Q1 2023 Cano Health Inc Earnings Call
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The website.
As a reminder, this call contains forward looking statements regarding future events in financial performance, including our guidance for the 2023 fiscal year.
Investors are cautioned not to unduly rely on forward looking statements and chest such statements should not be read or understood as a guarantee of future performance or results.
We intend these forward looking statements to be covered by the safe Harbor positions for forward looking statements contained in section 27, a of the Securities Act and section 21 E of the Securities Exchange Act we.
We caution you that the forward looking statements reflect our best judgment as of today based on factors that are currently known to US as such statements are subject to risks uncertainties and assumptions that could cause actual future events or results to differ materially from those discussed as a result of various factors, including but not limb.
Fitted to risks and uncertainties included or discussed in our SEC filings.
We do not undertake or intend to update any forward looking statements. After this call or as a result of new information, except as may be required by law.
During the call. We will also discuss non-GAAP financial measures. The non-GAAP financial measures. We will discuss today are not prepared in accordance with GAAP. A reconciliation of the gap and non-GAAP results is provided in today's press release and on the Investor Relations section of our website with that I will now turn the call over to Dr. Marlow Hernandez.
CEO of Kano Health. Please go ahead doctor.
Thank you and welcome to the call. We appreciate your joining us today.
Have been looking forward to having this opportunity to discuss with you the operating progress we're making on the action plan. We described on the last call.
Everyone here I'm disappointed by our share price performance and my team and I are laser focused on the near term execution of that plan.
During today's call you will hear from our Chief strategy Officer, Our Chief operating officer, and our Chief Financial Officer.
Will hear from them, how we're streamlining operations <unk>.
Improving operating cash flow and simplifying and optimizing our business model.
We have continued to streamline operations with SG&A expenses lower today than one year ago, but we have a business that survey, 44% more members.
Are operating cash flow is improving despite higher interest rates due to maturing medical centers and the use of our capital light models.
And we are simple client and optimizing our business model divesting certain non-core assets remained provider networks and favoring profitable contracts to further strengthen our high performing operations and market.
Kind of health performance in the first quarter of 2023 reflects our continued focus on profitably growing our value base membership and our commitment to greater efficiency and long term value creation.
As I mentioned in our last earnings call, we outline a clear action plan and this quarter's results reinforce your confidence that we're on the right track and gaining momentum while recognizing there is still work to be done.
Brawl or solid start to the year gives us confidence to raise our full year 2023 guidance for membership and total revenue and reaffirm the razors of our medical cost ratio and adjusted EBITDA from our prior guidance.
Shortly you'll hear more about how we are focused on near term excess fusion to maximize long term shareholder value.
Membership growth buried across service lines, reflecting ongoing execution of our disciplined strategy prioritizing profitability in cash flow and ensuring strong clinical results we.
We ended the first quarter of 2023 with total membership exceeding 388000 members growing over 25% since December 31, and 44% from the first quarter of 2022 or.
Our Medicare membership as of March 31st 2023 was approximately 200 and 700000 growing 16% since December 31, and 2090% from the first quarter of 2022.
The sequential growth was almost entirely due to ACO reach as we thoughtfully trends are Medicare advantage and MA affiliate network.
Total revenues grew to $867 million in the quarter, an increase of 23% from the prior year and we're above our expectations due to higher capitated revenue per member per month for a Medicare membership inclusive of ACO reach and M. A consistent with our focused on value based care or <unk>.
The state of revenue as a percentage of the total revenue is not 97%, which is a historical hi <unk>.
Clinical results in the first quarter of 2020 at the rate continues to reflect the differentiated capabilities of our value based platform.
Our key medical cost metrics, such as hospital admissions per thousand in high risk patient visits remained stable in the first quarter of 2023. Therefore, we expect our MCR moderate as the year progresses, especially in the third and fourth quarters as we realized the full benefit of stop loss and pharmacy rebates.
As evidenced by our consistently strong clinical outcomes Cardinal health has established a highly differentiated Medicare focused business model <unk>.
Last quarter, we indicated that management was evaluating all aspects of our operations to enhance shareholder value. After a thorough evaluation, we plan to divert certain non-core assets to narrow kind of health operating focus to our core Medicare advantage business and bolster our highest.
Performing markets. We began this process in the first quarter with our team of our values and expect to complete the initial divestments in the coming months, we will provide further updates on this process at the appropriate time.
In addition to the divestment of certain non-core assets. Our management team is making important strides on near term on Dec. This to accelerate our path to positive free cash flow over time and fully realize the embedded earnings potential within our medical centers.
The objectives of the plan, we have in place or to sharpen our operating focus improve care margins and simplify the core functions of our business therefore, reducing associated costs.
This essential work is streamlining the organization and making sure. The right people are in the right roles I'd like to turn the call over to Mark Kent are newly appointed Chief strategy Officer, who brings a proven record of effective healthcare operating oversight to his role you will talk about the opportunities we see across our platform.
To unlock synergies in our administrative functions and to optimize and expand margins through our affiliate partners specialty networks and pay up contracts.
Then Bob Kimberley, our Chief operating Officer will take you through the operational enhancements, we're making to accelerate the path towards realising the significant embedded earnings potential in our medical centers.
Go ahead Mark.
Thank you mortal since joining Cardinal health earlier this year I have been focused on enhancing the company's strategic planning process.
Find new synergies across the organization and making it easier for our team members to execute our strategy.
Ultimately our goal is to improve profitability and generate positive free cash flow over time, and we believe there are multiple levers we can pull in connection with working to achieve that goal.
For example, in addition to our planned divestiture of certain non core assets. We are optimizing our affiliated operations to fully engage our affiliate providers and managed to them against our higher performance standards to drive better results.
This quarter, we executed on this strategy to prioritize higher performing MSL contracts and affiliates, which resulted in targeted trimming of some membership.
This initiative moderated sequential membership growth in the quarter and May create near term headwinds to our affiliate membership growth and this calendar year.
However, we expect the incremental profitability generated through higher performing affiliates will have greater positive impact on our financial performance over the long term.
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Have we mentioned on past calls are focused on achieving profitable growth.
And as such we would expect to continue to take action to trim underperforming contracts and affiliates throughout the year you.
Performance does not align with our standards.
Another area of focus is how we manage our pay your agreements.
For the past three years or rapid growth resulted in a significant number of new and very to pay your agreement.
Servicing these varied agreements.
The complexity and cost to everyday operations and.
And we are focused on simplification and related cost reduction or reducing the types of agreements in place.
Based upon our thorough analysis, we also identified instances, where the payer agreements and may not have been fully aligned with our preferred model of care.
And so now we are working on modifying contracts to align the inherent economics of those partnerships to the clinical value we are providing.
Moreover, we are holding our specialty networks to the same performance standards that we hold our affiliates and payers.
As a result, we intend to continue to adjust contracts, where appropriate and narrow provider networks.
In doing so we believe we are decreasing the administrative burden on our company and our making further improvements to our cost structure, while improving patient outcomes.
Collectively we believe these levers represent an important MCR opportunity this year and into next.
Therefore, we are excited to empower our team with the insight and authority to take these actions.
With that I'll turn the call over to Bob camera link our Chief operating officer.
Thank you Mark and good evening everyone.
Over the past few months, our enterprises absorbed a lot of changes to the operations for various integration consolidation optimization, then scalability efforts.
We believe that by focusing on Medicare advantage and improving operations, we kind of lost the greatest longterm value for the enterprise.
One of the many things we have done is to enhance the camera at home program. We think we can have meaningful impact on improving patient outcomes and lowering medical costs.
We are enhancing our 10 on home offerings to increase engagement with our patients. We are increasing the number of staff to support our patients and we are modifying the method by which we identified patients at risk.
New process is designed to identify patients with chronic conditions through multiple channels and prevent costly ER visits and hospital admissions by.
By delivering primary care homes.
Delivering primary care at home setting the essential service is meant to be.
Closing the gaps in care between patients regular primary care visits.
We anticipate this program will January to 5% to 10% reduction and preventable emergency room visits.
Increasingly engagement with higher risk patients is another focus biochar management programs.
<unk>, we are engaged with approximately 85% of our high risk patients within 30 days of enrollment are being identified as high risk.
Now targeting 90 per cent.
To achieve this higher level of success, we have increased our medical center of phone calls to higher risk patients and created a centralized high risk patient task force.
This task force is solely focused on removing the barriers that would prevent a patient from accessing care at our centers.
And we know that his patients increasingly asked excess care the results.
Lower emergency room visits and hospitalizations.
We believe both of these initiatives are extremely valuable program self-produced medical costs and further improve clinical outcomes as.
As we enhance our membership engaged and member engagement, we enhance the value of our medical centers.
Today, we have included a slide in our financial supplement that details the expected trajectory of adjusted EBITDA performance of our to know those by vintage.
As you can see on the slide we believe there is a meaningful earnings opportunity from filling capacity in our medical centers.
I will note that these expectations are consistent with the illustrative model, we shared in our 2022 Investor day.
Now let me highlight a few dynamics that are important to understand and consider when reviewing the analysis.
Approximately 85% of the day novels or in the youngest three vintages and therefore expected to have an average negative profitability outlook of half a million dollars per center.
We believe these medical centers will mature and the embedded are embedded earnings potential we see based on our older centers will come from new membership growth by utilizing existing capacity and improving profitability on existing members.
The largest inflection point in the J curve generally occurs between years, two and three with profitability.
Accelerating rapidly from that point.
And finally scale and density matter.
The novel is opened and highly concentrated Marcus with other kind of help facilities benefit from economics of scale and marketing campaigns and administrative costs and improving patient level economics through our new and enhanced care management programs in those regions.
Our focus remains on walking embedded earnings within these medical centers.
And while the acquisitions. We've made are designed to help supplement the losses of the none of those in the early stages.
One of those are expected to contribute meaningfully to our results over the long term.
I am confident these some of those and then our entire value based platform can deliver long term value overtime.
Especially when combined with the care management and operating enhancements, we have put in place.
As we continue to X against execute against our plan, we look forward to sharing progress and successes in our operations.
And now I will turn the call over to Mister Brian copy, our Chief Financial Officer to take you through the financials and for your guidance.
Thank you, Bob and thanks to everyone for joining us today.
Total membership increased 44% year over year to approximately 389000 members in the first quarter of 2023.
This represents an increase of approximately 119000 members from the first quarter of 2022.
Medicare advantage membership grew 19% versus the prior year, what was effectively in line with the fourth quarter of 2022.
Our participation in ACO reach exceeded 67000 members at the end of the quarter.
And our Medicaid service lined membership grew 6% sequentially 282000 members.
In mind that our Medicaid population serves a higher proportion of pediatrics an elderly patients.
Which we believe will moderate potential headwinds can reach determination.
We also added over 46000 acre members in the quarter as a result of higher marketplace enrollment.
At the end of the first quarter, 36% of our members were Medicare advantage, 17% were Medicare ACO reach 26% were HCA and 21% were Medicaid.
Total revenue for the quarter was approximately $867 million up from approximately $704 million a year ago.
$680 million in the fourth quarter.
Total complicated revenue in the quarter was approximately $841 million and higher than expected.
And the quarter, the Medicare advantage PM PM was $1180 up 9% sequentially in better than expected, primarily driven by better engagement with new patients in the prior year and favorable adjustments related to pay our contracts.
First quarter Medicare ACO reach PM PM was $1489 up 8% sequentially also better than expected and was primarily driven by revised benchmark data we receive from CMS related to the 2022 and 2023 performance years.
Additional information about our membership mix and our PM PM is available in our press release, an updated financial supplement posted this evening on our website.
Our medical cost ratio Rmcer in the first quarter of 2023 was 84.2% compared to 79.5% in the first quarter of 2022.
The year over year increase in the MCR was partially driven by the higher mix of ACO reach which has a higher MCR than our other service lines.
Excluding ACO reached the MCR was approximately 79.6% in the first quarter of 2023 compared to approximately 73.8% in the prior year.
The increase was larger than expected and primarily driven by higher utilization of supplemental benefits among certain Medicare advantage plans, particularly the OTC flex cards are the over the counter flex cards.
Higher utilization a brand new prescription medications and unfavorable prior year development of approximately $7 million in the quarter.
We expect the MCR to moderate throughout the year, particularly in the second half due to continued higher than expected revenue pm pm and seasonal trends in the medical costs.
Which include higher recovery from stop loss and pharmacy rebates.
Direct patient expenses in the first quarter of 2023 was 79% of total revenue and below the first quarter of 2022 of $8 6%.
SG&A expense in the first quarter of 2023 was approximately $96 million essentially flat compared to the first quarter of 2022.
However, SG&A was 11.1% of total revenue in 260 basis points lower than the first quarter of 2022.
The year over year decline indirect patient expense and SG&A as a percentage of revenue reflects the impact of cost reduction initiatives described in our fourth quarter of 2022 earnings call and favorable operating leverage given the scale of top line growth.
Net loss in the quarter was approximately $61 million compared to a net loss of approximately $100000 in the prior year, primarily driven by a higher operating loss the change in fair value of warrant liabilities and higher interest expense.
Adjusted EBIT in the quarter was $5 million down from $29.2 million a year ago.
This was primarily driven by the higher medical cost ratio and higher operating expenses attributed attributable to ramping up a significant number of new medical centers, we added in 2021 and 2022.
Now, let me turn to our cash flow and liquidity.
We ended the first quarter with about $32 million in unrestricted cash and our $120 million revolving line of credit was undrawn.
Providing us with approximately $152 million in total liquidity.
Total debt at the end of the first quarter was just over $1 billion and include a current in long term debt capital leases in payments Judith <unk>.
Capital leases and payments due to sellers.
Our total net debt defined as total debt less total cash was approximately $982 million as of March 31.
In addition, our net leverage ratios as defined by our credit agreements were within maintenance come in and we still expect to maintain sufficient headroom throughout the year.
During the first quarter of 2023 cash used an operating activities was approximately $29 million.
This was a nice improvement compared to the first quarter of 2022.
This improvement was also mitigated by higher interest expense of approximately $10 million versus the prior year.
Excluding cash interest expense, we saw our core operations, mainly improved cash flow, even as we brought online 24 need to build those during 2022.
For the full year 2023, we expect cash fusion operations to be in the range of approximately $70 million to approximately $80 million.
Now, let me turn to our outlook for 2023.
Today, we are raising expectations for 2023 year membership and full year revenue.
Meanwhile, our guidance for the MCR adjusted EBITDA and cash flow remains unchanged.
2023 year and total membership is expected to be in the range of 390002 400000 members.
An increase from the prior range of 375002 385000.
Primarily due to higher.
And Medicare membership.
I would also like you mentioned that we now estimate that we.
Have 170 medical centers by year end.
Lower prior projection due to consolidation initiatives to drive operational improvements and further cost reductions.
Total revenue is expected to be in the range of $325 billion to $335 billion.
An increase of $125 million at the midpoint, primarily due to higher Medicare revenue.
Turning now to MCR, the full year 2023, total MCR guidance of 81% to 82% is unchanged. However.
However, we expect it will likely be in the upper end of that range, primarily due to higher utilization and unfavorable prior years development, we saw in the first quarter.
We expect the MCR to be in better in the second half compared to the first half of the year and our outlook for ACO reach is unchanged at approximately 93% for the full year.
The expected second half improvement in the MCR is in line with the performance realized in 2022.
Adjusted EBITDA outlook for the full year 2023 is unchanged and expect it to be in the range of $75 million to $85 million. Additionally.
Additionally, we expect 2023 interest expense to be approximately $100 million, which includes approximately $19 million of non-cash interest expense.
Guidance for stock based compensation is approximately $50 million and capital expenditures are approximately $15 million both unchanged from our prior guidance.
As I mentioned cashews and operating activities is still expected to be in the 70 million to $80 million range.
In conclusion, we began 2023 by securing the capital necessary to execute our plan.
Operationally, you're starting with favorable revenue PM Pms, and our focus remains on lowering our medical costs.
Continuing to improve our cost structure and unlocking embedded profitability within our medical centers to improve profitability and cash flow over time and maximize long term value for shareholders.
Now I'll turn the call back Tomorrow for a few comments before we open the call to your questions model.
Thank you Brian before we take your questions I'd like to briefly address industry trends in our recent for changes.
Starting with industry trends I would like to comment on C. M S's final rate notice.
I believe that CMS is doing the right thing for seniors and for the country.
Programs like Medicare advantage and ACO reach CMS is investing in the present and future of medicine value based care.
Message emphasizing payment for outcomes, rather than four volume of services.
M. S is expanding patient choice protecting the underserved in spring innovation T.
<unk> is also being fiscally responsible so that the Medicare program can continue to serve seniors for decades to come.
As it relates to the industry margins have been squeezed through higher rebates and OCC benefits.
Given the risk score changes in my conversations with our payer partners I expect this modern compression to moderate in 2024, which I believe it's positive because more of the health care dollar will be focused on primary care and prevention.
Turning now to our board.
As you May know three former directors that farther from our board in late March our current board and management team are significant shareholders of the company and are full of the lines on the action plan outline to simplify our business grow our high performing operations and drive sustainable profitability over time.
Our former directors were deeply involved in all decision, making up until the time of their departure.
They have every opportunity to work constructively with a full board under development and execution of this plan instead, they offered to leave a properly and launched a highly disruptive and misleading public company, which we believe is aimed at furthering their stated self serving in short term agenda at the expense of the longterm interest.
All shareholders.
We have a great deal of work to do to unlock the value embedded in our business and realized channel helps for potential for the benefit of all stakeholders.
I cannot help we help our patients live a longer and full of life.
We are transforming healthcare delivery and redefining primary care, my making health care more proactive.
And lines.
Despite the challenges we have faced we maintain an unwavering dedication to providing our patients with are differentiated model of care, which benefits not only them, but also their families are payer partners and the communities that we serve.
Keeping these principles in mind, while improving our financial results is ultimately what we believe create longterm value as we exit the first quarter. We firmly believe kind of health is well positioned to leverage our competitive advantages to deliver sustainable profitable growth overtime.
We believe the divestiture of certain non-core acid will create important flexibility to strengthen our high performing Medicare advantage operation.
Moreover, we have streamlined consolidated administrative functions and I've taken important steps towards optimizing our affiliates partnerships specialty networks and payer contract for improve clinical outcomes and profitability and additionally, plans to leverage our low cost patient acquisition model to continue to fill available capacity at our medical center.
And further improved care margins through operating initiatives.
In summary, while we are excited about the momentum in our business and the opportunities that await us in 2024 beyond our focus remains on executing immediate priorities to improve profitability and accelerate cash flow improvements this year.
During this quarter, we made significant progress toward these objectives and expect to continue to do so in the future with all of that in mind. We ask that you focus your questions on the substance of our first quarter of 2023 financial results, which we believe provide important early indicators that we're on track and gaining momentum.
And so that will last now the operator to open the call to your questions.
Thank you Dr Hernandez, ladies and gentlemen at this time if you do you have any questions simply press star one and if you have found that your question has been addressed you can remove yourself from the queue press the star one again.
We take our first question this afternoon from Jason Cazorla at city.
Hi, Good afternoon. Thanks for taking my question you sang Rossi an ear for Jason.
So thinking about the assessment of your non core operations and possible decisions to burst on the ground near your assets. During your last call you provided some added transparency on your non Florida operations, which include about 100 million in revenue and $40 million EBIT losses for 2023.
Curious how those markets are performing against expectations to start the year and then if you have such potential divestitures, what does that process look like and what would prompt you to domestic given facility.
Think that the pace of the Onboarding. These assets is coming in what way were unexpected and then also with that if you're going to complete the best troops in the coming months, how would you describe inbound interest.
Yes. This is Brian and thanks for the question a lot lot lot. There, let me start with the performance of the the non Florida markets generally they're coming in mind in the first quarter.
Thank you mentioned, we said last quarter, roughly $40 million projected losses in 2023.
Will cost roughly 25% of that is in the first quarter. So.
Essentially coming on line, though I was saying we are those markets that are larger.
Larger in scale or or.
We're starting to see some momentum and that and others are to.
Followed behind that but generally as we start the first quarter those markets are performing as we would have expected. This early in their in their start as we ramp up just enormous.
And let me just add to Brian .
Focused on growing are highly differentiated Medicare advantage focus medical centers and we're very excited about the the value creation opportunities that exist outside of Florida, we have to take multiple factors into consideration.
When.
Deciding what is.
Is non core and what to divest and that includes the clinical outcomes the growth rate the earnings trajectory the position and the J curve skate.
Scaling density are of course important, but it's multi factorial.
Just summarize that we have performed a thorough review of our operations.
And are excited about the coming months as we further strengthen our high performing Medicare focused operations.
Great. Thank you and just as a quick follow up on embedded capacity.
Mentioned last call us with the embedded capacity within your facilities and maybe W. A membership of your existing medical centers without additional expense.
Update on your on your progress there and maybe the pays for filling this existing capacity and then how much of your guidance rates on membership as a result, maybe filling this existing capacity. Thanks.
Yeah. So we still have significant available capacity as you heard from our prepared remarks were expecting 170 centers at the end of the year, while raising guidance and you can also see in our investors supplement.
Continued growth.
Our medical center membership billing that capacity, we have cigna.
Significant more to go with a low cost acquisition model that we have with two thirds of our patients coming in through non demand generating activities and.
And just like with our capital light MSL models were saying nice growth and improved earnings trajectory of that is not capital intensive and it's a clear tailwind.
For this year's earnings, particularly the second half of the year.
Okay got it thanks for the commentary.
Sure.
Thank you and the next amount to <unk> at Truth Securities.
Thanks, and thanks for taking my questions and I apologize for my horse, Okay, but I'll try just following up on seven minutes <unk> could you provide some details.
Was it related to any particular contract with geography, and excluding the C. I D. I mean would you say that <unk> outlook.
And I'll need to collect.
Collect some columbia with any Williams the cost me this categories.
Yeah, Thanks to injure I hope I do hope you feel better.
Yes, the py.
It's it's.
$7 million, so I would say, it's kind of sprinkled a little a little cross various.
Contraction arrangements, so nothing that I would call out there and then I would say, yes, I think trends generally we're in line other than the two that we really highlighted which was this use of the over the counter card.
That that we saw.
Is more significant utilization that we would expect have expected and then second followed that up by additional utilization of brand brand new drugs, which is not overly surprising, but we are seeing we're getting a new membership in which it takes a little bit of time for those new members as a C or a primary care doctors and they.
Become further engaged.
To find lower cost alternative <unk>.
Generic products. So that's why we are comfortable overtime that memory gauge, which should be able to.
Mitigate that higher brand new drug utilization throughout the rest of this year.
That sounds good and then good follow up on last quarter, you'd like to talk about 70, magenta cost savings on Opex and 20 million.
Medical expenses from this underperforming Anthony a termination you've talked about this evening as well maybe update <unk> <unk> 19 game combined savings how much you have captured in Q1, how much is in hand, what <unk> what are you trying to get <unk>.
Yeah. The <unk> the SG&A savings are really making strong progress we're in line with where we expected to see in the first first quarter here and would continue that throughout the year. So I would say generally you're kind of breaking into into quarters were slightly ahead on the SGI.
Savings has come through.
But I would also caveat that we're continuing to look for a new <unk> new opportunities to continue to create efficiencies and opportunities for further SG&A savings.
So part of me says the worst never done, but these initiatives that we have launched are well underway and for the most part.
Just waiting for the the time to pass for them to kind of dropped to the bottom as.
As far as the.
The affiliate actions those are underway as well those take a little more time, so I'd say those probably will occur more in the back have been in the in the early part of the year. Because you you got to kind of work with the.
Contracts and they take time et cetera, but those.
Those initial.
Action items that we identified are in progress and that but I would say, both mark and and Bob are continuing to work that effort as well and really.
Continuing to.
Work with each of the players as well as the operators in the organization to see what other opportunities there.
Perfect. Thanks, a lot.
We'll go next to Justin like at Wolf Research.
Hey, guys. Thanks. This is also known for Justin I appreciate all the color around the strategic review.
Sticking with that for a quick moment, how should we think about as you guys are going through the businesses. What does it start to take shape as is it exiting certain businesses as it may be prioritized without M. A line for her.
Stopping kind of that enrollment growth on the Medicaid MCA lines.
Curious any additional commentary there and then sticking there any color that you can kind of spike out on the pricing trends in the acre cause you guys brought on.
I appreciate it.
Yeah. So.
You started with how we think about the business of how we're simplifying and optimizing the business too are high.
Highly differentiated in high performing MH focused medical centers and the use of capital light models.
The rest are by definition non-core and we've got opportunities there to give us further flexibility strengthens the balance sheets and.
Invest in the.
The medical centers and capitalize Medicare focused models that providers.
Provide us excellent clinical and financial outcomes.
Great and then maybe one to follow up Brian if there's any commentary on the the price internal Haa that'd be great and then turning focus with a guy at a little bit you know any update expectations of what for your membership kind of in the EMEA line's kind of looked like.
And all of that and the commentary it sounded like D. C outlook, maybe got a little bit better versus prior.
[noise] any other moving parts to kind of keep in mind as we bridge that consistent EBIT outlook. Thanks.
Yeah, I don't think there's anything I was on.
On the HCA I think.
Nothing that I would call out.
I'd say, if you look at our PM Pms for the quarter.
On the lower end of where we would expect there is just some reconcile ciliated quality share programs that came through in the first quarter, but going forward.
I believe our first quarter pfm's around $11 or so, but we would say I would expect that to be $30 going forward ourselves give or take.
So I I don't think there's anything unusual there.
Like.
That business is a nice compliment, but as Marla mentioned and as we've mentioned in the past our focus is squarely on the Medicare advantage business and and ramping that business and those opportunities moving forward.
I can't remember what the second part of your question was if you could repeat that.
Yeah, just the may enrollment growth Bryan just curious how that's training versus expectations. I think you guys are looking for some growth for the year premiere versus kind of flat sequentially, just hoping for is kind of some update there.
Yeah, Let me just take that our focus is on growing profitably.
I mentioned streamlining the organization.
You can see in the supplement and we continue to see nice growth and our Medicare staff model centers and that came a line of business we.
We are thoughtfully trimming, our affiliates and will continue to do that and even though that.
Present some.
Some modest headwind to M a growth in general.
Certainly strengthens our profitability and it gives us.
Additional opportunity to invest and realized the very significant earnings potential within our medical centers. As you can also appreciate and the investor supplement.
Thanks, guys you should go.
You're welcome.
Thank you and the next amount to Josh raccoons and background research.
Hey, Thanks for taking the call. This is actually Marco on for Josh Uhm.
Another quick question around the non-core acid divestitures, uhm and structure of those it sounded like the first tranche could come in the next couple of months.
So the current thinking on your end that.
Diverse divestitures can be done in several steps instead of one larger transaction uhm and is there any preference from your end.
They're doing it.
Here is a smaller transactions or one large transaction. Thank you.
It will likely be a series of transactions.
And value maximizing ways.
That.
It makes sense for our shareholders and allow us to create optimal longterm value.
Alright, and then if I could just get one quick follow up now it looked like the MCR was up about 480 basis points a year over year on the first corner, while the guidance for the full year implies.
Increase some closer to 240 basis points or 290 basis points at the high end I know you spoke to some of the drivers in the quarter.
I was wondering if you could provide any further detail on what specific items need to improve through the rest of the year and what the main drivers are for you to a cheap guidance. Thanks.
Yeah, no. Thanks, Yeah, I mean, I think the important point in the first quarter MCR is looking at the mix of the business and that's will be called out the D C.
I'm Gonna keep Sandy C, but the ACO reach program, which as you know has a much higher MCR than the base business. So it makes it certainly playing a big piece in that but really as.
As we go through the year, even if you look back at 2022, you see the substantial improvement from first half the second half.
Those those are.
Will be very consistent as we go it as we move through 2023.
As particularly in the back half of the year when you start getting the stop loss and other recoveries benefiting plus normal seasonal utilization. So those those types of activity we're certainly.
Benefit the MCR and then other actions around some of the trimming of the affiliates and S and improving the affiliates business in the back half of the year should allow us to achieve the full year MCR guidance.
Alright, thanks very much.
Thank you and the next night to Andrew market E B S.
Tom Selleck for Andrew Thanks for taking my question.
First could you provide some color on the impacts from OTC flex cards, as well as which brand new drug specifically drove MCR hired this quarter. These more behavioral changes or medical changes.
And are there any controls in place to mitigate these impacts for the balance of the year.
<unk>.
Yeah. The first part about the flex car, it's a function of.
Plan specific benefits.
Plan, a specific benefit design and I would point you to my commentary on an industry trends and we're sitting on historically high rebates and such OCC.
Benefits.
That I expect to moderate in the coming year.
Number two.
To the the branded usage of medicines.
A class.
We're seeing higher utilization as are others are.
Some of the newer diabetic medications.
And there are various ways in which to engage with with patients.
As appropriate when there are generic equivalents.
Bolting a lot of patients onto our platform is you know over the past.
<unk> and a half and it takes time to reevaluate and and modified patients medications.
While improving their care.
Wanted to make sure that we're improving care first and foremost, but we're also working with the pharmaceutical company programs. There is a benefit overall as a result of our ex rebates and pharmacy stop loss.
That.
Also benefit us as the as the year progresses, and we continue to take care of our patients yes.
Yeah, I mean, I'll, just Brian Rogers, adding weed.
We did call out the favorable PM Pms that we saw you that's a great start to the year. So.
Most part while those do tread down, but it's always good to start at a higher level than I expected. So that gives us some some additional confidence and then I'll just call. It the one other item in the quarter was the PID. Obviously, you expect that not to reoccur, so that becomes another driver widely MCR.
Yeah. The first at first half will be lower than the secondhand.
Right right.
Directly at all.
<unk> could you could you provide some color on that part of your development as well as the favorable pair judgments that you mentioned in the corner. Thanks.
Yeah, I think I'd similar to what I said before it <unk> is pretty it's pretty broad based.
Between our Medicare and.
Maybe a little more heavily geared towards ACO reach but.
So that's generally.
What we saw in the quarter.
As we kind of think through the rest of the year. We think we have a good view of where that MCR is gonna go based on the things that we just talked about it in terms of the utilization.
Nation of some of the benefits and.
And then operational prove miss that we're going to be pushing through and.
I dunno.
I can add on the fair contract confronted where we have strong pair partners and we're modifying a contract to a line too clinical value that we're providing pair farmers recognize that there are multiple lovers and such contracts were not done and <unk>.
Market My market, we are evaluating each and every plan that we take and each pay your partner that we have to make sure that we're prioritising, the best clinical and financial outcomes.
Great. Thank you.
When X amount to you Brian <unk> at Jefferies.
Hey, good afternoon, guys I guess.
My question is.
[noise] about what a lot of health care providers are seeing right now, they're saying that utilization has been strong Q1, but also carrying over in the queue too. So just curious what are you baking into guidance in terms of utilization trends, whether it's hospitals labs physician visits and things like that.
Yeah, Brian mentioned, we started the year with higher revenues that we expect to continue throughout the year with than seasonality being what it has always been second half of the year, having less utilization due to a number of factors including.
Holiday periods than.
Then you have the benefit of a stop loss and a full benefit pharmacy rebates as as an example.
So we see those as.
As part of the in line expectations.
To our calendar year.
We are not seen.
Increased.
A P Ts or hospital based utilization we are.
Scene excellent.
Patient engagement.
The number of a primary care visits by patients and even by restaurant vacation of patients, including our high risk patients.
We are seeing however, a higher use of OTC benefits and.
Branded.
Medications and as as we described.
We have.
Have confidence.
And because of the the.
Revenues seasonality, the softball, and the daycare management that we have in place.
Asked to how.
The second part of the year develops yeah, and I'll just add to that Marla mentioned Apt's just for everyone's reference. We did include a supplement to slide in our financial supplement around.
Our total hospital emission so they'll give you a good visual of the call.
<unk> downward sloping ATT trajectory that are seen as we enter 2023.
Got it. Thank you for that and then I guess my follow up you you called out the are you talking about the high risk patient task force. So.
Does that incremental G&A are you using existing employees and resources to drive this.
Tears any color you can share with us.
Yeah, no. It's it's a great question, so it's mostly a reallocation of existing staff.
R and tire.
Cost effectiveness program that we have executed over the past couple of quarters has been to <unk>.
Best more tour, the direct provision of care rather than be Administrated services and so this is part of that.
Continued realignment Brian mentioned.
More opportunity.
And that is part of the forward momentum that we're carrying into the year. It's all about our patients first and foremost and Ah lining up more resources.
In their direct care is where we're focused on.
Awesome. Thank you guys.
Thank you.
Thank you and our last question today will come from a J rights of credit Suisse.
Hi, everybody first I just wanted to ask about a little more about the MCR. If I look at last year. Your Q1 was 79.5 in full year was 79.1. This year first quarters 84.2, I guess, you get X out the $7 million a developed prior development is going to be an 83.4.
And you're looking to get to 81 to 82 now it sounds like.
Stop loss, which you've talked about before we will help you I wonder whether the fact that you got more ACO reached us to stop laws have the same effect on the acoa's than it does on the.
A population.
Similarly also on the utilization patterns are you seeing ACO reach utilization overtime now and it's more significant for you be similar to what you're seeing Lemay and then.
You also calling out pharmacy rebates for the first time is there any reason that that's become a bigger.
Part of what's going on here other than the fact that you've got.
Membership grows I guess across the board, but in terms of it helping you on the MLR as the year progresses.
Yeah mm mm.
Medicare and.
ACO stop-loss generally behave the same way.
So you don't really know cause the material distinctions there.
And then as far as.
Underlying trends in AC <unk> I think this is the nice part about having a scale size business you start to see more consistent trends and understand behaviour is better and we talked a lot about last year learning the business understanding the dynamics and the.
<unk> Ah Carter financial economics of how the programs working so I think each each each month each quarter, we get better and better at it so we're starting to get a.
Better handle on a particularly given the scale. So think there's less volatility when it was 4000 members so much easier from a a business financial performance and projections. So I think that's kind of how we're thinking about it.
And on the rebates. The fact that you are now calling those out is there anything that's changed to make that a more significant.
And all of those.
The only thing is just relatively higher use of random medicine and party spend on the volume as as you called out and so that has a relatively more important impact than in previous years.
Okay, Alright, maybe my follow up question they would be on the liquidity in cash flow. So.
I think you said you you expect to be 70, or 80 million cashews for the year. So that leaves another 50, well actually another $35 million. So I guess from what 45 from what you did in the first quarter I think it sounds like working capital or Capex would be another 10 million.
Dollars or so and and then we don't know what you'll get from divestitures, but you also is there any working capital swing over the course of the year I know last year, there was quite a bit of volatility in the working capital from quarter to quarter any comment on that and I also should just ask.
I assume it is but the $120 million revolver, that's fully available right now to draw down if you <unk> if you needed it.
Yeah, I'll I'll start with that yes, we are untapped on the revolver and so I think that's when I'd take a look take a step back and that's where I go back to our total liquidity and over $150 million to execute on our plan and to your your point about the divestitures, we have not factored any of that in.
You know those things that my my view is you take those when it happened.
Try to anticipate because you'll never be right.
So.
We started a year strengthening the balance sheet with cigarettes, the necessary capital that we needed.
Essentially to execute on this plan that marla talked about and others talked about.
So from that perspective, I think we have a nice.
Ability to work through what we need to do focusing on those high performing.
Hi, cash generating Medicare.
Medicare advantage lines, and and we'll look strategically to divest any other non core assets that.
That we can and I'd say, there's been a heavy interest which is which is great great to see so.
Marla mentioned will prudently and expeditiously move forward to achieve the highest return on those assets that we have.
Okay. Thanks, a lot.
Thank you and ladies and gentlemen that will bring it to the end of Kano Health first quarter of 2023 earnings conference call I would like to thank you all so much for joining us today and wish you all a great remainder of your day Goodbye.
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