Claims Portfolio and Recovery Model - The current Claims portfolio includes approximately $1,602 billion in Billed Amount and $381 billion in Paid Amount, with about $91 billion in Paid Value of Potentially Recoverable Claims as of June 30, 2023[167]. - The company is entitled to 50% of recovery rights under Claims Cost Recovery Agreements (CCRA), and in some cases, has purchased rights to 100% of the recovery[167]. - The company plans to transition to a "Chase to Pay" model, which aims to identify the correct primary insurer at the point of care, potentially increasing recovery margins and reducing legal costs[172][173]. - The company has yet to generate substantial revenue from the Recovery Model, with most revenue currently coming from performance-based or fee-for-service arrangements[171]. - Approximately 86.8% of claims identified as potentially recoverable are already in the recovery process as of June 30, 2023[197]. - The Recovery Multiple measures the income generated from Claims recovery compared to the Paid Amount, with a target of exceeding 1x for profitability[202]. - The Billed Value of Potentially Recoverable Claims represents the cumulative Billed Amount, which the Company believes can exceed the Paid Amount through legal recoveries[201]. - The company estimates its total addressable market in the healthcare industry to be over $150 billion annually, with a focus on Medicare and Medicaid segments[206]. - Approximately 93% of expected recoveries arise from claims under the Medicare Secondary Payer Act as of June 30, 2023[208]. - The company has received total recoveries of $5.0 million with a recovery multiple of 1.54x during the six months ended June 30, 2023[205]. - Claims recovery income increased by $4.6 million for the six months ended June 30, 2023, driven by increased settlements during the period[240]. Financial Performance and Expenses - Total claims recovery income for the three months ended June 30, 2023, was $2.542 million, an increase of 87% compared to $1.357 million for the same period in 2022[228]. - Claims recovery service income decreased by $4.0 million to $0 for the three months ended June 30, 2023, primarily due to a decrease in third-party service fees[229]. - Total operating expenses for the three months ended June 30, 2023, were $143.059 million, a 97% increase from $72.643 million in the same period in 2022[228]. - Claims amortization expense increased by 210% to $121.004 million for the three months ended June 30, 2023, compared to $38.991 million in 2022[228]. - The net loss attributable to controlling members for the three months ended June 30, 2023, was $8.220 million, a 337% increase from $1.880 million in the same period in 2022[228]. - Total operating expenses rose by $203.4 million, a 241% increase compared to the same period in 2022, reaching $287.7 million[240]. - Interest expense increased by $81.2 million to $116.0 million for the six months ended June 30, 2023, primarily due to guarantee obligations and increased interest on Claims Financing Obligations[249]. - The company reported a net loss of $384.975 million for the six months ended June 30, 2023, compared to a net loss of $119.872 million for the same period in 2022, representing a 221% increase[240]. - Adjusted net loss for the six months ended June 30, 2023, was $33.405 million, compared to an adjusted net loss of $9.012 million for the same period in 2022[252]. Compliance and Regulatory Matters - The company was notified of non-compliance with Nasdaq listing requirements due to late filings, but has since regained compliance after filing its Quarterly Report on Form 10-Q for the period ending June 30, 2023[178][180]. - The company is currently evaluating various actions to regain compliance with Nasdaq's Bid Price Requirement, including a potential reverse stock split[178]. - The company disclosed that there were no material changes in its Critical Accounting Policies and Estimates during the three months ended June 30, 2023[279]. - The company is classified as a smaller reporting company and is not required to provide certain market risk disclosures[280]. Funding and Capital Structure - The company received $5.5 million from Term Loan A and $2.3 million from Term Loan B under a credit agreement with Hazel Partners Holdings LLC, with additional funding of $2.3 million received later[181]. - The principal amount of the amended promissory note to Nomura is approximately $26.3 million, with an interest rate of 16% per annum, maturing on September 30, 2024[188]. - The Company issued 199,000,001 shares of Class A common stock to Cano Health as payment for $61.6 million in deferred compensation[189]. - The Company has established a reserve for a $5.0 million receivable from Cano due to concerns about Cano's ability to continue as a going concern[190]. - The Company has $862.2 million in guaranty obligations as of June 30, 2023, with minimum required payments of $646.8 million[276][277]. - The Company entered into a Working Capital Credit Facility providing up to $80 million, with an initial $10 million drawn on March 6, 2023[255]. - The Company has the right to sell up to $1 billion in Class A common stock shares under the Yorkville Purchase Agreement, subject to certain conditions[263]. - The Company plans to utilize the Assignment Agreement with Prudent to monetize up to $250 million of net recovery interest, although it has not yet exercised this right[267][268]. - The Company expects to repay obligations from cash flows generated from claims recovery income[275]. Operational Adjustments and Future Plans - The company has adjusted its operating reserve to $47.5 million and agreed not to increase its 2023 operating budget without consent from Virage[183]. - The Company is required to make a one-time payment to Virage starting January 1, 2024, amounting to 1.0% of each calendar month-end balance, with a potential increase of up to 20% per annum[184]. - The Company anticipates approximately $19.7 million in savings from operating cost reductions over the next twelve months[260]. - The company has developed proprietary algorithms to identify waste, fraud, and abuse in healthcare claims, leveraging large volumes of data and advanced analytics[165]. - The company has a unique business model that involves receiving irrevocable assignments of Claims, allowing it to pursue recoveries that competitors cannot[166]. - The Company plans to implement new strategies to secure new Assignors, aiming to expand from over 160 Assignors currently[194].
MSP RECOVERY(LIFWZ) - 2023 Q2 - Quarterly Report