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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2023
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-39391
CareMax, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
85-0992224 |
|
( State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
|
1000 NW 57th Court, Suite 400 Miami, FL |
33126 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (786) 360-4768
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Class A common stock, par value $0.0001 per share |
|
CMAX |
|
The Nasdaq Stock Market LLC |
Warrants, each whole warrant exercisable for one share of Class A common stock, each at an exercise price of $11.50 per share |
|
CMAXW |
|
The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☒ |
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☒ |
|
|
|
|
Emerging growth company |
|
☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of August 4, 2023, the registrant had 112,077,833 shares of Class A common stock, $0.0001 par value per share, and no shares of Class B common stock, $0.0001 par value per share issued and outstanding.
CareMax, Inc.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2023
Table of Contents
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1 |
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2 |
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Condensed Consolidated Statements of Changes in Stockholders' Equity |
3 |
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4 |
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6 |
|
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
27 |
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
45 |
|
46 |
||
48 |
|||
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Item 1. |
Legal Proceedings |
48 |
|
Item 1A. |
Risk Factors |
48 |
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
48 |
|
Item 3. |
Defaults Upon Senior Securities |
48 |
|
Item 4. |
Mine Safety Disclosures |
48 |
|
Item 5. |
Other Information |
48 |
|
Item 6. |
Exhibits |
48 |
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CAREMAX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share data)
|
|
June 30, |
|
|
December 31, |
|
||
ASSETS |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Current Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
54,605 |
|
|
$ |
41,626 |
|
Accounts receivable, net |
|
|
159,812 |
|
|
|
151,036 |
|
Risk settlement assets |
|
|
717 |
|
|
|
707 |
|
Other current assets |
|
|
3,516 |
|
|
|
3,968 |
|
Total Current Assets |
|
|
218,650 |
|
|
|
197,336 |
|
|
|
|
|
|
|
|
||
Property and equipment, net |
|
|
24,628 |
|
|
|
21,006 |
|
Operating lease right-of-use assets |
|
|
131,207 |
|
|
|
108,937 |
|
Goodwill, net |
|
|
602,643 |
|
|
|
700,643 |
|
Intangible assets, net |
|
|
112,537 |
|
|
|
123,585 |
|
Deferred debt issuance costs |
|
|
1,052 |
|
|
|
1,685 |
|
Other assets |
|
|
60,249 |
|
|
|
17,550 |
|
Total Assets |
|
$ |
1,150,965 |
|
|
$ |
1,170,743 |
|
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
8,677 |
|
|
$ |
7,687 |
|
Accrued expenses |
|
|
12,634 |
|
|
|
16,854 |
|
Risk settlement liabilities |
|
|
15,656 |
|
|
|
14,171 |
|
Related party liabilities |
|
|
13,410 |
|
|
|
1,777 |
|
Related party debt, net |
|
|
32,997 |
|
|
|
30,277 |
|
Current portion of third-party debt, net |
|
|
276 |
|
|
|
253 |
|
Current portion of operating lease liabilities |
|
|
7,116 |
|
|
|
5,512 |
|
Other current liabilities |
|
|
7,303 |
|
|
|
790 |
|
Total Current Liabilities |
|
|
98,069 |
|
|
|
77,322 |
|
Derivative warrant liabilities |
|
|
2,434 |
|
|
|
3,974 |
|
Long-term debt, net |
|
|
298,481 |
|
|
|
230,725 |
|
Long-term operating lease liabilities |
|
|
116,187 |
|
|
|
96,539 |
|
Contingent earnout liability |
|
|
- |
|
|
|
134,561 |
|
Other liabilities |
|
|
11,297 |
|
|
|
8,075 |
|
Total Liabilities |
|
|
526,469 |
|
|
|
551,196 |
|
COMMITMENTS AND CONTINGENCIES (NOTE 15) |
|
|
|
|
|
|
||
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
||
Preferred stock (1,000,000 shares authorized; one share issued and outstanding as of June 30, 2023 and December 31, 2022) |
|
|
- |
|
|
|
- |
|
Class A common stock ($0.0001 par value; 250,000,000 shares authorized; 112,072,237 and 111,332,584 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively) |
|
|
11 |
|
|
|
11 |
|
Additional paid-in-capital |
|
|
776,533 |
|
|
|
657,126 |
|
Accumulated deficit |
|
|
(152,048 |
) |
|
|
(37,590 |
) |
Total Stockholders' Equity |
|
|
624,496 |
|
|
|
619,547 |
|
|
|
|
|
|
|
|
||
Total Liabilities and Stockholders' Equity |
|
$ |
1,150,965 |
|
|
$ |
1,170,743 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
(1)
CAREMAX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share data)
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
||||
Medicare risk-based revenue |
$ |
155,486 |
|
|
$ |
143,664 |
|
|
$ |
277,079 |
|
|
$ |
251,410 |
|
Medicaid risk-based revenue |
|
30,054 |
|
|
|
19,896 |
|
|
|
55,680 |
|
|
|
40,062 |
|
Government value-based care revenue |
|
22,206 |
|
|
|
- |
|
|
|
32,216 |
|
|
|
- |
|
Other revenue |
|
16,694 |
|
|
|
8,719 |
|
|
|
32,449 |
|
|
|
17,727 |
|
Total revenue |
|
224,440 |
|
|
|
172,279 |
|
|
|
397,424 |
|
|
|
309,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
||||
External provider costs |
|
156,995 |
|
|
|
120,348 |
|
|
|
267,668 |
|
|
|
213,204 |
|
Cost of care |
|
40,192 |
|
|
|
30,364 |
|
|
|
78,819 |
|
|
|
57,712 |
|
Sales and marketing |
|
3,327 |
|
|
|
2,299 |
|
|
|
7,092 |
|
|
|
5,600 |
|
Corporate, general and administrative |
|
20,795 |
|
|
|
18,063 |
|
|
|
44,739 |
|
|
|
37,041 |
|
Depreciation and amortization |
|
6,828 |
|
|
|
4,903 |
|
|
|
13,404 |
|
|
|
9,965 |
|
Goodwill impairment |
|
- |
|
|
|
- |
|
|
|
98,000 |
|
|
|
- |
|
Acquisition related costs |
|
54 |
|
|
|
2,789 |
|
|
|
74 |
|
|
|
3,055 |
|
Total operating expenses |
|
228,191 |
|
|
|
178,767 |
|
|
|
509,797 |
|
|
|
326,577 |
|
Operating loss |
|
(3,750 |
) |
|
|
(6,488 |
) |
|
|
(112,373 |
) |
|
|
(17,378 |
) |
Nonoperating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
(13,197 |
) |
|
|
(3,896 |
) |
|
|
(23,908 |
) |
|
|
(5,624 |
) |
Change in fair value of derivative warrant liabilities |
|
434 |
|
|
|
7,391 |
|
|
|
1,540 |
|
|
|
3,855 |
|
Gain (loss) on remeasurement of contingent earnout liabilities |
|
(16,220 |
) |
|
|
- |
|
|
|
19,916 |
|
|
|
- |
|
Loss on extinguishment of debt, net |
|
- |
|
|
|
(6,172 |
) |
|
|
- |
|
|
|
(6,172 |
) |
Other income (expense), net |
|
534 |
|
|
|
(45 |
) |
|
|
721 |
|
|
|
(507 |
) |
|
|
(28,449 |
) |
|
|
(2,722 |
) |
|
|
(1,730 |
) |
|
|
(8,448 |
) |
Loss before income tax |
|
(32,199 |
) |
|
|
(9,210 |
) |
|
|
(114,103 |
) |
|
|
(25,826 |
) |
Income tax expense |
|
(177 |
) |
|
|
(171 |
) |
|
|
(355 |
) |
|
|
(351 |
) |
Net loss |
$ |
(32,376 |
) |
|
$ |
(9,381 |
) |
|
$ |
(114,458 |
) |
|
$ |
(26,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average basic shares outstanding |
|
111,671,302 |
|
|
|
87,422,917 |
|
|
|
111,511,214 |
|
|
|
87,395,596 |
|
Weighted-average diluted shares outstanding |
|
111,671,302 |
|
|
|
87,422,917 |
|
|
|
111,511,214 |
|
|
|
87,395,596 |
|
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
$ |
(0.29 |
) |
|
$ |
(0.11 |
) |
|
$ |
(1.03 |
) |
|
$ |
(0.30 |
) |
Diluted |
$ |
(0.29 |
) |
|
$ |
(0.11 |
) |
|
$ |
(1.03 |
) |
|
$ |
(0.30 |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
(2)
CAREMAX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands, except share data)
|
|
Three Months Ended June 30, 2023 and 2022 |
|
|||||||||||||||||||||
|
|
Class A Common Stock |
|
|
Preferred |
|
|
Additional |
|
|
Retained Earnings |
|
|
Total |
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Paid-in-capital |
|
|
(Deficit) |
|
|
Equity |
|
||||||
BALANCE - MARCH 31, 2023 |
|
|
111,360,802 |
|
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
659,424 |
|
|
$ |
(119,672 |
) |
|
$ |
539,763 |
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,464 |
|
|
|
- |
|
|
|
2,464 |
|
Issuance of shares upon vesting of stock-based compensation awards |
|
|
711,435 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Reclassification of contingent consideration previously liability classified |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
114,645 |
|
|
|
- |
|
|
|
114,645 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(32,376 |
) |
|
|
(32,376 |
) |
BALANCE - JUNE 30, 2023 |
|
|
112,072,237 |
|
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
776,533 |
|
|
$ |
(152,048 |
) |
|
$ |
624,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
BALANCE - MARCH 31, 2022 |
|
|
87,367,972 |
|
|
$ |
9 |
|
|
$ |
- |
|
|
$ |
508,945 |
|
|
$ |
(16,763 |
) |
|
$ |
492,190 |
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,787 |
|
|
|
- |
|
|
|
2,787 |
|
Issuance of shares upon vesting of stock-based compensation awards |
|
|
100,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Vesting of Series B Warrants under Advisory Agreement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,530 |
|
|
|
- |
|
|
|
2,530 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(9,381 |
) |
|
|
(9,381 |
) |
BALANCE - JUNE 30, 2022 |
|
|
87,467,972 |
|
|
$ |
9 |
|
|
$ |
- |
|
|
$ |
514,262 |
|
|
$ |
(26,144 |
) |
|
$ |
488,127 |
|
|
|
Six Months Ended June 30, 2023 and 2022 |
|
|||||||||||||||||||||
|
|
Class A Common Stock |
|
|
Preferred |
|
|
Additional |
|
|
Retained Earnings |
|
|
Total |
|
|||||||||
|
|
Shares |
|
|
Amount |
|
|
Stock |
|
|
Paid-in-capital |
|
|
(Deficit) |
|
|
Equity |
|
||||||
BALANCE - DECEMBER 31, 2022 |
|
|
111,332,584 |
|
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
657,126 |
|
|
$ |
(37,590 |
) |
|
$ |
619,547 |
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,762 |
|
|
|
- |
|
|
|
4,762 |
|
Issuance of shares upon vesting of stock-based compensation awards |
|
|
739,653 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Reclassification of contingent consideration previously liability classified |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
114,645 |
|
|
|
- |
|
|
|
114,645 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(114,458 |
) |
|
|
(114,458 |
) |
BALANCE - JUNE 30, 2023 |
|
|
112,072,237 |
|
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
776,533 |
|
|
$ |
(152,048 |
) |
|
$ |
624,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
BALANCE - DECEMBER 31, 2021 |
|
|
87,367,972 |
|
|
$ |
9 |
|
|
$ |
- |
|
|
$ |
505,327 |
|
|
$ |
33 |
|
|
|
505,369 |
|
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,875 |
|
|
|
- |
|
|
|
3,875 |
|
Issuance of shares upon vesting of stock-based compensation awards |
|
|
100,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Vesting of Series B Warrants under Advisory Agreement |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,060 |
|
|
|
- |
|
|
|
5,060 |
|
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(26,178 |
) |
|
|
(26,178 |
) |
BALANCE - JUNE 30, 2022 |
|
|
87,467,972 |
|
|
$ |
9 |
|
|
$ |
- |
|
|
$ |
514,262 |
|
|
$ |
(26,144 |
) |
|
$ |
488,127 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
(3)
CAREMAX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
||
Net loss |
|
$ |
(114,458 |
) |
|
$ |
(26,178 |
) |
Adjustments to reconcile net loss to cash and cash equivalents |
|
|
|
|
|
|
||
Depreciation and amortization expense |
|
|
13,404 |
|
|
|
9,965 |
|
Amortization of debt issuance costs and discounts |
|
|
4,086 |
|
|
|
753 |
|
Stock-based compensation expense |
|
|
4,762 |
|
|
|
3,875 |
|
Income tax provision |
|
|
355 |
|
|
|
351 |
|
Change in fair value of derivative warrant liabilities |
|
|
(1,540 |
) |
|
|
(3,855 |
) |
Loss (gain) on remeasurement of contingent earnout liabilities |
|
|
(19,916 |
) |
|
|
- |
|
Loss (gain) on extinguishment of debt |
|
|
- |
|
|
|
6,172 |
|
Payment-in-kind interest expense |
|
|
5,500 |
|
|
|
1,078 |
|
Provision for credit losses |
|
|
57 |
|
|
|
- |
|
Goodwill impairment |
|
|
98,000 |
|
|
|
- |
|
Amortization of right-of-use assets |
|
|
5,842 |
|
|
|
- |
|
Other non-cash, net |
|
|
1,213 |
|
|
|
60 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
(1,255 |
) |
|
|
(29,976 |
) |
Other current assets |
|
|
452 |
|
|
|
(504 |
) |
Risk settlement assets and liabilities |
|
|
1,968 |
|
|
|
19 |
|
Other assets |
|
|
(41,807 |
) |
|
|
(105 |
) |
Operating lease liabilities |
|
|
(4,959 |
) |
|
|
- |
|
Accounts payable |
|
|
(128 |
) |
|
|
5,273 |
|
Accrued expenses |
|
|
(4,219 |
) |
|
|
4,910 |
|
Related party liabilities |
|
|
(1,134 |
) |
|
|
- |
|
Other liabilities |
|
|
10,515 |
|
|
|
764 |
|
Net cash used in operating activities |
|
|
(43,263 |
) |
|
|
(27,398 |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
||
Purchase of property and equipment |
|
|
(5,234 |
) |
|
|
(2,893 |
) |
Net cash used in investing activities |
|
|
(5,234 |
) |
|
|
(2,893 |
) |
|
|
|
|
|
|
|
||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
||
Proceeds from borrowings on long-term debt, net |
|
|
62,000 |
|
|
|
184,000 |
|
Principal payments of debt |
|
|
(125 |
) |
|
|
(121,881 |
) |
Payments of debt issuance costs |
|
|
(398 |
) |
|
|
(6,174 |
) |
Collateral for letters of credit |
|
|
- |
|
|
|
(5,439 |
) |
Net cash provided by financing activities |
|
|
61,477 |
|
|
|
50,505 |
|
|
|
|
|
|
|
|
||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
12,980 |
|
|
|
20,214 |
|
Cash and cash equivalents - beginning of period |
|
|
41,626 |
|
|
|
47,917 |
|
CASH AND CASH EQUIVALENTS - END OF PERIOD |
|
$ |
54,605 |
|
|
$ |
68,130 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CAREMAX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES: |
|
|
|
|
|
|
||
Equity and warrant consideration issued to The Related Companies, L.P. |
|
$ |
— |
|
|
$ |
5,060 |
|
Additions to construction in progress funded through accounts payable |
|
|
1,118 |
|
|
|
773 |
|
Reclassification of contingent consideration previously liability classified |
|
|
114,645 |
|
|
|
— |
|
Decrease in right-of-use assets and lease liabilities due to lease remeasurements |
|
|
2,151 |
|
|
|
— |
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
||
Cash paid for interest |
|
|
14,609 |
|
|
|
3,769 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
(5)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS
CareMax, Inc. (“CareMax” or the “Company”), formerly Deerfield Healthcare Technology Acquisitions Corp. (“DFHT”), is a Delaware corporation, which announced its initial public offering in July 2020 (the "IPO") as a publicly traded special purpose acquisition company for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination involving one or more businesses. CareMax is a technology-enabled care platform providing high-quality, value-based care and chronic disease management through physicians and health care professionals committed to the overall health and wellness continuum of care for its patients. As of June 30, 2023, the Company operated 62 centers and managed affiliated providers across 10 states that offer a comprehensive suite of healthcare and social services, and a proprietary software and services platform that provides data, analytics, and rules-based decision tools/workflows for physicians across the United States.
The Business Combination and Acquisitions
On December 18, 2020, DFHT entered into a Business Combination Agreement (the “Business Combination Agreement”) with CareMax Medical Group, L.L.C., a Florida limited liability company (“CMG”), and entities listed in the Business Combination Agreement (the “CMG Sellers”), IMC Medical Group Holdings, LLC, a Delaware limited liability company (“IMC”), IMC Holdings, LP, a Delaware limited partnership (“IMC Parent”), and Deerfield Partners, L.P. (“Deerfield Partners”). The Business Combination (as defined below) closed on June 8, 2021 (the “Closing Date”), whereby DFHT acquired 100% of the equity interests in CMG and 100% of the equity interests in IMC, with CMG and IMC becoming wholly owned subsidiaries of DFHT. Immediately upon completion (the “Closing”) of the transactions contemplated by the Business Combination Agreement and the related financing transactions (the “Business Combination”), the name of the combined company was changed to CareMax, Inc.
Unless the context otherwise requires, the “Company,” “we,” “us,” and “our” refer, for periods prior to the completion of the Business Combination, to CMG and its subsidiaries, and, for periods upon or after the completion of the Business Combination, to CareMax, Inc. and its subsidiaries.
Subsequent to consummation of the Business Combination, primarily during the second half of 2021, the Company acquired Senior Medical Associates, LLC ("SMA"), Stallion Medical Management, LLC ("SMM"), Unlimited Medical Services of Florida, LLC ("DNF"), Advantis Physician Alliance, LLC ("Advantis"), Business Intelligence & Analytics LLC ("BIX"), and three additional businesses (together with the acquisitions of SMA, SMM, DNF, Advantis and BIX, the "Acquisitions"). On November 10, 2022, the Company acquired the Medicare value-based care business of Steward Health Care System ("Steward Value-Based Care"), further described in Note 3, Acquisitions. Refer to Note 5, Goodwill and Other Intangible Assets, for information about measurement period adjustments.
Liquidity
In accordance with Accounting Standards Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. As of the report date, we do not believe that substantial doubt exists about our ability to continue as a going concern.
While the Company is expected to generate positive operating income for the foreseeable future, the length of time it takes to convert newly acquired populations of lives to profitable, full risk contracts in our management services organization (“MSO”) operations and the period of unprofitability in de novo centers before they generate positive cash flows may put pressure on our ability to meet the minimum liquidity covenant in the 12 months subsequent to the release of these condensed consolidated financial statements. In such circumstance, and others, we may be required to seek additional equity or debt financing, in addition to cash on hand and borrowings under our credit facilities in connection with our business growth, including debt financing that may be available to us from certain health plans for each new center that we open under the terms of our agreements with those health plans.
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We believe that, based on our current forecasts, our cash generated by our centers and our MSO operations, amounts available under our Credit Agreement (as defined below), and amounts available to us under our agreement with Elevance Health, both as further described in Note 7, Debt And Related Party Debt, will continue to be sufficient to fund our operations and growth strategies and allow us to remain in compliance with the minimum liquidity and maximum leverage covenants for at least the next 12 months from the issuance of these condensed consolidated financial statements. We have based these estimates on assumptions that may differ from actual results.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP has been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. The condensed consolidated balance sheet at December 31, 2022, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. Accordingly, the unaudited condensed consolidated financial statements should be read in connection with the Company’s audited financial statements and related notes as of and for the year ended December 31, 2022 included in the Company's Annual Report on Form 10-K filed with the SEC on March 30, 2023.
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. Such reclassifications have not materially affected previously reported amounts. In the opinion of management, the accompanying unaudited and condensed consolidated financial statements include all adjustments of a normal recurring nature, which are necessary for a fair statement of financial position, operating results and cash flows for the periods presented. Operating results for any interim period are not necessarily indicative of results for the full year.
The condensed consolidated financial statements include the accounts and operations of the Company. All intercompany accounts and transactions have been eliminated.
Segment Financial Information
The Company’s chief operating decision maker regularly reviews financial operating results on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company identifies operating segments based on this review by its chief operating decision maker and operates in and reports as a single operating segment. For the periods presented, all of the Company’s long-lived assets were located in the United States, and all revenue was earned in the United States.
Medicare and Medicaid Risk-Based Revenue
Medicare and Medicaid Risk-Based Revenue consists primarily of fees for medical services provided under capitated arrangements directly with various Medicare Advantage and Medicaid managed care payors. The Company receives a fixed fee per patient under what is typically known as a “risk contract.” Risk contracting, or full risk capitation, refers to a model in which the Company receives from the third-party payor a fixed payment of at-risk premium less an administrative charge on a per patient per month (“PMPM”) basis for a defined patient population, and the Company is then responsible for providing healthcare services required by that patient population. PMPM fees can fluctuate throughout the contract based on the health status (acuity) of each individual enrollee. In certain contracts, PMPM fees also include “risk adjustments” for items such as performance incentives, performance guarantees and risk shares. The capitated revenues are recognized based on the estimated PMPM fees earned net of projected performance incentives, performance guarantees, risk shares and rebates because we are able to reasonably estimate the ultimate PMPM payment of these contracts. We recognize revenue in the month in which eligible members are entitled to receive healthcare benefits. Subsequent changes in PMPM fees and the amount of revenue to be recognized are reflected through subsequent period adjustments to properly recognize the ultimate capitation amount.
(7)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For enrolled members in which we control healthcare services, we act as the principal and the gross fees under these contracts are reported as revenue and the cost of third-party medical care is included in external provider costs.
The Company generates MSO revenue for services it renders to independent physician associations (the “IPAs”) under administrative service contracts. The MSO revenue is recognized in the month in which the eligible members are entitled to receive healthcare benefits during the contract term. For MSO contracts in which the Company acts as a principal in coordinating and controlling the range of services provided (other than clinical decisions) and, thus, accepts full financial risk for members attributed to the IPA and is therefore responsible for the cost of all healthcare services required by those members, the fees are recognized on a gross basis, consistent with ASC 606, Revenue From Contracts with Customers ("ASC 606"). The related revenue is recorded in Medicare risk-based and Medicaid risk-based revenue.
Government Value-Based Care Revenue
Government Value-Based Care Revenue consists primarily of revenue derived from the Medicare Shared Savings Program (“MSSP”). The MSSP is sponsored by the Center for Medicare and Medicaid Services (“CMS”). The MSSP allows accountable care organizations (“ACOs”) to receive a share of cost savings they generate in connection with the managing of costs and quality of medical services rendered to Medicare beneficiaries. Payments to ACO participants, if any, are calculated annually and paid once a year by CMS on cost savings generated by the ACO participant relative to the ACO participants’ CMS benchmark. Under the MSSP, an ACO must meet certain qualifications to receive the full amount of its allocable cost savings or they either receive nothing or are responsible for shared losses. The MSSP rules require CMS to develop a benchmark for savings to be achieved by each ACO if the ACO is to receive shared savings. An ACO that meets the MSSP’s quality performance standards will be eligible to receive a share of the savings to the extent its assigned beneficiary medical expenditures are below the medical expenditure benchmark provided by CMS. A Minimum Savings Rate (“MSR”) must be achieved before the ACO can receive a share of the savings. Once the MSR is surpassed, all the savings below the benchmark provided by CMS will be shared at a certain percentage with the ACO. The MSR varies depending on the number of beneficiaries assigned to the ACO.
The promised services under the Company's MSSP arrangements are to provide the population health services to beneficiaries for a given performance period. As part of these arrangements, the Company stands ready to provide the population with health services throughout the performance period.
The Company estimates the variable consideration that constitutes the transaction price of these arrangements by utilizing third-party data and historical experience. As the Company’s performance obligation is met, revenue is recorded over time using its estimation methods and consideration is made, to the extent possible, that it is probable that a significant reversal will not occur once any uncertainty associated with the variable consideration is subsequently resolved. Since the Company has determined it only has one performance obligation under each of these arrangements, it allocates the full transaction price towards each arrangement’s individual performance obligation.
Government Value-Based Care Revenue is recognized on a net basis, because the Company does not coordinate or control the range of services provided and, thus, accepts partial financial risk.
Other Revenue
Other revenue primarily represents partial and no risk capitation, MSO and pharmacy revenue. Capitation revenue represents a fixed amount of money per patient per month paid in advance for the delivery of primary care services only, whereby the Company is not liable for medical costs in excess of the fixed payment. Capitated revenues are typically prepaid monthly to the Company based on the number of patients selecting us as their primary care provider. Our capitated rates are fixed, contractual rates. Incentive payments for Healthcare Effectiveness Data and Information Set (“HEDIS”) and any services paid on a fee for service basis by a health plan are also included in other revenue. Other revenue also includes ancillary fees earned under contracts with certain payors for the provision of certain care coordination and other care management services. These services are provided to patients covered by these payors regardless of whether those patients receive their care from our affiliated medical groups. Revenue for primary care services for patients in a partial risk or upside-only contracts is reported in other revenue.
(8)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For MSO contracts in which the Company does not coordinate or control the range of services provided and, thus, accepts partial or no financial risk for members attributed to the IPA, the revenue is recognized on a net basis, consistent with ASC 606, and is recorded in other revenue.
Accounts Receivable
Accounts receivable are carried at the amounts the Company deems collectible. Accordingly, an allowance is provided based on credit losses expected over the contractual term. This allowance is netted against the receivable balance with the loss being recognized within general and administrative expenses in the consolidated statements of operations. Accounts receivable are written off when they are deemed uncollectible. As of June 30, 2023 and December 31, 2022, the Company's provision for credit losses was $1.1 million and $1.2 million, respectively.
Amounts due to the Company within twelve months of the reporting period are recorded in accounts receivable, net. The amounts which the Company expects to receive following the 12 month period are recorded in other assets. Accordingly, as of June 30, 2023, $42.3 million of accounts receivable was included in other assets (none as of December 31, 2022).
Significant Accounting Policies
There have been no other changes to our significant accounting policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 30, 2023.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The areas where significant estimates are used in the accompanying financial statements include, but are not limited to, revenues and related receivables from risk adjustments, medical services expense and related payables, purchase price allocations, including fair value estimates of intangibles and contingent consideration, the valuation and related impairment testing of long-lived assets, including goodwill and intangible assets, the valuation of derivative warrant liabilities, and the estimated useful lives of fixed assets and intangible assets, including internally developed software. Actual results could differ from those estimates.
The Company re-evaluated key assumptions and estimates and based on this analysis, the Company identified changes in estimates to revenue, external provider costs and accounts receivable, net. Accordingly, the Company recognized the following changes in prior year estimates in each respective period (in thousands):
Increase (decrease) |
Six Months Ended June 30, 2023 |
|
Six Months Ended June 30, 2022 |
|
||
|
|
|
|
|
||
Revenue |
$ |
(22,964 |
) |
$ |
2,002 |
|
External provider costs |
|
(1,736 |
) |
|
8,057 |
|
Accounts receivable, net |
|
(21,228 |
) |
|
(6,055 |
) |
For the six months ended June 30, 2023, the developments related to the prior year dates of service were primarily driven by new, updated information regarding MSO membership at one health plan, an unseasonably early flu season, and more current data from one Medicaid health plan. For the six months ended June 30, 2022, the developments related to the prior year dates of service were driven by claims development from COVID-related utilization.
Emerging Growth Company
(9)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Section 102(b)(1) of the Jumpstart Our Business Startups Act (the "JOBS Act") exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Securities and Exchange Act of 1934, as amended (the "Exchange Act") are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to nonemerging growth companies, but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s condensed consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used. Additionally, as an emerging growth company, the Company is exempt from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, and the Company’s independent registered public accounting firm is not required to evaluate and report on the effectiveness of internal control over financial reporting.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents and accounts receivable. The Company believes it is not exposed to any significant concentrations of credit risk from these financial instruments. The Company has not experienced any losses on its deposits of cash and cash equivalents.
Composition of the Company's revenues and accounts receivable balances for the payors comprising 10% or more of revenue was as follows:
|
Revenue |
||||||
|
Three Months Ended June 30, 2023 |
|
Six Months Ended June 30, 2023 |
|
Three Months Ended June 30, 2022 |
|
Six Months Ended June 30, 2022 |
Payor A |
22% |
|
26% |
|
27% |
|
30% |
Payor B |
11% |
|
n/a |
|
24% |
|
18% |
Payor C |
21% |
|
22% |
|
17% |
|
17% |
Payor D |
11% |
|
12% |
|
13% |
|
14% |
Payor E |
13% |
|
16% |
|
10% |
|
12% |
Payor F |
10% |
|
n/a |
|
n/a |
|
n/a |
|
Accounts Receivable, net |
||
|
As of June 30, 2023 |
|
As of December 31, 2022 |
Payor A |
11% |
|
13% |
Payor B |
n/a |
|
11% |
Payor C |
12% |
|
13% |
Payor D |
10% |
|
13% |
Payor E |
n/a |
|
n/a |
Payor F |
44% |
|
34% |
Recently Adopted Accounting Pronouncements
The Company elected to defer compliance with ASC Topic 842, Leases ("ASC 842"), consistent with the requirements for a private company due to the Company’s status as an emerging growth company and the provisions of the JOBS Act. Accordingly, the adoption of ASC 842 was applicable for the Company for the annual reporting period beginning January 1, 2022, and interim reporting periods within the annual reporting period beginning after December 15, 2022. The Company elected to adopt practical expedients which permit it to not reassess its prior conclusions about lease identification, lease classification and initial direct costs under the new standard. The Company elected to combine lease and non-lease components for all lease contracts and also elected not to recognize right-of-use assets and lease liabilities for leases with terms of 12 months or less. The Company did not elect the hindsight practical expedient, which would have allowed the Company to revisit key assumptions, such as lease term, which were made when the lease was originally entered.
We implemented ASC 842 effective January 1, 2022, using the modified retrospective approach, which allows entities to either apply the new lease standard to the beginning of the earliest period presented or only to the consolidated financial statements in the period of adoption without restating prior periods. We have elected to apply the new guidance at the date of the adoption, January 1, 2022, without restating prior periods.
(10)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The financial effect of the adoption was an increase of approximately $73.7 million to the right-of-use asset and corresponding lease liabilities to the Company’s balance sheet as of January 1, 2022.
Accounting Pronouncements Not Yet Adopted
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. The guidance allows for either full retrospective adoption or modified retrospective adoption. The guidance is effective for the Company in the first quarter of fiscal year 2025 and early adoption is permitted. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements.
NOTE 3. ACQUISITIONS
Steward Acquisition
On November 10, 2022, the Company completed its previously announced acquisition, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), by and among (i) the Company, (ii) Sparta Merger Sub I Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub I”), (iii) Sparta Merger Sub II Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub II”), (iv) Sparta Merger Sub III Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub III” and, together with Merger Sub I and Merger Sub II, “Merger Subs” and each a “Merger Sub”), (v) Sparta Merger Sub I LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger LLC I”), (vi) Sparta Merger Sub II LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger LLC II”), (vii) Sparta Merger Sub III LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger LLC III” and, together with Merger LLC I and Merger LLC II, “Merger LLCs” and each a “Merger LLC”), (viii) Sparta Sub Inc., a Delaware corporation ("SACN Holdco"), (ix) SNCN Holdco Inc. a Delaware corporation ("SNCN Holdco"), (x) SICN Holdco Inc., a Delaware corporation ("SICN Holdco" and, collectively with SACN Holdco, SNCN Holdco, Steward National Care Network, Inc. (n/k/a Steward National Care Network, LLC, “SNCN”), Steward Integrated Care Network, Inc., and Steward Accountable Care Network, Inc. (n/k/a as Steward Accountable Care Network, LLC, “SACN”), each a "target" and, collectively, the "Targets"), (xi) Sparta Holding Co. LLC, a Delaware limited liability company (the “Seller”), and (xii) Steward Health Care System LLC, a Delaware limited liability company (referred to collectively with the Seller, the “Seller Parties”), pursuant to which the Company acquired Steward Value-Based Care (such transaction, the “Steward Acquisition”).
The aggregate consideration paid to the Seller under the Merger Agreement on November 10, 2022, the date of the closing of the Steward Acquisition (the “Steward Closing”), consisted of (i) a cash payment of $25.0 million, subject to customary adjustments (ii) 23,500,000 shares (the “Initial Share Consideration”), subject to adjustments, of the Company’s Class A common stock, par value $0.0001 per share (the “Class A Common Stock”) and (iii) a cash payment of $35.5 million, an amount equal to the value of the Targets’ accounts receivable attributable to Medicare value-based payments for the period between January 1, 2022 and the Steward Closing, minus the amount of such payments payable to the affiliate physicians of the Targets (the “Financed Net Pre-Closing Medicare AR”).
In addition, the Merger Agreement provides that, following the Steward Closing, upon 100,000 Medicare lives from and/or attributable to the Seller Parties’ Medicare network participating in risk-based, value-based care arrangements contracted through the Company with a Medical Expense Ratio of less than 85% for two consecutive calendar quarters, the Company will issue the Seller, for immediate distribution to its equity holders, a number of shares of Class A Common Stock (the “Earnout Share Consideration” and together with the Initial Share Consideration, the “Share Consideration”) that, when added to the Initial Share Consideration, would have represented 41% of the issued and outstanding shares of the Company’s Class A Common Stock as of the Steward Closing, in each case after giving effect to issuances of Class A Common Stock between the Steward Closing and June 30, 2023 in connection with the exercise of warrants to purchase Class A Common Stock outstanding as of the Steward Closing, the potential earnout under the Company’s June 2021 Business Combination and any forfeitures, surrenders or other dispositions to the Company of Class A Common Stock outstanding as of the Steward Closing. If not previously issued, the Earnout Share Consideration will also be issuable upon a Change in Control (as defined in the Merger Agreement) of the Company.
(11)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following summarizes the consideration transferred as of the Steward Closing (in thousands):
Cash consideration |
|
|
|
$ |
25,000 |
|
Initial Share Consideration (1) |
|
|
|
|
134,420 |
|
Earnout Share Consideration (2) |
|
|
|
|
212,355 |
|
Other consideration, net (3) |
|
|
|
|
27,219 |
|
Total Steward Acquisition consideration |
|
|
|
$ |
398,994 |
|
|
|
|
|
|
|
|
(1) Represents issuance of 23.5 million shares of Class A Common Stock of the Company using the closing price as of the date of the Steward Closing of $5.72 per share. |
|
|||||
(2) Calculated as the 37.5 million shares of Class A Common Stock the Company estimated that it will be obligated to issue to the Seller Parties upon achievement of certain milestones as Earnout Share Consideration, multiplied by CareMax's closing stock price as of the date of the Steward Closing of $5.72 per share and the estimated probability of payout of 99%. |
|
|||||
(3) Represents funding of the Financed Net Pre-Closing Medicare AR of $35.5 million, offset by the Sellers' reimbursement to the Company of the interest and original issue discount of $6.8 million related to the Loan and Security Agreement (as defined in Note 7, Debt) and by non-cash purchase price adjustment of $1.5 million. |
|
|||||
The acquired assets and assumed liabilities of Steward Value-Based Care were recorded at their estimated fair values. The purchase price allocation for the Steward Acquisition has not been finalized as of June 30, 2023 and is based upon the best available information at the current time. We intend to finalize the purchase price allocation during the fourth quarter of 2023. The following table summarizes the consideration paid and the preliminary fair value of the assets acquired and liabilities assumed at Steward Closing (in thousands):
Accounts receivable |
|
$ |
43,060 |
|
Other working capital adjustments |
|
|
(21,584 |
) |
Distribution liabilities |
|
|
(7,032 |
) |
Intangible asset - Risk contracts |
|
|
37,500 |
|
Intangible asset - Provider network |
|
|
42,900 |
|
Net assets acquired (a) |
|
|
94,844 |
|
Purchase consideration (b) |
|
|
398,994 |
|
Goodwill (b) - (a) |
|
$ |
304,150 |
|
The goodwill recorded as part of the acquisition included the expected synergies and other expected contribution to the Company's overall growth strategy. None of the goodwill recognized as part of the Steward Acquisition is deductible for income tax purposes. Refer to Note 5, Goodwill and Other Intangible Assets, for additional information. During the three and six months ended June 30, 2023, based on new information obtained about facts and circumstances that existed as of the acquisition date, the Company recorded an increase in accounts receivable of $11.1 million, and a decrease in liabilities of $1.6 million, offset by an increase to liabilities owed to Steward of $12.8 million representing measurement period adjustments related to the Steward Acquisition.
As of June 30, 2023 and December 31, 2022, other liabilities included an accrual of $5.0 million for payment to a Steward Acquisition advisor, payment of which is contingent upon the Company's issuance of the Earnout Share Consideration to the Seller Parties.
Other Acquisitions
During the year ended December 31, 2022, we acquired a number of medical practices for total consideration of $3.3 million and recognized related goodwill in the amount of $2.9 million and intangible assets of $0.4 million.
There were no acquisitions during the six months ended June 30, 2023.
NOTE 4. REINSURANCE
The Company has purchased stop loss insurance on catastrophic costs to limit the exposure on patient losses. Premiums and policy recoveries are reported in external provider costs in the accompanying consolidated statements of operations.
(12)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The intent of the Company’s stop loss coverage is to limit the benefits paid for any individual patient. The Company’s stop loss limits are defined within each respective health plan contract or other third-party contract and range typically from $30,000 to $200,000 per patient per year. Premium expense incurred was $6.2 million and $12.9 million for the three and six months ended June 30, 2023, respectively and $4.3 million and $7.9 million for the three and six months ended June 30, 2022, respectively. Physicians under capitation arrangements typically have stop loss coverage so that a physician’s financial risk for any single member is limited to a maximum amount on an annual basis. The Company monitors the financial performance and solvency of its stop loss providers. However, the Company remains financially responsible for health care services to its members in the event the health plans or other third parties are unable to fulfill their obligations under stop loss contractual terms.
Recoveries recognized were $6.3 million and $10.9 million for the three and six months ended June 30, 2023, respectively, and $7.7 million and $14.1 million for the three and six months ended June 30, 2022, respectively. Estimated recoveries under stop loss policies are reported within the capitation receivable or amounts due to health plans as the counterparty responsible for the payment of the claims and the stop loss is the respective health plan.
NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The following table shows changes in the carrying amount of goodwill (in thousands):
|
|
Carrying Amount |
|
|
Balance at December 31, 2022 |
|
$ |
700,643 |
|
Impairment |
|
|
(98,000 |
) |
Balance at June 30, 2023 |
|
$ |
602,643 |
|
The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred.
June 30, 2023
As of June 30, 2023, the Company's market capitalization was below its carrying value, which management believed to be a triggering event requiring an interim goodwill impairment quantitative analysis. Accordingly, the Company performed a market capitalization reconciliation to further evaluate the Company’s estimated fair value balance as of June 30, 2023 and support the implied control premium. Based on the quantitative analysis performed, management concluded that the Company's estimated fair value exceeded its carrying value by approximately $20 million or 3.0%. Accordingly, no goodwill impairment was recorded during the three months ended June 30, 2023.
As of June 30, 2023, if all other assumptions were held constant and the Company's long-term projected growth rate was decreased by 50 basis points, the Company's estimated fair value would decrease by approximately 2.0% or $11.5 million. If all other assumptions were held constant and the Company's share price decreased by 10%, the Company's estimated fair value would decrease by approximately 5.4% or $34.9 million. If all other assumptions were held constant and the Company's weighted-average cost of capital increased by 100 basis points, the Company's estimated fair value would decrease by approximately 2.0% or $11.8 million.
March 31, 2023
During the three months ended March 31, 2023, the economic uncertainty and market volatility resulting from the rising interest rate environment, the recent banking crisis and other industry developments resulted in a decrease in the Company's stock price and market capitalization. Management believed such a decrease was a triggering event requiring an interim goodwill impairment quantitative analysis. The Company performed a market capitalization reconciliation to evaluate the Company’s estimated fair value balance and support the implied control premium. Based on the quantitative analysis performed, the Company's estimated fair value as of March 31, 2023 was less than its carrying value as of March 31, 2023 by 17.9% or $98.0 million. The $98.0 million goodwill impairment charge has been reflected in goodwill impairment in the accompanying statements of operations.
(13)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2023, if all other assumptions were held constant and the Company's long-term projected growth rate was decreased by 50 basis points, the Company's estimated fair value would decrease by approximately 1% or approximately $7.0 million. If all other assumptions were held constant and the Company's share price decreased by 10%, the Company's estimated fair value would decrease by approximately 5.8% or $31.4 million. If all other assumptions were held constant and the Company's weighted-average cost of capital increased by 100 basis points, the Company's estimated fair value would decrease by approximately 2% or $8.0 million.
There is no assurance that actual results will not differ materially from the underlying assumptions used in the goodwill impairment analyses. Further adverse changes to macroeconomic conditions or our earnings forecasts could lead to additional goodwill or intangible asset impairment charges in future periods and such charges could be material to our results of operations.
The Company's cumulative goodwill impairment was $168.0 million and $70.0 million as of June 30, 2023 and December 31, 2022, respectively.
Intangible Assets
The following tables summarize the gross carrying amounts, accumulated amortization and net carrying amounts of intangible assets by major class (in thousands):
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|||
June 30, 2023 |
|
|
|
|
|
|
|
|
|
|||
Risk contracts |
|
$ |
102,070 |
|
|
$ |
(31,723 |
) |
|
$ |
70,347 |
|
Provider network |
|
|
42,900 |
|
|
|
(3,915 |
) |
|
|
38,985 |
|
Non-compete agreements |
|
|
4,170 |
|
|
|
(1,932 |
) |
|
|
2,238 |
|
Trademarks |
|
|
1,862 |
|
|
|
(1,422 |
) |
|
|
440 |
|
Other |
|
|
693 |
|
|
|
(165 |
) |
|
|
528 |
|
Total |
|
$ |
151,695 |
|
|
$ |
(39,158 |
) |
|
$ |
112,537 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Net Carrying |
|
|||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|||
Risk contracts |
|
$ |
102,070 |
|
|
$ |
(24,217 |
) |
|
$ |
77,853 |
|
Provider network |
|
|
42,900 |
|
|
|
(851 |
) |
|
|
42,049 |
|
Non-compete agreements |
|
|
4,170 |
|
|
|
(1,518 |
) |
|
|
2,652 |
|
Trademarks |
|
|
1,862 |
|
|
|
(1,352 |
) |
|
|
510 |
|
Other |
|
|
693 |
|
|
|
(171 |
) |
|
|
522 |
|
Total |
|
$ |
151,695 |
|
|
$ |
(28,109 |
) |
|
$ |
123,585 |
|
Amortization expense totaled $5.7 million and $11.0 million for the three and six months ended June 30, 2023, respectively, and $3.7 million and $7.6 million for the three and six months ended June 30, 2022, respectively.
NOTE 6. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 2023 and December 31, 2022 consisted of the following (in thousands):
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Leasehold improvements |
|
$ |
11,073 |
|
|
$ |
10,661 |
|
Vehicles |
|
|
3,530 |
|
|
|
3,743 |
|
Furniture and equipment |
|
|
10,493 |
|
|
|
8,871 |
|
Software |
|
|
3,746 |
|
|
|
3,725 |
|
Construction in progress |
|
|
8,542 |
|
|
|
4,621 |
|
Total |
|
|
37,385 |
|
|
|
31,620 |
|
Less: Accumulated depreciation |
|
|
(12,757 |
) |
|
|
(10,614 |
) |
Total Property and equipment, net |
|
$ |
24,628 |
|
|
$ |
21,006 |
|
Construction in progress primarily consists of leasehold improvements at the Company's centers, which have not opened.
Depreciation expense totaled $1.2 million and $2.4 million for the three and six months ended June 30, 2023, respectively, and $1.2 million and $2.3 million for the three and six months ended June 30, 2022, respectively.
(14)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7. DEBT AND RELATED PARTY DEBT
Credit Agreement
In May 2022, the Company entered into a credit agreement (the “Credit Agreement”) that provided for an aggregate of up to $300 million in term loans, comprised of (i) initial term loans in the aggregate principal amount of $190 million (the “Initial Term Loans”) and (ii) a delayed term loan facility in the aggregate principal amount of $110 million (the “Delayed Draw Term Loans”). The Credit Agreement permits the Company to enter into certain incremental facilities subject to compliance with the terms, conditions and covenants set forth therein. In May 2022, the Company drew $190 million of the Initial Term Loans and used approximately $121 million of the net proceeds from this borrowing to repay its outstanding obligations under the credit agreement dated June 8, 2021, as amended and recognized related debt extinguishment losses of $6.2 million. In November 2022, March 2023 and April 2023, the Company drew $45 million, $30 million and $35 million of the Delayed Draw Term Loans, respectively.
Based on the elections made by the Company, as of June 30, 2023, borrowings under the Credit Agreement bore interest of Term SOFR (calculated as the Secured Overnight Financing Rate published on the Federal Reserve Bank of New York’s website, plus the applicable credit spread adjustment, based on the elected interest period), plus an applicable margin rate of 9.00%. As permitted under the Credit Agreement, the Company elected to capitalize 4.00% of the interest as principal amount. As a result of this election, the cash interest component of the applicable margin increased by 0.50%.
Amortization payments under the Credit Agreement are payable in quarterly installments, commencing at the end of the quarter of the second anniversary of the closing of the Credit Agreement, in amounts equal to 0.25% of the aggregate outstanding principal amount of Initial Term Loans and Delayed Draw Term Loans. All amounts owed under the Credit Agreement are due in May 2027.
The Credit Agreement contains certain covenants that limit, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, liens or encumbrances, to make certain investments, to enter into sale-leaseback transactions or sell certain assets, to make certain restricted payments or pay dividends, to enter into consolidations, to transact with affiliates and to amend certain agreements, subject in each case to the exceptions and other qualifications as provided in the Credit Agreement. The Credit Agreement also contains covenants that require the Company to satisfy a minimum liquidity requirement of $50.0 million, which may be decreased to $25.0 million if the Company achieves a certain adjusted EBITDA, and maintain a maximum total leverage ratio based on the Company’s consolidated EBITDA, as defined in the Credit Agreement, with de novo losses excluded from the calculation of such ratio for up to 36 months after the opening of a de novo center, which maximum total leverage ratio will initially be 8.50 to 1.00, commencing with the fiscal quarter ended September 30, 2022 and is subject to a series of step-downs. For the fiscal quarters ending September 30, 2026 and thereafter the Company must maintain a maximum total leverage ratio no greater than 5.50 to 1.00.
On March 8, 2023 (the “Amendment Closing Date”), the Company entered into a Second Amendment (the “Second Amendment”) to the Credit Agreement.
The Second Amendment amended the Credit Agreement to, among other things, (i) provide for a new incremental delayed draw term loan B facility in an aggregate principal amount of $60.0 million (the “Delayed Draw Term Loan B Facility”); (ii) revise the commitment expiration date for the Company’s existing $110.0 million Delayed Draw Term Loan to forty-five days following the Amendment Closing Date, (iii) extend the commencement of amortization payments on loans under the Credit Agreement from March 31, 2024 to May 31, 2025; (iv) reduce the amount of interest that the Company may elect to capitalize from 4.00% to 3.50% beginning on the second anniversary of the execution date of the Credit Agreement, 3.00% beginning on the third anniversary of the execution date of the Credit Agreement, and 1.50% beginning on December 10, 2025; (v) increase the amount of the super-priority revolving credit facility that is permitted to be added to the Credit Agreement to $45.0 million and provide that the entirety of such facility may be used for general corporate purposes; and (vi) amend the prepayment provisions of the Credit Agreement, including to have such provisions run as of the Amendment Closing Date.
Loan and Security Agreement - Related Party Debt
(15)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In November 2022, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”), by and among Sparta Merger Sub I Inc., a Delaware corporation and wholly-owned subsidiary of the Company, Sparta Merger Sub II Inc., a Delaware corporation and wholly-owned subsidiary of the Company, Sparta Merger Sub I LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger LLC I”), Sparta Merger Sub II LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (together with Merger LLC I, the “Guarantors”), Steward Accountable Care Network, Inc. (n/k/a as Steward Accountable Care Network, LLC) and Steward National Care Network, Inc. (n/k/a Steward National Care Network, LLC), as borrowers (the “Borrowers”), CAJ Lending LLC (“CAJ”) and Deerfield Partners L.P., as lenders (the “Lenders”), and CAJ, as administrative agent and collateral agent (in such capacity, the “Agent”). Mr. Carlos A. de Solo, a director of the Company and the Company’s President and Chief Executive Officer, Mr. Alberto de Solo, the Company’s Executive Vice President and Chief Operating Officer, and Mr. Joseph N. De Vera, the Company’s Senior Vice President and Legal Counsel, have interests in CAJ.
Pursuant to the Loan and Security Agreement, the Lenders provided the Borrowers a term loan (the “Term Loan”) in the aggregate principal amount of approximately $35.5 million. The Company used the proceeds of the Term Loan to fund the Financed Net Pre-Closing Medicare AR acquired in connection with the Steward Acquisition.
The Term Loan bears fixed interest at a rate of 12.0% per annum. In addition, the Borrowers paid a facility fee equal to 3.0% of the aggregate principal amount of the Term Loan, which was accounted for as a debt discount. Any additional interest (if applicable) accrued and owing during the term of the Loan and Security Agreement will be paid-in-kind and capitalized to principal monthly in arrears. From and after the occurrence and during the continuance of an event of default, the Term Loan will bear interest at a rate equal to 4.0% above the interest rate applicable immediately prior to the occurrence of the event of default. If Mr. Carlos de Solo is no longer serving as the Chief Executive Officer of the Company under certain circumstances and, following a request from CAJ, the Borrowers are unable to refinance the portion of the Term Loan advanced by CAJ, then the interest rate applicable to such portion may be increased by 5.0%. Pursuant to the Steward Acquisition Merger Agreement, the Seller agreed to pay the costs of financing the Financed Net Pre-Closing Medicare AR and, at the Steward Closing, paid to the Borrowers $6.8 million, representing all scheduled payments of interest and fees from the Steward Closing Date up to and including November 30, 2023, which amount was then paid in advance by the Borrowers to the Lenders.
The Loan and Security Agreement matures on the earlier of November 30, 2023, or three business days after the Borrowers receive payment for the Financed Net Pre-Closing Medicare AR from the federal government. The Term Loan may be prepaid, in whole or in part, without penalty or premium.
The Loan and Security Agreement contains customary representations, warranties, affirmative covenants, negative covenants and events of default. The Loan and Security Agreement is secured by the Borrowers’ rights in the Medicare Shared Savings Receivables (as defined in the Loan and Security Agreement) and any and all proceeds thereof. The Loan and Security Agreement is subordinated in right of payment to the Credit Agreement.
Elevance Health
In October 2022, in connection with the collaboration agreement with Elevance Health (formerly known as Anthem), which was announced in August 2021, the Company entered into a promissory note for an amount of $1.0 million due in October 2032. This borrowing bears a fixed interest rate of 6.25% per annum.
As of June 30, 2023 and December 31, 2022, debt consisted of the following (in thousands):
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Indebtedness under the Credit Agreement |
|
$ |
310,777 |
|
|
$ |
240,277 |
|
Indebtedness under the Loan and Security Agreement - Related party debt |
|
|
35,510 |
|
|
|
35,510 |
|
Other |
|
|
1,581 |
|
|
|
1,657 |
|
Less: Unamortized discounts and debt issuance costs |
|
|
(16,114 |
) |
|
|
(16,188 |
) |
|
|
|
331,754 |
|
|
|
261,256 |
|
Less: Current portion |
|
|
(33,273 |
) |
|
|
(30,530 |
) |
Long-term portion |
|
$ |
298,481 |
|
|
$ |
230,725 |
|
(16)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Future maturities of debt outstanding at June 30, 2023 were as follows (in thousands):
Year |
|
Amount |
|
|
Remainder of 2023 |
|
$ |
35,647 |
|
2024 |
|
|
275 |
|
2025 |
|
|
2,797 |
|
2026 |
|
|
3,303 |
|
2027 |
|
|
305,257 |
|
Thereafter |
|
|
588 |
|
Total |
|
$ |
347,868 |
|
As of June 30, 2023, we were in compliance, in all material respects, with all covenants under our credit facilities.
NOTE 8. STOCKHOLDERS' EQUITY
Related Advisory Agreement
On July 13, 2021, the Company entered into an exclusive real estate advisory agreement (the “Advisory Agreement”) with Related CM Advisor, LLC (the “Advisor”), a Delaware limited liability company and a subsidiary of The Related Companies, L.P. (“Related”) (the “Advisory Agreement”), pursuant to which the Advisor has agreed to provide certain real estate advisory services to the Company on an exclusive basis. The services include identifying locations for new centers nationwide as part of the Company’s de novo growth strategy, including, but not limited to, locations within and proximate to affordable housing communities that may be owned by Related.
In connection with the Advisory Agreement, the Company and Advisor entered into a subscription agreement (the “Subscription Agreement”), whereby the Advisor purchased 500,000 shares (the “Initial Shares”) of the Company’s Class A Common Stock for an aggregate purchase price of $5.0 million and the Company issued to the Advisor (i) a warrant (the “Series A Warrant”) to purchase 2,000,000 shares of Class A Common Stock (the “Series A Warrant Shares”), which vested immediately upon issuance, is exercisable for a period of five years and is not redeemable by the Company and (ii) a warrant (the “Series B Warrant” and together with the Series A Warrant, the “Warrants”) to purchase up to 6,000,000 shares of Class A Common Stock (the “Series B Warrant Shares” and, together with the Series A Warrant Shares, the “Warrant Shares”), pursuant to which 500,000 Series B Warrant Shares will vest and become exercisable from time to time upon the opening of each center under the Advisory Agreement for which the Advisor provides services, other than two initial centers.
The Company assessed the substance of the Subscription Agreement and determined that all instruments referenced in the Subscription Agreement should be assessed under the guidance of ASC 718 as non-employee awards issued to Related in exchange for real estate advisory services to be rendered per the Advisory Agreement. As a result, the Company recorded the Series A Warrants as a component of additional paid-in-capital using the fair value as of July 13, 2021.
The Series B Warrant is exercisable, to the extent vested, until the later of five years from the date of issuance or one year from vesting of the applicable Series B Warrant Shares and is redeemable with respect to vested Warrant Shares at a price of $0.01 per Warrant Share if the price of the Class A Common Stock equals or exceeds $18.00 per share, or $0.10 per Warrant Share if the price of the Class A Common Stock equals or exceeds $10.00 per share, in each case when such price conditions are satisfied for any 20 trading days within a 30-trading day period and subject to certain adjustments and conditions as described in the Series B Warrant. In the event that the Series B Warrant is called for redemption by the Company, the Advisor may pay the exercise price for the Series B Warrant Shares for six months following the notice of redemption by the Company.
Series B Warrants are recognized at their grant date fair value once vesting becomes probable. No warrants vested during the three and six months ended June 30, 2023. During the three and six months ended June 30, 2022, the Company recorded $2.5 million and $5.0 million, respectively, in other assets to reflect vesting of 500,000 and 1.0 million of Series B Warrant Shares, respectively, using their grant date fair value. Upon adoption of ASC 842 and commencement of the related leases, this balance was included in the right-of-use assets. Refer to Note 12, Related Party Transactions, for additional information.
Balances associated with the Series A and Series B warrants are recorded in the right-of-use assets for commenced leases, and other assets for leases that have not yet commenced except for the portion that represents amortization expected to be recognized over the next twelve months, which is recorded in other current assets. The portion of Series A and Series B Warrants recorded in other current assets as of June 30, 2023 and December 31, 2022 was $0.4 million and $0.6 million, respectively.
(17)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Redeemable Warrants - Public Warrants
In July 2020, in connection with the IPO, DFHT sold 2,875,000 Public Warrants. Each whole Public Warrant entitles the registered holder to purchase one share of Class A Common Stock at a price of $11.50 per share, subject to adjustment, at any time commencing on the later of 12 months from the closing of the IPO and 30 days after the completion of the Business Combination, provided in each case that the Company has an effective registration statement under the Securities Act covering the shares of Class A Common Stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless basis under the circumstances specified in the warrant agreement) and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder. Pursuant to the warrant agreements entered into at the time of the IPO, a warrant holder may exercise its Public Warrants only for a whole number of shares of Class A Common Stock. This means only a whole Public Warrant may be exercised at a given time by a warrant holder. No fractional warrants were issued upon separation of the units issued in connection with the IPO and only whole Public Warrants will trade. The Company may redeem the Public Warrants when the price per share of Class A Common Stock equals or exceeds certain threshold prices.
Redeemable Warrants - Private Placement Warrants
Also in connection with the IPO, DFHT issued the 2,916,667 Private Placement Warrants at a purchase price of $1.50 per warrant. The Private Placement Warrants (including the Class A Common Stock issuable upon exercise of the Private Placement Warrants) are not transferable, assignable or salable until 30 days after the completion of the Business Combination (except, among other limited exceptions to DFHT’s officers and directors and other persons or entities affiliated with the initial purchasers of the Private Placement Warrants) and they will not be redeemable by CareMax for cash so long as they are held by the initial stockholders or their permitted transferees. With some exceptions, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants. If the Private Placement Warrants are held by holders other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by the holders on the same basis as the Public Warrants.
Contingent Consideration - Business Combination
Pursuant to the Business Combination Agreement, the CMG Sellers and IMC Parent, who received Class A Common Stock in connection with the Business Combination, became entitled to receive contingent consideration to be paid out in the form of Class A Common Stock. The Business Combination Agreement provided that up to an additional 3,500,000 and 2,900,000 shares of Class A Common Stock (the "Earnout Shares") would become payable to the CMG Sellers and IMC Parent, respectively, after the Closing: (i) if within the first year after the Closing, the volume weighted average trading price of Class A Common Stock equaled or exceeded $12.50 on any 20 trading days in any 30-day trading period (the “First Share Price Trigger”), then 1,750,000 and 1,450,000 Earnout Shares would have become issuable to the CMG Sellers and IMC Parent, respectively, and (ii) if within the two years after the Closing (the “Second Earnout Period”), the volume weighted average trading price of Class A Common Stock equals or exceeds $15.00 on any 20 trading days in any 30-day trading period (the “Second Share Price Trigger” and together with the First Share Price Trigger, the “Share Price Triggers”), then 1,750,000 and 1,450,000 Earnout Shares would have become issued and paid to the former owners of CMG and IMC, respectively. If prior to (i) the satisfaction of the Share Price Triggers, and (ii) the end of the Second Earnout Period, the Company entered into a change in control transaction as described in the Business Combination Agreement, and the price per share of the Company’s Class A Common Stock payable to the stockholders of the Company in such change in control transaction was greater than the Share Price Triggers that have not been satisfied during the Earnout Period, then at the closing of such change in control transaction, the Share Price Triggers would have been deemed to have been satisfied and the Company would have issued, as of such closing, all of the Earnout Shares. The contingent consideration was classified as a liability for the period ended June 30, 2021. On July 9, 2021, the volume weighted average trading price of Class A Common Stock exceeded $12.50 on 20 or more days resulting in the satisfaction of the First Share Price Trigger. After the First Share Price Trigger was achieved on July 9, 2021, the estimated fair value of the Earnout Shares was recorded as an equity-classified instrument as a component of stockholders' equity, with the change in fair value from the prior reporting period recorded in earnings. Accordingly, 1,750,000 and 1,450,000 Earnout Shares were issued and paid to the CMG Sellers and IMC Parent, respectively. The Second Earnout Period expired on June 9, 2023 and the Second Share Price Trigger was not achieved.
Contingent Consideration - Steward Acquisition
(18)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Pursuant to the Merger Agreement signed in connection with Steward Acquisition, upon 100,000 Medicare lives from and/or attributable to the seller parties' Medicare network participating in risk-based, value-based care arrangements contracted through the Company with a Medical Expense Ratio of less than 85% for two consecutive calendar quarters, the Company will issue the seller, for immediate distribution to its equity holders, a number of shares of Class A Common Stock (the “Earnout Share Consideration” and together with the Initial Share Consideration, the “Share Consideration”) that, when added to the initial share consideration issued as part of the Steward Acquisition, would have represented 41% of the issued and outstanding shares of the Company’s Class A Common Stock as of the November 10, 2022 (the "Steward Closing"), in each case after giving effect to issuances of Class A Common Stock between the Steward Closing and June 30, 2023 in connection with the exercise of warrants to purchase Class A Common Stock outstanding as of the Steward Closing, the potential earnout under the Company’s Business Combination and any forfeitures, surrenders or other dispositions to the Company of Class A Common Stock outstanding as of the Steward Closing. If not previously issued, the Earnout Share Consideration will also be issuable upon a Change in Control (as defined in the Merger Agreement) of the Company. Prior to June 30, 2023, the Company accounted for the Earnout Share Consideration as a liability, due to, among other terms, a variable settlement amount, based on the provisions summarized above. On June 30, 2023, the settlement amount became fixed in accordance with the terms of the Merger Agreement, and accordingly, the fair value of the Earnout Share Consideration of $114.6 million as of June 30, 2023, was reclassified from contingent earnout liability into additional paid-in-capital.
Preferred Stock
The Company’s third amended and restated certificate of incorporation authorizes the Company to issue up to 1,000,000 shares of preferred stock, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors (the "Board"). During the year ended December 31, 2022, the Company issued one share of Series A Preferred Stock to the seller of Steward Value-Based Care. This share of Series A Preferred Stock has a stated par value of $0.0001 and has no economic rights. The holder of the outstanding share of Series A Preferred Stock is entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to the Special Matters (as defined in the Certificate of Designation of Series A Preferred Stock filed by the Company with the Secretary of State of the State of Delaware on November 10, 2022), and has no other voting rights. In any such vote, the share of Series A Preferred Stock will be entitled to 37,241,783 votes. The voting rights under the share of Series A Preferred Stock last until the earlier of (i) the two-year anniversary of the Steward Closing and (ii) the issuance of the Earnout Share Consideration in connection with the Steward Acquisition.
NOTE 9. STOCK-BASED COMPENSATION
On June 4, 2021, the stockholders of the Company approved the CareMax, Inc. 2021 Long-term Incentive Plan (the “2021 Plan”). The 2021 Plan permits the grant of equity-based awards to officers, directors, employees and other service providers. The 2021 Plan permits the grant of an initial share pool of 7,000,000 shares of Class A Common Stock and will be increased automatically, without further action of the Board, on January 1st of each calendar year commencing after the Closing Date and ending on (and including) January 1, 2031, by a number of shares of Class A Common Stock equal to the lesser of (i) four percent of the aggregate number of shares of Class A Common Stock outstanding on December 31st of the immediately preceding calendar year, excluding for this purpose any such outstanding shares of Class A Common Stock that were granted under the 2021 Plan and remain unvested and subject to forfeiture as of the relevant December 31st, or (ii) a lesser number of shares of Class A Common Stock as determined by the Board or the Compensation Committee of the Board prior to the relevant January 1st.
Our outstanding stock-based compensation awards consist of time-based share awards (restricted stock units, or the "RSUs"), performance-based share awards (the "PSUs") and options. Our equity awards generally vest over a three-year period, subject to continued employment with the Company through the applicable vesting date.
The following tables summarize the equity award activity for the six months ended June 30, 2023:
(19)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
RSUs |
|
|
PSUs |
|
|
Options |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Number of shares |
|
|
Weighted-Average Grant Date Fair Value |
|
|
Number of shares |
|
|
Weighted-Average Grant Date Fair Value |
|
|
Number of shares |
|
|
Weighted-Average Grant Date Fair Value |
|
||||||
Outstanding as of December 31, 2022 |
|
2,673,214 |
|
|
$ |
8.11 |
|
|
|
209,163 |
|
|
$ |
5.71 |
|
|
|
373,565 |
|
|
$ |
6.06 |
|
Granted |
|
2,506,527 |
|
|
|
3.72 |
|
|
|
308,000 |
|
|
|
3.73 |
|
|
|
516,000 |
|
|
|
2.93 |
|
Vested |
|
(765,751 |
) |
|
|
(8.80 |
) |
|
|
— |
|
|
|
— |
|
|
|
(139,211 |
) |
|
|
(5.98 |
) |
Forfeited |
|
(121,452 |
) |
|
|
(7.69 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding as of June 30, 2023 |
|
4,292,537 |
|
|
$ |
6.33 |
|
|
|
517,163 |
|
|
$ |
4.53 |
|
|
|
750,354 |
|
|
$ |
4.32 |
|
Fair value of the PSUs granted in 2023 was determined on grant dates using a Monte Carlo model with the following assumptions:
|
|
|
|
Underlying stock price |
$ |
3.72 |
|
Performance period |
|
2.00 |
|
Risk-free interest rate |
|
4.5 |
% |
Volatility |
|
70.8 |
% |
Dividend yield |
|
0.0 |
% |
Fair value of options granted in 2023 was determined on grant dates using a Black-Scholes-Merton Option Pricing model with the following assumptions:
|
|
|
|
Underlying stock price |
$ |
3.72 |
|
Performance period |
|
10.00 |
|
Risk-free interest rate |
|
3.7 |
% |
Volatility |
|
71.5 |
% |
Dividend yield |
|
0.0 |
% |
The Company recorded stock-based compensation expense of $2.5 million and $4.8 million during the three and six months ended June 30, 2023, respectively, and $2.8 million and $3.9 million during the three and six months ended June 30, 2022, respectively. As of June 30, 2023, the Company had $25.1 million of unrecognized compensation expense related to unvested awards that is expected to vest over the remaining weighted-average service period of 2.9 years.
NOTE 10. NET LOSS PER SHARE
The following table sets forth the calculation of basic and diluted net loss per share for the periods indicated based on the weighted-average number of common shares outstanding (in thousands, except share and per share data):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Net loss attributable to CareMax, Inc. class A common stockholders |
|
$ |
(32,376 |
) |
|
$ |
(9,381 |
) |
|
$ |
(114,458 |
) |
|
$ |
(26,178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average basic shares outstanding |
|
|
111,671,302 |
|
|
|
87,422,917 |
|
|
|
111,511,214 |
|
|
|
87,395,596 |
|
Weighted-average diluted shares outstanding |
|
|
111,671,302 |
|
|
|
87,422,917 |
|
|
|
111,511,214 |
|
|
|
87,395,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
(0.29 |
) |
|
$ |
(0.11 |
) |
|
$ |
(1.03 |
) |
|
$ |
(0.30 |
) |
Diluted |
|
$ |
(0.29 |
) |
|
$ |
(0.11 |
) |
|
$ |
(1.03 |
) |
|
$ |
(0.30 |
) |
The following potentially dilutive outstanding securities were excluded from the computation of diluted net loss per share because their effect would have been anti-dilutive or because issuance of shares underlying such securities is contingent upon the satisfaction of certain conditions which were not satisfied by the end of the period:
(20)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Series A and Series B Warrants |
|
|
8,000,000 |
|
|
|
8,000,000 |
|
|
|
8,000,000 |
|
|
|
8,000,000 |
|
Public and Private Placement Warrants |
|
|
5,791,652 |
|
|
|
5,791,652 |
|
|
|
5,791,652 |
|
|
|
5,791,652 |
|
Contingent consideration |
|
|
39,633,333 |
|
|
|
3,200,000 |
|
|
|
40,166,667 |
|
|
|
3,200,000 |
|
Unvested restricted stock units |
|
|
3,420,184 |
|
|
|
3,246,000 |
|
|
|
3,482,876 |
|
|
|
3,246,000 |
|
Unvested performance stock units (assumes 100% target payout) |
|
|
363,163 |
|
|
|
209,000 |
|
|
|
363,163 |
|
|
|
209,000 |
|
Unvested options |
|
|
561,960 |
|
|
|
418,000 |
|
|
|
561,960 |
|
|
|
418,000 |
|
Total |
|
|
57,770,292 |
|
|
|
20,864,652 |
|
|
|
58,366,317 |
|
|
|
20,864,652 |
|
NOTE 11. FAIR VALUE MEASUREMENTS
Financial Instruments that are Measured at Fair Value on a Recurring Basis
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value (in thousands):
|
|
|
|
|
Fair Value |
|
||||||||||
June 30, 2023 |
|
|
|
|
Quoted Prices |
|
|
Significant other |
|
|
Significant other |
|
||||
Description |
|
Carrying Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Derivative warrant liabilities - Public Warrants |
|
$ |
1,121 |
|
|
$ |
1,121 |
|
|
$ |
— |
|
|
$ |
— |
|
Derivative warrant liabilities - Private Placement Warrants |
|
|
1,313 |
|
|
|
— |
|
|
|
— |
|
|
|
1,313 |
|
Total liabilities measured at fair value |
|
$ |
2,434 |
|
|
$ |
1,121 |
|
|
$ |
— |
|
|
$ |
1,313 |
|
|
|
|
|
|
Fair Value |
|
||||||||||
December 31, 2022 |
|
|
|
|
Quoted Prices |
|
|
Significant other |
|
|
Significant other |
|
||||
Description |
|
Carrying Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Derivative warrant liabilities - Public Warrants |
|
$ |
1,495 |
|
|
$ |
1,495 |
|
|
$ |
— |
|
|
$ |
— |
|
Derivative warrant liabilities - Private Placement Warrants |
|
|
2,479 |
|
|
|
— |
|
|
|
— |
|
|
|
2,479 |
|
Contingent earnout liability |
|
|
134,561 |
|
|
|
— |
|
|
|
— |
|
|
|
134,561 |
|
Total liabilities measured at fair value |
|
$ |
138,535 |
|
|
$ |
1,495 |
|
|
$ |
— |
|
|
$ |
137,040 |
|
Fair value of Public Warrants is measured using the listed market price of such warrants.
Fair value of the Private Placement Warrants is estimated using a Monte Carlo simulation model at each measurement date. Inherent in a Monte Carlo simulation are assumptions related to expected stock price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.
During the three and six months ended June 30, 2023, the Company recognized a benefit resulting from a decrease in the fair value of the derivative warrant liabilities of $0.4 million and $1.5 million, respectively (a benefit of $7.4 million and $3.9 million during the three and six months ended June 30, 2022, respectively).
Fair value of contingent earnout liability was calculated using 37.5 million shares, which will be issuable to the seller of Steward Value-Based Care upon achievement of certain performance metrics, the closing price of the Company's Class A Common Stock at the end of the relevant reporting period ($3.11 and $3.65 as of June 30, 2023 and December 31, 2022, respectively), and a 99% probability of payout.
(21)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of June 30, 2023, fair value of the contingent earnout consideration was reclassified from liabilities into additional paid-in-capital. Refer to Note 8, Stockholders' Equity, for further information.
Transfers between level 1, 2 and 3 are recognized at the end of the reporting period. There were no transfers between levels for the three and six months ended June 30, 2023 or 2022.
Activity of the Level 3 liabilities measured at fair value was as follows (in thousands):
Balance as of December 31, 2022 |
$ |
137,040 |
|
Change in fair value of derivative warrant liabilities |
|
(1,167 |
) |
Change in fair value of contingent earnout liability |
|
(19,916 |
) |
Reclassification of contingent earnout consideration previously liability classified |
|
(114,645 |
) |
Balance as of June 30, 2023 |
$ |
1,313 |
|
The following table provides quantitative information regarding Level 3 fair value measurement inputs used in measurement of fair value of Private Placement Warrants:
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Exercise price |
|
$ |
11.50 |
|
|
$ |
11.50 |
|
Underlying stock price |
|
$ |
3.11 |
|
|
$ |
3.65 |
|
Volatility |
|
|
66.4 |
% |
|
|
69.1 |
% |
Expected life of the options to convert (years) |
|
|
2.94 |
|
|
|
3.44 |
|
Risk-free rate |
|
|
4.41 |
% |
|
|
4.08 |
% |
Dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
Financial Instruments that are not Measured at Fair Value on a Recurring Basis
June 30, 2023 |
|
|
|
|
Fair Value |
|
||||||||||
|
|
Carrying Value |
|
|
Quoted Prices |
|
|
Significant other |
|
|
Significant other |
|
||||
(in thousands) |
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed rate debt (a) |
|
$ |
36,461 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
34,677 |
|
Floating rate debt (a) |
|
|
310,777 |
|
|
|
— |
|
|
|
— |
|
|
|
338,883 |
|
Total |
|
$ |
347,238 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
373,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
Fair Value |
|
||||||||||
December 31, 2022 |
|
Carrying Value |
|
|
Quoted Prices |
|
|
Significant other |
|
|
Significant other |
|
||||
(in thousands) |
|
|
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed rate debt (a) |
|
$ |
36,498 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
32,820 |
|
Floating rate debt (a) |
|
|
240,277 |
|
|
|
— |
|
|
|
— |
|
|
|
240,280 |
|
Total |
|
$ |
276,775 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
273,100 |
|
(a) The debt amounts above do not include the impact of debt issuance costs or discounts.
NOTE 12. RELATED PARTY TRANSACTIONS
The Related Companies
On July 13, 2021, the Company entered into the Advisory Agreement with the Advisor, the substance of which is described in Note 8, Stockholders' Equity. The relative fair value method was used to allocate the $5.0 million purchase price between the shares of Class A Common Stock and the Series A Warrants under the Subscription Agreement. The Company recorded the excess of the grant date fair value difference between the fair value of the equity and Series A Warrants at the grant date (July 13, 2021) as prepaid service contracts totaling $14.5 million, subject to amortization over the terms of the respective agreements. During the six months ended June 30, 2023, the Company did not recognize any expense related to the amortization of the Series A Warrants ($0.3 million during the six months ended June 30, 2022). Series B Warrants are recognized at their grant date fair value once vesting becomes probable.
(22)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
No warrants vested during the three and six months ended June 30, 2023. During the three and six months ended June 30, 2022, the Company recorded $2.5 million and $5.0 million, respectively, in other assets to reflect vesting of 500,000 and one million of Series B Warrant Shares, respectively, using their grant date fair value. Upon adoption of ASC 842 and commencement of the related leases, this balance was included in the right-of-use assets. Refer to Note 8, Stockholders' Equity, for additional information.
Balances associated with the Series A and Series B warrants are recorded in the right-of-use assets for commenced leases and other assets for leases that have not yet commenced, except for the portion that represents amortization expected to be recognized over the next twelve months, which is recorded in other current assets. The portion of Series A and Series B warrants recorded in other current assets as of June 30, 2023 and December 31, 2022 was $0.4 million and $0.6 million, respectively.
In addition, during the six months ended June 30, 2022, we recorded $0.4 million in construction in progress representing construction advisory services provided to us by Related. No construction advisory services were provided to us by Related in 2023.
On July 13, 2021, the Board appointed Mr. Bryan Cho, Executive Vice President of Related, to serve as a Class III director of the Company. The appointment of Mr. Cho was made in connection with the Advisory Agreement, which provides the Advisor with the right to designate a director to serve on the Board, subject to the continuing satisfaction of certain conditions, including that the Advisor and its affiliates maintain ownership of at least 500,000 shares of Class A Common Stock.
As a director of the Company, Mr. Cho will receive compensation in the same manner as the Company’s other non-employee directors.
Steward Health Care System LLC
Dr. Ralph de la Torre serves on the Board. Dr. de la Torre is also the Chairman, Chief Executive Officer and principal equity holder of Steward Health Care System, LLC.
As part of the Steward Acquisition, as described in Note 3, Acquisitions, the Company issued 23,500,000 shares of the Company's Class A Common Stock to the Seller Parties, which at the Steward Closing, resulted in the equity holders of the Seller owning approximately 21% of the Company’s Class A Common Stock. In addition, the Company entered into a Transition Services Agreement (the "TSA") with Steward Health Care System, LLC. During the three and six months ended June 30, 2023, the Company incurred TSA expenses of $0.3 million and $1.0 million, respectively, within corporate, general and administrative expenses. As of June 30, 2023 and December 31, 2022, the Company had related payables of $0.1 million and $0.2 million, respectively.
As described in Note 3, Acquisitions, the Company is required to remit to the Seller Parties an amount equal to the value of the accounts receivable of Steward Value-Based Care attributable to dates of service between January 1, 2022 and the Steward Closing, partially offset for the cash already remitted of $35.5 million. As of June 30, 2023 and December 31, 2022, the Company had related payables of $13.3 million and $0.5 million, respectively.
As described in Note 8, Stockholders' Equity, as of June 30, 2023 and December 31, 2022, the Company recorded contingent earnout liability of $0 and $134.6 million, respectively. On June 30, 2023, the contingent consideration of $114.6 million was reclassified from contingent earnout liability into additional paid-in-capital.
Additionally, as of June 30, 2023 and December 31, 2022, the Company had other liabilities for services performed by Steward Heath Care System, LLC of $0 and $1.0 million, respectively.
CAJ and Deerfield
In November 2022, the Company entered into Loan and Security Agreement, described in Note 7, Debt and Related Party Debt, whereby CAJ and Deerfield are the lenders. Mr. Carlos A. de Solo, a director of the Company and the Company’s President and Chief Executive Officer, Mr. Alberto de Solo, the Company’s Executive Vice President and Chief Operating Officer, and Mr. Joseph N. De Vera, the Company’s Senior Vice President and Legal Counsel, have interests in CAJ.
(23)
CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Mr. Kevin Berg, who is on the Board, is a Senior Advisor with Deerfield. As a director of the Company, Mr. Berg will receive compensation in the same manner as the Company’s other non-employee directors.
MSP Recovery, Inc.
Ms. Beatriz Assapimonwait serves on the Board. Ms. Assapimonwait also joined the board of directors of MSP Recovery, Inc. ("MSP Recovery") in 2022. As of June 30, 2023 and December 31, 2022, the Company had accounts receivable from MSP Recovery of $1.1 million and $2.3 million, respectively. During the three and six months ended June 30, 2023, the Company had no subrogation income. During the three and six months ended June 30, 2022, the Company recorded subrogation income from MSP Recovery of $0.2 million and $0.3 million, respectively.
Second Wave Delivery System, LLC
Hon. Dr. David J. Shulkin, M.D. serves on the Board. Dr. Shulkin also serves on the board of directors of Second Wave Delivery System, LLC ("Second Wave"). As of June 30, 2023 and December 31, 2022, the Company had prepaid expenses for services from Second Wave of $0.1 million and $0, respectively.
NOTE 13. LEASES
The Company has entered into operating lease agreements for centers and office space expiring at various times through 2043, inclusive of renewal options that the Company is reasonably certain to exercise. The exercise of such lease renewal options is at our sole discretion, and to the extent we are reasonably certain we will exercise a renewal option, the years related to that option are included in our determination of the lease term for purposes of classifying and measuring a given lease.
Operating lease expense primarily represents fixed lease payments for operating leases recognized on a straight-line basis over the applicable lease term. Variable lease expense primarily represents the payment of real estate taxes, insurance, and maintenance. The payment of variable real estate taxes, insurance and maintenance is generally based on the Company’s pro-rata share of the total building square footage. Lease expense is recorded in cost of care and corporate, general and administrative expenses in the condensed consolidated statements of operations.
ASC 842 Disclosures
Lease costs were as follows (in thousands):
|
Three Months Ended June 30, 2023 |
|
Six Months Ended June 30, 2023 |
|
||
Operating lease cost |
$ |
4,873 |
|
$ |
9,175 |
|
Variable lease cost |
|
823 |
|
|
1,491 |
|
Short-term lease cost |
|
344 |
|
|
625 |
|
Total lease cost |
$ |
6,040 |
|
$ |
11,291 |
|
During the three and six months ended June 30, 2023, we obtained $20.7 million and $26.3 million, respectively, of right-of-use assets in exchange for new operating lease liabilities and paid $4.2 million and $8.3 million, respectively, for amounts associated with the measurement of operating lease liabilities, included in the operating cash flows from operating lease liabilities in our consolidated statements of cash flows.
Weighted-average of the remaining lease terms and weighted-average discount rate were as follows:
|
Three Months Ended June 30, 2023 |
|
Six Months Ended June 30, 2023 |
|
||
Weighted average remaining lease term (years) |
12.9 |
|
12.9 |
|
||
Weighted-average discount rate |
|
8.98 |
% |
|
8.98 |
% |
As of June 30, 2023, maturities of operating lease liabilities were as follows (in thousands):
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CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Year |
|
Amount |
|
|
Remainder of 2023 |
|
$ |
63 |
|
2024 |
|
|
18,219 |
|
2025 |
|
|
17,972 |
|
2026 |
|
|
17,132 |
|
2027 |
|
|
16,292 |
|
Thereafter |
|
|
155,809 |
|
Total lease payments |
|
|
225,487 |
|
Less: Present value discount |
|
|
(102,184 |
) |
Present value of lease liabilities |
|
$ |
123,303 |
|
At June 30, 2023, the Company entered into leases that have not yet commenced with aggregated estimated future lease payments of approximately $70.0 million, which are not included in the above table. These leases relate to properties that are being constructed by the future lessors. These leases are expected to commence through 2024, with initial lease terms ranging from 10 to 20 years.
ASC 840 Disclosures
Prior to adoption of ASC 842, the Company accounted for its lease arrangements under ASC 840, Leases, with no right-of-use assets or lease liabilities being reflected on the condensed consolidated balance sheets. The Company recognized $3.8 million and $8.1 million of lease expense during the three and six months ended June 30, 2022.
Future minimum rental payments under these lease agreements, including renewal options which are considered reasonably certain of exercise, consisted of the following at June 30, 2022:
Year |
|
Amount |
|
|
Remainder of 2022 |
|
$ |
6,366 |
|
2023 |
|
|
14,640 |
|
2024 |
|
|
14,854 |
|
2025 |
|
|
14,568 |
|
2026 |
|
|
13,814 |
|
Thereafter |
|
|
152,394 |
|
Total lease payments |
|
$ |
216,636 |
|
NOTE 14. INCOME TAXES
Income tax expense was $0.2 million and $0.4 million during the three and six months ended June 30, 2023, respectively, and $0.2 million and $0.4 million during the three and six months ended June 30, 2022, respectively. The effective tax rate was (0.6)% and (0.3)% and (1.9)% and (1.4)% during the three and six months ended June 30, 2023 and 2022, respectively, based on the assessment of a full valuation allowance, excluding a portion attributable to the "naked credit" deferred tax liability.
NOTE 15. COMMITMENTS AND CONTINGENCIES
Compliance
The health care industry is subject to numerous laws and regulations of federal, state, and local governments. These laws and regulations include, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirements, reimbursement for patient services, and Medicare and Medicaid fraud and abuse. Recently, government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. Violations of these laws and regulations could result in expulsion from government healthcare programs together with imposition of significant fines and penalties, as well as significant repayments for patient services billed. Compliance with these laws and regulations, specifically those related to the Medicare and Medicaid programs, can be subject to government review and interpretation, as well as regulatory actions unknown and not yet asserted at this time. Management believes that the Company is in substantial compliance with current laws and regulations.
Litigation
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CAREMAX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company is involved in various legal actions arising in the normal course of business. Management has not identified any legal actions during the three and six months ended June 30, 2023 or 2022 that were deemed to be material.
NOTE 16. VARIABLE INTEREST ENTITIES
Medical Care of NY, P.C., Medical Care of Tennessee, PLLC and Medical Care of Texas, PLLC (together, the "PCs") were established to employ healthcare providers to deliver healthcare services to patients in New York, Tennessee, and Texas. In addition, the Company has an Administrative Service Agreement (the "ASA") with Care Optical, LLC (the "Care Optical"), which provides optometry services in the state of Florida. The Company concluded that it has variable interest in the PCs and Care Optical on the basis of its ASAs which provide for a management fee payable to the Company from the PCs and Care Optical in exchange for providing management and administrative services which creates risk and a potential return to the Company. The PCs' and Care Optical's equity at risk, as defined by GAAP, is insufficient to finance their activities without additional support, and therefore, the PCs and Care Optical are considered to be Variable Interest Entities (each, a "VIE").
In order to determine whether the Company has a controlling financial interest in the PCs and Care Optical, and, thus, is the PCs' primary beneficiary, the Company considered whether it has (i) the power to direct the activities of PCs and Care Optical that most significantly impacts their economic performance and (ii) the obligation to absorb losses of the PCs and Care Optical or the right to receive benefits from the PCs and Care Optical that could potentially be significant to them. The Company concluded that the member and employees of the PCs and Care Optical have no individual power to direct activities of the PCs and Care Optical that most significantly impact their economic performance. Under the ASAs, the Company is responsible for providing services that impact the growth of the patient population of the PCs and Care Optical, the management of that population's healthcare needs, the provision of required healthcare services to those patients, and the PCs' and Care Optical's ability to receive revenue from health plans. In addition, the Company's variable interest in the PCs and Care Optical provides the Company with the right to receive benefits that could potentially be significant to them. The single members of the PCs and Care Optical are employees of the Company. Based on this analysis, the Company concluded that it is the primary beneficiary of the PCs and Care Optical and therefore consolidates the balance sheet, results of operations and cash flows of the PCs and Care Optical.
Furthermore, as a direct result of nominal initial equity contributions by the single members of the PCs and Care Optical, the financial support CareMax provides to the PCs and Care Optical (e.g. loans) and the provisions of the arrangements described above, the interest held by the single member lacks economic substance and does not provide the member with the ability to participate in the residual profits or losses generated by the PCs and Care Optical. Therefore, all income and expenses recognized by the PCs and Care Optical are allocated to CareMax.
The following tables summarize the financial position and operations of the PCs and Care Optical (in thousands):
|
June 30, |
|
December 31, |
|
||
Total assets |
$ |
3,110 |
|
$ |
1,097 |
|
Total liabilities |
$ |
7,993 |
|
$ |
2,961 |
|
|
Three Months Ended |
|
Six Months Ended |
|
Three Months Ended |
|
Six Months Ended |
|
||||
Revenues |
$ |
580 |
|
$ |
997 |
|
$ |
- |
|
$ |
- |
|
Operating expenses |
$ |
1,977 |
|
$ |
3,691 |
|
$ |
392 |
|
$ |
392 |
|
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, references in this section to “CareMax,” “we,” “us,” “our,” and the “Company” refer to CareMax, Inc. together with its consolidated subsidiaries. The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity, capital resources and cash flows of our company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (the “Report”).
Forward-Looking Statements
This Report contains forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which represent our belief or current expectations, plans or forecasts of future events based on assumptions and information currently available to our management, involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company’s control. The words “anticipate,” “believe,” “continue,” “plan,” “expect,” “estimate,” “may,” “could,” “should,” “project,” “will,” or the negative or other variations thereof and similar words or phrases or comparable terminology may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Actual results could differ materially from those discussed in these forward-looking statements due to a variety of risks and uncertainties and other factors, including but not limited to those contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (the "Annual Report"), which was filed with the Securities and Exchange Commission (the "SEC") on March 30, 2023, under the caption "Risk Factors" and, the following:
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Due to the uncertain nature of these factors, management cannot assess the impact of each factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Any forward-looking statement speaks only as of the date on which statement is made, and we undertake no obligation to update any of these statements or circumstances occurring after the date of this Report. New factors may emerge, and it is not possible to predict all factors that may affect our business and prospects.
Our Business
As of June 30, 2023, CareMax operated 62 centers in Florida, Tennessee, New York and Texas. CareMax offers a comprehensive range of medical services, including primary and preventative care, specialist services, diagnostic testing, chronic disease management and dental and optometry services under global capitation contracts.
CareMax’s comprehensive, high touch approach to health care delivery is powered by its CareOptimize technology platform. CareOptimize is a purpose built end-to-end technology platform that aggregates data and analyzes that data using proprietary algorithms and machine learning to support more informed care delivery decisions and to focus care decisions on preventative chronic disease management and the social determinants of health. CareMax believes that CareOptimize is designed to drive better outcomes and lower costs. CareMax has shifted from selling the CareOptimize platform to new outside customers for a software subscription fee and is instead focused on providing the software to affiliated practices of its managed services organization (“MSO”) to further improve financial, clinical and quality outcomes from the affiliated providers.
CareMax’s centers offer 24/7 access to care through employed providers and provide a comprehensive suite of high-touch health care and social services to its patients, including primary care, specialty care, telemedicine, health & wellness, optometry, dental, pharmacy and transportation. CareMax’s differentiated healthcare delivery model is focused on care coordination with vertically integrated ambulatory care and community-centric services. The goal of CareMax is to intercede as early as possible to manage chronic conditions for its patient members in a proactive, holistic, and tailored manner to provide a positive influence on patient outcomes and a reduction in overall healthcare costs. CareMax focuses on providing access to high quality care in underserved communities.
While CareMax’s primary focus is providing care to Medicare eligible seniors who are mostly 65+ (approximately 78% and 81% of revenue for the six months ended June 30, 2023 and 2022, respectively, came from these patients), we also provide services to children and adults through Medicaid programs as well as through commercial insurance plans. Substantially all of the Medicare patients cared for in CareMax's centers are enrolled in MA plans which are run by private insurance companies and are approved by and under contract with Medicare. With MA, patients get all of the same coverage as original Medicare, including emergency care, and most plans also include prescription drug coverage. In many cases, MA plans offer more benefits than original Medicare, including dental, vision, hearing and wellness programs. We contract with nearly all national and most regional, local Medicare Advantage plans.
In addition to Medicare Advantage contracts, through our MSO we service other Medicare patients through a variety of value-based contracts, such as Medicare Shared Savings Program (“MSSP”) and ACO REACH.
Key Factors Affecting Our Performance
Our Patients
As discussed above, the Company partners with Medicare, Medicaid, and commercial insurance plans. While CareMax currently services mostly Medicare patients, we also accept Medicare fee-for-service patients. Given the close proximity of the closing of the acquisition of the Medicare value-based care business of Steward Health Care System (the "Steward Acquisition") on November 10, 2022 to our year-end December 31, 2022, we did not calculate pro forma adjustments related to this acquisition.
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Patient Count as of* |
Jun 30, 2021 |
|
Sep 30, 2021 |
|
Dec 31, 2021 |
|
Mar 31, 2022 |
|
Jun 30, 2022 |
|
Sep 30, 2022 |
|
Dec 31, 2022 |
|
Mar 31, 2023 |
|
Jun 30, 2023 |
|
|||||||||
Medicare Advantage |
|
21,500 |
|
|
26,500 |
|
|
33,500 |
|
|
34,000 |
|
|
37,000 |
|
|
39,500 |
|
|
93,500 |
|
|
95,500 |
|
|
102,500 |
|
Medicare Government VBC |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
109,500 |
|
|
107,000 |
|
|
101,000 |
|
Medicaid |
|
23,500 |
|
|
24,500 |
|
|
28,000 |
|
|
28,500 |
|
|
29,500 |
|
|
31,500 |
|
|
33,500 |
|
|
33,500 |
|
|
30,500 |
|
Commercial |
|
17,500 |
|
|
17,500 |
|
|
21,500 |
|
|
21,500 |
|
|
21,500 |
|
|
22,000 |
|
|
22,000 |
|
|
34,500 |
|
|
38,500 |
|
Total Count |
|
62,500 |
|
|
68,500 |
|
|
83,500 |
|
|
84,000 |
|
|
88,000 |
|
|
93,000 |
|
|
258,500 |
|
|
271,000 |
|
|
272,500 |
|
* Figures may not sum due to rounding
Because CareMax accepts multiple insurance types, it uses a Medicare-Equivalent Member (“MCREM”) value in reviewing key factors of its performance. To determine the Medicare-Equivalent, CareMax estimates the amount of support typically received by one Medicare patient as equivalent to the level of support received by three Medicaid or Commercial patients. This is due to Medicare patients on average having significantly higher levels of chronic and acute conditions that need higher levels of care. Due to this dynamic, a 3:1 ratio is applied to make year over year comparisons of total membership more comparable. The breakdown of membership on a pro forma basis using MCREM is below:
MCREM Count as of* |
Jun 30, 2021 |
|
Sep 30, 2021 |
|
Dec 31, 2021 |
|
Mar 31, 2022 |
|
Jun 20, 2022 |
|
Sep 30, 2022 |
|
Dec 31, 2022 |
|
Mar 31, 2023 |
|
Jun 30, 2023 |
|
|||||||||
Medicare Advantage |
|
21,500 |
|
|
26,500 |
|
|
33,500 |
|
|
34,000 |
|
|
37,000 |
|
|
39,500 |
|
|
93,500 |
|
|
95,500 |
|
|
102,500 |
|
Medicare Government VBC |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
109,500 |
|
|
107,000 |
|
|
101,000 |
|
Medicaid |
|
7,900 |
|
|
8,100 |
|
|
9,400 |
|
|
9,400 |
|
|
9,900 |
|
|
10,600 |
|
|
11,100 |
|
|
11,200 |
|
|
10,100 |
|
Commercial |
|
5,900 |
|
|
5,800 |
|
|
7,200 |
|
|
7,200 |
|
|
7,100 |
|
|
7,300 |
|
|
7,400 |
|
|
11,400 |
|
|
12,900 |
|
Total Count |
|
35,300 |
|
|
40,400 |
|
|
50,100 |
|
|
50,600 |
|
|
54,000 |
|
|
57,400 |
|
|
221,500 |
|
|
225,100 |
|
|
226,500 |
|
* Figures may not sum due to rounding
Medicare Advantage Patients
As of June 30, 2023, CareMax had approximately 102,500 MA patients of which 99% were in value-based agreements. Approximately 35% of patients in the Medicare Advantage value-based care agreements were in full-risk contracts. This means CareMax has been selected as the patient’s primary care provider and is financially responsible for some or all of the patient’s medical costs. CareMax is attributed an agreed percentage of the premium the Medicare plan receives from the Centers for Medicare and Medicaid Services (“CMS”) (typically a substantial majority of such premium given the risk assumed by the Company). A reconciliation is performed periodically and if premiums exceed medical costs paid by the MA plan, CareMax receives payment from the Medicare plan. If medical costs paid by the Medicare plan exceed premiums, CareMax is responsible to reimburse the Medicare plan.
Medicare Government Value-Based Care ("VBC") Programs
As of June 30, 2023, CareMax had approximately 101,000 patients enrolled in Medicare Government VBC Programs, of which approximately 92% were in the MSSP and 8% were in the ACO REACH program. The MSSP is sponsored by the CMS. The MSSP allows participating Accountable Care Organizations ("ACOs") to receive a share of cost savings they generate in connection with the management of costs and quality of medical services rendered to Medicare beneficiaries. Payments to the ACO participants, if any, are calculated annually and paid once a year by CMS on cost savings generated by the ACO participant relative to the ACO participants’ CMS benchmark. Under the MSSP, the ACO must meet certain qualifications to receive the full amount of its allocable cost savings or they either receive nothing or are responsible for shared losses. The MSSP rules require CMS to develop a benchmark for savings to be achieved by each participant if the participant is to receive shared savings. An ACO that meets the MSSP’s quality performance standards will be eligible to receive a share of the savings to the extent its assigned beneficiary medical expenditures are below the medical expenditure benchmark provided by CMS. A Minimum Savings Rate (“MSR”), which varies depending on the number of beneficiaries assigned to the ACO, must be achieved before the ACO can receive up to 75% of share of the savings if quality performance standards are met; the ACO is also responsible for 40% of the deficit. Once the MSR is surpassed, all the savings below the benchmark provided by CMS will be shared with the ACO.
Medicaid Patients
As of June 30, 2023, CareMax had approximately 30,500 Medicaid patients of which 100% were in value-based agreements. Approximately 90% of patients in the Medicaid value-based care agreements were in full-risk contracts. Using the MCREM metric, the level of support required to manage these Medicaid patients equates to that of approximately 10,100 Medicare patients. In Florida, most Medicaid recipients are enrolled in the Statewide Medicaid Managed Care program.
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Similar to the risk it takes with Medicare, CareMax is attributed an agreed percentage of the premium the Medicaid plan receives from Florida’s Agency for Health Care Administration (“AHCA”) (typically a substantial majority of such premium given the risk assumed by the Company). A reconciliation is performed periodically and if premiums exceed medical costs paid by the Medicaid plan, CareMax receives payment from the Medicaid plan. If medical costs paid by the Medicaid plan exceed premiums, we are responsible to reimburse the Medicaid plan.
Commercial Patients
As of June 30, 2023, CareMax managed approximately 38,500 commercial patients of which 97% were under a value-based agreement that provided upside-only financial incentives for quality and utilization performance. Using the MCREM metric, the level of support required to manage these commercial patients equates to that of approximately 12,900 Medicare patients.
CareMax cares for a number of commercial patients (less than 1% of the Company's total patients) for whom it is reimbursed on a fee-for-service basis via their health plan in situations where it does not have a capitation relationship with that particular health plan.
CareMax fee for-service revenue, received directly from commercial plans, on a per patient basis is typically lower than its per patient revenue for at-risk patients based in part because its fee-for-service revenue covers only the primary care services that it directly provides to the patient, while the risk revenue is intended to compensate it for the services directly performed by CareMax as well as the financial risk that it assumes related to the third-party medical expenses of at-risk patients.
Contracts with Payors
Our economic model relies on its capitated partnerships with payors which manage and market Medicare plans across the United States. CareMax has established strategic value-based relationships with a number of different payors for Medicare Advantage patients, Medicaid patients, and ACA patients. During the six months ended June 30, 2023, our three largest payor relationships were Payor A, Payor C and Payor E, which generated 26%, 22% and 16% of our revenue, respectively. During the six months ended June 30, 2022, our three largest payor relationships were Payor A, Payor B and Payor C, which generated 30%, 18% and 17% of our revenue, respectively. These existing contracts and relationships with our national partners and their understanding of the value of the CareMax model reduces the risk of entering into new markets as CareMax typically seeks to have payor contracts in place before entering a new market. Maintaining, supporting, and growing these relationships, particularly as CareMax enters new markets, are critical to our long-term success. We believe CareMax’s model is well-aligned with that of its payor partners - to drive better health outcomes for their patients, enhance patient satisfaction, and drive incremental patient and revenue growth. This alignment of interests helps ensure our continued success with our payor partners.
Effectively Manage the Cost of Care for Our Patients
The capitated nature of our contracting with payors requires us to prudently manage the medical expense of our patients. Our external provider costs are our largest expense category, representing 53% of our total operating expenses for the six months ended June 30, 2023 and 65% of our total operating expenses for the six months ended June 30, 2022. Our care model focuses on leveraging the primary care setting as a means of avoiding costly downstream healthcare costs, such as acute hospital admissions. Our patients retain the freedom to seek care at emergency rooms or hospitals; we do not restrict their access to care. Therefore, we could be liable for potentially large medical claims should we not effectively manage our patients’ health. We utilize stop-loss insurance for our patients, protecting us from medical claims in excess of certain levels.
Seasonality to our Business
Due to the large number of dual-eligible patients (meaning eligible for both Medicare and Medicaid) we serve, the annual enrollment period does not materially affect our growth during the year. We typically see large increases in ACA patients during the first quarter as a result of the ACA annual enrollment period (October to December). However, this is not a large portion of our business.
Our operational and financial results will experience some variability depending upon the time of year in which they are measured. This variability is most notable in the following areas:
Per-Patient Revenue
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The revenue derived from our at-risk patients is a function of the percentage of premium we have negotiated with our payor partners, as well as our ability to accurately and appropriately document the acuity of a patient. We experience some seasonality with respect to our per-patient revenue, as it will generally decline over the course of the year. In January of each year, CMS revises the risk adjustment factor for each patient based upon health conditions documented in the prior year, leading to changes in per-patient revenue. As the year progresses, our per-patient revenue declines as new patients join us, typically with less complete or accurate documentation (and therefore lower risk-adjustment scores), and patient mortality disproportionately impacts our higher-risk (and therefore greater revenue) patients.
External Provider Costs
External Provider Costs will vary seasonally depending on a number of factors, but most significantly the weather. Certain illnesses, such as the influenza virus, are far more prevalent during colder months of the year, which can result in an increase in medical expenses during these time periods. We would therefore expect to see higher levels of per-patient medical costs in the first and fourth quarters. Medical costs also depend upon the number of business days in a period. Shorter periods will have lesser medical costs due to fewer business days. Business days can also create year-over-year comparability issues if one year has a different number of business days compared to another. We would also expect to experience an impact in the future should there be another pandemic such as COVID-19, which may result in increased or decreased total medical costs depending upon the severity of the infection, the duration of the infection and the impact to the supply and availability of healthcare services for our patients.
Payor Settlements
As it relates to our MSSP contracts, settlements from the prior year from the CMS typically take place during the fourth quarter of each year, which results in variability of our accounts receivable, cash flow from operations, and cash balances throughout the year.
Investments in Growth
We expect to continue to focus on long-term growth through investments in our centers, MSO, platform, care model and marketing. In addition, we expect our corporate, general and administrative expenses to increase in absolute dollars for the foreseeable future to support our growth and costs to operate as a public company.
As we have communicated, we plan to invest in openings of new de novo centers both within and outside of Florida over the next several years. De novo centers require upfront capital and operating expenditures, which typically are not fully offset by revenues in the near-term, as a result of which we expect a period of unprofitability in our de novo centers before they break even. Costs we incur prior to opening of a de novo center include (1) incremental payroll costs from employees specifically associated with the operational, contractual, physical, or regulatory infrastructure for de novo centers, prior to their opening; (2) legal costs directly associated with the de novo centers, incurred prior to their opening, which includes services such as execution of leases, health plan contracts and other agreements; (3) other expenses related to diligence, design, permitting, and other “soft costs” at new sites; and (4) rent and facility expenses prior to center opening. Once a de novo center opens, we incur post-opening losses, which consist of center-level operating losses recognized at a de novo center until the center breaks even, up to 18 months after opening. The de novo post-opening losses consist of revenue, external provider costs and cost of care allocated to the de novo center. During the six months ended June 30, 2023 and 2022, we incurred de novo pre-opening costs and post-opening losses, on a combined basis, of $11.6 million and $3.6 million, respectively.
While our net income (loss) may decrease in the future because of these activities, we plan to balance these investments in future growth with a continued focus on managing our results of operations and generating positive income from our core centers and scaled acquisitions. In the longer term, we anticipate that these investments will positively impact our business and results of operations.
Key Business Metrics
In addition to our financial information which conforms with generally accepted accounting principles in the United States of America (“GAAP”), management reviews a number of operating and financial metrics, including the following key metrics, to evaluate its business, measure its performance, identify trends affecting its business, formulate business plans, and make strategic decisions.
(32)
Use of Non-GAAP Financial Information
Certain financial information and data contained in this Report is unaudited and does not conform to Regulation S-X. Accordingly, such information and data may not be included in, may be adjusted in, or may be presented differently in, any periodic filing, information or proxy statement, or prospectus or registration statement to be filed by the Company with the SEC. Some of the financial information and data contained in this Report, such as Adjusted EBITDA and margin thereof, and Platform Contribution and margin thereof have not been prepared in accordance with GAAP. These non-GAAP measures of financial results are not GAAP measures of our financial results or liquidity and should not be considered as an alternative to net income (loss) as a measure of financial results, cash flows from operating activities as a measure of liquidity, or any other performance measure derived in accordance with GAAP. The Company believes these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and results of operations. Management uses these non-GAAP measures for trend analyses and for budgeting and planning purposes.
The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating projected operating results and trends in and in comparing the Company’s financial measures with other similar companies, many of which present similar non-GAAP financial measures to investors. Management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which expense and income are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management presents non-GAAP financial measures in connection with GAAP results. You should review the Company’s GAAP financial statements, which are included in this Report.
Adjusted EBITDA
Beginning with this Form 10-Q for the three months ended June 30, 2023, for all periods presented, the Company has updated its calculation of the reconciliation of Adjusted EBITDA on a retrospective basis to no longer add back certain compensation costs for stay-on bonuses and duplicative salaries previously included within the Business Combination integration costs adjustment.
Adjusted EBITDA is defined as net income or loss before interest expense, depreciation and amortization, remeasurement of warrant and contingent earnout liabilities, goodwill impairment, stock-based compensation, loss on extinguishment of debt, acquisition and integration related costs, Business Combination integration costs, income tax provision or benefit, and other income or expenses that are considered one-time in nature as determined by management.
Adjusted EBITDA is intended to be used as a supplemental measure of our performance that is neither required by, nor presented in accordance with GAAP. Management believes that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial measure with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, we may incur future expenses similar to those excluded when calculating these measures. In addition, our presentations of these measures should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. Our computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion. Due to these limitations, Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.
(33)
Reconciliation to Adjusted EBITDA
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||||||||||
(in thousands) |
|
2023 |
|
|
2022 |
|
|
Y/Y Change |
|
|
2023 |
|
|
2022 |
|
|
Y/Y Change |
|
||||||
Net loss |
|
$ |
(32,376 |
) |
|
$ |
(9,381 |
) |
|
$ |
(22,995 |
) |
|
$ |
(114,458 |
) |
|
$ |
(26,178 |
) |
|
$ |
(88,280 |
) |
Interest expense |
|
|
13,197 |
|
|
|
3,896 |
|
|
|
9,301 |
|
|
|
23,908 |
|
|
|
5,624 |
|
|
|
18,284 |
|
Depreciation and amortization |
|
|
6,828 |
|
|
|
4,903 |
|
|
|
1,925 |
|
|
|
13,404 |
|
|
|
9,965 |
|
|
|
3,439 |
|
Remeasurement of warrant and contingent earnout liabilities |
|
|
15,786 |
|
|
|
(7,391 |
) |
|
|
23,177 |
|
|
|
(21,456 |
) |
|
|
(3,855 |
) |
|
|
(17,601 |
) |
Goodwill impairment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
98,000 |
|
|
|
- |
|
|
|
98,000 |
|
Stock-based compensation |
|
|
2,464 |
|
|
|
2,788 |
|
|
|
(324 |
) |
|
|
4,762 |
|
|
|
3,875 |
|
|
|
887 |
|
Loss on extinguishment of debt |
|
|
- |
|
|
|
6,172 |
|
|
|
(6,172 |
) |
|
|
- |
|
|
|
6,172 |
|
|
|
(6,172 |
) |
Acquisition and integration related costs (1) |
|
|
815 |
|
|
|
4,074 |
|
|
|
(3,259 |
) |
|
|
1,437 |
|
|
|
7,503 |
|
|
|
(6,066 |
) |
Business Combination integration costs (2) |
|
|
686 |
|
|
|
1,887 |
|
|
|
(1,201 |
) |
|
|
1,402 |
|
|
|
6,266 |
|
|
|
(4,864 |
) |
Other (3) |
|
|
(535 |
) |
|
|
56 |
|
|
|
(591 |
) |
|
|
(722 |
) |
|
|
486 |
|
|
|
(1,208 |
) |
Income tax provision (benefit) |
|
|
177 |
|
|
|
171 |
|
|
|
6 |
|
|
|
355 |
|
|
|
352 |
|
|
|
3 |
|
Adjusted EBITDA |
|
$ |
7,042 |
|
|
$ |
7,175 |
|
|
$ |
(133 |
) |
|
$ |
6,631 |
|
|
$ |
10,210 |
|
|
$ |
(3,579 |
) |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||
(in thousands) |
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
||||
Advisor and other professional fees (a) |
$ |
(34 |
) |
$ |
2,359 |
|
|
$ |
(292 |
) |
$ |
3,980 |
|
Compensation costs (b) |
|
849 |
|
|
1,715 |
|
|
|
1,728 |
|
|
3,523 |
|
|
$ |
815 |
|
$ |
4,074 |
|
|
$ |
1,437 |
|
$ |
7,503 |
|
(a) Includes payments to our third-party transaction advisory firm associated with transaction contracts, including the Steward transaction that was closed in November 2022. Also, costs include legal and accounting fees directly associated with contemplated or closed transactions.
(b) Includes incremental payroll compensation expense for employees directly associated with services to achieve synergies related to closed transactions.
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||
(in thousands) |
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
||||
Consulting and legal fees (a) |
$ |
237 |
|
$ |
887 |
|
|
$ |
519 |
|
$ |
4,077 |
|
Severance costs |
|
13 |
|
|
252 |
|
|
|
24 |
|
|
277 |
|
Other (b) |
|
436 |
|
|
748 |
|
|
|
859 |
|
|
1,912 |
|
|
$ |
686 |
|
$ |
1,887 |
|
|
$ |
1,402 |
|
$ |
6,266 |
|
(a) Represents consulting and legal costs directly associated with efforts related to integration of the two privately held companies that were combined in the Business Combination.
(b) Represents primarily vendor expenses identified as temporary or duplicative and/or expenses outside the ordinary course of business and not necessary to run the Company's business.
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||
(in thousands) |
|
2023 |
|
2022 |
|
|
2023 |
|
2022 |
|
||||
Interest income |
|
$ |
(602 |
) |
$ |
- |
|
|
$ |
(855 |
) |
$ |
- |
|
Tax-related costs |
|
|
- |
|
|
69 |
|
|
|
- |
|
|
334 |
|
Other |
|
|
67 |
|
|
(14 |
) |
|
|
133 |
|
|
151 |
|
|
|
$ |
(535 |
) |
$ |
56 |
|
|
$ |
(722 |
) |
$ |
486 |
|
Operating Metrics and Non-GAAP Platform Contribution and Pro Forma Platform Contribution
In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. The chart below is a pro forma view of our operations. This pro forma view was calculated in a manner consistent with the concepts of Article 8 of Regulation S-X, assumes the Business Combination occurred on January 1, 2021, and is based upon estimates which we believe are reasonable.
(34)
The following metrics are as of the end of the indicated date, except for Platform Contribution, which is for the three month period ended as of the indicated date:
|
Pro Forma** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Non-GAAP Operating Metrics |
Jun 30, 2021 |
|
Sep 30, 2021 |
|
Dec 31, 2021 |
|
Mar 31, 2022 |
|
Jun 30, 2022 |
|
Sep 30, 2022 |
|
Dec 31, 2022 |
|
Mar 31, 2023 |
|
Jun 30, 2023 |
|
|||||||||
Centers |
|
34 |
|
|
40 |
|
|
45 |
|
|
48 |
|
|
48 |
|
|
51 |
|
|
62 |
|
|
62 |
|
|
62 |
|
Markets |
|
2 |
|
|
3 |
|
|
4 |
|
|
6 |
|
|
6 |
|
|
7 |
|
|
7 |
|
|
7 |
|
|
7 |
|
Patients (MCREM)* |
|
35,300 |
|
|
40,400 |
|
|
50,100 |
|
|
50,600 |
|
|
54,000 |
|
|
57,400 |
|
|
221,500 |
|
|
225,100 |
|
|
226,500 |
|
Patients in value-based care arrangements (MCREM) |
|
84.1 |
% |
|
87.2 |
% |
|
79.3 |
% |
|
79.8 |
% |
|
81.0 |
% |
|
78.2 |
% |
|
97.6 |
% |
|
99.0 |
% |
|
99.4 |
% |
Platform Contribution ($, millions)** |
$ |
8.2 |
|
$ |
11.0 |
|
$ |
16.0 |
|
$ |
17.2 |
|
$ |
21.6 |
|
$ |
20.6 |
|
$ |
25.6 |
|
$ |
24.7 |
|
$ |
28.6 |
|
* MCREM defined as Medicare Equivalent Members, which assumes the level of support received by a Medicare patient is equivalent to that received by three Medicaid or Commercial patients. |
|
||||||||||||||||||||||||||
** For period ended June 30, 2021, the measure was calculated in a manner consistent with the concepts of Article 8 of Regulation S-X and represents Pro Forma Platform Contribution. |
|
||||||||||||||||||||||||||
Centers
We define our centers as those primary care centers open for business and open for enrollment of patients at the end of a particular period.
Patients (MCREM)
MCREM patients include both at-risk MA patients (those patients for whom we are financially responsible for their total healthcare costs) as well as risk and non-risk, non-MA patients. We define our total at-risk patients as patients who have selected us as their provider of primary care medical services as of the end of a particular period and for whom we take responsibility for at least some degree of downside risk in capitated contracts. At-risk patient remains active in our system until we are informed by the health plan the patient is no longer active. As discussed above, CareMax calculates the amount of support typically received by one Medicare patient as equivalent to the level of support received by three Medicaid or Commercial patients.
Pro Forma Platform Contribution and Platform Contribution
We define Platform Contribution as gross profit plus depreciation and amortization, stock-based compensation recognized within cost of care and other adjustments, as disclosed below. Gross profit is defined as revenue less the sum of (i) external provider costs; (ii) cost of care, including stock-based compensation, and (iii) depreciation and amortization expense. We believe this metric best reflects the economics of our care model as it includes all medical claims expense associated with our patients’ care as well as the costs we incur to care for our patients at our centers. As a center matures, we expect the Platform Contribution from that center to increase both in terms of absolute dollars as well as a percentage of revenue. This increase will be driven by improving patient contribution economics over time, as well as our ability to generate operating leverage on the costs of our centers. Our aggregate Platform Contribution may not increase despite improving economics at our existing centers should we open new centers at a pace that skews our mix of centers towards newer centers.
The following table provides a reconciliation of gross profit, the most closely comparable GAAP financial measure, to Pro Forma Platform Contribution and Platform Contribution:
(35)
(in millions) |
Jun 30, 2021 |
|
Sep 30, 2021 |
|
Dec 31, 2021 |
|
Mar 31, 2022 |
|
Jun 30, 2022 |
|
Sep 30, 2022 |
|
Dec 31, 2022 |
|
Mar 31, 2023 |
|
Jun 30, 2023 |
|
|||||||||
Gross profit (a) |
$ |
0.1 |
|
$ |
4.5 |
|
$ |
9.6 |
|
$ |
11.2 |
|
$ |
15.4 |
|
$ |
14.8 |
|
$ |
17.2 |
|
$ |
17.1 |
|
$ |
20.4 |
|
Depreciation and amortization |
|
1.4 |
|
|
5.2 |
|
|
6.1 |
|
|
5.1 |
|
|
4.9 |
|
|
4.6 |
|
|
7.2 |
|
|
6.6 |
|
|
6.8 |
|
Stock-based compensation |
|
- |
|
|
- |
|
|
0.1 |
|
|
0.4 |
|
|
1.3 |
|
|
1.2 |
|
|
1.2 |
|
|
1.0 |
|
|
1.3 |
|
Pro forma adjustments (b) |
|
6.7 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Other adjustments (c) |
|
- |
|
|
1.3 |
|
|
0.2 |
|
|
0.5 |
|
|
0.1 |
|
|
0.1 |
|
|
- |
|
|
- |
|
|
- |
|
Pro forma Platform Contribution |
$ |
8.2 |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
n/a |
|
||||||||
Platform Contribution |
n/a |
|
$ |
11.0 |
|
$ |
16.0 |
|
|
17.2 |
|
$ |
21.6 |
|
$ |
20.6 |
|
$ |
25.6 |
|
$ |
24.7 |
|
$ |
28.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
(a) Gross profit reflects the reclassification of stock-based compensation expense previously included in corporate, general and administrative expenses, which decreased gross profit by $0.1 million during the three months ended December 31, 2021, $0.4 million during the three months ended March 31, 2022, $1.3 million during the three months ended June 30, 2022, $1.2 million during the three months ended September 30, 2022, and $1.2 million during the three months ended December 31, 2022. |
|
||||||||||||||||||||||||||
(b) Pro Forma adjustments are computed in a manner consistent with the concepts of Article 8 of Regulation S-X and give effect to the Business Combinations of IMC and Care Holdings as if they had occurred on January 1, 2021. Components of the pro forma adjustments were as follows: |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Three Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(in thousands) |
IMC |
|
Care Holdings |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Gross profit prior to Business Combination |
$ |
4,682 |
|
$ |
932 |
|
$ |
5,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Depreciation and amortization prior to Business Combination |
|
1,066 |
|
|
1 |
|
|
1,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Pro forma adjustment |
$ |
5,748 |
|
$ |
933 |
|
$ |
6,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
(c) Other adjustments include incremental costs primarily related to post-Business Combination integration initiatives. Other adjustments reflected during the three months ended September 30, 2021 include $0.6 million of incremental costs relating to one-time operational projects and $0.3 million of non-cash true-up of deferred rent expense. Other adjustments reflected during the three months ended March 31, 2022 include $0.3 million of costs for a pilot project regarding outsourcing. |
|
||||||||||||||||||||||||||
Impact of COVID-19
The rapid spread of COVID-19 around the world and throughout the United States altered the behavior of businesses and people, with significant negative effects on federal, state and local economies. The virus disproportionately impacts older adults, especially those with chronic illnesses, which describes many of our patients.
We estimate the impact of direct COVID-19 costs had a negligible negative impact on our performance for the six months ended June 30, 2023 and an approximately $1 million negative impact on our performance for the six months ended June 30, 2022. Management cannot accurately predict the future impacts of COVID-19 due to the uncertainty surrounding future spikes in COVID-19 cases or new variants that may emerge in the future.
Components of Results of Operations
Revenue
Medicare Risk-Based Revenue and Medicaid Risk-Based Revenue. Our Medicare and Medicaid risk-based revenue consists primarily of capitation fees for medical services provided by us or managed by our MSO under a global capitation arrangement made directly with various MA payors. Capitation is a fixed amount of money per patient per month paid in advance for the delivery of health care services, whereby we are generally liable for medical costs in excess of the fixed payment and are able to retain any surplus created if medical costs are less than the fixed payment. A portion of our capitated revenues are typically prepaid monthly to us based on the number of MA patients selecting us as their primary care provider. Our capitated rates are determined as a percentage of the premium the MA plan receives from CMS for our at-risk members. Those premiums are determined via a competitive bidding process with CMS and are based upon the cost of care in a local market and the average utilization of services by the patients enrolled. Medicare pays capitation using a “risk adjustment model,” which compensates providers based on the health status (acuity) of each individual patient. Payors with higher acuity patients receive more in premium, and those with lower acuity patients receive less in premium. Under the risk adjustment model, capitation is paid on an interim basis based on enrollee data submitted for the preceding year and is adjusted in subsequent periods after the final data is compiled. As premiums are adjusted via this risk adjustment model, our capitation payments will correlate with how our payor partners’ premiums change with CMS. Risk adjustment in future periods may be impacted by COVID-19 and our inability to accurately document the health needs of our patients, which may have an adverse impact on our revenue.
(36)
For Medicaid, premiums are determined by Florida’s AHCA and base rates are adjusted annually using historical utilization data projected forward by a third-party actuarial firm. The rates are established based on specific cohorts by age and sex and geographical location. AHCA uses a “zero sum” risk adjustment model that establishes acuity for certain cohorts of patients quarterly, and depending on the scoring of that acuity, may periodically shift premiums from health plans with lower acuity members to health plans with higher acuity members.
Government Value-Based Care Revenue. Government value-based care revenue consists primarily of revenue derived from the MSSP. The MSSP is sponsored by the CMS. The MSSP allows ACOs to receive a share in cost savings they generate in connection with the managing of costs and quality of medical services rendered to Medicare beneficiaries. Payments to ACO participants, if any, are calculated annually and paid once a year by CMS on cost savings generated by the ACO participant relative to the ACO participants’ CMS benchmark. Under the MSSP, an ACO must meet certain qualifications to receive the full amount of its allocable cost savings or they either receive nothing or are responsible for shared losses. The MSSP rules require CMS to develop a benchmark for savings to be achieved by each ACO if the ACO is to receive shared savings. An ACO that meets the MSSP’s quality performance standards will be eligible to receive a share of the savings to the extent its assigned beneficiary medical expenditures are below the medical expenditure benchmark provided by CMS. A Minimum Savings Rate (“MSR”) must be achieved before the ACO can receive a share of the savings. Once the MSR is surpassed, all the savings below the benchmark provided by CMS will be shared at a certain percentage with the ACO. The MSR varies depending on the number of beneficiaries assigned to the ACO.
Other Revenue. Other revenue consists primarily of professional capitation payments and pharmacy revenue. These revenues are a fixed amount of money per patient per month paid in advance for the delivery of primary care services only, whereby CareMax is not liable for medical costs in excess of the fixed payment. Capitated revenues are typically paid monthly to CareMax based on the number of patients selecting us as their primary care provider. Our capitated rates are fixed, contractual rates. Incentive payments for Healthcare Effectiveness Data and Information Set (“HEDIS”) and any services paid on a fee-for-service basis by a health plan are also included in other revenue. Other revenue also includes ancillary fees earned under contracts with certain payors for the provision of certain care coordination and other care management services. These services are provided to patients covered by these payors regardless of whether those patients receive their care from our affiliated medical groups. Revenue for primary care service for patients in partial risk or upside-only contracts, pharmacy revenue and revenue generated from CareOptimize are reported in other revenue.
External Provider Costs. External provider costs include services at-risk patients utilize that are rendered by providers other than CareMax. These include claims paid by the health plan and estimates for unpaid claims. The estimated reserve for incurred but not paid claims is included as a reduction to accounts receivable as we do not pay medical claims. Actual claims expense will differ from the estimated liability due to differences in estimated and actual patient utilization of health care services, the amount of charges, and other factors. We typically reconcile our medical claims expense with our payor partners on a monthly basis and adjust our estimate of incurred but not paid claims if necessary. To the extent we revise our estimates of incurred but not paid claims for prior periods up or down, there would be a correspondingly favorable or unfavorable effect on our current period results that may or may not reflect changes in long term trends in our performance. We expect our medical claims expenses to increase in both absolute dollar terms as well as on a PMPM basis given the healthcare spending trends within the Medicare population and the increasing disease burden of patients as they age.
The Company re-evaluated key assumptions and estimates and based on this analysis, the Company identified changes in estimates to revenue, external provider costs and accounts receivable, net. Accordingly, the Company recognized the following changes in prior year estimates in each respective period (in thousands):
Increase (decrease) |
Six Months Ended June 30, 2023 |
|
Six Months Ended June 30, 2022 |
|
||
|
|
|
|
|
||
Revenue |
$ |
(22,964 |
) |
$ |
2,002 |
|
External provider costs |
|
(1,736 |
) |
|
8,057 |
|
Accounts receivable, net |
|
(21,228 |
) |
|
(6,055 |
) |
For the six months ended June 30, 2023, the developments related to the prior year dates of service were primarily driven by new, updated information regarding MSO membership at one health plan, an unseasonably early flu season, and more current data from one Medicaid health plan. For the six months ended June 30, 2022, the developments related to the prior year dates of service were driven by claims development from COVID-related utilization.
(37)
Cost of Care. Cost of care includes the costs of additional medical services we provide to patients that are not paid by the plan. These services include patient transportation, medical supplies, auto insurance and other specialty costs, like dental or vision. In some instances, we have negotiated better rates than the health plans for these health plan covered services. In addition, cost of care includes rent, utilities and facilities costs required to maintain and operate our centers, and compensation of the clinic and support staff.
Cost of care also includes distributions to affiliate IPA physicians and physician groups. Expenses from our physician groups that contract with our MSO are consolidated with other clinical and MSO expenses to determine profitability for our at-risk and fee-for-service arrangements. Physician group economics are not evaluated on an individual provider basis, as MSO related medical expenses are consolidated at the contract level.
We measure the incremental cost of our capitation agreements by starting with our center-level expenses, which are calculated based upon actual expenses incurred at a specific center for a given period of time and expenses that are incurred centrally and allocated to centers on a ratable basis. These expenses are allocated to our at-risk patients based upon the number of visit slots these patients utilized compared to the total slots utilized by all of our patients. All visits, however, are not identical and do not require the same level of effort and expense on our part. Certain types of visits are more time and resource intensive and therefore result in higher expenses for services provided internally. Generally, patients who are earlier in their tenure with CareMax utilize a higher percentage of these more intensive visits, as we get to know the patient and properly assess and document such patient’s health condition.
Sales and Marketing Expenses. Sales and marketing expenses represent employee-related expenses, such as salaries, commissions and related benefits, including stock-based compensation for sales and marketing departments. These expenses also include marketing and community relations related costs, such as radio and television advertising, events and promotional items.
Corporate, General and Administrative Expenses. Corporate, general, and administrative expenses represent employee-related expenses, such as salaries and related benefits, including stock-based compensation for support functions like finance, legal, human resources, and business developments. In addition, these expenses include corporate technology, third party professional services and corporate occupancy costs.
Depreciation and Amortization. Depreciation and amortization expenses are primarily attributable to our capital investments and consist of fixed asset depreciation and amortization of intangibles considered to have definite lives.
Nonoperating Income (Expense)
Interest expense. Interest expense consists primarily of interest payments, paid-in-kind interest, amortization of debt issuance costs and debt discount on our outstanding borrowings.
Change in fair value of derivative warrant liabilities. Change in fair value of derivative warrant liabilities consists of changes in fair value of the Public Warrants and Private Placement Warrants.
Gain (loss) on remeasurement of contingent earnout liabilities. Gain (loss) on remeasurement of contingent earnout liabilities consists of changes in the fair value of contingent earnout liabilities.
Other income (expense), net. Other income (expense), net, consists of miscellaneous non-operating corporate expenses and gains.
Results of Operations
Three Months Ended June 30, 2023 compared to Three Months Ended June 30, 2022
The following table sets forth our condensed consolidated statements of operations data for the periods indicated:
(38)
|
Three Months Ended June 30, |
|
||||||||||
($ in thousands) |
2023 |
|
2022 |
|
$ Change |
|
% Change |
|
||||
Revenue |
|
|
|
|
|
|
|
|
||||
Medicare risk-based revenue |
$ |
155,486 |
|
$ |
143,664 |
|
$ |
11,822 |
|
|
8.2 |
% |
Medicaid risk-based revenue |
|
30,054 |
|
|
19,896 |
|
|
10,157 |
|
|
51.1 |
% |
Government value-based care revenue |
|
22,206 |
|
|
- |
|
|
22,206 |
|
|
100.0 |
% |
Other revenue |
|
16,694 |
|
|
8,719 |
|
|
7,976 |
|
|
91.5 |
% |
Total revenue |
|
224,440 |
|
|
172,279 |
|
|
52,162 |
|
|
30.3 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
||||
External provider costs |
|
156,995 |
|
|
120,348 |
|
|
36,647 |
|
|
30.5 |
% |
Cost of care |
|
40,192 |
|
|
30,364 |
|
|
9,829 |
|
|
32.4 |
% |
Sales and marketing |
|
3,327 |
|
|
2,299 |
|
|
1,028 |
|
|
44.7 |
% |
Corporate, general and administrative |
|
20,795 |
|
|
18,063 |
|
|
2,731 |
|
|
15.1 |
% |
Depreciation and amortization |
|
6,828 |
|
|
4,903 |
|
|
1,925 |
|
|
39.3 |
% |
Acquisition related costs |
|
54 |
|
|
2,789 |
|
|
(2,735 |
) |
|
(98.1 |
%) |
Total costs and expenses |
|
228,191 |
|
|
178,767 |
|
|
49,424 |
|
|
27.6 |
% |
Operating loss |
|
(3,750 |
) |
|
(6,488 |
) |
|
2,738 |
|
|
(42.2 |
%) |
Nonoperating income (expense) |
|
|
|
|
|
|
|
|
||||
Interest expense |
|
(13,197 |
) |
|
(3,896 |
) |
|
(9,301 |
) |
|
238.7 |
% |
Change in fair value of derivative warrant liabilities |
|
434 |
|
|
7,391 |
|
|
(6,957 |
) |
|
(94.1 |
%) |
Loss on remeasurement of contingent earnout liabilities |
|
(16,220 |
) |
|
- |
|
|
(16,220 |
) |
|
100.0 |
% |
Loss on extinguishment of debt |
|
- |
|
|
(6,172 |
) |
|
6,172 |
|
|
(100.0 |
%) |
Other income (expense), net |
|
534 |
|
|
(45 |
) |
|
579 |
|
|
(1,286.7 |
%) |
|
|
(28,449 |
) |
|
(2,722 |
) |
|
(25,726 |
) |
|
945.1 |
% |
Loss before income tax |
|
(32,199 |
) |
|
(9,210 |
) |
|
(22,989 |
) |
|
249.6 |
% |
Income tax expense |
|
(177 |
) |
|
(171 |
) |
|
(7 |
) |
|
4.1 |
% |
Net loss |
$ |
(32,376 |
) |
$ |
(9,381 |
) |
$ |
(22,995 |
) |
|
245.1 |
% |
* Figures may not sum due to rounding
Medicare risk-based revenue. Medicare risk-based revenue was $155.5 million for the three months ended June 30, 2023, an increase of $11.8 million, or 8.2%, compared to $143.7 million for the three months ended June 30, 2022. This increase was driven primarily by a 21.7% increase in the total number of at-risk patients, partially offset by a 11.1% net decrease in rates, driven by member mix, and favorable net prior year development of $2.2 million.
Medicaid risk-based revenue. Medicaid risk-based revenue was $30.1 million for the three months ended June 30, 2023, an increase of $10.2 million, or 51.1%, compared to $19.9 million for the three months ended June 30, 2022. This increase was driven primarily by a 40.5% increase in patients and a 7.5% increase in rates, driven by member mix.
Government value-based care revenue. Government value-based care revenue was $22.2 million for the three months ended June 30, 2023. The increase from the prior year is a result of the Steward Acquisition. The current period had favorable prior year development of $2.7 million mainly driven by the more current information in PMPM estimates.
Other revenue. Other revenue was $16.7 million for the three months ended June 30, 2023, an increase of $8.0 million, or 91.5%, compared to $8.7 million for the three months ended June 30, 2022. The increase is related to growth in pharmacy revenues due to enhanced service offerings and to new capitation and incentive revenue contracts as a result of the Steward Acquisition.
External provider costs. External provider costs were $157.0 million for the three months ended June 30, 2023, an increase of $36.6 million, or 30.5%, compared to $120.3 million for the three months ended June 30, 2022. The increase was mostly driven by incremental costs to support the 13.4% increase in full-risk revenue over the same period, and unfavorable net prior year development of $10.7 million mainly due to more current data from a single Medicaid health plan.
Cost of care. Cost of care expenses were $40.2 million for the three months ended June 30, 2023, an increase of $9.8 million, or 32.4%, compared to $30.4 million for the three months ended June 30, 2022. The increase was due to increases in headcount, medical supplies, and other related costs to support and operate the higher number of centers, including de novo centers, and members in the current period, as compared to the prior period.
Sales and marketing expenses. Sales and marketing expenses were $3.3 million for the three months ended June 30, 2023, an increase of $1.0 million, or 44.7%, compared to $2.3 million for the three months ended June 30, 2022. The increase was primarily due to expanding our sales staff and marketing efforts to increase membership levels in our centers, as the Company has grown the number of centers, including de novo centers, it operates in 2023 as compared to 2022.
(39)
Corporate, general and administrative expenses. Corporate, general and administrative expenses were $20.8 million for the three months ended June 30, 2023, an increase of $2.7 million, or 15.1%, compared to $18.1 million for the three months ended June 30, 2022. The increase was primarily from higher salaries, wages and professional fees as the Company grows its corporate infrastructure to support our operational growth.
Depreciation and amortization. Depreciation and amortization expense was $6.8 million for the three months ended June 30, 2023, an increase of $1.9 million, or 39.3%, compared to $4.9 million for the three months ended June 30, 2022. This increase is primarily driven by the amortization of intangibles acquired as part of the Steward Acquisition.
Acquisition related costs. Acquisition related costs were less than $0.1 million for the three months ended June 30, 2023, a decrease of $2.7 million, or 98.1%, compared to $2.8 million during for the three months ended June 30, 2022.
Interest expense. Interest expense was $13.2 million for the three months ended June 30, 2023, an increase of $9.3.million, or 238.7%, compared to $3.9 million for the three months ended June 30, 2022. This increase was due to the increased borrowings and higher weighted-average interest rate. Refer to Note 7, Debt, to our condensed consolidated financial statements included in this Report for additional information on the borrowings outstanding as of June 30, 2023.
Change in fair value of derivative warrant liabilities. The Company recorded a gain in fair value of derivative warrant liabilities of $0.4 million for the three months ended June 30, 2023, a decrease of $7.0 million, or 94.1%, compared to a gain of $7.4 million for the three months ended June 30, 2022. This decrease was primarily driven by the decrease in market value of the Company's Class A Common Stock for the three months ended June 30, 2023, as compared to the market value of the Company's Class A Common Stock for the three months ended June 30, 2022.
Loss on remeasurement of contingent earnout liabilities. The Company recorded a loss on remeasurement of contingent earnout liabilities related to the Steward Acquisition of $16.2 million for the three months ended June 30, 2023 driven by the increase in the market value of the Company's Class A Common Stock since March 31, 2023.
Loss on extinguishment of debt. For the three months ended June 30, 2022, in connection with the early extinguishment and termination of the Existing Credit Agreement, the Company recognized a loss on extinguishment of debt of $6.2 million.
Six Months Ended June 30, 2023 compared to Six Months Ended June 30, 2022
The following table sets forth our condensed consolidated statements of operations data for the periods indicated:
(40)
|
Six Months Ended June 30, |
|
||||||||||
($ in thousands) |
2023 |
|
2022 |
|
$ Change |
|
% Change |
|
||||
Revenue |
|
|
|
|
|
|
|
|
||||
Medicare risk-based revenue |
$ |
277,079 |
|
$ |
251,410 |
|
$ |
25,669 |
|
|
10.2 |
% |
Medicaid risk-based revenue |
|
55,680 |
|
|
40,062 |
|
|
15,618 |
|
|
39.0 |
% |
Government value-based care revenue |
|
32,216 |
|
|
- |
|
|
32,216 |
|
|
100.0 |
% |
Other revenue |
|
32,449 |
|
|
17,727 |
|
|
14,721 |
|
|
83.0 |
% |
Total revenue |
|
397,424 |
|
|
309,199 |
|
|
88,224 |
|
|
28.5 |
% |
Operating expenses |
|
|
|
|
|
|
|
|
||||
External provider costs |
|
267,668 |
|
|
213,204 |
|
|
54,465 |
|
|
25.5 |
% |
Cost of care |
|
78,819 |
|
|
57,712 |
|
|
21,107 |
|
|
36.6 |
% |
Sales and marketing |
|
7,092 |
|
|
5,600 |
|
|
1,492 |
|
|
26.6 |
% |
Corporate, general and administrative |
|
44,739 |
|
|
37,041 |
|
|
7,698 |
|
|
20.8 |
% |
Depreciation and amortization |
|
13,404 |
|
|
9,965 |
|
|
3,440 |
|
|
34.5 |
% |
Goodwill impairment |
|
98,000 |
|
|
- |
|
|
98,000 |
|
|
100.0 |
% |
Acquisition related costs |
|
74 |
|
|
3,055 |
|
|
(2,981 |
) |
|
(97.6 |
%) |
Total operating expenses |
|
509,797 |
|
|
326,577 |
|
|
183,219 |
|
|
56.1 |
% |
Operating loss |
$ |
(112,373 |
) |
$ |
(17,378 |
) |
$ |
(94,995 |
) |
|
546.6 |
% |
Nonoperating income (expense) |
|
|
|
|
|
|
|
|
||||
Interest expense |
|
(23,908 |
) |
|
(5,624 |
) |
|
(18,284 |
) |
|
325.1 |
% |
Change in fair value of derivative warrant liabilities |
|
1,540 |
|
|
3,855 |
|
|
(2,315 |
) |
|
(60.0 |
%) |
Gain on remeasurement of contingent earnout liabilities |
|
19,916 |
|
|
- |
|
|
19,916 |
|
|
100.0 |
% |
Loss on extinguishment of debt |
|
- |
|
|
(6,172 |
) |
|
6,172 |
|
|
(100.0 |
%) |
Other income (expense), net |
|
721 |
|
|
(507 |
) |
|
1,228 |
|
|
(242.3 |
%) |
|
|
(1,730 |
) |
|
(8,448 |
) |
|
6,718 |
|
|
(79.5 |
%) |
Loss before income taxes |
$ |
(114,103 |
) |
$ |
(25,826 |
) |
$ |
(88,277 |
) |
|
341.8 |
% |
Income tax (expense) |
|
(355 |
) |
|
(351 |
) |
|
(3 |
) |
|
0.9 |
% |
Net loss |
$ |
(114,458 |
) |
$ |
(26,178 |
) |
$ |
(88,280 |
) |
|
337.2 |
% |
Medicare risk-based revenue. Medicare risk-based revenue was $277.1 million for the six months ended June 30, 2023, an increase of $25.7 million, or 10.2%, compared to $251.4 million for the six months ended June 30, 2022. This increase was driven primarily by a 17.6% increase in the total number of at-risk patients, offset by a 6.3% net decrease in rates, driven by member mix, and unfavorable net prior year development of $22.8 million mainly due to more current membership data.
Medicaid risk-based revenue. Medicaid risk-based revenue was $55.7 million for the six months ended June 30, 2023, an increase of $15.6 million, or 39.0%, compared to $40.1 million for the six months ended June 30, 2022. This increase was driven primarily by the 31.1% increase in patients and a 5.7% increase in rates, driven by member mix and unfavorable net prior year development of $1.8 million.
Government value-based care revenue. Government value-based care revenue was $32.2 million for the six months ended June 30, 2023. The increase from prior year is a result of the Steward Acquisition. The current period had favorable prior year development of $2.7 million mainly driven by the more current information in PMPM estimates.
Other revenue. Other revenue was $32.4 million for the six months ended June 30, 2023, an increase of $14.7 million, or 83.0%, compared to $17.7 million for the six months ended June 30, 2022. The increase is related to growth in pharmacy revenues due to enhanced service offerings and to new capitation and incentive revenue contracts as a result of the Steward Acquisition.
External provider costs. External provider costs were $267.7 million for the six months ended June 30, 2023, an increase of $54.5 million, or 25.5%, compared to $213.2 million for the six months ended June 30, 2022. The increase was mostly driven by incremental costs to support the increase in membership over the same period, partially offset by the favorable net prior year development of $1.8 million as a result of retrospective Medicare membership updates mostly offset by the impact of more current data from a single Medicaid health plan and unseasonably early flu season.
Cost of care. Cost of care expenses were $78.8 million for the six months ended June 30, 2023, an increase of $21.1 million, or 36.6%, compared to $57.7 million for the six months ended June 30, 2022. The increase was due to increases in headcount, medical supplies, and other related costs to support and operate the higher number of centers, including de novo centers, and members in the current period, as compared to the prior period.
Sales and marketing expenses. Sales and marketing expenses were $7.1 million for the six months ended June 30, 2023, an increase of $1.5 million, or 26.6%, compared to $5.6 million for the six months ended June 30, 2022. The increase was primarily due to expanding our sales staff and marketing efforts to increase membership levels in our centers, as the Company has grown the number of centers, including de novo centers, it operates in 2023 as compared to 2022.
(41)
Corporate, general and administrative expenses. Corporate, general and administrative expenses were $44.7 million for the six months ended June 30, 2023, an increase of $7.7 million, or 20.8%, compared to $37.0 million for the six months ended June 30, 2022. The increase was primarily from higher salaries, wages and professional fees as the Company grows its corporate infrastructure to support its operational growth.
Depreciation and amortization. Depreciation and amortization expense was $13.4 million for the six months ended June 30, 2023, an increase of $3.4 million, or 34.5%, compared to $10.0 million for the six months ended June 30, 2022. This increase is primarily driven by the amortization of intangibles acquired as part of the Steward Acquisition.
Goodwill impairment. During the six months ended June 30, 2023, the Company recognized a goodwill impairment of $98.0 million, mainly driven by the reduction of the market value of the Company's Class A Common Stock. No goodwill impairment charges were recognized during the six months ended June 30, 2022.
Acquisition related costs. Acquisition related costs were less than $0.1 million for the six months ended June 30, 2023, a decrease of $3.0 million, or 97.6%, compared to $3.1 million during for the six months ended June 30, 2022.
Interest expense. Interest expense was $23.9 million for the six months ended June 30, 2023, an increase of $18.3 million, or 325.1%, compared to $5.6 million for the six months ended June 30, 2022. This increase was due to the increased borrowings and higher weighted-average interest rate. Refer to Note 7, Debt, to our condensed consolidated financial statements included in this Report for additional information on the borrowings outstanding as of June 30, 2023.
Change in fair value of derivative warrant liabilities. We recorded a gain of $1.5 million during the six months ended June 30, 2023, a decrease of $2.3 million, or 60.0%, compared to a gain of $3.9 million for the six months ended June 30, 2022. This decrease is primarily driven by the decrease in the market value of the Company's Class A Common Stock during the six months ended June 30, 2023, as compared to the decrease in the market of the Company's Class A Common Stock during the six months ended June 30, 2022.
Gain on remeasurement of contingent earnout liabilities. We recorded a gain on remeasurement of contingent earnout liabilities related to the Steward Acquisition of $19.9 million for the six months ended June 30, 2023 driven by the decrease in the market value of the Company's Class A Common Stock since December 31, 2022.
Loss on extinguishment of debt. For the six months ended June 30, 2022, in connection with the early extinguishment and termination of the Existing Credit Agreement, the Company recognized a loss on extinguishment of debt of $6.2 million.
Liquidity and Capital Resources
Overview
As of June 30, 2023, we had cash and cash equivalents on hand of $54.6 million. In addition, as of June 30, 2023, we had $60.0 million in availability under our Credit Agreement (as defined below) to draw term loans under certain circumstances to finance permitted acquisitions and similar permitted investments, de novo center growth and optimization of de novo centers and MSO performance.
Our principal sources of liquidity have been cash generated by our centers and MSO operations, borrowings under our credit facilities and proceeds from equity issuances. We have used these funds to meet our capital requirements, which consist of salaries and labor, benefits and other employee-related costs, product and supply costs, third-party customer service, billing and collections and logistics costs, capital expenditures including patient equipment, center and office lease expenses, insurance premiums, acquisitions, and debt service.
Our future capital expenditures will depend on many factors, including the pace and scale of our expansion in new and existing markets, any future acquisitions, patient volume, and revenue growth rates. Many of our capital expenditures are made in advance of patients beginning service. Certain operating costs are incurred at the beginning of the equipment service period and during initial patient set up. We also expect to incur costs related to acquisitions and de novo growth through the opening of new centers, which we expect to require significant capital expenditures, including lease and construction expenses. We may be required to seek additional equity or debt financing, in addition to cash on hand and borrowings under our credit facilities in connection with our business growth, including debt financing that may be available to us from certain health plans for each new center that we open under the terms of our agreements with those health plans.
(42)
In the event that additional financing is required from outside sources, we may not be able to raise it on acceptable terms or at all. If additional capital is unavailable when desired, our business, results of operations, and financial condition would be materially and adversely affected.
We believe that based on our current forecasts, our cash generated by our centers and MSO operations, amounts available under our Credit Agreement, and amounts available to us under our agreement with Elevance Health, each as described below, will continue to be sufficient to fund our operations and growth strategies for at least the next 12 months from the issuance date of this report. As of June 30, 2023, we were in compliance, in all material respects, with all covenants under our credit facilities.
Credit Facilities
Credit Agreement
In May 2022, the Company entered into a credit agreement (the “Credit Agreement”) that provided for an aggregate of up to $300 million in term loans, comprised of (i) initial term loans in aggregate principal amount of $190 million (the “Initial Term Loans”) and (ii) a delayed term loan facility in the aggregate principal amount of $110 million (the “Delayed Draw Term Loans”). The Credit Agreement permits the Company to enter into certain incremental facilities subject to compliance with the terms, conditions and covenants set forth therein. In May 2022, the Company drew $190 million of the Initial Term Loans and used approximately $121 million of the net proceeds from this borrowing to repay its outstanding obligations under the credit agreement dated June 8, 2021, as amended (the "Existing Credit Agreement”) and recognized related debt extinguishment losses of $6.2 million. In November 2022, March 2023 and April 2023, the Company drew $45 million, $30 million and $35 million of the Delayed Draw Term Loans, respectively.
Based on the elections made by the Company, as of December 31, 2022, borrowings under the Credit Agreement bore interest of Term SOFR (calculated as the Secured Overnight Financing Rate published on the Federal Reserve Bank of New York’s website, plus the applicable credit spread adjustment based on the elected interest period) plus an applicable margin rate of 9.00%. As permitted under the Credit Agreement, the Company elected to capitalize 4.00% of the interest as principal amount. As a result of this election, the cash interest component of the applicable margin increased by 0.50%. Amortization payments under the Credit Agreement are payable in quarterly installments, commencing on May 31, 2025, in aggregate principal amounts equal to 0.25% of the aggregate outstanding principal amount of Initial Term Loans and Delayed Draw Term Loans. All amounts owed under the Credit Agreement are due in May 2027.
On March 8, 2023 (the “Amendment Closing Date”), the Company entered into a Second Amendment (the “Second Amendment”) to the Credit Agreement. The Second Amendment amended the Credit Agreement to, among other things, (i) provide for a new incremental delayed draw term loan B facility in an aggregate principal amount of $60.0 million; (ii) revise the commitment expiration date for the Company’s existing $110.0 million Delayed Draw Term Loan to forty-five days following the Amendment Closing Date, (iii) extend the commencement of amortization payments on loans under the Credit Agreement from March 31, 2024 to May 31, 2025; (iv) reduce the amount of interest that the Company may elect to capitalize from 4.00% to 3.50% beginning on the second anniversary of the execution date of the Credit Agreement, 3.00% beginning on the third anniversary of the execution date of the Credit Agreement, and 1.50% beginning on December 10, 2025; (v) increase the amount of the super-priority revolving credit facility that is permitted to be added to the Credit Agreement to $45.0 million and provide that the entirety of such facility may be used for general corporate purposes; and (vi) amend the prepayment provisions of the Credit Agreement, including to have such provisions run as of the Amendment Closing Date.
The Credit Agreement contains certain covenants that limit, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, liens or encumbrances, to make certain investments, to enter into sale-leaseback transactions or sell certain assets, to make certain restricted payments or pay dividends, to enter into consolidations, to transact with affiliates and to amend certain agreements, subject in each case to the exceptions and other qualifications as provided in the Credit Agreement. The Credit Agreement also contains covenants that require the Company to satisfy a minimum liquidity requirement of $50.0 million, which may be decreased to $25.0 million if the Company achieves a certain adjusted EBITDA, and maintain a maximum total net leverage ratio based on the Company’s consolidated EBITDA, as defined in the Credit Agreement, with de novo losses excluded from the calculation of such ratio for up to 36 months after the opening of a de novo center, which maximum total leverage ratio will initially be 8.50 to 1.00, commencing with the fiscal quarter ended September 30, 2022 and is subject to a series of step-downs. For the fiscal quarters ending September 30, 2026 and thereafter the Company must maintain a maximum total net leverage ratio no greater than 5.50 to 1.00.
Loan and Security Agreement
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In November 2022, the Company entered into a Loan and Security Agreement (the “Loan and Security Agreement”), by and among Sparta Merger Sub I Inc., a Delaware corporation and wholly-owned subsidiary of the Company, Sparta Merger Sub II Inc., a Delaware corporation and wholly-owned subsidiary of the Company, Sparta Merger Sub I LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merger LLC I”), Sparta Merger Sub II LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (together with Merger LLC I, the “Guarantors”), Steward Accountable Care Network, Inc. (n/k/a as Steward Accountable Care Network, LLC) and Steward National Care Network, Inc. (n/k/a Steward National Care Network, LLC), as borrowers (the “Borrowers”), CAJ Lending LLC (“CAJ”) and Deerfield Partners L.P., as lenders (the “Lenders”), and CAJ, as administrative agent and collateral agent (in such capacity, the “Agent”). Mr. Carlos A. de Solo, a director of the Company and the Company’s President and Chief Executive Officer, Mr. Alberto de Solo, the Company’s Executive Vice President and Chief Operating Officer, and Mr. Joseph N. De Vera, the Company’s Senior Vice President and Legal Counsel, have interests in CAJ.
Pursuant to the Loan and Security Agreement, the Lenders provided the Borrowers a term loan (the “Term Loan”) in the aggregate principal amount of approximately $35.5 million. The Company used the proceeds of the Term Loan to fund the Financed Net Pre-Closing Medicare AR acquired in connection with the Steward Acquisition.
The Term Loan bears an interest rate at 12.0% per annum. In addition, the Borrowers paid a facility fee equal to 3.0% of the aggregate principal amount of the Term Loan. Any additional interest (if applicable) accrued and owing during the term of the Loan and Security Agreement will be paid in kind and capitalized to principal monthly in arrears. From and after the occurrence and during the continuance of an event of default, the Term Loan will bear interest at a rate equal to 4.0% above the interest rate applicable immediately prior to the occurrence of the event of default. If Mr. Carlos de Solo is no longer serving as the Chief Executive Officer of the Company under certain circumstances and, following a request from CAJ, the Borrowers are unable to refinance the portion of the Term Loan advanced by CAJ, then the interest rate applicable to such portion may be increased by 5.0%.
The Loan and Security Agreement matures on the earlier of November 30, 2023, or three business days after the Borrowers receive payment for the Financed Net Pre-Closing Medicare AR from the federal government. The Term Loan may be prepaid, in whole or in part, without penalty or premium.
The Loan and Security Agreement contains customary representations, warranties, affirmative covenants, negative covenants and events of default. The Loan and Security Agreement is secured by the Borrowers’ rights in the 2022 Medicare Shared Savings Receivables (as defined in the Loan and Security Agreement) and any and all proceeds thereof. The Loan and Security Agreement is subordinated in right of payment to the Credit Agreement.
Elevance Health Collaboration Agreement
In connection with our collaboration agreement with Elevance Health, which was announced in August of 2021, we plan to open centers across a number of priority states as part of our de novo strategy to open new centers. Elevance Health has agreed to provide debt financing of up to $1 million for each new center opened in partnership with Elevance Health. We intend to use such funds to partially offset the costs of opening new centers in connection with our de novo growth strategy.
In October 2022, in connection with the Elevance Health Collaboration Agreement we entered into a promissory note for an amount of $1.0 million due in October 2032. Funds received from Elevance Health pursuant to the aforementioned promissory note will be used to finance costs of one new center that was opened in partnership with Elevance Health.
Cash Flows
The following table summarizes our cash flows for the periods presented:
(in thousands) |
Six Months Ended June 30, |
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2023 |
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2022 |
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Net cash used in operating activities |
$ |
(43,263 |
) |
$ |
(27,398 |
) |
Net cash used in investing activities |
|
(5,234 |
) |
|
(2,893 |
) |
Net cash provided by financing activities |
|
61,477 |
|
|
50,505 |
|
Operating Activities. Net cash used in operating activities for the six months ended June 30, 2023 was $43.3 million, an increase of $15.9 million, as compared to $27.4 million used in operating activities during the six months ended June 30, 2022. This increase is primarily the result of slower collections on receivables as compared to prior year, due to MSSP arrangements with longer payment cycles.
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Investing Activities. Net cash used in investing activities was $5.2 million and $2.9 million for the six months ended June 30, 2023 and 2022, respectively, driven by investments into leasehold improvements and medical equipment for our centers.
Financing Activities. Net cash provided by financing activities was $61.5 million during the six months ended June 30, 2023, driven mainly by the $65.0 million drawn on our Delayed Draw Term Facility, partially offset by the related discounts and issuance costs. Net cash used in financing activities was $50.5 million during the six months ended June 30, 2022 and represented scheduled principal payments on debt.
Contractual Obligations and Commitments
Our principal commitments consist of obligations under the Credit Agreement and operating leases for our centers.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2023 or December 31, 2022, other than operating leases which have not yet commenced.
JOBS Act
Section 102(b)(1) of the Jumpstart our Business Startups (JOBS) Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, as an emerging growth company, we can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our consolidated financial statements with a public company which is neither an emerging growth company, nor an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies and estimates as described in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 30, 2023.
Recent Accounting Pronouncements
Refer to Note 2, Summary of Significant Accounting Policies — Recent Accounting Pronouncements, to our condensed consolidated financial statements included in this Report for additional information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
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Item 4. Controls and Procedures
Disclosure Controls and Procedures
Under supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as of June 30, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to the material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2023.
Material Weaknesses in Internal Control over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses we identified include that we lack a sufficient complement of professionals with the appropriate level of knowledge, training and experience to appropriately analyze, record and disclose accounting matters commensurate with our accounting and reporting requirements as a public company. This material weakness contributed to the Company not designing and maintaining formal controls to analyze, account for and disclose complex transactions, including the accounting for financial instruments and contingent earnout liabilities. These material weaknesses resulted in:
The aforementioned material weaknesses could result in misstatements of substantially all accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Plan for the Material Weaknesses
Since 2021, management has taken the following steps to address these material weaknesses:
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The material weaknesses will not be considered remediated until management has the controls operate for a sufficient period and management has concluded, through testing, that these controls are effective. Management believes that the remediation measures described above have been implemented in a manner such that the controls can be tested, and the identified material weaknesses can be determined to be remediated, however, no assurance can be made that such remediation will occur, or that additional material weaknesses will not be identified.
Changes in Internal Control over Financial Reporting
As described above, there were changes in our internal control over financial reporting during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II. – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, CareMax may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. Although the results of litigation and claims are inherently unpredictable and uncertain, CareMax is not currently a party to any legal proceedings the outcome of which, if determined adversely to CareMax, are believed to, either individually or taken together, have a material adverse effect on CareMax’s business, operating results, cash flows or financial condition. Regardless of the outcome, litigation has the potential to have an adverse impact on CareMax because of defense and settlement costs, diversion of management resources, and other factors.
Item1A. Risk Factors
There have been no material changes to the principal risks that we believe to be material to our business, results of operations and financial condition, from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Report.
No. |
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Description of Exhibit |
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101.INS* |
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Inline XBRL Instance Document |
101.CAL* |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document |
101.DEF* |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
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Inline XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
+ Certain portions of this exhibit have been omitted pursuant to Regulation S-K, Item (601)(b)(10).
† Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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CareMax Inc. |
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Date: August 9, 2023 |
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/s/ Carlos A. de Solo |
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Name: |
Carlos A. de Solo |
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Title: |
President, Chief Executive Officer, and Director (Principal Executive Officer) |
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Date: August 9, 2023 |
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/s/ Kevin Wirges |
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Name: |
Kevin Wirges |
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Title: |
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Principal Accounting Officer) |
(49)
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Carlos A. de Solo, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of CareMax, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 9, 2023 |
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/s/ Carlos A. de Solo |
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Name: Carlos A. de Solo |
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Title: President, Chief Executive Officer and Director |
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Wirges, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of CareMax, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 9, 2023
|
|
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/s/ Kevin Wirges |
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Name: Kevin Wirges |
|
Title: Executive Vice President, Chief Financial Officer and Treasurer |
|
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CareMax, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Carlos A. de Solo, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
Date: August 9, 2023
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/s/ Carlos A. de Solo |
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Name: Carlos A. de Solo |
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Title: President, Chief Executive Officer and Director |
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(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CareMax, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2023, as filed with the Securities and Exchange Commission (the “Report”), I, Kevin Wirges, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
Date: August 9, 2023
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/s/ Kevin Wirges |
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Name: Kevin Wirges |
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Title: Executive Vice President, Chief Financial Officer and Treasurer |
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(Principal Financial Officer) |