Cano Health Announces Financial Results for the First Quarter 2023
Raises guidance for full year 2023 membership and total revenue; maintains outlook for medical cost ratio and Adjusted EBITDA
Pursuing divestiture of certain non-core assets to strengthen its focus on high-performing Medicare Advantage business
First Quarter 2023 Financial Results
- Total membership of 388,667 including 207,420 Medicare capitated members, an increase of
44% and29% year-over-year, respectively - Total revenue of
$866.9 million $704.3 million 23% year-over-year - Net loss of
$(60.6) million $(0.1) million - Adjusted EBITDA1 of
$5.0 million $29.2 million
In the first quarter of 2023, capitated revenue of
Adjusted EBITDA of
2023 Guidance
The Company is raising its full year 2023 guidance for membership and total revenue and reaffirming its full year guidance for total MCR and Adjusted EBITDA provided on March 1, 2023. The outlook for full year 2023 is as follows:
- Membership by year-end in the range of 390,000 to 400,000, an increase from the prior range of 375,000 to 385,000
- Total revenue in the range of
$3.25 billion $3.35 billion $3.15 billion $3.25 billion - Total medical cost ratio (MCR) in the range of
81.0% to82.0% is unchanged from prior guidance - Adjusted EBITDA3 of approximately
$75 million $85 million
"We are pleased to start the year with solid operating and financial performance that was generally in-line with our expectations," said Dr. Marlow Hernandez, Cano Health's Chief Executive Officer. "Over the past six months, our management team has implemented a range of initiatives to improve our cost structure, improve operating cash flow, and simplify and optimize our business model. The first quarter results reflect meaningful operating efficiencies, and while we recognize there is more work to be done, as we continue to execute on our action plan, we expect our earnings trajectory to improve and accelerate, particularly in the second half of the year."
Dr. Hernandez continued: "Cano Health has established a differentiated Medicare Advantage focused business model and, based on the historic performance of our more established medical centers, we expect to unlock substantial embedded profitability as our medical centers continue to mature. With a track record of industry-leading clinical outcomes and patient engagement, we are uniquely positioned to capture additional share of a compelling market opportunity, helping more patients live longer and healthier lives. We expect to continue our disciplined growth trajectory throughout 2023 and remain squarely focused on near-term execution to achieve sustainable profitability and build long-term value."
Liquidity & Capital Management Update
As of March 31, 2023, the Company's total liquidity was
Strategic Update
Following a comprehensive evaluation of the Company's operations, Cano Health is pursuing divestiture of certain non-core assets to strengthen the Company's focus on Medicare Advantage. The Company's full year 2023 guidance does not reflect any impact from divestitures. The Company has retained Oppenheimer & Co. as a financial advisor.
As of May 7, 2023, the Company had approximately 279 million shares of Class A common stock and 257 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 536 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 first quarter ended March 31, 2023.
To access the live call and webcast, please dial (888) 660-6359 for
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 plans to improve our cost structure, improve operating cash flow, and simplify and optimize our business model and our expectations that as we continue to execute on our action plan, our earnings trajectory will improve and accelerate, particularly in the second half of the year, and to continue our disciplined growth trajectory throughout 2023, and remain squarely focused on near-term execution to achieve sustainable profitability and build long-term value; (ii) based on the historic performance of our more established medical centers, our plans to unlock substantial embedded profitability as our medical centers continue to mature; (iii) our belief that with a track record of industry-leading clinical outcomes and patient engagement, we are uniquely positioned to capture additional share of a compelling market opportunity and help patients live longer and healthier lives; (iv) our plans to improve Adjusted EBITDA and accelerate our path to positive free cash flow to reduce long-term debt and leverage ratios, as part of our long-term capital management strategy; (v) our plans to pursue the divestiture of certain non-core assets to strengthen our focus on our high-performing Medicare Advantage business; (vi) our expectation that our MCR will moderate throughout the year, particularly in the second half; and (vii) our financial guidance for 2023. 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) improve our cost structure, improve our operating cash flow, and simplify and optimize our business model, as well as improve and accelerate our earnings trajectory, achieve sustainable profitability, and/or accelerate our path to positive free cash flow, such as due to higher interest rates, higher than expected costs and/or greater than anticipated competitive factors; (ii) unlock substantial embedded profitability from our medical centers, such as due to lower than expected patient utilization rates and/or higher than expected operating costs; (iii) capture additional market share, such as due to higher than expected competition for our patients services; (iv) improve our Adjusted EBITDA, achieve free cash flow and/or reduce our long-term debt and leverage ratios, whether due to unexpected demands on our cash resources and/or lower than expected revenues; (v) evaluate and/or consummate any asset dispositions, such as due to tightness in the credit markets and/or M&A markets; (vi) unexpected changes to our MCR throughout 2023, such as due to unexpected developments with respect to our revenue PMPM, seasonal trends in medical costs, and recoveries from stop loss and pharmacy rebates; and/or (vii) achieve our financial guidance for 2023, such as due to a broad recessionary economic environment, less than anticipated utilization of our medical centers and/or access to less than anticipated sources of liquidity. 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
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
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."
The Company has not provided a quantitative reconciliation of its forward-looking Adjusted EBITDA to GAAP net loss, its most directly comparable GAAP measure, because the Company cannot predict with a reasonable degree of certainty and without unreasonable efforts certain reconciling items, such as certain costs and expenses that are inherently uncertain and depend on various factors, some of which are outside of the Company's control. For these reasons, management is unable to assess the probable significance of the unavailable information, which could materially impact the computation of forward-looking GAAP net loss.
About Cano Health
Cano Health (NYSE: CANO) is a high-touch, technology-powered healthcare company delivering personalized, value-based primary care to approximately 390,000 members. With its headquarters in
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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. |
2 Medical Cost Ratio ("MCR") is calculated as third-party medical expense divided by capitated revenue. |
3 The Company is significantly reducing its investments in de novo medical centers in 2023; therefore, at the beginning of 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. |
CONSOLIDATED STATEMENTS OF OPERATIONS | |||
Three Months Ended March 31, | |||
(in thousands, except share and per share data) | 2023 | 2022 | |
Revenue: | |||
Capitated revenue | $ 841,074 | $ 674,351 | |
Fee-for-service and other revenue | 25,835 | 29,986 | |
Total revenue | 866,909 | 704,337 | |
Operating expenses: | |||
Third-party medical costs | 708,331 | 535,779 | |
Direct patient expense | 68,427 | 60,677 | |
Selling, general and administrative expenses | 96,473 | 96,587 | |
Depreciation and amortization expense | 27,221 | 19,036 | |
Transaction costs and other | 10,086 | 8,375 | |
Change in fair value of contingent consideration | (4,100) | (4,661) | |
Total operating expenses | 906,438 | 715,793 | |
Income (loss) from operations | (39,529) | (11,456) | |
Other income and expense: | |||
Interest expense | (23,505) | (13,284) | |
Interest income | 9 | 1 | |
Loss on extinguishment of debt | — | (1,428) | |
Change in fair value of warrant liabilities | 2,008 | 27,162 | |
Other income (expense) | 432 | — | |
Total other income (expense) | (21,056) | 12,451 | |
Net income (loss) before income tax expense | (60,585) | 995 | |
Income tax expense (benefit) | — | 1,080 | |
Net income (loss) | $ (60,585) | $ (85) | |
Net income (loss) attributable to non-controlling interests | (32,435) | (745) | |
Net income (loss) attributable to Class A common stockholders | $ (28,150) | $ 660 | |
Net income (loss) per share attributable to Class A common stockholders, basic | $ (0.12) | $ — | |
Net income (loss) per share attributable to Class A common stockholders, diluted | $ (0.12) | $ — | |
Weighted-average shares used in computation of earnings per share: | |||
Basic | 239,802,085 | 191,410,221 | |
Diluted | 503,440,154 | 468,132,925 | |
CONSOLIDATED BALANCE SHEETS | ||||
As of, | ||||
(in thousands) | March 31, | December 31, | ||
Assets | ||||
Current assets: | ||||
Cash, cash equivalents and restricted cash | $ 44,888 | $ 27,329 | ||
Accounts receivable, net of unpaid service provider costs | 242,222 | 233,816 | ||
Prepaid expenses and other current assets | 26,577 | 79,603 | ||
Total current assets | 313,687 | 340,748 | ||
Property and equipment, net | 131,762 | 131,325 | ||
Operating lease right of use assets | 179,025 | 177,892 | ||
Goodwill | 480,375 | 480,375 | ||
Payor relationships, net | 559,809 | 567,704 | ||
Other intangibles, net | 212,832 | 226,059 | ||
Other assets | 66,886 | 4,824 | ||
Total assets | $ 1,944,376 | $ 1,928,927 | ||
Liabilities and stockholders' equity | ||||
Current liabilities: | ||||
Accounts payable and accrued expenses | $ 115,228 | $ 105,733 | ||
Current portion of notes payable | 6,444 | 6,444 | ||
Current portion of finance lease liabilities | 2,388 | 1,686 | ||
Current portions due to sellers | 44,318 | 46,016 | ||
Current portion operating lease liabilities | 24,778 | 24,068 | ||
Other current liabilities | 20,756 | 24,491 | ||
Total current liabilities | 213,912 | 208,438 | ||
Notes payable, net of current portion and debt issuance costs | 1,010,419 | 997,806 | ||
Long term portion of operating lease liabilities | 167,562 | 166,347 | ||
Warrants liabilities | 5,365 | 7,373 | ||
Long term portion of finance lease liabilities | 6,017 | 3,364 | ||
Due to sellers, net of current portion | 600 | 15,714 | ||
Contingent consideration | 4,000 | 2,800 | ||
Other liabilities | 32,100 | 32,810 | ||
Total liabilities | 1,439,975 | 1,434,652 | ||
Stockholders' Equity | ||||
Shares of Class A common stock | 26 | 22 | ||
Shares of Class B common stock | 26 | 27 | ||
Additional paid-in capital | 594,994 | 538,614 | ||
Accumulated deficit | (314,182) | (286,032) | ||
Total Stockholders' Equity before non-controlling interests | 280,864 | 252,631 | ||
Non-controlling interests | 223,537 | 241,644 | ||
Total Stockholders' Equity | 504,401 | 494,275 | ||
Total Liabilities and Stockholders' Equity | $ 1,944,376 | $ 1,928,927 | ||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
Three Months Ended March 31, | ||||
(in thousands) | 2023 | 2022 | ||
Cash Flows from Operating Activities: | ||||
Net loss | $ (60,585) | $ (85) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Depreciation and amortization expense | 27,221 | 19,036 | ||
Change in fair value of contingent consideration | (4,100) | (4,661) | ||
Change in fair value of warrant liabilities | (2,008) | (27,162) | ||
Loss on extinguishment of debt | — | 1,428 | ||
Amortization of debt issuance costs | 1,117 | 748 | ||
Non-cash lease expense | 793 | 1,705 | ||
Stock-based compensation | 9,351 | 13,816 | ||
Paid in kind interest expense | 2,071 | — | ||
Changes in operating assets and liabilities: | ||||
Accounts receivable, net | (8,406) | (58,291) | ||
Other assets | (121) | (3,060) | ||
Prepaid expenses and other current assets | (3,673) | 1,773 | ||
Interest accrued due to seller | — | 97 | ||
Accounts payable and accrued expenses | 11,543 | 10,010 | ||
Other liabilities | (2,673) | 7,443 | ||
Net cash (used in) provided by operating activities | (29,470) | (37,203) | ||
Cash Flows from Investing Activities: | ||||
Purchase of property and equipment | (5,080) | (7,776) | ||
Acquisitions of subsidiaries including non-compete intangibles, net of cash acquired | — | (3,495) | ||
Payments to sellers | (4,379) | (2,186) | ||
Net cash (used in) provided by investing activities | (9,459) | (13,457) | ||
Cash Flows from Financing Activities: | ||||
Payments of long-term debt | (1,611) | (1,611) | ||
Debt issuance costs | (9,209) | (87) | ||
Proceeds from long-term debt | 150,000 | — | ||
Proceeds from revolving line of credit | 15,000 | — | ||
Repayments of revolving line of credit | (99,000) | — | ||
Proceeds from insurance financing arrangements | 2,690 | 2,529 | ||
Payments of principal on insurance financing arrangements | (734) | (690) | ||
Other | (648) | — | 401 | |
Net cash (used in) provided by financing activities | 56,488 | 542 | ||
Net increase (decrease) in cash, cash equivalents and restricted cash | 17,559 | (50,118) | ||
Cash, cash equivalents and restricted cash at beginning of year | 27,329 | 163,170 | ||
Cash, cash equivalents and restricted cash at end of period | $ 44,888 | $ 113,052 | ||
Reconciliation of Non-GAAP | |||
Three Months Ended March 31, | |||
(in thousands) | 2023 | 2022 | |
Net income (loss) | $ (60,585) | $ (85) | |
Interest income | (9) | (1) | |
Interest expense | 23,505 | 13,284 | |
Income tax expense (benefit) | — | 1,080 | |
Depreciation and amortization expense | 27,221 | 19,036 | |
EBITDA | $ (9,868) | $ 33,314 | |
Stock-based compensation | 9,351 | 13,816 | |
Transaction costs (1) | 10,572 | 9,871 | |
Restructuring and other | 1,032 | 2,585 | |
Change in fair value of contingent consideration | (4,100) | (4,661) | |
Loss on extinguishment of debt | — | 1,428 | |
Change in fair value of warrant liabilities | (2,008) | (27,162) | |
Adjusted EBITDA | $ 4,979 | $ 29,191 | |
(1) Transaction costs included |
The March 31, 2022 Adjusted EBITDA has been adjusted to exclude |
Key Metrics | ||||||
Three Months Ended March 31, | ||||||
2023 | 2022 | % Change | ||||
Members: | ||||||
Medicare Advantage | 140,366 | 119,105 | 17.9 % | |||
Medicare ACO REACH | 67,054 | 41,201 | 62.7 % | |||
Total Medicare | 207,420 | 160,306 | 29.4 % | |||
Medicaid | 81,509 | 67,982 | 19.9 % | |||
ACA | 99,738 | 41,045 | 143.0 % | |||
Total members | 388,667 | 269,333 | 44.3 % | |||
Member months: | ||||||
Medicare Advantage | 416,776 | 354,415 | 17.6 % | |||
Medicare ACO REACH | 202,683 | 125,089 | 62.0 % | |||
Total Medicare | 619,459 | 479,504 | 29.2 % | |||
Medicaid | 242,649 | 202,197 | 20.0 % | |||
ACA | 283,961 | 121,911 | 132.9 % | |||
Total member months | 1,146,069 | 803,612 | 42.6 % | |||
Per Member Per Month ("PMPM"): | ||||||
Medicare Advantage | $ 1,180 | $ 1,249 | (5.5) % | |||
Medicare ACO REACH | $ 1,489 | $ 1,379 | 8.0 % | |||
Total Medicare | $ 1,281 | $ 1,283 | (0.2) % | |||
Medicaid | $ 183 | $ 257 | (28.8) % | |||
ACA | $ 11 | $ 58 | (81.0) % | |||
Total PMPM | $ 734 | $ 839 | (12.5) % | |||
Medical centers | 170 | 137 | ||||
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SOURCE Cano Health, Inc.
