CareMax, Inc. (CMAX)·Q3 2023 Earnings Summary

Executive Summary

• Q3 revenue was $201.8M (+28% YoY) with Adjusted EBITDA of $2.1M; Medical Expense Ratio (MER) rose to 88.0%. Net loss was $103.1M, driven largely by a non‑cash $80.0M goodwill impairment and net unfavorable prior period developments (PPD) in risk lines offset partly by favorable government VBC accruals .
• Guidance: 2023 revenue reaffirmed at $750–$800M; year‑end Medicare Advantage (MA) membership trimmed to ~110k (from 110–120k); Adjusted EBITDA lowered to $15–$25M (from $25–$35M). De novo pre‑/post‑opening losses maintained at ~$25M for 2023 .
• Operational pivots: management is optimizing cost structure (staffing, care management focus, de novo pacing) with savings expected to show by Q1’24; government VBC momentum continues (2022 earned savings >$50M; 2023 accruals raised to mid‑ to high‑single‑digit gross savings) .
• Potential stock catalysts: clearer visibility on PPD reduction via improved data ingestion/claims workflows, normalization of benefit card impacts into 2024, and 13 MSO contracts taking downside risk in 2024; management targets sustainable FCF post the Q4’24 MSSP payment .

What Went Well and What Went Wrong

• What Went Well

  • Government VBC outperformance: 2022 MSSP/REACH earned savings >$50M (~5% gross savings), with 2023 accruals raised to mid‑ to high single digits on favorable trends and care program enrollment .
  • Network/specialty integration: over 50% of specialist volume now handled in‑house (vs <30% a year ago), supporting quality and cost management for dual‑eligible members .
  • Cost actions and operational focus: comprehensive business review led to staffing optimization, care management expansion, and measured de novo pacing; savings expected to materialize more fully by Q1’24 .

• What Went Wrong

  • PPD headwinds: net unfavorable PPD of ~$13M in Q3 (risk revenue and external provider costs) despite an ~$8M favorable government revenue update, pressuring reported results and Adjusted EBITDA .
  • MER pressure: MER rose to 88.0% in Q3 (vs 75.2% in Q3’22), reflecting PPD, mix, and supplemental benefits, diluting margins vs expectations .
  • Guidance cut: 2023 Adjusted EBITDA lowered to $15–$25M (from $25–$35M) due to uncertainty around final sweeps, PPD risk, and end‑of‑year flex card utilization; MA membership target trimmed to ~110k .

Financial Results

Segment revenue breakdown ($M):

KPIs and other items:

Notes: Government VBC = MSSP and ACO REACH accruals. PPD items are disclosed net of offsets .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Total revenue in the third quarter was $202 million… Adjusted EBITDA for the quarter was $2 million, impacted by $6 million in de novo… and $13 million in unfavorable prior period developments… we are updating our full year adjusted EBITDA guidance to $15–$25 million.” — CEO Carlos de Solo .
• “We conducted a comprehensive business review… optimizing staffing levels… reallocated resources to bolster our care management… and plan to carefully evaluate the timing of de novo sites.” — CEO Carlos de Solo .
• “Combined, our MSSP and ACO REACH entities generated over $50 million in earned savings (PY 2022)… we are further encouraged by year‑to‑date data points suggesting even greater shared savings in 2023.” — CEO Carlos de Solo .
• “Cash and equivalents were $32 million at quarter‑end… we repaid the $35.5 million AR facility with proceeds from our 2022 MSSP payment… we expect to be sustainably free cash flow positive after our next MSSP payment in Q4 2024.” — CFO Kevin Wirges .

Q&A Highlights

• Benefit card (supplemental benefits) dynamics: plans both increasing and reducing benefits; net 2024 cost outlook similar to 2023; inclusion of OTC spend clarified in the analysis .
• Q4 revenue range ($150–$200M) driven by PMPM seasonality (mix, mortality), Medicaid redeterminations, and conservatism around the Medicare final sweep .
• Raised 2023 MSSP/REACH accrual: improved trends (lower readmissions/post‑acute days), care program enrollment ahead of plan, better‑than‑typical intra‑year cost trajectory .
• 2024 stance: MA lives roughly flattish with emphasis on integration, profitability, and cash flow; more measured de novo and selective risk flips .
• PPD mitigation: 95% of MSO claims data now ingested; CareOptimize improvements expected to reduce PPD/PYD variability .

Estimates Context

• S&P Global consensus estimates for revenue/EPS/EBITDA were unavailable via the tool for CMAX at the time of analysis; therefore, explicit beats/misses vs Street could not be determined (S&P Global data unavailable).

Key Takeaways for Investors

• PPD remains the swing factor: better data ingestion/claims completeness should reduce PPD volatility into 2024, a key driver of reported margin stability .
• Government VBC is the counterweight: accruals trending to mid‑/high‑single‑digit savings provide an important offset to MA/Medicaid risk volatility and support cash generation in late 2024 .
• Cost discipline and capital‑light growth: staffing optimization, care management focus, and moderating de novo cadence are aimed at preserving liquidity and improving unit economics by Q1’24 .
• Risk progression as a 2024 catalyst: 13 MSO contracts (≈⅓ of lives) moving to downside risk are expected to be accretive to medical margin/EBITDA with better visibility from health plan reconciliations .
• Benefit card normalization: management expects 2024 external provider costs to be generally consistent with 2023, reducing an area of uncertainty observed in 2023 .
• Liquidity runway intact: $32.3M cash at Q3’23 and $60M undrawn DDTL, repayment of AR facility, and an FCF inflection targeted post the 2023 shared savings receipt in Q4’24 .
• Non‑cash impairment obscures the core: the $80M goodwill charge is non‑operational but highlights valuation pressure; focus remains on underlying medical margin and platform contribution trends .