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Financial report summary
?Risks
- Our growth strategy may not prove viable, and we may not realize expected results therefrom.
- Our growth strategy is partially dependent upon our ability to identify and successfully complete acquisitions.
- If we are unable to attract new participants and retain existing participants, our revenue growth will be adversely affected.
- We face inspections, reviews, audits and investigations under federal and state government programs and contracts. These audits require corrective actions and have resulted in adverse findings that have negatively affected and continue to affect our business, including our results of operations, liquidity, financial condition and reputation.
- We are subject to legal proceedings, enforcement actions and litigation, malpractice and privacy disputes, which are costly to defend and could materially harm our business and results of operations.
- Under our PACE contracts, we assume all of the risk that the cost of providing services will exceed our compensation.
- We have and expect to continue experiencing increased costs and expenditures in the future.
- Our overall business results have been and may continue to be impacted by ongoing macroeconomic and COVID-19-related challenges, including labor shortages and inflation.
- Our revenues and operations are dependent upon a limited number of government payors, particularly Medicare and Medicaid.
- Reductions in PACE reimbursement rates or changes in the rules governing PACE programs could have a material adverse effect on our financial condition and results of operations.
- Our records and submissions to government payors may contain inaccurate or unsupportable information regarding risk adjustment scores of participants, which could cause us to overstate or understate our revenue and subject us to repayment obligations or penalties.
- Renegotiation, non-renewal or termination of capitation agreements with government payors could have a material adverse effect on our business, results of operations, financial condition and cash flows.
- State and federal efforts to reduce healthcare spending could adversely affect our financial condition and results of operations.
- A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide, such as COVID-19, has and could in the future adversely affect our business.
- We depend on our senior management team and other key employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could harm our business.
- If certain of our suppliers do not meet our needs, if we are not reimbursed or adequately reimbursed for medical products we purchase or if we are unable to effectively access new technology or medical products, it could negatively impact our ability to effectively provide the services we offer and could have a material adverse effect on our business, results of operations, financial condition and cash flows.
- We conduct a significant percentage of our operations in the State of Colorado and, as a result, we are particularly susceptible to regulatory issues and reduction in budget appropriations for our services or any other adverse developments in that state.
- If we fail to manage our operations effectively, we may be unable to execute our business plan, maintain effective levels of service and participant satisfaction or adequately address competitive challenges.
- The healthcare Industry is highly competitive and, if we are not able to compete effectively, our business could be harmed.
- Our presence is currently limited to Colorado, California, New Mexico, Pennsylvania and Virginia, and we may not be able to successfully establish a presence in new geographic markets.
- Competition for physicians and other clinical personnel or other factors could increase our labor costs and adversely affect our revenue, profitability and cash flows.
- Security breaches, loss of data and other disruptions have in the past and could in the future compromise sensitive information related to our business or our participants, or prevent us from accessing critical information and expose us to liability, and could adversely affect our business and our reputation.
- Our business depends on our ability to effectively invest in, implement improvements to and properly maintain the uninterrupted operation and data integrity of our information technology and other business systems.
- A failure to accurately estimate incurred but not reported medical expenses or the risk scores of our participants could adversely affect our results of operations.
- Our use of “open source” software could adversely affect our ability to offer our services and subject us to possible litigation.
- We lease approximately half of our centers and may experience risks relating to lease termination, lease expense escalators, lease extensions and special charges.
- We began operating as a for-profit company in 2016 and have limited operating history as a for-profit company. Accordingly, our historical and recent financial and business results may not be representative of what they may be in the future.
- Our centers have been and may be negatively impacted by public health emergencies, such as the COVID-19 pandemic, weather and other factors beyond our control.
- Allegations of failure and failure to adhere to all the complex government laws and regulations that apply to our business have had and could in the future have material adverse effect on our business, results of operations, financial condition, cash flows, reputation and stock price.
- Federal and state manuals, policies, and other guidance may also affect our operations.
- If we are unable to effectively adapt to changes in the healthcare industry, including changes to laws and regulations regarding or affecting U.S. healthcare reform, our business may be harmed.
- Laws regulating the corporate practice of medicine could restrict the manner in which we are permitted to conduct our business, and the failure to comply with such laws could subject us to penalties or require a restructuring of our business.
- Our use, disclosure, and other processing of PHI/PII is subject to HIPAA, CCPA as amended by the CPRA and other federal and state privacy and security regulations, and our failure to comply with those laws and regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our participant base and revenue.
- Our existing indebtedness could adversely affect our business and growth prospects.
- The terms of the 2021 Credit Agreement restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.
- Our failure to raise additional capital or generate cash flows necessary to expand our operations and invest in participant services in the future could reduce our ability to compete successfully and harm our results of operations.
- Our Principal Shareholders control us, and their interests may conflict with ours or yours in the future.
- We are a “controlled company” within the meaning of the rules of Nasdaq and, as a result, we qualify for, and intend to continue relying on, exemptions from certain corporate governance requirements. Therefore, you do not have the same protections as those afforded to stockholders of companies that are subject to such governance requirements.
- We qualify as an “emerging growth company” and a “smaller reporting company” and we have elected to comply with reduced public company reporting requirements, which could make our common stock less attractive to investors.
- The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we no longer qualify as an “emerging growth company” or a “smaller reporting company.”
- As a result of becoming a public company, we are obligated to develop and maintain proper and effective internal controls over financial reporting in order to comply with Section 404 of the Sarbanes-Oxley Act. We may not complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in us and, as a result, the value of our common stock. In addition, because of our status as an emerging growth company, you will not be able to depend on any attestation from our independent registered public accountants as to our internal controls over financial reporting for the foreseeable future.
- Our executive management team does not have extensive experience managing a public company.
- Provisions of our corporate governance documents could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management, even if beneficial to our shareholders.
- Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our shareholders and the federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.
- Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause such results to fall below any guidance we provide.
- Our operating results and stock price are volatile.
- A significant portion of our total outstanding shares may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
- Because we have no plans to pay regular cash dividends on our common stock for the foreseeable future, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
- If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, our stock price and trading volume could decline.
- We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.
- Future offerings of debt or equity securities by us may materially adversely affect the market price of our common stock.
- If we are not able to maintain and enhance our reputation and brand recognition, our business and results of operations will be harmed.
- Disruptions in our disaster recovery systems or business continuity planning could limit our ability to operate our business effectively.
- Negative publicity regarding the managed healthcare industry generally could adversely affect our results of operations or business.
Management Discussion
- Capitation revenue. Capitation revenue was $188.6 million for the three months ended December 31, 2023 an increase of $21.4 million, or 12.8%, compared to $167.1 million for the three months ended December 31, 2022. This increase was driven by a $15.8 million, or 9.1%, increase in capitation rates coupled with $5.6 million, or 3.4%, increase in member months. The increase in capitation rates was primarily driven by (i) a 7.0% annual increase in Medicaid capitation rates as determined by the States and (ii) an 11.8% increase in Medicare capitation rates as a result of increased risk score and county rates coupled with a one-time true up outside of the regular payment cycle. The increase in member months is primarily due to the release from sanctions at our Colorado and Sacramento centers.