News That Matters

Cano Health Announces Financial Results for the Third Quarter 2022


MIAMI, Nov. 9, 2022 /PRNewswire/ — Cano Health, Inc. (“Cano Health” or the “Company”) (NYSE: CANO), a leading value-based primary care provider and population health company, today announced financial results for the third quarter ended September 30, 2022.

Third Quarter Financial Results

  • Total membership of 294,596, including 168,346 Medicare capitated members, an increase of 40% year-over-year for both
  • Total revenue of $665.0 million, an increase of 33% year-over-year
  • Net loss of $(112.0) million, unfavorably impacted by a $65.7 million fair value adjustment of warrant liabilities
  • Adjusted EBITDA1 of $42.5 million, compared to $13.6 million in the third quarter of 2021, an increase of 211% year over year

The Company continues to demonstrate financial and operational improvement year-over-year, with higher revenue, an improved medical cost ratio2, or MCR, and a higher Adjusted EBITDA margin. Total third-party medical costs per member per month, or PMPM, were better than expected in the third quarter, however, capitated revenue PMPM was approximately (5%) lower than the prior year and approximately (9%) lower than the second quarter of 2022, primarily due to a lower-than-expected capitated rates from new patients. This resulted in a higher medical cost ratio in the quarter than expected. The MCR was 78.2% in the third quarter, compared to 80.5% in the prior year, primarily driven by lower third-party medical costs PMPM, which more than offset the decline in capitated revenue PMPM.

“Cano Health delivered improved profitability while achieving steady organic growth,” said Dr. Marlow Hernandez, Chairman and Chief Executive Officer at Cano Health.  “While financial results were below our expectations due to lower revenue from new membership growth, existing membership performed in line with expectations.  As these new members integrate into our care platform, we expect they will perform similarly to existing members in future periods.  In response to our rapid growth and the higher cost of capital in the current economic environment, we are optimizing key areas of the business to leverage existing assets and prioritize cash flow.  We are confident Cano Health’s operating model will continue to deliver better health outcomes for our patients and sustainable long-term value creation for our shareholders.”

______________________

(1) Adjusted EBITDA is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure is provided in the Reconciliation of Non-GAAP Adjusted EBITDA table included in this press release. An explanation of this measure and how it is calculated is also included under the heading “Non-GAAP Financial Measures.”

(2) Medical Claims Expense Ratio (MCR) is calculated as third-party medical expense divided by capitated revenue

Guidance

The Company is updating its guidance for full year 2022 provided on August 9, 2022.  The updated guidance for full year 2022 is as follows:

  • Membership in the range of 300,000 to 305,000, unchanged from the prior guidance range
  • Total revenue in the range of $2.70 billion to $2.75 billion, a decrease from the prior guidance range of $2.85 billion to $2.90 billion, primarily driven by lower-than-expected capitated revenue PMPM from new memebers
  • Total medical cost ratio (MCR) in the range of 79.5% to 80.5%, an increase from the prior range of 78.0% to 79.0%, driven by the aforementioned lower-than-expected capitated reven PMPM from new memebers
    • The second half of 2022 is still expected to be lower than total MCR in the first half of 2022, primarily driven by normal seasonality in medical costs and cost recoveries
  • Adjusted EBITDA of approximately $150 million to $160 million, a decrease from the prior guidance of approximately $200 million
  • The Company added eight medical centers in the quarter, bringing total medical centers to 151, as of September 30, 2022, and 162 as of November 9, 2022; the Company expects to operate 170 by the end of 2022, a decrease from the prior guidance of 184 to 189, consistent with the focus on cash flow improvement

As of November 4, 2022, the Company had approximately 245 million shares of Class A common stock and 250 million shares of Class B common stock issued and outstanding. Total share count for the purposes of calculating market capitalization was approximately 494 million.

Conference Call Information

Cano Health will host a conference call today at 5:00 PM ET to review the Company’s business and financial results for the third quarter ended September 30, 2022.

To access the live call and webcast, please dial (888) 660-6359 for U.S. participants, or +1 (929) 203-0867 for international participants, and reference the Cano Health Third Quarter 2022 Earnings Conference Call and Conference ID 8371699. The conference call will also be webcast live in the “Events & Presentations” section of the Investor page of the Cano Health website.

A replay will be available in the “Events & Presentations” section of the Cano Health website for on-demand listening shortly after the completion of the call and will be available for 30 days.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to future events and involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and could materially affect actual results, performance or achievements. Such forward-looking statement include, without limitation, our anticipated results of operations, including our financial guidance for the 2022 fiscal year, our business strategies, our projected costs, prospects and plans, and other aspects of our operations or operating results. These forward-looking statements generally can be identified by phrases such as “will,” “expects,” “anticipates,” “foresees,” “forecasts,” “estimates” or other words or phrases of similar import. It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on our results of operations and financial condition. Important risks and uncertainties that could cause our actual results and financial condition to differ materially from those indicated in forward-looking statements include, among others, changes in market or industry conditions, regulatory environment, competitive conditions, and receptivity to our services; changes in our strategy, future operations, prospects and plans; developments and uncertainties related to the Direct Contracting Entity (“DCE”) DCE program; adverse effects on the Company’s business as a result of the restatement of our previously issued financial statements; our ability to realize expected financial results, including with respect to patient membership, total revenue and earnings; our ability to predict and control our medical cost ratio; our ability to grow market share in existing markets or enter into new markets and continue our growth; our ability to integrate our acquisitions and achieve desired synergies; our ability to maintain our relationships with health plans and other key payors; the impact of COVID-19 on our business and results of operations; our future capital requirements and sources and uses of cash, including funds to satisfy our liquidity needs; and our ability to recruit and retain qualified team members and independent physicians. For a detailed discussion of the risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements, please refer to our filings with the Securities and Exchange Commission (the “SEC”). All information provided in this press release is as of the date hereof, and we undertake no duty to update or revise this information unless required by law.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures as defined by the SEC rules. EBITDA and Adjusted EBITDA have not been prepared in accordance with United States generally accepted accounting principles (“GAAP”). EBITDA is defined as net income (loss) before interest, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA, adjusted to add back the effect of certain expenses, such as stock-based compensation expense, de novo losses (consisting of costs associated with the ramp up of new medical centers and losses incurred for the twelve months after the opening of a new facility), acquisition transaction costs (consisting of transaction costs and corporate development payroll costs), restructuring and other charges, fair value adjustments in contingent consideration, loss on extinguishment of debt, and changes in fair value of warrant liabilities. We believe these non-GAAP financial measures provide an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with other similar companies. We do not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP.

These non-GAAP financial measures are subject to inherent limitations as they reflect the exercise of judgments by management about which expense, income and other items are excluded or included in determining these non-GAAP financial measures. In addition, other companies may calculate non-GAAP financial measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation of those measures to their most directly comparable GAAP measures is available under the heading “Reconciliation of Non-GAAP Measures.” 

The Company has not reconciled its expectations as to non-GAAP measures in future periods to their most directly comparable GAAP measure because certain costs and expenses are outside of its control or cannot be reasonably predicted.  Accordingly, reconciliation is not available without unreasonable effort, although it is important to note that these factors could be material to the Company’s results computed in accordance with GAAP.

About Cano Health 

Cano Health (NYSE: CANO) is a high-touch, technology-powered healthcare company delivering personalized, value-based primary care to more than 290,000 members. With its headquarters in Miami, Florida, Cano Health is transforming healthcare by delivering primary care that measurably improves the health, wellness, and quality of life of its patients and the communities it serves. Founded in 2009, Cano Health has more than 4,500 employees, and operates primary care medical centers and supports affiliated providers in nine states and Puerto Rico. For more information,  visit canohealth.com or investors.canohealth.com.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

UNAUDITED



Three Months Ended September 30,


Nine Months Ended September 30,

(in thousands, except share and per share data)

2022


2021


2022


2021

Revenue:








Capitated revenue

$             625,895


$             473,763


$          1,955,739


$          1,064,604

Fee-for-service and other revenue

39,133


25,168


102,804


52,510

Total revenue

665,028


498,931


2,058,543


1,117,114

Operating expenses:








Third-party medical costs

489,565


381,316


1,566,661


868,177

Direct patient expense

63,867


50,368


177,190


120,212

Selling, general and administrative expenses

111,765


76,618


314,617


158,786

Depreciation and amortization expense

25,343


16,955


64,215


30,746

Transaction costs and other

5,033


11,206


19,616


36,274

Change in fair value of contingent
consideration

900


(3,940)


(9,525)


(4,152)

Total operating expenses

696,473


532,523


2,132,774


1,210,043

Income (loss) from operations

(31,445)


(33,592)


(74,231)


(92,929)

Other income and expense:








Interest expense

(16,451)


(16,023)


(42,868)


(36,363)

Interest income

4


1


7


4

Loss on extinguishment of debt



(1,428)


(13,225)

Change in fair value of warrant liabilities

(65,721)


(14,650)


(8,383)


24,565

Other income (expense)

354


(29)


884


(54)

Total other income (expense)

(81,814)


(30,701)


(51,788)


(25,073)

Net income (loss) before income tax expense

(113,259)


(64,293)


(126,019)


(118,002)

Income tax expense (benefit)

(1,248)


547


641


(762)

Net income (loss)

$           (112,011)


$              (64,840)


$            (126,660)


$           (117,240)

Net income (loss) attributable to non-
controlling interests

(57,783)


(41,602)


(67,759)


(98,559)

Net income (loss) attributable to Class A
common stockholders

$             (54,228)


$             (23,238)


$             (58,901)


$             (18,681)









Net income (loss) per share attributable to Class
A common stockholders, basic

$                  (0.23)


$                  (0.14)


$                  (0.28)


$                  (0.11)

Net income (loss) per share attributable to Class
A common stockholders, diluted

$                 (0.23)


$                 (0.14)


$                 (0.28)


$                 (0.16)

Weighted-average shares used in computation
of earnings per share:








Basic

232,314,170


170,871,429


211,408,974


168,100,210

Diluted

232,314,170


477,255,983


211,408,974


169,312,258

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED




As of,

(in thousands)


September 30,
2022


December 31,
2021

Assets





Current assets:





Cash, cash equivalents and restricted cash


$           24,097


$         163,170

Accounts receivable, net of unpaid service provider costs


202,037


133,433

Prepaid expenses and other current assets


78,833


20,632

Total current assets


304,967


317,235

Property and equipment, net


125,513


85,261

Operating lease right of use assets


171,442


132,173

Goodwill


787,885


769,667

Payor relationships, net


565,213


576,648

Other intangibles, net


231,368


248,973

Other assets


9,751


13,582

Total assets


$      2,196,139


$      2,143,539

Liabilities and stockholders’ equity





Current liabilities:





Current portion of notes payable


$             6,444


$             6,493

Current portion of finance lease liabilities


1,595


1,295

Current portion of contingent consideration


5,700


3,123

Accounts payable and accrued expenses


110,301


80,829

Current portions due to sellers


2,038


17,357

Current portion operating lease liabilities


24,946


15,275

Other current liabilities


34,537


36,664

Total current liabilities


185,561


161,036

Notes payable, net of current portion and debt issuance costs


914,394


915,266

Long term portion of operating lease liabilities


160,479


122,935

Warrants liabilities


88,528


80,144

Long term portion of finance lease liabilities


3,139


2,181

Contingent consideration


28,000


35,300

Other liabilities


33,004


28,109

Total liabilities


1,413,105


1,344,971

Stockholders’ Equity





Shares of Class A common stock


24


18

Shares of Class B common stock


25


30

Additional paid-in capital


544,106


397,443

Accumulated deficit


(137,661)


(78,760)

Total Stockholders’ Equity before non-controlling interests


406,494


318,731

Non-controlling interests


376,540


479,837

Total Stockholders’ Equity


783,034


798,568

Total Liabilities and Stockholders’ Equity


$      2,196,139


$      2,143,539

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED




Nine Months Ended
September 30,

(in thousands)


2022


2021

Cash Flows from Operating Activities:





Net loss


$       (126,660)


$       (117,240)

Adjustments to reconcile net loss to net cash used in operating activities:





Depreciation and amortization expense


64,215


30,746

Change in fair value of contingent consideration


(9,525)


(4,152)

Change in fair value of warrant liabilities


8,383


(24,565)

Loss on extinguishment of debt


1,428


13,225

Amortization of debt issuance costs


2,743


4,162

Non-cash lease expense


8,367


Class A shares issued for bonus award


2,194


Stock-based compensation


42,641


13,131

Changes in operating assets and liabilities:





Accounts receivable, net


(75,913)


(25,494)

Other assets


10,885


(9,874)

Prepaid expenses and other current assets


(47,492)


(22,603)

Interest accrued due to seller


100


1,208

Accounts payable and accrued expenses


30,955


40,620

Other liabilities


3,521


6,343

Net cash provided by (used in) operating activities


(84,158)


(94,493)

Cash Flows from Investing Activities:





Purchase of property and equipment


(39,061)


(23,221)

Acquisitions of subsidiaries including non-compete intangibles, net of cash acquired


(4,995)


(1,065,479)

Payments to sellers


(4,097)


(24,148)

Net cash provided by (used in) investing activities


(48,153)


(1,112,848)

Cash Flows from Financing Activities:





Business Combination and PIPE financing



935,362

Payments of long-term debt


(4,833)


(656,294)

Debt issuance costs


(88)


(16,489)

Proceeds from long-term debt



1,120,000

Proceeds from revolving line of credit


25,000


Repayments of revolving line of credit


(25,000)


Proceeds from insurance financing arrangements


2,529


1,702

Payments of principal on insurance financing arrangements


(2,070)


(1,419)

Principal payments under finance leases


(1,037)


(233)

Repayment of equipment loans


(385)


(316)

Employee stock purchase plan withholding tax payments


(878)


Other



134

Net cash provided by (used in) financing activities


(6,762)


1,382,447






Net increase (decrease) in cash, cash equivalents and restricted cash


(139,073)


175,106

Cash, cash equivalents and restricted cash at beginning of year


163,170


33,807

Cash, cash equivalents and restricted cash at end of period


$           24,097


$        208,913

Reconciliation of Non-GAAP

Adjusted EBITDA

UNAUDITED



Three Months Ended
September 30,


Nine Months Ended

September 30,

(in thousands)

2022


2021


2022


2021

Net loss

$ (112,011)


$   (64,840)


$ (126,660)


$ (117,240)

Interest income

(4)


(1)


(7)


(4)

Interest expense

16,451


16,023


42,868


36,363

Income tax expense (benefit)

(1,248)


547


641


(762)

Depreciation and amortization expense

25,343


16,955


64,215


30,746

EBITDA

$   (71,469)


$   (31,316)


$   (18,943)


$   (50,897)

Stock-based compensation

11,041


9,451


42,641


13,130

De novo (1)

24,282


10,178


59,567


24,561

Transaction costs (2)

6,733


12,503


24,445


39,297

Restructuring and other (3)

5,245


2,123


8,846


5,513

Change in fair value of contingent consideration

900


(3,940)


(9,525)


(4,152)

Loss on extinguishment of debt



1,428


13,225

Change in fair value of warrant liabilities

65,721


14,650


8,383


(24,565)

Adjusted EBITDA

$     42,453


$     13,649


$   116,842


$    16,112

______________________

(1) De novo losses include those costs associated with the ramp up of new medical centers and losses incurred after the opening of a new facility. These costs collectively are higher than comparable expenses incurred once such a facility has been opened and is generating revenue, and would not have been incurred unless a new facility was being opened.


(2) Acquisition transaction costs included $1.7 million and $1.3 million for the three months ended June 30, 2022 and 2021, respectively, and $4.3 million and $3.0 million for the six months ended June 30, 2022 and 2021, respectively, of corporate development payroll costs. Corporate development payroll costs include those expenses directly related to the additional staff needed to support our acquisition activity.


(3) Restructuring and other included $5.0 million  for the three and nine months ended September 30, 2022 related to a one-time professional services fee.

Key Metrics




Three Months Ended

 September 30,





2022


2021


% Change

Members:







   Medicare Advantage


128,731


112,309


14.6 %

   Medicare DCE


39,615


7,777


409.4 %

Total Medicare


168,346


120,086


40.2 %

Medicaid


73,865


63,871


15.6 %

ACA


52,385


26,706


96.2 %

Total members


294,596


210,663


39.8 %








Member months:







   Medicare Advantage


383,645


337,724


13.6 %

   Medicare DCE


119,936


22,715


428.0 %

Total Medicare


503,581


360,439


39.7 %

Medicaid


218,807


187,212


16.9 %

ACA


149,872


81,437


84.0 %

Total member months


872,260


629,088


38.7 %








Per Member Per Month (“PMPM”):







   Medicare Advantage


$             1,127


$             1,151


(2.1) %

   Medicare DCE


$             1,215


$             1,349


(9.9) %

Total Medicare


$             1,148


$             1,163


(1.3) %

Medicaid


$                191


$                271


(29.5) %

ACA


$                  40


$                  47


(14.9) %

Total PMPM


$                718


$                753


(4.6) %








Medical centers


151


113



Key Metrics




Nine Months Ended

 September 30,





2022


2021


% Change

Members:







   Medicare Advantage


128,731


112,309


14.6 %

   Medicare DCE


39,615


7,777


409.4 %

Total Medicare


168,346


120,086


40.2 %

Medicaid


73,865


63,871


15.6 %

ACA


52,385


26,706


96.2 %

Total members


294,596


210,663


39.8 %








Member months:







   Medicare Advantage


1,102,625


820,881


34.3 %

   Medicare DCE


367,326


46,639


687.6 %

Total Medicare


1,469,951


867,520


69.4 %

Medicaid


627,634


321,581


95.2 %

ACA


411,138


195,290


110.5 %

Total member months


2,508,723


1,384,391


81.2 %








Per Member Per Month (“PMPM”):







   Medicare Advantage


$             1,189


$             1,053


12.9 %

   Medicare DCE


$             1,320


$             1,283


2.9 %

Total Medicare


$             1,222


$             1,066


14.6 %

Medicaid


$                223


$                414


(46.1) %

ACA


$                  48


$                  36


33.3 %

Total PMPM


$                780


$                769


1.4 %








Medical centers


151


113



SOURCE Cano Health, Inc.



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