SecProbe.io

CORRESP
1
filename1.htm

  CORRESP

  May 15, 2023

  Via Edgar

  United States Securities and Exchange Commission

  Division of Corporation Finance

  Office of Industrial Applications and Services

  100 F Street, N.E.

  Washington, D.C. 20549

  Attn: Nudrat Salik or Jeanne Baker

  Re:  CareMax, Inc.

  Form 10-K for the Year Ended December 31, 2022

  Form 10-K/A for the Year Ended December 31, 2021

  Correspondence Letter dated March 30, 2023

  File No. 1-39391

  We are writing to address the comments raised in the letter to CareMax, Inc. (the “Company”), dated April 30, 2023, from the staff (the “Staff”) of the Division of Corporation Finance of the United States Securities and Exchange Commission (the “Commission”) relating to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and Annual Report on Form 10-K/A for the year ended December 31, 2021 (together, the “Reports”). The responses below correspond to the caption and number of the comment of the Staff (reproduced below in italics).

  Form 10-K for the Year Ended December 31, 2022

  Adjusted EBITDA, page 69.

  1.We note your response to comment 4. The restructuring and other line item in your reconciliation appears to include multiple components. Please provide us, and confirm that you will expand your disclosures to include, a breakdown of each component that is included in this line item with the corresponding amount. As it relates to incremental compensation and vendor expenses identified as temporary or duplicative as well as legal and professional expenses determined to be outside of the ordinary course of business, please help us better understand how you determined these costs were incremental, temporary, duplicative, and outside the ordinary course of business, rather than normal, recurring, cash operating expenses necessary to operate your business. Please address your consideration of the guidance in Question 100.01 of the Non-GAAP Financial Measures Compliance & Disclosure Interpretations as updated December 13,

  1

  2022. In regard to restructuring costs, please also address your consideration of ASC 420 in determining that these costs should be characterized as restructuring costs.

  Response:

  In response to the Staff’s comment, beginning with the Form 10-Q for the three months ended March 31, 2023, the Company expanded its disclosure to include a breakdown of each significant component, within the Business Combination integration costs line item. The following is an example of such disclosure for the year ended December 31, 2022, as it would have appeared in the Company’s Annual Report on Form 10-K (in thousands):

    Year ended December 31, 2022

    Consulting and legal fees (a)

    $

    5,058

    Compensation expense (b)

    4,425

    Other (c)

    2,433

    $

    11,916

  (a) Represents consulting and legal costs directly associated with efforts related to the integration of the two privately held companies that were combined in the Business Combination.

  (b) Represents incremental compensation expense directly associated with efforts related to the integration of the two privately held companies that were combined in the Business Combination.

  (c) 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.

  With respect to whether identified costs were incremental, temporary, duplicative, and outside the ordinary course of business, rather than normal, recurring, cash operating expenses necessary to operate the Company’s business, the Company has assessed the guidance in Question 100.01 of the Non-GAAP Financial Measures Compliance & Disclosure Interpretations, and respectfully advises the Staff that, as detailed below, the Company has determined that such costs are not normal, recurring, cash operating expenses necessary to operate the Company’s business. The Company respectfully advises the Staff as follows with respect to such costs:

  •Consulting fees represent costs paid to a third-party firm for a one-time project that spanned several quarters beginning soon after the Business Combination was completed to review and advise upon the newly combined Company’s financial and operational structure. This type of project had not been incurred in the previous two years and is not expected to be incurred in the next two years, as the Business Combination was a one-time, extraordinary transaction. Accordingly, the Company believes that the consulting fees in question are not normal, recurring, or cash operating expenses necessary to operate the Company’s business.

  •Legal fees represented costs associated with the legal documentation for the newly combined companies. Since the Business Combination has closed, the Company does not expect to incur these types of costs in the future. Accordingly, the Company believes that the legal fees in question are a one-time occurrence and not a normal, recurring, cash operating expenses necessary to operate the Company’s business.

  •Compensation expenses represent incremental payroll costs directly associated with the integration efforts of the combined Company, such as stay-on bonuses for certain key employees, severance costs and costs of duplicative employees holding like positions at

  2

  the predecessor companies. In the case of duplicative positions, the expectation was for the positions to be rationalized in the short-term. In other cases, there were departments and/or employees that were not part of the strategic vision of the go-forward combined company, and subsequently terminated.  The Company has for the most part completed its integration efforts, including the employment actions identified above, the Company does not expect to incur material compensation expenses of the type identified above and believes that such expenses are not normal, recurring, or cash operating expenses necessary to operate the Company’s business.

  •Other primarily represents third-party vendor expenses that were deemed duplicate or temporary, such as vendors that were deemed unnecessary because they were providing services to one of the predecessor companies that were also being provided by another vendor to another predecessor company, but whose contracts required the payment of termination or other similar fees.  Since such expenses were incurred expressly in connection with the termination of such services, the Company believes that such expenses are not normal, recurring, or cash operating expenses necessary to operate the Company’s business.

  In consideration of ASC 420, the Company will label the line description going forward as “Business Combination integration costs”, instead of using the word “restructuring” as the costs do not fall within the scope of ASC 420.

  2.We note your response to comment 5. In regard to your Acquisition and Integration related costs line item presented in your reconciliation, please provide us, and confirm that you will expand your disclosures to include, a breakdown of each significant component with corresponding amount. For the integration related costs, including incremental payroll compensation expense for employees directly associated with services to achieve synergies, please address your consideration of the guidance in Question 100.01 of the Non-GAAP Financial Measures Compliance & Disclosure Interpretations as updated December 13, 2022. Please specifically address how you determined that these are not normal, recurring, cash operating expenses necessary to operate your business.

  Response:

  In response to the Staff’s comment, beginning with the Form 10-Q for the three months ended March 31, 2023, the Company expanded its disclosure to include a breakdown of each significant component, within the Acquisition and integration related costs line item. The following is an example of such disclosure for the year ended December 31, 2022, as it would have appeared in the Company’s Annual Report on Form 10-K (in thousands):

    Year ended December 31, 2022

    Advisor and other professional fees (a)

    $

    15,076

    Compensation costs (b)

    5,177

    $

    20,253

  3

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

  With respect to whether the identified costs were normal, recurring, cash operating expenses necessary to operate the Company’s business, the Company has assessed the guidance in Question 100.01 of the Non-GAAP Financial Measures Compliance & Disclosure Interpretations, and respectfully advises the Staff that, as detailed below, the Company has determined that such costs are not normal, recurring cash operating expenses necessary to operate the Company’s business. The Company respectfully advises the Staff that these costs would not have been incurred if the Company did not pursue, contemplate, or complete acquisitions throughout 2021 and 2022. The Company believes that these contemplated or closed transactions are not required to operate the Company’s business of providing medical services and has determined that the referenced costs relate to discretionary acquisition efforts that are not recurring or normal costs.

  The Company would not have incurred third-party transaction advisory, legal or accounting fees related to contemplated or closed transactions and such acquisitions are not necessary to operate the Company’s business.  The compensation costs, as listed above, are associated with full-time employees or consultants that were hired with the responsibility to specifically provide transaction related services such as providing due diligence services and integration related services that would impact the level of synergies the Company expects to receive from the respective acquisitions.  As these types of services are no longer needed, the Company expects to no longer addback the costs and notes that the respective consultants or full-time positions are either being eliminated or the employee in those positions are being re-purposed to other positions within the organization that are normal, recurring and necessary to operate the Company’s business. Such actions have already been taken to some degree through March 31, 2023.

  3.Given there appears to be some overlap between the restructuring and other line item and the acquisitions and integration related costs line item, please help us better understand the differences between the two line items.

  Response:

  The Company respectfully advises the Staff that the difference between the two-line items is that the Business Combination integration costs line item represent expenses associated with the June 2021 Business Combination and the acquisition and integration related costs line item represents costs associated with acquisitions entered into or contemplated by the Company subsequent to the June 2021 Business Combination.

  Operating Metrics and Non-GAAP Platform Contribution and Pro Forma Platform Contribution, page 70

  4.We note your response to comment 3. Please help us better understand the nature of the reclassification that you discuss in note (a) to your reconciliation of Gross Profit to Platform Reconciliation. It appears these amounts have been reflected in your corporate, general and administrative expenses line item on your statements of

  4

  operations and you have determined that they should be reflected in your determination of gross profit for purposes of this reconciliation. Please confirm. Please advise why the note indicates that the reclassification results in an increase to gross profit by $2.9 million during the three months ended December 31, 2022, which also appears inconsistent with your reconciliation.

  Response:

  In response to the Staff’s comment, the Company respectfully advises the Staff as follows:

  The Company confirms that from October 1, 2021 to September 30, 2022, a portion of share-based compensation expense recorded in corporate, general and administrative expenses should have been reflected in cost of care expense. For the first three quarters of 2022, this amount totaled $2.9 million.

  The Company reported share-based compensation expense within cost of care expense in the fourth quarter of 2022, inclusive of the $2.9 million reclassification of cumulative share-based compensation expense for the first three quarters of 2022.

  Beginning with the Company’s Form 10-Q for the period ended March 31, 2023, the Company amended “note (a)” in the notes to the table as follows: “Gross profit reflects the reclassification of stock 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.

  As it relates to the misclassification, the Company performed a Statement of Accounting Bulletin No. 99 (“SAB 99”) analysis, which included reviewing the quantitative and qualitative factors as it relates to the impact to the 2022 and 2021 annual and quarterly periods. Based on the analysis, the Company concluded that the misclassification was immaterial to the users of the financial statements in all material respects. The misclassification had no impact on the 2022 full year financial statements or net income (loss) in any interim period. Additionally, the misclassification impact to the financial statements for the year ended December 31, 2021, was less than $0.3 million and had no impact to net income (loss) in any of the quarterly or year-end periods.

  5.Please expand your disclosures to provide a breakdown of the components of the pro forma adjustments line item in your determination of Pro forma Platform Contribution. Please disclose the nature of each component and the corresponding amount.

  Response:

  In response to the Staff’s comment, beginning with the Company’s Form 10-Q for the period ended March 31, 2023, the Company will include a breakdown of the components of the pro forma adjustments in our determination of Pro forma Platform Contribution, as follows (in thousands):

  5

    Three Months Ended March 31, 2021

    Three Months Ended June 30, 2021

    IMC

    Care Holdings

    Total

    IMC

    Care Holdings

    Total

     Gross profit prior to Business Combination

    $

    8,326

    $

    913

    $

    9,239

    $

    4,682

    $

    932

    $

    5,614

     Depreciation and amortization prior to Business Combination

    1,066

    2

    1,068

    1,066

    1

    1,067

     Pro forma adjustment

    $

    9,392

    $

    915

    $

    10,307

    $

    5,748

    $

    933

    $

    6,681

  Critical Accounting Policies and Estimates Goodwill and Other Intangible Assets, page 79

  6.We note that you performed an annual goodwill impairment test as of December31, 2022, and recognized a goodwill impairment charge of $70.0 million, which was driven by the reduction of the market value of your stock price in December 2022. Given the materiality of your goodwill balance and that your market capitalization continues to be significantly less than your total equity, please tell us and expand your disclosures to explain how you determined the amount of goodwill impairment charge to record. In order to provide useful and meaningful di