Cano Health is pursuing a process to sell the
Company
The Company plans to exit operations in
California, New Mexico and Illinois by the fall of 2023, and Puerto Rico by January
1, 2024
MIAMI, Aug. 10,
2023 /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 second quarter ended
June 30, 2023.
Second Quarter 2023 Financial Results
- Total membership of 381,066 including 205,696 Medicare
capitated members, an increase of 35% and 25% year-over-year,
respectively
- Total revenue of $766.7 million,
compared to $689.4 million in the
prior year, an increase of 11% year-over-year
- Net loss of $(270.7) million,
compared to a net loss of $(14.6)
million in the prior year, primarily driven by a higher
operating loss, due to lower-than-expected Medicare Risk Adjustment
("MRA") revenue, higher third-party medical costs, a change in the
reserve for other assets related to MSP Recovery Class A common
stock, a change in fair value of warrant liabilities, and higher
interest expense
- Adjusted EBITDA1 of $(149.7)
million, compared to $9.9
million in the prior year
In the second quarter of 2023, capitated revenue of $743.3 million increased 13%
year-over-year. Capitated revenue per member per month, or
PMPM, was (19)% primarily driven by lower-than-expected Medicare
Risk Adjustment ("MRA") revenue. The medical cost ratio, or
MCR2, was 103.5% in the second quarter of 2023 compared
to 82.6% in the second quarter of 2022, primarily driven by the
reduction in MRA revenue, and higher third-party medical costs
due to higher utilization and higher costs associated with
supplemental health plan benefits (e.g., over-the-counter flex
cards and healthy food cards).
During the second quarter of 2023, the MRA revenue was
approximately $58 million lower than
previously estimated in the Company's guidance, driven by lower MRA
payments received and expected to be received in 2023.
Approximately $44 million of
lower-than-expected MRA revenue was related to out-of-period items,
which are not expected to reoccur. In addition, during the
quarter third-party medical costs included approximately
$44 million of unfavorable prior
period development, primarily driven by higher medical utilization
and health plans' supplemental benefits.
The higher utilization of the health plans' supplemental
benefits occurred across nearly all our health plan partners.
In the first quarter of 2023 Cano Health realized $13 million of third-party medical costs related
to these benefits, and realized $51
million in the second quarter of 2023, of which $18 million was unfavorable prior period
development from the first quarter (included in the total
$44 million of unfavorable prior
period development mentioned previously).
Adjusted EBITDA of $(149.7)
million in the second quarter of 2023 was $(159.6) million lower than the second quarter of
2022, primarily driven by the higher third-party medical costs and
lower MRA revenue, as explained above.
"Cano Health is evaluating strategic interest in the Company to
ensure we continue caring for our patients, while maximizing value
for our stakeholders," said Mark
Kent, Cano Health's Interim Chief Executive Officer.
"Our mission and vision remain the same, however, the strategy and
tactics needed to realize the profitability inherent therein
requires a refreshed approach with a solid operating
foundation. Cano Health took critical strategic steps during
the second quarter of 2023 that are intended to accelerate our
strategy to enhance operational efficiency and execute on the plan
to improve the management of our medical costs."
"During the quarter, we accelerated actions to exit operations
in California, New Mexico, Illinois, and Puerto
Rico, as the Company positions itself to focus on and
optimize its core Medicare Advantage and ACO REACH assets in its core geographies.
In addition, we are consolidating our operations in Texas and Nevada by reducing the number of medical
centers in each state. In our core Florida market we have rigorously
reprioritized projects and initiatives to enhance the speed and
quality of care for our members by improving patient engagement,
restructuring contractual arrangements with payor and specialty
networks, and terminating underperforming affiliate
partnerships. These strategic and operational steps are
critical to improving our financial performance, generating greater
efficiency, and improving health outcomes for our members to ensure
the organization's long-term success."
Update on Strategic Actions
Today, Cano Health announced that it is pursuing a comprehensive
process to identify and evaluate interest in a sale of the Company,
or all or substantially all of its assets, consistent with the
terms and conditions of the 2023 Side-Car Amendment, discussed
below. The Company has engaged advisors to assist in the
process. The Company has not set a timetable for the
conclusion of this process and there is no assurance that the
process will result in any transaction. Cano Health does not
intend to comment while it undergoes this process, unless required
by law or the Company determines that it would be in its best
interests.
In addition to the foregoing process, the Company has made
significant progress in its assessment of its non-core
assets. So far, Cano Health plans to exit operations in
California, New Mexico and Illinois by the fall of 2023. As of
June 30, 2023, these geographies
accounted for approximately 5,000 total members and 17 medical
centers across the three states. The Company also plans to
exit its Puerto Rico operations by
January 1, 2024, which has
approximately 8,000 members cared for by affiliates. The
Company is continuing to assess the divestiture of other non-core
assets and business lines, while focusing on improving operations
for its Medicare Advantage and ACO
REACH businesses in its remaining core geographies.
Proceeds from any non-core divestitures would be utilized for
general corporate purposes and debt repayment.
Cano Health has also developed a plan to further restructure its
operations to streamline and simplify the organization to improve
efficiency and reduce costs. In connection with its
restructuring plan, in the third quarter of 2023, the Company
expects to reduce its workforce by approximately 700 employees, or
17% of its workforce. Approximately 40% of the workforce
reductions will be attributable to exiting operations in certain
markets, with the remainder attributable to consolidation efforts
and other administrative operations. These actions are
expected to yield approximately $50
million of annualized cost reductions beginning in the third
quarter of 2023 and through the end of 2024. The Company
expects to record a restructuring charge in the third quarter of
2023 of approximately $4 million, the
majority of which will be paid in 2023 and a lesser amount in 2024,
consisting primarily of employee-related costs, such as severance,
retention and other contractual termination benefits.
Liquidity & Capital Management Update
As of June 30, 2023, the Company's
total liquidity was approximately $125
million, comprised of $15
million of unrestricted cash on its balance sheet and
$110 million of available capacity
under its revolving credit facility under the Credit Suisse Credit
Agreement (as amended, the "CS Revolving Line of Credit ").
For the testing period ended June 30,
2023, the Company was not in compliance with its financial
maintenance covenant under the Side-Car Credit
Agreement3. Accordingly, on July
28, 2023, the Company delivered to the administrative agent
under the Side-Car Credit Agreement a notice of its intent to cure
such noncompliance by September 5,
2023. Thereafter, on August 10,
2023, the Company obtained a waiver of such noncompliance
and entered into an amendment of the Side-Car Credit Agreement (the
"2023 Side-Car Amendment") under which, among other things, the
Company will not be required to test compliance with the Side-Car
Credit Agreement's financial maintenance covenant until the fiscal
quarter ending September 30, 2024,
and includes modifications to the Side-Car Credit Agreement, such
as (i) requiring the Company to formally launch, announce and
pursue a comprehensive process to sell the Company; (ii) increasing
the interest rate for the 2023 Term Loan to 16% during the
payment-in-kind period ending on February
24, 2025; (iii) requiring a premium payment of 5% of the
outstanding principal amount of the 2023 Term Loan to be paid in
kind by capitalizing such payment to the principal amount of the
2023 Term Loan; (iv) requiring the applicable prepayment premium to
be required in connection with any voluntary or mandatory
prepayment or repayment of the 2023 Term Loan; and (v) providing
the lenders under the 2023 Term Loan with participation rights in
certain new debt financings by the Company. Pursuant to the terms
of the 2023 Side-Car Amendment, the Company will not be required to
pursue its cure right discussed above.
The Company's current liquidity as of August 9, 2023 was approximately $101 million, consisting of cash and cash
equivalents (excluding restricted cash of approximately
$14 million). As of
August 9, 2023, the CS Revolving Line
of Credit was fully drawn to ensure that the Company had access to
liquidity while it was negotiating the 2023 Side-Car Amendment;
provided, however, having secured the 2023 Side-Car Amendment on
August 10, 2023, the Company
currently expects to repay a significant portion of such line of
credit by the end of September
2023.
The Company currently believes that this amount of liquidity is
not sufficient to cover the Company's operating, investing and
financing uses for the next 12 months. Management has
concluded that there is substantial doubt about the Company's
ability to continue as a going concern within one year.
2023 Guidance
As a result of management's evaluation of Cano Health's
operations and strategic interest in a sale of the Company or all
or substantially all of its assets, the Company is withdrawing its
fiscal year 2023 guidance provided on May
9, 2023.
The Company expects its performance to improve in the second
half of 2023, driven by operational improvements, third-party
medical cost recoveries, the favorable impact of seasonality, and
the absence of non-recurring items that negatively impacted results
in the second quarter of 2023. The operational improvements
include:
- Exiting markets in California,
New Mexico and Illinois;
- Restructuring operations to streamline and simplify the
organization, improve efficiency and reduce costs; and
- Optimizing our operations to improve patient outcomes by
improving payor relations and affiliate partnerships, enhancing our
arrangements with specialty networks, and strengthening our patient
engagement programs.
As of August 9, 2023, the Company
had approximately 285 million shares of Class A common stock and
253 million shares of Class B common stock issued and outstanding.
Total share count for the purposes of calculating the Company's
market capitalization was approximately 539 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 second quarter ended June 30, 2023.
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 Second Quarter 2023
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. 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, including,
without limitation, (i) our expectation that the critical strategic
steps taken during the second quarter of 2023 will accelerate our
strategy to enhance operational efficiency and our plans to execute
on the plan to improve the management of our medical costs; (ii)
our belief that while our mission and vision remain the same, the
strategy and tactics needed to realize the profitability inherent
therein requires a refreshed approach with a solid operating
foundation; (iii) our plans to improve our operating performance,
liquidity, and net cash, such as our plans to (a) exit operations
in California, New Mexico, Illinois, and Puerto
Rico (and the timing thereof), as we position ourself to
focus on and optimize our core Medicare Advantage and ACO REACH assets in our core geographies; (b)
consolidate our operations in Texas and Nevada by reducing the number of medical
centers in each state; (c) the expected benefit from reprioritizing
projects and initiatives to enhance the speed and quality of care
for our members by improving patient engagement, restructuring
contractual arrangements with payor and specialty networks, and
terminating underperforming affiliate partnerships in our core
Florida market, including
improving our financial performance, generating greater efficiency,
and improving health outcomes for our members to ensure our
long-term success; (iv) our plans to pursuing a comprehensive
process to identify and evaluate interest in selling the Company,
and our plans to assess the divestiture of other non-core assets
and business lines while focusing on improving operations for our
Medicare Advantage and ACO REACH
businesses in our remaining core geographies, and our expectations
to use the proceeds from any non-core divestitures for general
corporate purposes and debt repayment; (v) our expectations
regarding our plan to further restructure our operations to
streamline and simplify the organization to improve efficiency and
reduce costs, including workforce reductions, and the expected
reduction in our selling, general and administrative costs in
future periods compared to current levels, including reducing
staffing by approximately 700 employees, or 17% of our workforce in
the third quarter of 2023, with approximately 40% of the workforce
reductions being attributable to exiting operations in certain
markets, with the remainder attributable to other operating centers
and our expectation that these actions are expected to yield
approximately $50 million of
annualized cost reductions beginning in the third quarter of 2023
and through the end of 2024, and result in our recording a
restructuring charge in the third quarter of 2023 of approximately
$4 million, the majority of which is
expected to be paid in 2023 and a lesser amount in 2024, consisting
primarily of employee-related costs, such as severance, retention
and other contractual termination benefits; (vi) our expectations
regarding our sources and uses of cash and liquidity, such as (a)
our expectation that our existing cash position, along with our
expected cash generation through operations and our CS Revolving
Line of Credit will not be sufficient to fund our operating and
capital expenditure requirements through at least the next 12
months; and (b) our expectation that, having secured the 2023
Side-Car Amendment on August 9, 2023,
we will repay a significant portion of the CS Revolving Line of
Credit by the end of September 2023;
and (vii) our expectation that our performance will improve in the
second half of 2023, driven by operational improvements,
third-party medical cost recoveries, the favorable impact of
seasonality, and the absence of non-recurring items that negatively
impacted results in the second quarter of 2023, with the
operational improvements including exiting markets in California, New
Mexico and Illinois;
restructuring operations to streamline and simplify the
organization, improve efficiency and reduce costs; and optimizing
our operations to improve patient outcomes by improving payor
relations and affiliate partnerships, enhancing our arrangements
with specialty networks, and strengthening our patient engagement
programs. These forward-looking statements are based on
information available to us at the time of this release and our
current expectations, forecasts and assumptions, and involve a
number of judgments, risks and uncertainties. We derive many of our
forward-looking statements from our operating budgets and
forecasts, which are based on many detailed assumptions. While we
believe that our assumptions are reasonable, we caution that it is
very difficult to predict the impact of known or unknown factors,
and it is impossible for us to anticipate all factors that could
affect our actual results. It is uncertain whether any of the
events anticipated by our 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 our
forward-looking statements include, among others, changes in market
or industry conditions, changes in the regulatory environment,
competitive conditions, and/or consumer receptivity to our
services; changes in our strategy, future operations, prospects and
plans; developments and uncertainties related to the Direct
Contracting Entity program; 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 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; our
future capital requirements and sources and uses of cash, including
funds to satisfy our liquidity needs; our ability to attract and
retain members of management and our Board of Directors; and/or our
ability to recruit and retain qualified team members and
independent physicians.
Actual results may also differ materially from such
forward-looking statements for a number of other reasons, including
those set forth in our filings with the SEC, including, without
limitation, the risk factors identified in our Annual Report on
Form 10-K for the fiscal year ended December
31, 2022, filed with the SEC on March
15, 2023, as amended by our Annual Report on Form 10-K/A,
filed with the SEC on April 7, 2023
(the "2022 Form 10-K"), as well as our Quarterly Reports on Form
10-Q and Current Reports on Form 8-K that we have filed or will
file with the SEC during 2023 (which may be viewed on the SEC's
website at http://www.sec.gov or on our website at
http://www.investors.canohealth.com/ir-home), as well as reasons
including, without limitation, delays or difficulties in, and/or
unexpected or less than anticipated results from our efforts to:
(i) enhance our operational efficiency and our plans to execute on
the plan to improve the management of our medical costs, such as
due to higher interest rates, higher than expected costs and/or
greater than anticipated competitive factors; (ii) unexpected
developments that adversely impact our ability to achieve or
maintain profitability, such as due to (a) less than anticipated
capacity utilization at our medical centers; (b) higher than
expected costs and expenses; (c) less than anticipated growth in
revenues, Adjusted EBITDA margins and/or cash flows; (d)
difficulties and/or delays in improving our operational execution,
enhancing our cost discipline, and/or achieving positive free cash
flow, such as due to a broad recessionary economic environment,
higher interest rates and/or a higher inflationary environment; (e)
our inability to predict changes to the Medicare Advantage, ACO
Realizing Equity, Access, and Community Health ("ACO REACH") and Medicare patients under
Accountable Care Organizations ("ACO") programs as it relates to
benchmarks and shared savings; (iii) less than anticipated sources
of liquidity, such as due to (a) delays in or our inability to
complete non-core asset sales, in whole or in part; (b)
unanticipated demands on our available sources of cash; (c)
tightness in the credit or M&A markets; (d) unexpected changes
in our future capital requirements which depend on many factors,
including our growth rate, medical expenses and/or our review of
all aspects of our value-based care platform; (iv) unexpected
developments that adversely impact our ability to execute our plan
to identify opportunities to maximize shareholder value, including
the sale of the Company, such as due to our inability to consummate
one or more transactions, whether due to higher interest rates,
regulatory restrictions or other market factors; (v) less than
expected benefits from and/or higher than expected costs and
expenses related to our restructuring program, such as delays in
realizing or less than the expected cost reductions; (vi) less than
anticipated sources of liquidity, such as due to our future
inability to remain in compliance with the covenants under our
borrowing facilities and/or to secure future waivers thereof or to
cure such instances of noncompliance; and/or (vii) difficulties
and/or delays in improving our performance in the second half of
2023, such as due to, among other things, one or more of the
factors set forth above. 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 risk factor disclosure included in
our filings with the SEC, including, without limitation, our 2022
Form 10-K. Investors should evaluate all forward-looking statements
made in this release in the context of these risks and
uncertainties. Factors other than those listed above could also
cause our results to differ materially from expected results.
Forward-looking statements speak only as of the date they are made
and, except as required by law, we undertake no obligation or duty
to publicly update or revise any forward-looking statement, whether
to reflect actual results of operations; changes in financial
condition; changes in general U.S. or international economic,
industry conditions; changes in estimates, expectations or
assumptions; or other circumstances, conditions, developments or
events arising after the issuance of this release. Additionally,
the business and financial materials and any other statement or
disclosure on or made available through our websites or other
websites referenced herein shall not be incorporated by reference
into this release.
Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures
as defined by the SEC rules. Adjusted EBITDA has not been prepared
in accordance with U.S. generally accepted accounting principles
("GAAP"). Adjusted EBITDA is defined as net income (loss)
before interest, income taxes, depreciation and amortization,
adjusted to add back the effect of certain expenses, such as
stock-based compensation expense, non-cash goodwill impairment
loss, 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. For periods after December 31,
2022, as the Company is significantly reducing its
investments in de novo medical centers in 2023, the Company revised
its definition of Adjusted EBITDA to no longer add back losses
related to these de novo medical centers, which include those costs
associated with the ramp up of new medical centers and losses
incurred up to 12 months after the opening of a new facility. The
Company's management uses the non-GAAP financial measures as
operating performance measures and as an integral part of its
reporting and planning processes and to, among other things: (i)
monitor and evaluate the performance of the Company's business
operations, financial performance and overall liquidity; (ii)
facilitate management's internal comparisons of the Company's
historical operating performance of its business operations; (iii)
facilitate management's external comparisons of the results of its
overall business to the historical operating performance of other
companies that may have different capital structures and debt
levels; (iv) review and assess the operating performance of the
Company's management team and, together with other operational
objectives, as a measure in evaluating employee compensation,
including bonuses and other incentive compensation; (v) analyze and
evaluate financial and strategic planning decisions regarding
future operating investments; and (vi) plan for and prepare future
annual operating budgets and determine appropriate levels of
operating investments. We believe these non-GAAP financial
measures provide an additional tool for our management and
investors to use in evaluating our financial condition, ongoing
operating performance and trends and in comparing our financial
measures with other similar companies. Management believes that its
non-GAAP financial measures provide useful information to investors
and greater transparency about the performance, from management's
perspective, of the Company's overall business because such
measures eliminate the effects of certain charges that are not
directly attributable to the Company's underlying operating
performance. Additionally, management believes that providing its
non-GAAP financial measures enhances the comparability for
investors in assessing the Company's financial reporting.
The Company's non-GAAP financial measures should not be
considered in isolation or as a substitute for their respective
most directly comparable financial measures prepared in accordance
with GAAP, such as net income/loss, operating income/loss, diluted
earnings/loss per share or net cash provided by (used in) operating
activities. The Company's non-GAAP financial measures are subject
to inherent limitations as they reflect the exercise of judgment 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 define such non-GAAP 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. The
Company's non-GAAP financial measures should be read in conjunction
with the Company's financial statements and related footnotes filed
with the SEC.
A reconciliation of the Company's non-GAAP measures to their
most directly comparable GAAP measures is available under the
heading "Reconciliation of Non-GAAP Measures."
About Cano Health
Cano Health (NYSE: CANO) is a high-touch, technology-powered
healthcare company delivering personalized, value-based primary
care to approximately 380,000 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 4,000 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.
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1 Adjusted
EBITDA is a non-GAAP financial measure defined under the heading
"Non-GAAP Financial Measures". 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.
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2 Medical
Cost Ratio ("MCR") is calculated as third-party medical expense
divided by capitated revenue.
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3 On
February 24, 2023 (the "2023 Term Loan Closing Date"), the Company
through its wholly-owned operating subsidiary, Cano Health, LLC
(the "Borrower"), entered into a Credit Agreement (the "Side-Car
Credit Agreement") with certain lenders and JP Morgan Chase Bank,
N.A., as administrative agent (the "2023 Term Loan Administrative
Agent"), pursuant to which the lenders provided a senior secured
term loan (the "2023 Term Loan") to the Borrower in the aggregate
principal amount of $150 million, the full amount of which was
funded on the 2023 Term Loan Closing Date. The Side-Car
Credit Agreement contains a financial covenant requiring the
Borrower to maintain a First Lien Net Leverage Ratio (i.e., total
first lien senior secured debt to Consolidated Adjusted EBITDA) not
to exceed 5.80:1.00 on the last day of any four consecutive fiscal
quarter period. With a First Lien Net Leverage Ratio of
approximately 12.00:1.00 at June 30, 2023, and the Company was not
in compliance with this financial maintenance covenant as of such
date.
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CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
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|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
(in thousands,
except share and per share data)
|
2023
|
|
2022
|
|
2023
|
|
2022
|
Revenue:
|
|
|
|
|
|
|
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Capitated
revenue
|
$
743,324
|
|
$
655,493
|
|
$
1,584,397
|
|
$
1,329,844
|
Fee-for-service and
other revenue
|
23,422
|
|
33,880
|
|
49,258
|
|
63,671
|
Total
revenue
|
766,746
|
|
689,373
|
|
1,633,655
|
|
1,393,515
|
Operating
expenses:
|
|
|
|
|
|
|
|
Third-party medical
costs
|
769,629
|
|
541,317
|
|
1,477,960
|
|
1,077,097
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Direct patient
expense
|
56,757
|
|
52,647
|
|
125,184
|
|
113,323
|
Selling, general and
administrative expenses
|
99,418
|
|
106,179
|
|
195,890
|
|
202,849
|
Depreciation and
amortization expense
|
27,251
|
|
19,836
|
|
54,473
|
|
38,872
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Transaction costs and
other
|
9,125
|
|
6,207
|
|
19,211
|
|
14,583
|
Change in fair value
of contingent consideration
|
(11,800)
|
|
(5,764)
|
|
(15,900)
|
|
(10,425)
|
Credit loss on other
assets
|
62,000
|
|
—
|
|
62,000
|
|
—
|
Total operating
expenses
|
1,012,380
|
|
720,422
|
|
1,918,818
|
|
1,436,299
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Income (loss) from
operations
|
(245,634)
|
|
(31,049)
|
|
(285,163)
|
|
(42,784)
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Other income and
expense:
|
|
|
|
|
|
|
|
Interest
expense
|
(26,719)
|
|
(13,134)
|
|
(50,224)
|
|
(26,418)
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Interest
income
|
90
|
|
2
|
|
99
|
|
3
|
Loss on extinguishment
of debt
|
—
|
|
—
|
|
—
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|
(1,428)
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Change in fair value
of warrant liabilities
|
(1,677)
|
|
30,175
|
|
331
|
|
57,337
|
Other income
(expense)
|
1,323
|
|
251
|
|
1,755
|
|
530
|
Total other income
(expense)
|
(26,983)
|
|
17,294
|
|
(48,039)
|
|
30,024
|
Net income (loss)
before income tax expense
|
(272,617)
|
|
(13,755)
|
|
(333,202)
|
|
(12,760)
|
Income tax expense
(benefit)
|
(1,872)
|
|
809
|
|
(1,872)
|
|
1,889
|
Net income
(loss)
|
$
(270,745)
|
|
$
(14,564)
|
|
$
(331,330)
|
|
$
(14,649)
|
Net income (loss)
attributable to non-controlling interests
|
(129,992)
|
|
(9,231)
|
|
(162,427)
|
|
(9,976)
|
Net income (loss)
attributable to Class A common stockholders
|
$
(140,753)
|
|
$
(5,333)
|
|
$
(168,903)
|
|
$
(4,673)
|
|
|
|
|
|
|
|
|
Net income (loss) per
share attributable to Class A common stockholders, basic
|
$
(0.51)
|
|
$
(0.03)
|
|
$
(0.66)
|
|
$
(0.02)
|
Net income (loss) per
share attributable to Class A common stockholders,
diluted
|
$
(0.51)
|
|
$
(0.03)
|
|
$
(0.66)
|
|
$
(0.03)
|
Weighted-average shares
used in computation of earnings per share:
|
|
|
|
|
|
|
|
Basic
|
274,640,987
|
|
210,053,037
|
|
257,317,776
|
|
200,783,129
|
Diluted
|
527,849,952
|
|
474,580,471
|
|
257,317,776
|
|
465,310,563
|
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
As
of,
|
(in
thousands)
|
|
June 30,
2023
|
|
December 31,
2022
|
Assets
|
|
|
|
|
Current
assets:
|
|
|
|
|
Cash, cash equivalents
and restricted cash
|
|
$
27,721
|
|
$
27,329
|
Accounts receivable,
net of unpaid service provider costs
|
|
107,164
|
|
233,816
|
Prepaid expenses and
other current assets
|
|
31,450
|
|
79,603
|
Total current
assets
|
|
166,335
|
|
340,748
|
Property and
equipment, net
|
|
129,330
|
|
131,325
|
Operating lease right
of use assets
|
|
174,581
|
|
177,892
|
Goodwill
|
|
480,044
|
|
480,375
|
Payor relationships,
net
|
|
551,913
|
|
567,704
|
Other intangibles,
net
|
|
199,761
|
|
226,059
|
Other
assets
|
|
5,358
|
|
4,824
|
Total
assets
|
|
$
1,707,322
|
|
$
1,928,927
|
Liabilities and
stockholders' equity
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
Accounts payable and
accrued expenses
|
|
$
124,821
|
|
$
105,733
|
Current portion of
notes payable
|
|
109,667
|
|
6,444
|
Current portion of
finance lease liabilities
|
|
2,972
|
|
1,686
|
Current portions due
to sellers
|
|
46,506
|
|
46,016
|
Current portion
operating lease liabilities
|
|
24,958
|
|
24,068
|
Other current
liabilities
|
|
28,010
|
|
24,491
|
Total current
liabilities
|
|
336,934
|
|
208,438
|
Notes payable, net of
current portion and debt issuance costs
|
|
922,232
|
|
997,806
|
Long term portion of
operating lease liabilities
|
|
163,972
|
|
166,347
|
Warrants
liabilities
|
|
7,042
|
|
7,373
|
Long term portion of
finance lease liabilities
|
|
7,770
|
|
3,364
|
Due to sellers, net of
current portion
|
|
1,050
|
|
15,714
|
Contingent
consideration
|
|
1,400
|
|
2,800
|
Other
liabilities
|
|
31,149
|
|
32,810
|
Total
liabilities
|
|
1,471,549
|
|
1,434,652
|
Stockholders'
Equity
|
|
|
|
|
Shares of Class A
common stock
|
|
28
|
|
22
|
Shares of Class B
common stock
|
|
25
|
|
27
|
Additional paid-in
capital
|
|
601,589
|
|
538,614
|
Accumulated
deficit
|
|
(454,935)
|
|
(286,032)
|
Total Stockholders'
Equity before non-controlling interests
|
|
146,707
|
|
252,631
|
Non-controlling
interests
|
|
89,066
|
|
241,644
|
Total Stockholders'
Equity
|
|
235,773
|
|
494,275
|
Total Liabilities and
Stockholders' Equity
|
|
$
1,707,322
|
|
$
1,928,927
|
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(UNAUDITED)
|
|
|
|
Six Months Ended
June 30,
|
(in
thousands)
|
|
2023
|
|
2022
|
Cash Flows from
Operating Activities:
|
|
|
|
|
Net loss
|
|
$
(331,330)
|
|
$
(14,649)
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
Depreciation and
amortization expense
|
|
54,473
|
|
38,872
|
Change in fair value
of contingent consideration
|
|
(15,900)
|
|
(10,425)
|
Change in fair value
of warrant liabilities
|
|
(331)
|
|
(57,337)
|
Loss on extinguishment
of debt
|
|
—
|
|
1,428
|
Fixed asset
abandonment
|
|
1,709
|
|
—
|
Amortization of debt
issuance costs
|
|
2,560
|
|
1,570
|
Non-cash lease
expense
|
|
1,642
|
|
3,642
|
Stock-based
compensation
|
|
11,368
|
|
31,600
|
Paid in kind interest
expense
|
|
7,380
|
|
—
|
Reserve on other
assets
|
|
62,000
|
|
—
|
Changes in operating
assets and liabilities:
|
|
|
|
|
Accounts receivable,
net
|
|
126,652
|
|
(67,557)
|
Other
assets
|
|
(649)
|
|
7,158
|
Prepaid expenses and
other current assets
|
|
654
|
|
(17,834)
|
Interest accrued due
to seller
|
|
—
|
|
100
|
Accounts payable and
accrued expenses
|
|
28,289
|
|
(9,362)
|
Other
liabilities
|
|
6,528
|
|
10,621
|
Net cash (used in)
provided by operating activities
|
|
(44,955)
|
|
(82,173)
|
Cash Flows from
Investing Activities:
|
|
|
|
|
Purchase of property
and equipment
|
|
(11,270)
|
|
(20,431)
|
Acquisitions of
subsidiaries including non-compete intangibles, net of cash
acquired
|
|
—
|
|
(4,995)
|
Payments to
sellers
|
|
(6,431)
|
|
(3,847)
|
Net cash (used in)
provided by investing activities
|
|
(17,701)
|
|
(29,273)
|
Cash Flows from
Financing Activities:
|
|
|
|
|
Payments of long-term
debt
|
|
(3,223)
|
|
(3,222)
|
Debt issuance
costs
|
|
(9,256)
|
|
(88)
|
Proceeds from
long-term debt
|
|
150,000
|
|
—
|
Proceeds from
revolving line of credit
|
|
55,000
|
|
—
|
Repayments of
revolving line of credit
|
|
(129,000)
|
|
—
|
Proceeds from
insurance financing arrangements
|
|
2,690
|
|
2,529
|
Payments of principal
on insurance financing arrangements
|
|
(1,467)
|
|
(1,380)
|
Other
|
|
(1,696)
|
—
|
(1,716)
|
Net cash (used in)
provided by financing activities
|
|
63,048
|
|
(3,877)
|
|
|
|
|
|
Net increase (decrease)
in cash, cash equivalents and restricted cash
|
|
392
|
|
(115,323)
|
Cash, cash equivalents
and restricted cash at beginning of year
|
|
27,329
|
|
163,170
|
Cash, cash equivalents
and restricted cash at end of period
|
|
$
27,721
|
|
$
47,847
|
Reconciliation of Non-GAAP
Adjusted EBITDA
(UNAUDITED)
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
(in
thousands)
|
2023
|
|
2022
|
|
2023
|
|
2022
|
|
Net income
(loss)
|
$
(270,745)
|
|
$
(14,564)
|
|
$
(331,330)
|
|
$
(14,649)
|
|
Interest
income
|
(90)
|
|
(2)
|
|
(99)
|
|
(3)
|
|
Interest
expense
|
26,719
|
|
13,134
|
|
50,224
|
|
26,418
|
|
Income tax expense
(benefit)
|
(1,872)
|
|
809
|
|
(1,872)
|
|
1,889
|
|
Depreciation and
amortization expense
|
27,251
|
|
19,836
|
|
54,473
|
|
38,872
|
|
EBITDA
|
$
(218,737)
|
|
$
19,213
|
|
$
(228,604)
|
|
$
52,527
|
|
Stock-based
compensation
|
2,017
|
|
17,783
|
|
11,368
|
|
31,600
|
|
Transaction costs
(1)
|
9,516
|
|
7,842
|
|
20,087
|
|
17,713
|
|
Restructuring and
other
|
5,650
|
|
1,016
|
|
6,683
|
|
3,602
|
|
Change in fair value
of contingent consideration
|
(11,800)
|
|
(5,764)
|
|
(15,900)
|
|
(10,425)
|
|
Loss on extinguishment
of debt
|
—
|
|
—
|
|
—
|
|
1,428
|
|
Change in fair value
of warrant liabilities
|
1,677
|
|
(30,175)
|
|
(331)
|
|
(57,337)
|
|
Reserve on other
assets
|
62,000
|
|
—
|
|
62,000
|
|
—
|
|
Adjusted
EBITDA
|
$
(149,677)
|
|
$
9,915
|
|
$
(144,697)
|
|
$
39,108
|
|
|
|
|
|
|
|
|
(1) Transaction costs
included $0.4 million and $1.6 million of corporate
development payroll costs for the three months ended June 30, 2023
and 2022, respectively, and $0.9 million and $2.6 million
of corporate development payroll costs for the six months ended
June 30, 2023 and 2022, respectively. Corporate development payroll
costs include those expenses directly related to the additional
staff needed to support our transaction activity.
|
|
Adjusted EBITDA has
been adjusted to exclude $19.5 million and $35.3 million
for the respective three and six months ended June 30, 2022 in de
novo losses, as the Company plans to significantly reduce its
investments in de novo medical centers in 2023 and, accordingly,
modified its definition of Adjusted EBITDA beginning January 1,
2023 to no longer include de novo losses in calculating Adjusted
EBITDA.
|
Key Metrics
(UNAUDITED)
|
|
|
|
Three Months
Ended
June
30,
|
|
|
|
|
2023
|
|
2022
|
|
%
Change
|
Members:
|
|
|
|
|
|
|
Medicare
Advantage
|
|
140,535
|
|
123,768
|
|
13.5 %
|
Medicare
ACO REACH
|
|
65,161
|
|
40,179
|
|
62.2 %
|
Total
Medicare
|
|
205,696
|
|
163,947
|
|
25.5 %
|
Medicaid
|
|
77,290
|
|
70,254
|
|
10.0 %
|
ACA
|
|
98,080
|
|
47,324
|
|
107.3 %
|
Total
members
|
|
381,066
|
|
281,525
|
|
35.4 %
|
|
|
|
|
|
|
|
Member
months:
|
|
|
|
|
|
|
Medicare
Advantage
|
|
424,145
|
|
364,565
|
|
16.3 %
|
Medicare
ACO REACH
|
|
198,614
|
|
122,301
|
|
62.4 %
|
Total
Medicare
|
|
622,759
|
|
486,866
|
|
27.9 %
|
Medicaid
|
|
245,260
|
|
206,630
|
|
18.7 %
|
ACA
|
|
296,652
|
|
139,355
|
|
112.9 %
|
Total member
months
|
|
1,164,671
|
|
832,851
|
|
39.8 %
|
($ in
thousands)
|
|
|
|
|
|
|
Per Member Per Month
("PMPM"):
|
|
|
|
|
|
|
Medicare
Advantage
|
|
$
1,027
|
|
$
1,196
|
|
(14.1) %
|
Medicare
ACO REACH
|
|
$
1,309
|
|
$
1,362
|
|
(3.9) %
|
Total
Medicare
|
|
$
1,117
|
|
$
1,283
|
|
(12.9) %
|
Medicaid
|
|
$
164
|
|
$
223
|
|
(26.5) %
|
ACA
|
|
$
26
|
|
$
48
|
|
(45.8) %
|
Total PMPM
|
|
$
638
|
|
$
787
|
|
(18.9) %
|
|
|
|
|
|
|
|
Medical
centers
|
|
169
|
|
143
|
|
|
|
Key Metrics
(UNAUDITED)
|
|
|
|
|
|
Six Months
Ended
June
30,
|
|
|
(in
thousands)
|
|
2023
|
|
2022
|
|
%
Change
|
Members:
|
|
|
|
|
|
|
Medicare
Advantage
|
|
140,535
|
|
123,768
|
|
13.5 %
|
Medicare ACO
REACH
|
|
65,161
|
|
40,179
|
|
62.2 %
|
Total
Medicare
|
|
205,696
|
|
163,947
|
|
25.5 %
|
Medicaid
|
|
77,290
|
|
70,254
|
|
10.0 %
|
ACA
|
|
98,080
|
|
47,324
|
|
107.3 %
|
Total
members
|
|
381,066
|
|
281,525
|
|
35.4 %
|
|
|
|
|
|
|
|
Member
months:
|
|
|
|
|
|
|
Medicare
Advantage
|
|
840,921
|
|
718,980
|
|
17.0 %
|
Medicare ACO
REACH
|
|
401,297
|
|
247,390
|
|
62.2 %
|
Total
Medicare
|
|
1,242,218
|
|
966,370
|
|
28.5 %
|
Medicaid
|
|
487,909
|
|
408,827
|
|
19.3 %
|
ACA
|
|
580,613
|
|
261,266
|
|
122.2 %
|
Total member
months
|
|
2,310,740
|
|
1,636,463
|
|
41.2 %
|
($ in
thousands)
|
|
|
|
|
|
|
Per Member Per Month
("PMPM"):
|
|
|
|
|
|
|
Medicare
Advantage
|
|
$
1,103
|
|
$
1,222
|
|
(9.7) %
|
Medicare ACO
REACH
|
|
$
1,400
|
|
$
1,371
|
|
2.1 %
|
Total
Medicare
|
|
$
1,199
|
|
$
1,260
|
|
(4.9) %
|
Medicaid
|
|
$
173
|
|
$
240
|
|
(27.9) %
|
ACA
|
|
$
18
|
|
$
53
|
|
(66.0) %
|
Total PMPM
|
|
$
686
|
|
$
813
|
|
(15.6) %
|
|
|
|
|
|
|
|
Medical
centers
|
|
169
|
|
143
|
|
|
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SOURCE Cano Health, Inc.