases and payments due to sellers. Our total net debt was $825 million defined as total debt less cash.
During the first quarter 2022 cash used in operating activities was $37 million. This was largely related to working capital requirements.
For the full year of 2022, we continue to expect to generate positive operating cash flows as a result of the strong started the year for the company and as we discussed the Medicare risk adjustment payments will continue to come in throughout the year with the largest payment expected in June or July .
As Marlin in the quarter with 137 medical centers within those centers, we had over 400 employed providers.
We are now on track to expand our own medical centers to the range of 184 to 189 by the end of the year.
So now let me summarize our 2022 outlook, which remains unchanged since our last guidance in March.
We expect membership for 2022 to be in the range of 290000 to 295000.
Total revenue is expected to be approximately $2 8 billion to $2 9 billion.
For the full year 2022, we expect our MCR will be in the range of 76% to 76, 5%.
We expect to operate at 184 to 189 owned medical centers by the end of 2022 and.
And our adjusted EBITDA is expected to be $230 million to $240 million. Additionally.
Additionally, we expect interest expense of $60 million to $65 million.
Stock based compensation expense of 60% to $65 million and capital expenditures of $40 million to $60 million.
As we announced a few weeks ago, we will be holding an investor day on June 7th at 930, a M. Eastern time, focusing on the company's strategic priorities business model growth drivers and financial outlook.
A live webcast of the Investor day presentation, along with supporting materials will be available on the day of the event on candles Health's Investor Relations website.
With that I will ask the operator to open the call to your questions.
Thank you at this time I would like to take any questions you might have for us today and as a reminder to ask a question you will need to press Star then the number one on your telephone keypad once again to ask a question. Please press star one.
To withdraw your request you May press the pound key.
Your first question comes from the line of Adam <unk> from Bank of America. Your line is open. Please go ahead.
Hey, Thanks I appreciate the question.
Yes, you mentioned, the 60% target I think for compensated and MA membership for the rest of the year metric I would like a big part of ramping the tuck in centers. So I'm wondering how we should think about that longer term. It was 60% makes sense or is it some sort of target or if it should go higher than that.
Yes. Good morning. This is model, let me take that question.
First we're referring to 60% for the Medicare complicated membership as a whole not.
Not just the Medicare advantage hard to predict which value based model patients well select on any given month or quarter, though the trend is toward Medicare advantage.
We are confident in.
Having a target for the year that is 60% of our total membership fee.
Medicare <unk> given the run rates, we see in the patient preference.
Over time.
It is likely that.
That will be the percentage.
But we also serve.
A number of other populations and Kendall, we don't turn patients away that's been our mantra from day, one and thus if we can be a solution to an entire population.
Bringing other value based membership that is something that we will continue to serve however, our.
Focus and where we provide the most value is for patients on Medicare. Our model is designed in such a way that we have this holistic.
Evidence based approach to senior healthcare in particular.
And underserved populations.
And even more focused.
Given the significant structural problems, we have as health health care system in the United States.
Therefore, a significant portion of our patient population will continue to be Medicare and specifically Medicare advantage at this point.
What we feel comfortable guiding to 60% target for Medicare membership as a percent of total.
Okay I appreciate that if I could do one more follow up I think you mentioned that the affiliates were around.
Same as last quarter and it sounds like you.
You may be cut some underperforming ones and maybe added a few but.
Just in general how should we think about the growth of that business is that something that should basically be stable from here or is it.
<unk> part of the expansion strategy to go into new states with affiliates.
First.
And grow with the clinics or slower than the clinic, how should we think about it.
Sure.
Our growth strategy has always been to build buy and manage therefore, we will continue to add affiliates as we continue to add owned medical centers.
Hard to predict how they will be in proportion to each other.
We are specifically designed to provide a market solution and in certain markets. It makes more sense to have affiliates and other markets. It makes more sense to have one medical centers in most markets. It will be a combination but that combination will reflect the specific.
Market dynamics.
Because we are targeting to serve the most amount of patients.
And the least amount of time with the most value creation as define us.
The best clinical outcomes, the lowest risk the best capital efficiency.
Roy.
And that is not a one size fits all a great differentiator for our company as we have shown historically is that we can adapt to the different markets with respect to the.
The lines of business.
The specific growth avenues, while the non negotiable.
Scalable and portable we have distilled into three essentials, which is access quality and wellness that we're going to.
Solve for through a number of growth avenues.
Our base business is simple our business model is simple.
Investing in primary care and prevention, which reduces downstream costs.
Pending on the specific needs of the market.
The populations the payers the providers were going to utilize the growth Avenue that is the most appropriate for that market in order to achieve the best results and like what I answered in the.
Previous question.
We can give you.
That.
Near term visibility, but we will continue to be.
Be grounded.
On access quality, and wellness and building buying and managing medical centers, and we know that that proportion.
Those populations being served are going to vary depending on the needs of the specific markets.
Thanks I appreciate it.
Yes.
Our next question comes from the line of Andrew Mok from UBS. Your line is open. Please go ahead.
Hi, Good morning, Brian you mentioned favorable experience around your stop loss insurance is driving significantly lower MLR in the back half of the year can you expand on that a bit which patient groups are impacted by those and how big of an impact is as expected to date. Thanks.
Yes, no great question. Thank you it is important to clarify yes, what what what im referring to is in the back half of the year. We will we will have the positive effect of stop loss kicking.
Kicking in members that have reached.
There are individual stop loss limit. So that's really how we think of the seasonality of our business.
Maybe on Medicare.
Okay plan so.
Members don't have co pays deductibles what happens at the back half of the year is are our individual stop loss will.
Kick in for those members so our overall claims experience.
Is is really capped at that point. So you do not see any incremental claim costs come through for those members and that's why you see and what we've what we've guided to.
Half MCR will be much more improved over the first half the MCR with our with our overall book of business.
Got it so that the change in MCR expectation really doesn't that does that have anything to do with the backend weighted clinic openings or is this fully kind of.
Stop loss impact that Youre describing.
Yes, its more its more stop loss and the utilization and then also.
The third point that I mentioned too is we do expect that the <unk> program will continue to see improvements throughout the year.
So thats those are really the big three components. When you look at first half second half.
Got it that's helpful and do you have a 137 centers today full year guidance implies another 50 or so centers opening this year can you put some color around the M&A pipeline and then also help clarify is acquired clinics will skew more toward affiliate or independent practices.
Yes sure.
To reiterate a little bit about.
Was talking about it right now it's really market by market are market leaders are the ones driving the decisions to determine the best use of capital.
Best deployment of growth whether it's through.
Through the buy build managed strategy and we really tried to be we want to keep that Optionality open we have a number of.
Centers that we're already planning, but then where we're being flexible in terms of what what's the next.
Best deployment of our capital as we go through the year in terms of.
Some tuck ins or additional.
Expansion through new centers within those sites. So we're really trying to keep that.
Center flexibility and that's important for us to maximize.
He is in the growth potential within each of the markets, but at the end of the day, we have a line of sight. We believe we'll be able to get to that added capacity, which is critically important for our continued growth as you can see our strong membership growth is coming online.
And we want to grow without that membership to adding capacity in the in the various markets. We're in.
Got it and if I could just sneak in one last one here given that you're leaning into some of the tuck in M&A can you help us understand how transaction multiples have trended over the past 12 months or so.
Sure I think it's very similar to what we've talked about last quarter, where we have a very active and robust.
Pipeline in terms of market intelligence around what are the opportunities.
We are expanding in each of these markets we have.
People in the field.
Working the opportunities.
And I would say we've seen we've seen some of the multiples become much more attractive.
And that's really making the market local market leadership continue to reassess.
They want to effectively grow their market. So I think that's given us.
<unk>, we're still seeing.
Those multiples become a little more attractive than we've seen in the past and.
We will continue to be prudent and diligent in doing the assessment in the analysis to make sure we're deploying capital in the most effective use with the highest return.
Great. Thanks for all the color.
Our next question comes from the line of Gary Taylor from Cowen. Your line is open. Please go ahead.
Hi, good morning.
Just following up on your.
Comments about EBITDA seasonality.
Just a little bit I appreciate the comments you've made so far is there anything else.
That we should be thinking about I guess it looks like historically, maybe third quarter has been our strongest EBITDA quarter does does it makes sense to be modeling that way or should we really just sort of be modeling.
The sequential improvement through the course of the year.
Help would be appreciated yes, no. It's a good question.
Theres always a little bit of timing between that I'll call. It June July does it hit second third and then third fourth.
Okay.
I would view that our sequential pattern should increase quarterly throughout the year. So it's kind of a first second third fourth type of pattern.
Historical trends tend to be a little.
Difficult as everyone knows through Covid and various different things change in the view.
The quarterly patterns, but as we sit here today I would expect sequential improvement throughout the throughout the year.
Got it and then just looking at.
The DSO, which is which is a net number that has those provider claims net it off that that looked really stable sequentially and.
Year over year.
Is there anything worth calling out to think about as the year progresses, I know DCE only settles once annually, but since since you're reporting a net number.
Maybe that doesn't really drive that DSO number higher but just wondering if there's any color to think about or if you think that sort of 25 days net number is pretty good to be thinking about.
Yes, I think Thats a good question I think a lot of people.
You'll see that our net.
<unk> is up sequentially, but that is sort of where you were going is.
That increase is really due to.
The higher DCE membership that we saw this quarter with the higher associated revenue and keep in mind. We also have the MRA that were.
Accounting for this quarter as well so those two drivers when you look sequentially fourth quarter to first quarter thats, increasing that a R.
We look at the business from a DSO to DCP ratio.
So think about the DSO in the quarter roughly 26 days that's flat sequentially.
Compare that with the DCP, which is.
37 days up slightly from fourth quarter, and you can't really see that yet youll see that when.
The Q is filed so we had unpaid provider claims in the quarter of roughly $222 million, which I said youll see in the Q. So when you take that ratio of DSO to DCP.
Looking at our fourth quarter to first quarter, it's really in line. So we feel good about that.
And I think that that's a good way to think of that as you as we go forward that that relationship.
<unk> shipped holding throughout the year.
Last one for me just looking at the <unk> hundred $79 per member per month revenue on the D. C E.
Enrolment and I.
I realize here in year two of direct contracting I think theres only a two or 3% haircut versus benchmark. So that number is much closer to the real.
Medicare benchmark for those members, but the $13 79 does that that does seem high is that just geography or does that reflect that you're DCE membership still has a very high component of.
Of dual eligible and highly co morbid population.
Yes, no you're right on it's really it's really geographic driven.
We have decent membership is quite widespread.
That <unk> is highly correlated to the geographic presence of those members.
Okay. Thank you.
Thank you.
Our next question comes from the line of Jason <unk> from Citi. Your line is open. Please go ahead.
Oh, great. Thanks for the questions you noted that the majority of the D. C. Membership is served by our affiliate physicians, but can you help on what the absolute split is of your TCE membership between your own centers of affiliates at this point and then maybe just a follow on to that in the past you've noted something like a mid single digit margin upside as affiliates kind of.
Under the kind of owned model in aggregate over time would you expect a similar experience for <unk> members within the affiliates have become owned or are there nuances that we should consider that wouldn't make that comparable.
Sure for the DC memberships certainly.
A majority of that membership is coming from the affiliates and it is will be outside of the I'll call. It the candle medical centers.
And that's just the nature of how CMS is assigning.
That membership to those affiliates so.
That I would expect to continue.
And then as far as the DCE MCR improve.
We've talked about how we're around 96% or so.
In the first quarter, we would expect that.
See some sequential well some some improvement as we go to the back half of the year getting into the low 90 is probably as we kind of exit fourth exit fourth quarter 2022.
And a lot of that is given that we are the big focus is on member engagement and changing the member behavior in order to engage with the primary care Doctor and.
Receiver a high quality.
Care treatment plan, which will then as we talked about lower emergency room usage, lower hospital admissions et cetera, and that helps drive that MCR down.
Got it okay. Thanks, that's really helpful. And then just a follow up outside of the MLR kind of backdrop, but it looks like costs were relatively well manage obviously the MLR was impacted by the revenue considerations. There in D. C. But maybe can you just give us an update on how the labor and inflationary cost backdrop is trending for cat on if youre seeing any incremental pressure on cost.
On an absolute basis, and maybe any area cost areas, where you're watching out for at this time.
Sure, Yes, I mean from Us I think.
We were affected by overall inflation as you know.
The entire country is but one thing thats important to note in our medical centers, we do not have.
A significant number of our ends and Thats, where you see a lot of the wage inflation within the health care system has been most pronounced.
So by the fact that we have fewer our ends that helps keep our costs under control.
But.
We certainly are seeing higher wages amongst front desk and call Center staff, but we will continue to manage through those and.
Most of those factors into our outlook for the full year, but.
Clearly expense control is always top of my mind, So we're going to watch it very closely.
Got it great. Thank you.
Our next question comes from the line of Brian <unk> from Jefferies. Your line is open. Please go ahead.
Hey, good morning, guys its Jackson on for Brian .
Brian I just wanted to touch back on that assumption around D C and the progression of MLR there.
So I guess I understand that it's going to come from better mentor member engagement are there any stats you can give us thus far on patients you've had from the onset of DCE through today and how they are trending on.
Well, maybe it's visits per quarter visits per month any sort of metrics are quantifiable as you can put around what youre seeing there already and what's expected are baked into expectations for the rest of the year.
Yes.
I will just point you to how if you remember the program started April of last year.
We were the initial launch the program we were.
Booking MCR around 98%.
And then as you re trended to the.
Fourth quarter of 2021 that MCR was significantly down to roughly I think it was like 90 90.
5% or so so we saw we saw good for a five point improvement in that short amount of time so.
Do we know exactly how much improvement we're going to get out of this large new cohort not exactly but if we continue with our operational engagement programs and our management of those members.
We continue to expect to see that improvement of DCE throughout the year and we'll certainly give give more color on that as we are.
Continue to engage with those members.
Got it that's helpful. And then one more for me just as we think about markets that were.
<unk> entered a really expanded in 2021.
Specifically thinking about Nevada, and Texas here any color you can give us on how those are trending or things that you're seeing.
Well, let me take that one.
Very proud of our performance in Texas and Nevada.
We have seen.
<unk> data that is beyond our expectations are good.
The admissions per thousand.
<unk>.
Quality scores have been in line or above estimates as well the NPS scores have.
Net promoter scores.
Have mirrored those are.
Initial markets in Florida.
A different regions that we've been operating for years.
The rash.
Ramp up in membership now.
Now the ability to.
Accelerate growth.
<unk> full deployment of our bill by manage model.
And the added growth that we're seeing.
TCE membership as.
As well as our service to other populations in value based programs.
<unk>.
Citing.
And I think you can.
Take a look at.
Hey.
Our filings.
You can see the performance there will of course are they providing additional color.
At our upcoming Investor day, but.
I've got a really congratulate.
Our team in Texas and Nevada.
Very exciting.
What's happening there.
And we will.
Have significant scale and density in a very short amount of time in key markets in Texas and Nevada by the end of this year.
Got it thanks, again nice job on the quarter and looking forward again.
Thank you.
Our next question comes from the line of Justin Lake from Wolfe Research. Your line is open. Please go ahead.
Thanks, Good morning.
First question just on the de Novo losses can you give us a number that you expect to have for the year I can't remember, if you've got it to that or not.
Yes, we didn't get we didn't guide to that Justin.
I think you kind of make some assumptions around the new medical center openings and how to how to view how many of those will come through new builds versus more of the tuck ins.
That's really the way to think of it.
We're in like the $60 million range is our estimate is that ballpark.
Yes $60 million.
Ish, maybe a little bit higher feels about right to me just quick off the top of my head.
Okay, and then in the quarter.
Around $15 million.
Of losses can you can you remind us how many centers are there you just like a rolling 12, 12 month convention there how many centers.
We're in that number.
Yeah.
I'll get back to you I know, we brought online 20 last year, so, but I'll get back to the to the rolling to the.
The rolling number on yet.
Well I think we've talked in the past about.
When those centers have come on so we can kind of take that take a look at that scheduling and talk that through.
Okay.
First quarter number in your mind was kind of in line ish.
With where you would've expected the Greg yes.
Yes.
Correct.
And then on cash flow.
I think you said you expect the company to be cash flow positive for the year is that correct.
Cash flow from operations positive that's correct.
Okay and.
Any kind of estimate you want to give us there in terms of what youre thinking for the year.
No I think what we've talked about in the past as we've.
Well, what I've talked about today I should say first.
First quarter was a good start to the year seeing positive momentum in the business and I think it's also important to know that and.
In that June July time period that the Medicare risk adjustment payment comes through.
So that's when you really see that at least in that quarter that shift.
Our operating cash flow from negative to positive.
Yeah.
Got it got it.
I guess, what I'm trying to get to is just if it's modestly positive with the.
With a de novo as the tuck in acquisitions.
How do you kind of see the cash balance.
Running through the year.
And at some point do you Dan we haven't put it in the credit markets are.
No.
Yeah, No I think where you go and that's a great great point and it's important in order for us to our.
Our guidance that we put out today and does not assume that we need any additional capital to achieve the 2022 guidance. So.
So we think we're on a good trajectory to be able to do that based on.
The performance, we're seeing great based on the good membership that we're seeing for roll through and just really the overall operations of the business is doing quite well so we're feeling.
Very positive about our.
<unk> of our 2022 guidance.
Okay, Great and then I guess last question just a follow up I know there was a question earlier on tuck ins.
Uh huh.
The.
The nature of those those deals are.
If you look back historically more of those tuck ins are most of those tuck ins been affiliated.
In terms of what you've done so far.
Just the smaller it's a mixed bag overtime.
We will.
Analyze our own affiliates.
For those who have the added growth potential within our model.
And the ROI on that deployment of capital versus.
A nearby practice in both scenarios, we could think about transitioning those.
Providers and membership to owned medical centers that are already established or building new ones.
Or expanding.
There are physical centers, there's a lot of factors that we take into account to make that kind of decision, but I would say it's mixed.
Roughly 50 50.
And to your last.
Question as we have reiterated several times.
Our guidance for 2022.
Does not include inorganic growth.
Does not require additional capital financing our business model it gives us.
Comparable growth.
Yeah.
Great Optionality for this year and beyond to continue to grow in the way that they are.
It makes the most sense for our shareholders as Brian mentioned with Scott.
The pipeline.
We.
We will continue to.
We look for.
Ways to deploy.
All of our growth avenues to reach the most patients with the least amount of time with at least some of the risks with the best ROI.
And.
So yes, we will.
In.
The future.
Look too.
A capital raise in the case that we find.
Opportunities.
So attracted from the M&A side.
That it.
Merits us.
Going to capital markets.
And other forms of financing.
Yeah.
Yes.
Yes.
Now for my next question.
Yes. Our next question comes from the line of Josh Raskin from Nephron Research. Your line is open. Please go ahead.
Hi, Thanks, good morning.
Just looking at the revenue run rate first quarter, you're kind of already above the low end of guidance. We've got a whole bunch of de novo's opening through the year and MA lives will grow is there some assumption on DCE attrition or are you looking at Medicaid re verifications that don't end up in exchanges I'm, just curious what the offsets to the growth or or or or is it just.
Simply conservatism.
Yes, Josh.
I think.
I would say that we've always talked about some slight attrition in the D. C. As you go through the year because for US we generally get our membership pickup through the claims assignment in the beginning of the year.
Then you'll have some just natural.
Attrition.
Within that program throughout the year.
I think thats just the way, we're thinking of it and right now we feel we feel good about our overall guidance and where we are.
Guiding the street to and we'll update that.
As we go through the year.
Okay, Alright. So there is nothing specific there and then just the performance of the centers I'm. Just curious have you see anything different.
Ross New geographies, you know understanding that a lot of the geographies have been added in the last call. It.
18 months or so but are you seeing any differences in geographies and then I'm also curious if you've got centers that are heavily.
Is filled with a specific payer are there differences in your performance with specific payers versus others.
Josh.
What we have seen.
Brian It was.
Talking you through our D. C performance for last year as an example, Medicare program, but different than Medicare advantage.
And within Medicare advantage, we have seen significant.
Improvement.
Perspective.
Our payer partners.
That does depend on what we've been talking about.
Since we.
Really.
Alright, growing outside of South, Florida, which is the need to achieve.
Achieve scale and density there is a.
Theres a much of a recession for sure.
As we serve members over time, but there is an important component to having a critical number of patients that improve.
<unk>.
Patient.
Level.
Economics and that.
We will have to be achieved not only on a regional basis, but also on an individual service fund or patient panel within a given payer.
When you only have.
It doesn't members for example, with <unk>.
Certain payer one remember there was particularly ill can significantly affect performance, whereas of course, when you have several thousand members.
It's.
That's a lot harder for any outliers to costs.
A significant negative impact.
<unk>.
That.
Is something that would.
Then has to be taken into account, what we have seen across the dozens of markets that we operate in with dozens of payer partners is once you have a level of market level.
Scale and density and then you have.
A.
A significant number of patients.
At least.
1000, or so with a given.
Payor partner within a patient panel.
Then.
<unk>.
Performance well.
Generally be in line.
With those of that market or those of other payors.
For that given region and line of business.
That all being said there are plans are more established that have more favorable contracts.
In a given region and as a result, we are highly selective.
The the payers that we work with.
We need to ensure that we have.
The appropriate specialty network, we need to make sure that the service being given to patients on the payer side.
<unk>.
Different data feeds that we'd want to integrate two kind of panorama are there for us to offer optimal.
Services and ensure the best outcomes for our patients, but generally giving you a long answer to the question, but the short response is that we see similar performance with all things being equal.
That actually may okay. So it's more important it sounds like getting that critical mass of critical scale within a specific contract is probably the most important factor whereas.
The specific plans.
All tend to perform relatively well relatively in line with the overall once you get to that critical mass that's the right way to think about it.
Okay.
That's the right way to think about it.
In the context of.
The overall membership you're managing in a market.
And in the context of.
The payer one market share and.
And.
Infrastructure for that given market.
It's already an established payor that already has some.
Material market share in infrastructure it does tend to perform.
Equally but that is very different than one that has just started for the same exact reasons that I mentioned that affect our own patient panel.
Yeah got you alright. Thanks.
We have another question from the line of Adam <unk> from Bank of America. Your line is open. Please go ahead.
Hey, I'm, sorry, if you hear noise in the background, but just hoping you can give a little bit more color on utilization in the quarter and what youre seeing in terms of Covid and non Covid then.
What youre expecting for the rest of the year, just because you mentioned Q1, excluding D. C was lower MLR versus Q1, 'twenty one but.
But last year I think MLR was ramping up throughout the year and now youre, saying its ramping down. So I'm just curious what you saw in the quarter and what Youre expecting for the back half on the non D C.
Yes, I think for.
Very similar to what other people saw we saw a little bit of higher utilization in January .
We came into the new year, but it's stabilized but.
Overall.
The cost of that increased utilization, where we are in line.
We believe where we're trending in the right direction than normal.
The impact and really as we go through the year the.
The lower utilization in the back half of the year tends to come more from just the number of days in the holidays et cetera.
So we're not expecting anything.
Normal.
Our unusual I'll put it as we've seen in the past so as we go from first quarter down to fourth quarter, we should see some improvement in the MCR as I mentioned earlier.
We'll keep a close eye on as we.
Look at our admissions and other key operational statistics that we track every every every every day every week every month.
I appreciate it and one last one thanks for all the questions.
The quarter you added seven centers five of which were in Florida, which is already your biggest market.
I don't think any new states for 2022, so just curious what the philosophy is on new market expanding into new states or adding capacity within existing markets is the idea.
At this point to to keep the amount of states constant and grow in market until Youre may be in a stronger capital position just curious.
How do you think about that.
Yes I'll.
I'll take that one yes, I think we were very focused on scale and density.
And that's right are the states. We're in we're going to continue to expand within those markets and add on.
Our buy build add through our buy build managed strategy.
And really we.
We are true believers in the scale and density provides so many.
Incremental benefits when you go from 235, 10, 12 20 medical centers in a close proximity you can leverage a significant number of our costs, whether its contracting SG&A and just overall.
Improvements in our operational effectiveness.
And so we're going to stick to the states that we're in at least for this year as we look at our opportunities and where we have planned growth and we're not we're not growing at the exclusion of Florida, Florida is still an important market. So we'll continue to grow there, but we still have great opportunities in the states that we're in that we've entered into.
Well.
Makes sense. Thanks, so much.
That does conclude our Q&A session I will turn back the call over to Brian copy.
Great. Thank you I appreciate everyone's time today and just as one last reminder, we do have our investor day coming up.
So we look forward to.
Talking to everyone and thank you for your time and have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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