CareMax, Inc. - Quarter Report: 2023 September (Form 10-Q)

10-Q

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 September 30, 2023

☐

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 Identification No.)
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 November 6, 2023, the registrant had 112,098,257 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 September 30, 2023

Table of Contents


PART I. FINANCIAL INFORMATION
	Item 1	Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Changes in Stockholders' Equity	3
		Condensed Consolidated Statements of Cash Flows	4
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
	Item 4.	Controls and Procedures	45
PART II. OTHER INFORMATION			47
	Item 1.	Legal Proceedings	47
	Item 1A.	Risk Factors	47
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
	Item 3.	Defaults Upon Senior Securities	47
	Item 4.	Mine Safety Disclosures	47
	Item 5.	Other Information	47
	Item 6.	Exhibits	47

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CAREMAX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share and per share data)


	September 30, 2023			December 31, 2022
ASSETS

Current Assets
Cash and cash equivalents	$	32,264		$	41,626
Accounts receivable, net		139,573			151,036
Risk settlement receivables		251			707
Related party receivables		754			—
Other current assets		3,820			3,968
Total Current Assets		176,662			197,336

Property and equipment, net		27,837			21,006
Operating lease right-of-use assets		130,826			108,937
Goodwill, net		522,643			700,643
Intangible assets, net		106,889			123,585
Deferred debt issuance costs		896			1,685
Other assets		92,363			17,550
Total Assets	$	1,058,117		$	1,170,743

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable	$	9,345		$	7,687
Accrued expenses		14,999			16,854
Risk settlement liabilities		21,934			14,171
Related party liabilities		47			1,777
Related party debt, net		34,517			30,277
Current portion of third-party debt, net		355			253
Current portion of operating lease liabilities		8,555			5,512
Other current liabilities		8,589			790
Total Current Liabilities		98,341			77,322
Derivative warrant liabilities		983			3,974
Long-term debt, net		302,612			230,725
Long-term operating lease liabilities		117,668			96,539
Contingent earnout liability		—			134,561
Other liabilities		13,897			8,075
Total Liabilities		533,501			551,196
COMMITMENTS AND CONTINGENCIES (NOTE 15)
STOCKHOLDERS' EQUITY
Preferred stock (1,000,000 shares authorized; one share issued and outstanding as of September 30, 2023 and December 31, 2022)		—			—
Class A common stock ($0.0001 par value; 250,000,000 shares authorized; 112,096,998 and 111,332,584 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively)		11			11
Additional paid-in-capital		779,776			657,126
Accumulated deficit		(255,171	)		(37,590	)
Total Stockholders' Equity		524,616			619,547

Total Liabilities and Stockholders' Equity	$	1,058,117		$	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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenue
Medicare risk-based revenue	$	134,105		$	122,267		$	411,184		$	373,677
Medicaid risk-based revenue		23,950			19,852			79,630			59,914
Government value-based care revenue		28,067			—			60,284			—
Other revenue		15,721			15,551			48,169			33,278
Total revenue		201,843			157,670			599,267			466,869

Operating expenses
External provider costs		139,139			106,900			406,807			320,104
Cost of care		43,826			30,213			122,645			87,925
Sales and marketing		3,501			2,355			10,593			7,955
Corporate, general and administrative		19,282			21,687			64,021			58,728
Depreciation and amortization		6,833			4,573			20,237			14,538
Goodwill impairment		80,000			—			178,000			—
Acquisition related costs		34			494			108			3,549
Total operating expenses		292,615			166,222			802,412			492,799
Operating loss		(90,772	)		(8,552	)		(203,145	)		(25,930	)
Nonoperating income (expense)
Interest expense		(14,000	)		(6,088	)		(37,908	)		(11,712	)
Change in fair value of derivative warrant liabilities		1,450			(7,331	)		2,991			(3,476	)
Gain on remeasurement of contingent earnout liabilities		—			—			19,916			—
Loss on extinguishment of debt		—			—			—			(6,172	)
Other income (expense), net		376			99			1,097			(408	)
		(12,174	)		(13,320	)		(13,904	)		(21,768	)
Loss before income tax		(102,946	)		(21,872	)		(217,049	)		(47,698	)
Income tax expense		(177	)		(181	)		(532	)		(532	)
Net loss	$	(103,123	)	$	(22,053	)	$	(217,581	)	$	(48,230	)

Weighted-average basic shares outstanding		112,085,154			87,408,605			111,704,585			87,415,801
Weighted-average diluted shares outstanding		112,085,154			87,408,605			111,704,585			87,415,801
Net loss per share
Basic	$	(0.92	)	$	(0.25	)	$	(1.95	)	$	(0.55	)
Diluted	$	(0.92	)	$	(0.25	)	$	(1.95	)	$	(0.55	)

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 September 30, 2023 and 2022
	Class A Common Stock					Preferred		Additional			Retained Earnings			Total
	Shares			Amount		Stock		Paid-in-capital			(Deficit)			Equity
BALANCE - JUNE 30, 2023		112,072,237		$	11	$	—	$	776,533		$	(152,048	)	$	624,496
Stock-based compensation expense		—			—		—		3,243			—			3,243
Issuance of shares upon vesting of stock-based compensation awards		24,761			—		—		—			—			—
Net loss		—			—		—		—			(103,123	)		(103,123	)
BALANCE - SEPTEMBER 30, 2023		112,096,998		$	11	$	—	$	779,776		$	(255,171	)	$	524,616

BALANCE - JUNE 30, 2022		87,467,972		$	9	$	—	$	514,262		$	(26,144	)	$	488,127
Stock-based compensation expense		—			—		—		3,611			—			3,611
Cancellation of shares and return of cash held in escrow		(71,000	)		—		—		(481	)		—			(481	)
Net loss		—			—		—		—			(22,053	)		(22,053	)
BALANCE - SEPTEMBER 30, 2022		87,396,972		$	9	$	—	$	517,393		$	(48,197	)	$	469,205


	Nine Months Ended September 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		—			—		—		8,004			—			8,004
Issuance of shares upon vesting of stock-based compensation awards		764,414			—		—		—			—			—
Reclassification of contingent consideration previously liability classified		—			—		—		114,645			—			114,645
Net loss		—			—		—		—			(217,581	)		(217,581	)
BALANCE - SEPTEMBER 30, 2023		112,096,998		$	11	$	—	$	779,776		$	(255,171	)	$	524,616

BALANCE - DECEMBER 31, 2021		87,367,972		$	9	$	—	$	505,327		$	33			505,370
Stock-based compensation expense		—			—		—		7,486			—			7,486
Issuance of shares upon vesting of stock-based compensation awards		100,000			—		—		—			—			—
Cancellation of shares and return of cash held in escrow		(71,000	)		—		—		(481	)		—			(481	)
Vesting of Series B Warrants under Advisory Agreement		—			—		—		5,060			—			5,060
Net loss		—			—		—		—			(48,230	)		(48,230	)
BALANCE - SEPTEMBER 30, 2022		87,396,972		$	9	$	—	$	517,393		$	(48,197	)	$	469,205

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)


	Nine Months Ended September 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(217,581	)	$	(48,230	)
Adjustments to reconcile net loss to cash and cash equivalents:
Depreciation and amortization expense		20,237			14,538
Amortization of debt issuance costs and discounts		6,422			1,093
Stock-based compensation expense		8,004			7,486
Income tax provision		532			532
Change in fair value of derivative warrant liabilities		(2,991	)		3,476
Gain on remeasurement of contingent earnout liabilities		(19,916	)		—
Loss on extinguishment of debt		—			6,172
Payment-in-kind interest expense		8,643			3,038
Provision for credit losses		382			—
Goodwill impairment		178,000			—
Amortization of right-of-use assets		8,872			—
Other non-cash, net		1,140			(774	)
Changes in operating assets and liabilities:
Accounts receivable		2,121			(43,109	)
Other current assets		148			(69	)
Risk settlement receivables and liabilities		11,020			(144	)
Other assets		(74,024	)		(1,037	)
Operating lease liabilities		(4,390	)		—
Accounts payable		(410	)		9,291
Accrued expenses		(1,855	)		6,705
Related party receivables and payables		(1,212	)		—
Other liabilities		14,414			1,222
Net cash used in operating activities		(62,446	)		(39,811	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(8,007	)		(4,862	)
Return of cash held in escrow		—			785
Acquisition of businesses, net of cash acquired		—			(892	)
Net cash used in investing activities		(8,007	)		(4,969	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings		62,000			184,000
Principal payments of debt		(189	)		(121,926	)
Payments of debt issuance costs		(720	)		(6,456	)
Collateral for letters of credit		—			(5,439	)
Net cash provided by financing activities		61,091			50,179

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(9,361	)		5,399
Cash and cash equivalents - beginning of period		41,626			47,917
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	32,264		$	53,315

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)


	Nine Months Ended September 30,
	2023		2022
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES:
Equity and warrant consideration issued to The Related Companies, L.P.	$	—	$	5,060
Additions to property and equipment funded through accounts payable		2,067		1,021
Cancellation of shares held in escrow		—		821
Accrued purchase consideration		—		585
Financed equipment purchases		848		423
Reclassification of contingent consideration previously liability classified		114,645		—
Decrease in right-of-use assets and lease liabilities due to lease remeasurements		4,041		—
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		23,239		7,569

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 provides 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 September 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"). In November 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.

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.

We believe that, based on our current forecasts, the 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

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CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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.

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

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CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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 PMPM 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.

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

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CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

written off when they are deemed uncollectible. As of September 30, 2023 and December 31, 2022, the Company's provision for credit losses was $1.6 million and $1.2 million, respectively.

Amounts due to the Company within 12 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 September 30, 2023 and December 31, 2022, $76.5 million and $0 of long-term accounts receivable was included in other assets, respectively.

Significant Accounting Policies

Other than the addition of the government value-based care accounting policy, 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. 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 short-term and long-term accounts receivable, net. Accordingly, the Company recognized the following changes in prior year estimates in each respective period (in thousands):


Increase (decrease)	Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022

Revenue	$	(24,660	)	$	(924	)
External provider costs		(1,393	)		6,045
Short-term and long-term accounts receivable, net		(23,266	)		(6,969	)

For the nine months ended September 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 nine months ended September 30, 2022, the developments related to the prior year dates of service were driven by claims development from COVID-related utilization.

Emerging Growth Company

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 non-emerging 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.

(9)

CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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 short-term and long-term accounts receivable, net. 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 short-term and long-term accounts receivable, net balances for the payors comprising 10% or more of revenue was as follows:


	Revenue
	Three Months Ended September 30, 2023	Nine Months Ended September 30, 2023	Three Months Ended September 30, 2022	Nine Months Ended September 30, 2022
Payor A	21%	24%	30%	30%
Payor B	12%	n/a	19%	19%
Payor C	19%	21%	16%	17%
Payor D	12%	12%	13%	14%
Payor E	12%	15%	11%	12%
Payor F	14%	10%	n/a	n/a


	Short-Term and Long-Term Accounts Receivable, net
	As of September 30, 2023	As of December 31, 2022
Payor A	n/a	13%
Payor B	n/a	11%
Payor C	n/a	13%
Payor D	11%	13%
Payor E	n/a	n/a
Payor F	51%	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. The financial effect of the adoption was an increase of $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

(10)

CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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, (ii) 23,500,000 shares (the “Initial Share Consideration”), 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 estimated 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.

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 Related Party 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 September 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

(11)

CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at Steward Closing and as adjusted for measurement period adjustments identified through September 30, 2023 (in thousands):


	At Steward Closing (preliminary)			Measurement Period Adjustments			At Steward Closing (as adjusted)
Accounts receivable	$	43,060		$	(4,074	)	$	38,986
Other working capital adjustments		(21,584	)		1,272			(20,312	)
Distribution liabilities		(7,032	)		2,802			(4,230	)
Intangible asset - Risk contracts		37,500			—			37,500
Intangible asset - Provider network		42,900			—			42,900
Net assets acquired		94,844			—			94,844
Purchase consideration		398,994			—			398,994
Goodwill	$	304,150		$	—		$	304,150

As of September 30, 2023 and December 31, 2022, other liabilities included an accrual of $5.0 million for payment to a Steward Acquisition advisor, 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 of $2.9 million and intangible assets of $0.4 million.

There were no acquisitions during the nine months ended September 30, 2023.

NOTE 4. REINSURANCE

The Company 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.

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 $11.5 million and $24.4 million for the three and nine months ended September 30, 2023, respectively and $5.8 million and $13.7 million for the three and nine months ended September 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 $12.4 million and $23.3 million for the three and nine months ended September 30, 2023, respectively, and $6.9 million and $21.0 million for the three and nine months ended September 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.

(12)

CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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		(178,000	)
Balance at September 30, 2023	$	522,643

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.

September 30, 2023

As of September 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 evaluate the Company’s estimated fair value balance as of September 30, 2023 and support the implied control premium. Based on the quantitative analysis performed, management concluded that the Company's estimated fair value was less than its carrying value as of September 30, 2023 by approximately $80.0 million or 13.0%. The $80.0 million goodwill impairment charge has been reflected in goodwill impairment in the accompanying statements of operations.

As of September 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 $10.0 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 4.0% or $23.0 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 $11.0 million.

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 $248.0 million and $70.0 million as of September 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 Amount		Accumulated Amortization			Net Carrying Value
September 30, 2023
Risk contracts	$	102,070	$	(35,558	)	$	66,511
Provider network		42,900		(5,448	)		37,452
Non-compete agreements		4,170		(2,138	)		2,032
Trademarks		1,862		(1,457	)		405
Other		693		(205	)		489
Total	$	151,695	$	(44,805	)	$	106,889


	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
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 $16.7 million for the three and nine months ended September 30, 2023, respectively, and $3.7 million and $11.4 million for the three and nine months ended September 30, 2022, respectively.

NOTE 6. PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2023 and December 31, 2022 consisted of the following (in thousands):


	September 30, 2023			December 31, 2022
Leasehold improvements	$	13,341		$	10,661
Vehicles		3,303			3,743
Furniture and equipment		12,279			8,871
Software		3,864			3,725
Construction in progress		8,690			4,621
Total		41,478			31,620
Less: Accumulated depreciation		(13,641	)		(10,614	)
Total Property and equipment, net	$	27,837		$	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 $3.5 million for the three and nine months ended September 30, 2023, respectively, and $0.9 million and $3.2 million for the three and nine months ended September 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 September 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 was initially 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)

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.

Refer to Note 17, Subsequent Events, for updated information.

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 September 30, 2023 and December 31, 2022, debt consisted of the following (in thousands):


	September 30, 2023			December 31, 2022
Indebtedness under the Credit Agreement	$	313,920		$	240,277
Indebtedness under the Loan and Security Agreement - Related party debt		35,510			35,510
Other		2,283			1,657
Less: Unamortized discounts and debt issuance costs		(14,229	)		(16,188	)
		337,484			261,256
Less: Current portion		(34,872	)		(30,530	)
Long-term portion	$	302,612		$	230,725

(16)

CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

Future maturities of debt outstanding at September 30, 2023 were as follows (in thousands):


Year	Amount
Remainder of 2023	$	35,573
2024		389
2025		2,958
2026		3,446
2027		308,463
Thereafter		883
Total	$	351,713

As of September 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 nine months ended September 30, 2023. During the three and nine months ended September 30, 2022, the Company recorded $0 and $5.0 million, respectively, in other assets to reflect vesting of zero and one million of Series B Warrant Shares, respectively. Upon adoption of ASC 842 and commencement of the related leases, the balances were reclassified to right-of-use assets. Refer to Note 12, Related Party Transactions, for additional information.

Balances associated with the Warrant Shares 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 12 months, which is recorded in other current assets. The portion of the Warrant Shares recorded in other current assets as of September 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 have 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 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 table summarizes the equity award activity for the nine months ended September 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		(691,456	)		8.37		(65,650	)			6.05		(139,211	)		6.03
Forfeited		(325,987	)		6.74		—				—		—			—
Outstanding as of September 30, 2023		4,162,298		$	5.53		451,513		4	$	4.31		750,354		$	3.91

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 (years)		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 (years)		10.00
Risk-free interest rate		3.7	%
Volatility		71.5	%
Dividend yield		0.0	%

The Company recorded stock-based compensation expense of $3.2 million and $8.0 million during the three and nine months ended September 30, 2023, respectively, and $3.6 million and $7.5 million during the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, the Company had $20.8 million of unrecognized compensation expense related to unvested awards that are expected to vest over the remaining weighted-average service period of 2.7 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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Net loss attributable to CareMax, Inc. Class A common stockholders	$	(103,123	)	$	(22,053	)	$	(217,581	)	$	(48,230	)

Weighted-average basic shares outstanding		112,085,154			87,408,605			111,704,585			87,415,801
Weighted-average diluted shares outstanding		112,085,154			87,408,605			111,704,585			87,415,801

Net loss per share
Basic	$	(0.92	)	$	(0.25	)	$	(1.95	)	$	(0.55	)
Diluted	$	(0.92	)	$	(0.25	)	$	(1.95	)	$	(0.55	)

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 September 30,				Nine Months Ended September 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		37,500,000		3,200,000		39,621,612		3,200,000
Unvested restricted stock units		4,468,118		3,163,790		3,077,158		3,163,790
Unvested performance stock units (assumes 100% target payout)		451,513		189,389		294,012		189,389
Unvested options		750,354		378,783		496,230		378,783
Total		56,961,637		20,723,614		57,280,663		20,723,614

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
September 30, 2023			Quoted Prices in Active Markets		Significant other Observable Units		Significant other Unobservable Units
Description	Carrying Value		(Level 1)		(Level 2)		(Level 3)
Derivative warrant liabilities - Public Warrants	$	575	$	575	$	—	$	—
Derivative warrant liabilities - Private Placement Warrants		408		—		—		408
Total liabilities measured at fair value	$	983	$	575	$	—	$	408


			Fair Value
December 31, 2022			Quoted Prices in Active Markets		Significant other Observable Units		Significant other Unobservable Units
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 nine months ended September 30, 2023, the Company recognized a benefit resulting from a decrease in the fair value of the derivative warrant liabilities of $1.5 million and $3.0 million, respectively (a loss of $7.3 million and $3.5 million during the three and nine months ended September 30, 2022, respectively).

As of December 31, 2022, 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 of $3.65 per share, and a 99% probability of payout. On June 30, 2023, fair value of the

(21)

CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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 nine months ended September 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		(2,071	)
Change in fair value of contingent earnout liability		(19,916	)
Reclassification of contingent earnout consideration previously liability classified		(114,645	)
Balance as of September 30, 2023	$	408

The following table provides quantitative information regarding Level 3 fair value measurement inputs used in measurement of fair value of Private Placement Warrants:


	September 30, 2023			December 31, 2022
Exercise price	$	11.50		$	11.50
Underlying stock price	$	2.12		$	3.65
Volatility		65.2	%		69.1	%
Expected life of the options to convert (years)		2.69			3.44
Risk-free rate		4.76	%		4.08	%
Dividend yield		0.0	%		0.0	%

Financial Instruments that are not Measured at Fair Value on a Recurring Basis


September 30, 2023			Fair Value
	Carrying Value		Quoted Prices in Active Markets		Significant other Observable Units		Significant other Unobservable Units
(in thousands)			(Level 1)		(Level 2)		(Level 3)
Liabilities
Fixed rate debt (a)	$	36,442	$	—	$	—	$	36,051
Floating rate debt (a)		313,920		—		—		313,920
Total	$	350,361	$	—	$	—	$	349,970

			Fair Value
December 31, 2022	Carrying Value		Quoted Prices in Active Markets		Significant other Observable Units		Significant other Unobservable Units
(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

Refer to Note 8, Stockholders' Equity, for details on the transactions the Company entered into with Related.

During the three and nine months ended September 30, 2023, the Company recognized $0.1 million and $0.4 million of expense related to the amortization of the Warrants, respectively. During the three and nine months ended September 30, 2022, the Company recognized $0.3 million and $1.0 million of expense related to the amortization of the Warrants in corporate, general and administrative expenses, respectively.

(22)

CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

As of September 30, 2023, and December 31, 2022, the Company recorded $0.4 million and $0.6 million in other current assets, respectively, and $3.6 million and $6.3 million in other assets, respectively, related to the Warrants.

In addition, during the nine months ended September 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 receives 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 a director of the Company, Dr. de la Torre receives compensation in the same manner as the Company’s other non-employee directors.

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. In addition, the Company entered into a Transition Services Agreement (the "TSA") with Steward Health Care System, LLC. During the three and nine months ended September 30, 2023, the Company incurred TSA expenses of $0.1 million and $1.2 million, respectively, within corporate, general and administrative expenses. As of September 30, 2023 and December 31, 2022, the Company had associated related party liabilities of less than $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 September 30, 2023 and December 31, 2022, the Company had associated related party receivables of $0.8 million and related party liabilities of $0.5 million, respectively.

As described in Note 8, Stockholders' Equity, as of September 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.

CAJ and Deerfield

In November 2022, the Company entered into the 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.

Mr. Kevin Berg, who is on the Board, is a Senior Advisor with Deerfield. As a director of the Company, Mr. Berg receives compensation in the same manner as the Company’s other non-employee directors.‌

Refer to Note 17, Subsequent Events, for updated information.

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 September 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 nine months ended September 30, 2023, the Company had no subrogation income. During the three and nine months ended September 30, 2022, the Company recorded subrogation income from MSP Recovery of $0.2 million and $0.5 million, respectively. Refer to Note 17, Subsequent Events, for updated information.

(23)

CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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 September 30, 2023 and December 31, 2022, the Company had prepaid expenses for services from Second Wave of $0.1 million and $0, respectively. Refer to Note 17, Subsequent Events, for updated information.

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 September 30, 2023		Nine Months Ended September 30, 2023
Operating lease cost	$	5,224	$	14,399
Variable lease cost		864		2,355
Short-term lease cost		291		916
Total lease cost	$	6,379	$	17,670

During the three and nine months ended September 30, 2023, we obtained $4.1 million and $30.5 million, respectively, of right-of-use assets in exchange for new operating lease liabilities and paid $3.6 million and $10.3 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:


	As of September 30, 2023			As of December 31, 2022
Weighted-average remaining lease term (years)	13.1				11.0
Weighted-average discount rate		9.48	%		6.33	%

As of September 30, 2023, maturities of operating lease liabilities were as follows (in thousands):


Year	Amount
Remainder of 2023	$	3,078
2024		13,947
2025		17,997
2026		17,837
2027		16,981
Thereafter		167,261
Future gross lease payments		237,100
Less: Present value discount		(110,877	)
Present value of operating lease liabilities	$	126,223

At September 30, 2023, the Company entered into leases that have not yet commenced with aggregated estimated future lease payments of approximately $56.8 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 2025, with initial lease terms ranging from 15 to 20 years.

(24)

CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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 $4.6 million and $12.7 million of lease expense during the three and nine months ended September 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 September 30, 2022:


Year	Amount
Remainder of 2022	$	3,786
2023		18,309
2024		19,192
2025		18,959
2026		18,170
Thereafter		208,556
Total lease payments	$	286,973

NOTE 14. INCOME TAXES

Income tax expense was $0.2 million and $0.5 million during the three and nine months ended September 30, 2023 and 2022, respectively. The effective tax rate was (0.2)% and (0.3)% and (0.8)% and (1.1)% during the three and nine months ended September 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

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 nine months ended September 30, 2023 or 2022 that were deemed to be material.

NOTE 16. VARIABLE INTEREST ENTITIES

The Company has Administrative Service Agreements (the "ASAs") with Medical Care of NY, P.C., Medical Care of Tennessee, PLLC and Medical Care of Texas, PLLC (together, the "PCs"), which were established to employ healthcare providers to deliver healthcare services to patients in New York, Tennessee, and Texas, and with Care Optical, LLC ("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

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CAREMAX, inc.

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(Unaudited)

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):


	September 30, 2023		December 31, 2022
Total assets	$	2,928	$	1,097
Total liabilities	$	8,583	$	2,961


	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023		Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Revenues	$	369	$	1,366	$	22	$	22
Operating expenses	$	1,005	$	4,696	$	683	$	1,064

NOTE 17. SUBSEQUENT EVENTS

In October 2023, the Company paid off all outstanding indebtedness of $35.5 million due under its Loan and Security Agreement with the proceeds from the MSSP payment from the federal government, and the Loan and Security Agreement was terminated. Refer to Note 7, Debt and Related Party Debt, for further information.

As previously reported, in October 2023, Ms. Beatriz Assapimonwait and Hon. Dr. J. Shulkin, M.D. resigned as members of the Board. Refer to Note 12, Related Party Transactions, for further information.

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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:

•

the impact of the COVID-19 pandemic or any other pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide on our business, financial condition and results of operation;

•

our ability to grow and manage growth profitably, maintain relationships with customers, compete within our industry and retain our key employees;

•

our ability to integrate the businesses of Steward Value-Based Care, CMG, IMC, SMA, DNF, Advantis and other acquisitions;

•

our ability to complete acquisitions and to open new centers and the timing of such acquisitions and openings;

•

the viability of our growth strategy, including both organic and de novo growth and growth by acquisition, and our ability to realize expected results, as well as our ability to access the capital necessary for such growth;

•

our ability to attract new patients;

•

the dependence of our revenue and operations on a limited number of key payors;

•

our ability to maintain our relationships with health plans and other key payors;

•

the risk of termination, non-renewal or renegotiation of the Medicare Advantage (“MA”) contracts held by the health plans with which we contract, or the termination, non-renewal or renegotiation of our contracts with those plans;

•

the impact on our business from changes in the payor mix of our patients and potential decreases in our reimbursement rates;

•

our ability to manage our growth effectively, execute our business plan, maintain high levels of service and patient satisfaction and adequately address competitive challenges;

•

the impact of restrictions on our current and future operations contained in certain of our agreements;

•

competition from primary care facilities and other healthcare service providers;

•

competition for physicians and nurses, and shortages of qualified personnel;

•

the impact on our business from reductions in Medicare reimbursement rates or changes in the rules governing the Medicare program, including the MA program;

•

the impact on our business of state and federal efforts to reduce Medicaid spending;

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•

our assumption under most of our agreements with health plans of some or all of the risk that the cost of providing services will exceed our compensation;

•

risks associated with estimating the amount of revenues and refund liabilities that we recognize under our risk agreements with health plans;

•

the impact on our business of security breaches, loss of data, or other disruptions causing the compromise of sensitive information or preventing us from accessing critical information;

•

the impact of our existing or future indebtedness and any associated debt covenants on our business and growth prospects;

•

the impact on our business of disruptions in our disaster recovery systems or management continuity planning;

•

the potential adverse impact of legal proceedings and litigation;

•

the impact of reductions in the quality ratings of the health plans we serve;

•

our ability to maintain and enhance our reputation and brand recognition;

•

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;

•

our ability to obtain, maintain and enforce intellectual property protection for our technology;

•

the potential adverse impact of claims by third parties that we are infringing on or otherwise violating their intellectual property rights;

•

our ability to protect the confidentiality of our trade secrets, know-how and other internally developed information;

•

the impact of any restrictions on our use of or ability to license data or our failure to license data and integrate third-party technologies;

•

our ability to protect data, including personal health data, and maintain our information technology systems from cyber security breaches and data leakage;

•

our ability to adhere to all of the complex government laws and regulations that apply to our business;

•

our reliance on strategic relationships with third-parties to implement our growth strategy;

•

the impact on our business 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;

•

that our estimates of market opportunity and forecasts of market and revenue growth may prove to be inaccurate;

•

our operating results and stock price may be volatile;

•

risks associated with estimating the amount of revenues that we recognize under our risk agreements with health plans;

•

our ability to navigate rules and regulations that govern our licensing and certification, as well as credentialing processes with private payors, before we can receive reimbursement for their services;

•

risks associated with our future capital requirements and sources and uses of cash, including funds to satisfy our liquidity needs and our ability to comply with the covenants under the agreements governing our indebtedness;

•

our ability to recruit and retain qualified team members and independent physicians;

•

our ability to develop and maintain proper and effective internal control over financial reporting; and

•

the impact of any prior period developments.

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.

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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 September 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 79% and 80% of revenue for the nine months ended September 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.


Patient Count as of*	Sep 30, 2021		Dec 31, 2021		Mar 31, 2022		Jun 30, 2022		Sep 30, 2022		Dec 31, 2022		Mar 31, 2023		Jun 30, 2023		Sep 30, 2023
Medicare Advantage		26,500		33,500		34,000		37,000		39,500		93,500		95,500		102,500		107,000
Medicare Government VBC		—		—		—		—		—		109,500		107,000		101,000		99,500
Medicaid		24,500		28,000		28,500		29,500		31,500		33,500		33,500		30,500		28,500
Commercial		17,500		21,500		21,500		21,500		22,000		22,000		34,500		38,500		38,000
Total Count		68,500		83,500		84,000		88,000		93,000		258,500		271,000		272,500		273,000

* Figures may not sum due to rounding

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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 for MCREM is below:


MCREM Count as of*	Sep 30, 2021		Dec 31, 2021		Mar 31, 2022		Jun 20, 2022		Sep 30, 2022		Dec 31, 2022		Mar 31, 2023		Jun 30, 2023		Sep 30, 2023
Medicare Advantage		26,500		33,500		34,000		37,000		39,500		93,500		95,500		102,500		107,000
Medicare Government VBC		—		—		—		—		—		109,500		107,000		101,000		99,500
Medicaid		8,100		9,400		9,400		9,900		10,600		11,100		11,200		10,100		9,500
Commercial		5,800		7,200		7,200		7,100		7,300		7,400		11,400		12,900		12,700
Total Count		40,400		50,100		50,600		54,000		57,400		221,500		225,100		226,500		228,700

* Figures may not sum due to rounding

Medicare Advantage Patients

As of September 30, 2023, CareMax had approximately 107,000 MA patients of which 98% 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 September 30, 2023, CareMax had approximately 99,500 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 a 75% 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 September 30, 2023, CareMax had approximately 28,500 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 9,500 Medicare patients. In Florida, most Medicaid recipients are enrolled in the Statewide Medicaid Managed Care program.

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.

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Commercial Patients

As of September 30, 2023, CareMax managed approximately 38,000 commercial patients of which 96% 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 12,700 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 nine months ended September 30, 2023, our three largest payor relationships were Payor A, Payor C and Payor E, which generated 24%, 21% and 15% of our revenue, respectively. During the nine months ended September 30, 2022, our three largest payor relationships were Payor A, Payor B and Payor C, which generated 30%, 19% 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 51% of our total operating expenses for the nine months ended September 30, 2023 and 65% of our total operating expenses for the nine months ended September 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

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

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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 nine months ended September 30, 2023 and 2022, we incurred de novo pre-opening costs and post-opening losses, on a combined basis, of $17.4 million and $7.6 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.

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

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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 Platform Contribution 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 the Company’s 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 our 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.

Reconciliation to Adjusted EBITDA


	Three Months Ended September 30,									Nine Months Ended September 30,
(in thousands)	2023			2022			Y/Y Change			2023			2022			Y/Y Change
Net loss	$	(103,123	)	$	(22,053	)	$	(81,070	)	$	(217,581	)	$	(48,230	)	$	(169,351	)
Interest expense		14,000			6,076			7,924			37,908			11,700			26,208
Depreciation and amortization		6,833			4,573			2,260			20,237			14,538			5,699
Remeasurement of warrant and contingent earnout liabilities		(1,450	)		7,331			(8,781	)		(22,907	)		3,476			(26,383	)
Goodwill impairment		80,000			—			80,000			178,000			—			178,000
Stock-based compensation		3,243			3,611			(368	)		8,004			7,486			518
Loss on extinguishment of debt		—			—			—			—			6,172			(6,172	)
Business Combination integration costs (1)		483			2,586			(2,103	)		1,885			8,852			(6,967	)
Acquisition and integration related costs (2)		652			2,118			(1,466	)		2,089			9,621			(7,532	)
Other (3)		1,263			(35	)		1,298			541			451			90
Income tax provision (benefit)		177			181			(4	)		533			533			—
Adjusted EBITDA	$	2,077		$	4,388		$	(2,311	)	$	8,708		$	14,598		$	(5,890	)

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(1)

Represents initial costs to set up public company processes, incremental vendor expenses identified as temporary or duplicative and expected to be rationalized in the short term, and legal and professional expenses outside of the ordinary course of business, which are being incurred as part of the Company’s efforts as it integrates the two privately held companies that were combined in the Business Combination. Significant components of Business Combination integration costs were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023		2022
Consulting and legal fees (a)	$	69	$	725	$	588	$	4,802
Severance costs		—		1,080		24		1,357
Other (b)		414		782		1,273		2,694
	$	483	$	2,586	$	1,885	$	8,852

(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.

(2)

Includes all costs recognized in acquisition related costs in our condensed consolidated statements of operations and incremental payroll compensation expense for employees directly associated with services to achieve synergies related to closed transactions. Significant components of acquisition and integration related costs were as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2023		2022		2023			2022
Advisor and other professional fees (a)	$	94	$	1,219	$	(198	)	$	5,199
Compensation costs (b)		558		899		2,286			4,422
	$	652	$	2,118	$	2,089		$	9,621

(a) Includes payments to our third-party transaction advisory firm associated with transaction contracts, including the Steward transaction that 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.

(3)

Components of other were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	2023			2022			2023			2022
Interest income	$	(433	)	$	—		$	(1,289	)	$	—
Tax-related costs		—			(178	)		—			156
Severance costs		1,639			—			1,639			—
Other		58			143			191			294
	$	1,263		$	(35	)	$	541		$	451

Operating Metrics and Non-GAAP 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 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:



Non-GAAP Operating Metrics	Sep 30, 2021			Dec 31, 2021			Mar 31, 2022			Jun 30, 2022			Sep 30, 2022			Dec 31, 2022			Mar 31, 2023			Jun 30, 2023			Sep 30, 2023
Centers		40			45			48			48			51			62			62			62			62
Markets		3			4			6			6			7			7			7			7			7
Patients (MCREM)*		40,400			50,100			50,600			54,000			57,400			221,500			225,100			226,500			228,700
Patients in value-based care arrangements (MCREM)		87.2	%		79.3	%		79.8	%		81.0	%		78.2	%		97.6	%		99.0	%		99.4	%		98.8	%
Platform Contribution ($, millions)	$	11.0		$	16.0		$	17.2		$	21.6		$	20.6		$	25.6		$	24.7		$	28.6		$	21.1
* 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.

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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.

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 Platform Contribution:


	Three Months Ended
(in millions)	Sep 30, 2021		Dec 31, 2021		Mar 31, 2022		Jun 30, 2022		Sep 30, 2022		Dec 31, 2022		Mar 31, 2023		Jun 30, 2023		Sep 30, 2023
Gross profit (a)	$	4.5	$	9.6	$	11.2	$	15.4	$	14.8	$	17.2	$	17.1	$	20.4	$	12.0
Depreciation and amortization		5.2		6.1		5.1		4.9		4.6		7.2		6.6		6.8		6.8
Stock-based compensation		—		0.1		0.4		1.3		1.2		1.2		1.0		1.3		1.2
Other adjustments (b)		1.3		0.2		0.5		0.1		0.1		—		—		—		1.0
Platform Contribution	$	11.0	$	16.0	$	17.2	$	21.6	$	20.6	$	25.6	$	24.7	$	28.6	$	21.1

(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) Other adjustments include incremental costs related to post-Business Combination integration initiatives and other one-time center-level costs. 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 and during the three months ended September 30, 2023 include $1.0 million of severance costs related to center staff.

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 nine months ended September 30, 2023 and an approximately $1.0 million negative impact on our performance for the nine months ended September 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.

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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.

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

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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 short-term and long-term accounts receivable, net. Accordingly, the Company recognized the following changes in prior year estimates in each respective period (in thousands):


Increase (decrease)	Nine Months Ended September 30, 2023			Nine Months Ended September 30, 2022

Revenue	$	(24,660	)	$	(924	)
External provider costs		(1,393	)		6,045
Short-term and long-term accounts receivable, net		(23,266	)		(6,969	)

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.

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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 on remeasurement of contingent earnout liabilities. Gain 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 September 30, 2023 compared to Three Months Ended September 30, 2022

The following table sets forth our condensed consolidated statements of operations data for the periods indicated:


	Three Months Ended September 30,
(in thousands)	2023			2022			$ Change			% Change
Revenue
Medicare risk-based revenue	$	134,105		$	122,267		$	11,838			9.7	%
Medicaid risk-based revenue		23,950			19,852			4,098			20.6	%
Government value-based care revenue		28,067			—			28,067			100.0	%
Other revenue		15,721			15,551			170			1.1	%
Total revenue		201,843			157,670			44,173			28.0	%
Operating expenses
External provider costs		139,139			106,900			32,239			30.2	%
Cost of care		43,826			30,213			13,613			45.1	%
Sales and marketing		3,501			2,355			1,146			48.7	%
Corporate, general and administrative		19,282			21,687			(2,405	)		(11.1	%)
Depreciation and amortization		6,833			4,573			2,260			49.4	%
Goodwill impairment		80,000			—			80,000			100.0	%
Acquisition related costs		34			494			(460	)		(93.1	%)
Total costs and expenses		292,615			166,222			126,393			76.0	%
Operating loss		(90,772	)		(8,552	)		(82,220	)		961.4	%
Nonoperating income (expense)
Interest expense		(14,000	)		(6,088	)		(7,912	)		130.0	%
Change in fair value of derivative warrant liabilities		1,450			(7,331	)		8,781			(119.8	%)
Other income (expense), net		376			99			277			280.0	%
		(12,174	)		(13,320	)		1,146			(8.6	%)
Loss before income tax		(102,946	)		(21,872	)		(81,074	)		370.7	%
Income tax expense		(177	)		(181	)		4			(2.0	%)
Net loss	$	(103,123	)	$	(22,053	)	$	(81,070	)		367.6	%

* Figures may not sum due to rounding

Medicare risk-based revenue. Medicare risk-based revenue was $134.1 million for the three months ended September 30, 2023, an increase of $11.8 million, or 9.7%, compared to $122.3 million for the three months ended September 30, 2022. This increase was driven primarily by a 19.0% increase in the total number of at-risk Medicare patients, partially offset by an unfavorable net prior period development of approximately $10.5 million.

Medicaid risk-based revenue. Medicaid risk-based revenue was $24.0 million for the three months ended September 30, 2023, an increase of $4.1 million, or 20.6%, compared to $19.9 million for the three months ended September 30, 2022. This increase was driven primarily by a 26.4% increase in rates, driven by member mix, partially offset by an unfavorable net prior period development of approximately $2.2 million and the effect of the decrease in patients.

Government value-based care revenue. Government value-based care revenue was $28.1 million for the three months ended September 30, 2023. The current year activity is a result of the Steward Acquisition. The current period was also impacted by favorable net prior period development of approximately $8.4 million.

Other revenue. Other revenue was $15.7 million for the three months ended September 30, 2023, an increase of $0.2 million, or 1.1%, compared to $15.6 million for the three months ended September 30, 2022. The increase is primarily due to an increase in pharmacy and partial risk revenue, partially offset by the impact of unfavorable net prior period development.

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External provider costs. External provider costs were $139.1 million for the three months ended September 30, 2023, an increase of $32.2 million, or 30.2%, compared to $106.9 million for the three months ended September 30, 2022. The increase was mostly driven by incremental costs to support the 11.2% increase in full-risk revenue over the same period and the impact of unfavorable net prior period development of $8.9 million.

Cost of care. Cost of care expenses were $43.8 million for the three months ended September 30, 2023, an increase of $13.6 million, or 45.1%, compared to $30.2 million for the three months ended September 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 $3.5 million for the three months ended September 30, 2023, an increase of $1.1 million, or 48.7%, compared to $2.4 million for the three months ended September 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.

Corporate, general and administrative expenses. Corporate, general and administrative expenses were $19.3 million for the three months ended September 30, 2023, a decrease of $2.4 million, or 11.1%, compared to $21.7 million for the three months ended September 30, 2022. The decrease is primarily due to lower bonus expense, partially offset by an increase in salaries and related benefit expenses to support operational growth.

Depreciation and amortization. Depreciation and amortization expense was $6.8 million for the three months ended September 30, 2023, an increase of $2.3 million, or 49.4%, compared to $4.6 million for the three months ended September 30, 2022. This increase is primarily driven by the amortization of intangibles acquired as part of the Steward Acquisition.

Goodwill impairment. During the three months ended September 30, 2023, the Company recognized a goodwill impairment of $80.0 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 three months ended September 30, 2022.

Acquisition related costs. Acquisition related costs were less than $0.1 million for the three months ended September 30, 2023, a decrease of $0.5 million, or 93.1%, compared to $0.5 million during for the three months ended September 30, 2022.

Interest expense. Interest expense was $14.0 million for the three months ended September 30, 2023, an increase of $7.9 million, or 130.0%, compared to $6.1 million for the three months ended September 30, 2022. This increase was due to the increased borrowings and higher weighted-average interest rate. Refer to Note 7, Debt and Related Party Debt, in our condensed consolidated financial statements included in this Report for additional information on the borrowings outstanding as of September 30, 2023.

Change in fair value of derivative warrant liabilities. The Company recorded a gain in fair value of derivative warrant liabilities of $1.5 million for the three months ended September 30, 2023, an increase of $8.8 million, or 119.8%, compared to a loss of $7.3 million for the three months ended September 30, 2022. This increase was primarily driven by the decrease in market value of the Company's Class A Common Stock for the three months ended September 30, 2023, as compared to the market value of the Company's Class A Common Stock for the three months ended September 30, 2022.

Nine Months Ended September 30, 2023 compared to Nine Months Ended September 30, 2022

The following table sets forth our condensed consolidated statements of operations data for the periods indicated:

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	Nine Months Ended September 30,
(in thousands)	2023			2022			$ Change			% Change
Revenue
Medicare risk-based revenue	$	411,184		$	373,677		$	37,507			10.0	%
Medicaid risk-based revenue		79,630			59,914			19,716			32.9	%
Government value-based care revenue		60,284			—			60,284			100.0	%
Other revenue		48,169			33,278			14,891			44.7	%
Total revenue		599,267			466,869			132,398			28.4	%
Operating expenses
External provider costs		406,807			320,104			86,703			27.1	%
Cost of care		122,645			87,925			34,720			39.5	%
Sales and marketing		10,593			7,955			2,638			33.2	%
Corporate, general and administrative		64,021			58,728			5,293			9.0	%
Depreciation and amortization		20,237			14,538			5,699			39.2	%
Goodwill impairment		178,000			—			178,000			100.0	%
Acquisition related costs		108			3,549			(3,441	)		(97.0	%)
Total operating expenses		802,412			492,799			309,613			62.8	%
Operating loss		(203,145	)		(25,930	)		(177,215	)		683.4	%
Nonoperating income (expense)
Interest expense		(37,908	)		(11,712	)		(26,196	)		223.7	%
Change in fair value of derivative warrant liabilities		2,991			(3,476	)		6,467			(186.0	%)
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		1,097			(408	)		1,505			(368.9	%)
		(13,904	)		(21,768	)		7,864			(36.1	%)
Loss before income taxes	$	(217,049	)	$	(47,698	)	$	(169,351	)		355.0	%
Income tax (expense)		(532	)		(532	)		—			—
Net loss	$	(217,581	)	$	(48,230	)	$	(169,351	)		351.1	%

Medicare risk-based revenue. Medicare risk-based revenue was $411.2 million for the nine months ended September 30, 2023, an increase of $37.5 million, or 10.0%, compared to $373.7 million for the nine months ended September 30, 2022. This increase was driven primarily by a 22.3% increase in the total number of at-risk patients, partially offset by a 10.0% net decrease in rates, driven by member mix, and unfavorable net prior period development of $21.7 million mainly due to more current membership data.

Medicaid risk-based revenue. Medicaid risk-based revenue was $79.6 million for the nine months ended September 30, 2023, an increase of $19.7 million, or 32.9%, compared to $59.9 million for the nine months ended September 30, 2022. This increase was driven primarily by the 26.1% increase in patients and a 5.1% increase in rates, driven by member mix, partially offset by unfavorable net prior period development of $2.4 million.

Government value-based care revenue. Government value-based care revenue was $60.3 million for the nine months ended September 30, 2023. The current year activity is a result of the Steward Acquisition.

Other revenue. Other revenue was $48.2 million for the nine months ended September 30, 2023, an increase of $14.9 million, or 44.7%, compared to $33.3 million for the nine months ended September 30, 2022. The increase is related to growth in pharmacy revenues due to enhanced service offerings and new capitation and incentive revenue contracts as a result of the Steward Acquisition.

External provider costs. External provider costs were $406.8 million for the nine months ended September 30, 2023, an increase of $86.7 million, or 27.1%, compared to $320.1 million for the nine months ended September 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 $1.4 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 an unseasonably early flu season, which began in the fourth quarter of 2022 and affected our costs in 2023.

Cost of care. Cost of care expenses were $122.6 million for the nine months ended September 30, 2023, an increase of $34.7 million, or 39.5%, compared to $87.9 million for the nine months ended September 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 $10.6 million for the nine months ended September 30, 2023, an increase of $2.6 million, or 33.2%, compared to $8.0 million for the nine months ended September 30, 2022. The

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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 operated in 2023 as compared to 2022.

Corporate, general and administrative expenses. Corporate, general and administrative expenses were $64.0 million for the nine months ended September 30, 2023, an increase of $5.3 million, or 9.0%, compared to $58.7 million for the nine months ended September 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 $20.2 million for the nine months ended September 30, 2023, an increase of $5.7 million, or 39.2%, compared to $14.5 million for the nine months ended September 30, 2022. This increase is primarily driven by the amortization of intangibles acquired as part of the Steward Acquisition.

Goodwill impairment. During the nine months ended September 30, 2023, the Company recognized a goodwill impairment of $178.0 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 nine months ended September 30, 2022.

Acquisition related costs. Acquisition related costs were $0.1 million for the nine months ended September 30, 2023, a decrease of $3.4 million, or 97.0%, compared to $3.5 million during for the nine months ended September 30, 2022.

Interest expense. Interest expense was $37.9 million for the nine months ended September 30, 2023, an increase of $26.2 million, or 223.7%, compared to $11.7 million for the nine months ended September 30, 2022. This increase was due to the increased borrowings and higher weighted-average interest rate. Refer to Note 7, Debt and Related Party Debt, to our condensed consolidated financial statements included in this Report for additional information on the borrowings outstanding as of September 30, 2023.

Change in fair value of derivative warrant liabilities. We recorded a gain of $3.0 million during the nine months ended September 30, 2023, an increase of $6.5 million, or 186.0%, compared to a loss of $3.5 million for the nine months ended September 30, 2022. This increase is primarily driven by the decrease in the market value of the Company's Class A Common Stock during the nine months ended September 30, 2023, as compared to the increase in the market value of the Company's Class A Common Stock during the nine months ended September 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 nine months ended September 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 nine months ended September 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.

Other income (expense), net. Other income was $1.1 million for the nine months ended September 30, 2023, an increase of $1.5 million, or 368.9%, as compared to other expenses of $0.4 million for the nine months ended September 30, 2022. This increase was mainly due to interest earned on our money market investments.

Liquidity and Capital Resources

Overview

As of September 30, 2023, we had cash and cash equivalents of $32.3 million. In addition, as of September 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, 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.

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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. 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, the 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 September 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.

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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

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.

The Term Loan bore 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.

The Loan and Security Agreement was to mature 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.

In October 2023, the Company paid off all outstanding indebtedness of $35.5 million due under the Loan and Security Agreement with the proceeds of the MSSP payment from the federal government, and the Loan and Security Agreement was terminated.

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:


	Nine Months Ended September 30,
(in thousands)	2023			2022
Net cash used in operating activities	$	(62,446	)	$	(39,811	)
Net cash used in investing activities		(8,007	)		(4,969	)
Net cash provided by financing activities		61,091			50,179

Operating Activities. Net cash used in operating activities for the nine months ended September 30, 2023 was $62.4 million, an increase of $22.6 million, as compared to $39.8 million used in operating activities during the nine months ended

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September 30, 2022. This increase is primarily the result of timing of payments and slower collections on receivables as compared to prior year, due to MSSP arrangements that have longer payment cycles.

Investing Activities. Net cash used in investing activities was $8.0 million and $5.0 million for the nine months ended September 30, 2023 and 2022, respectively, driven by investments in leasehold improvements and medical equipment for our centers.

Financing Activities. Net cash provided by financing activities was $61.1 million during the nine months ended September 30, 2023, driven mainly by the $65.0 million drawn on our Delayed Draw Term Facility, partially offset by the related discounts, issuance costs and payments of commitment fees. Net cash used in financing activities was $50.2 million during the nine months ended September 30, 2022, driven by proceeds of $184.0 million from borrowings issued under the Credit Agreement, offset by the early repayment of our Existing Credit Agreement and related debt issuance costs of $128.4 million, and by the payments issued as collateral for letters of credit.

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 September 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, 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 September 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 September 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 restatement of the Company’s previously filed consolidated financial statements as of and for the year ended December 31, 2020, as well as the quarterly condensed consolidated financial information for the 2020 interim period ended September 30, 2020 related to derivative warrant liabilities, Class A ordinary shares subject to possible redemption, additional paid-in-capital, retained earnings/(deficit), fair value adjustment on derivative warrant liabilities, earnings per share and the related disclosures;

•

the restatement of the Company’s previously filed quarterly condensed consolidated financial information for the 2021 interim periods ended June 30, 2021 and September 30, 2021 related to goodwill, contingent earnout liabilities, additional paid-in capital, retained earnings/(deficit), gain/(loss) on remeasurement of earnout liabilities, earnings per share and the related disclosures; and

•

the restatement of the Company's previously filed consolidated financial statements as of and for the year ended December 31, 2021, as well as the quarterly condensed consolidated financial information for the 2021 interim period ended September 30, 2021 and the 2022 interim periods ended March 31, 2022, June 30, 2022, and September 30, 2022 related to other current assets and other assets.

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 identifying the material weaknesses and reporting them in our 2021 Annual Report on 10-K, management has developed a remediation plan and implemented measures to address the underlying causes of each material weakness. Our efforts to date included the following:

•

As previously communicated, we engaged an external advisor to assist in evaluating and documenting the design and operating effectiveness of our internal control over financial reporting.

•

As previously communicated, in 2022, we hired a Vice President of Financial Reporting and Technical Accounting and a Chief Accounting Officer, both with technical public company accounting and financial reporting experience.

•

As previously communicated, we enhanced access to accounting training, literature, research materials and documents for our finance and accounting departments.

•

During the second and third quarters of 2023, we performed a financial statement risk assessment and identified areas where new key controls are needed, or existing controls needed to be enhanced.

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•

During the second and third quarters of 2023, we designed and implemented controls to address the entity level and financial reporting risks identified, especially those involving accounting for complex transactions, including financial instruments and contingent earnout liabilities.

•

During the second and third quarters of 2023, together with our external advisor, we designed a formal testing program to evaluate the design and operating effectiveness of key controls and began executing on the formal testing program.

Although we have implemented controls as of September 30, 2023, the controls have not been in place and operating effectively for a sufficient period to evaluate if the material weaknesses have been remediated.

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 September 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.

Item 1A. 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.		Description of Exhibit
31.1*		Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		Inline XBRL Instance Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*		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.


	CareMax Inc.

Date: November 9, 2023		/s/ Carlos A. de Solo
	Name:	Carlos A. de Solo
	Title:	President, Chief Executive Officer, and Director (Principal Executive Officer)

Date: November 9, 2023		/s/ Kevin Wirges
	Name:	Kevin Wirges
	Title:	Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Principal Accounting Officer)

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