Cano Health Announces Financial Results for the Third Quarter 2023
- Improved performance and stability in Medicare Advantage business
- Targeting over $100 million in annualized third-party medical cost reductions by the end of 2024
- Total revenue increased by 19% to $788.1 million in Q3 2023
- 6% increase in total membership to 312,151
- Capitated revenue of $770.3 million increased by 23% year-over-year
- Operational reorganization expected to yield approximately $65 million in annualized direct patient expense reductions and SG&A cost reductions
- The total value of the transaction to Cano Health was approximately $66.7 million from the sale of assets in Texas and Nevada
- Net loss of $(491.7) million in Q3 2023, compared to $(112.0) million in the prior year
- Adjusted EBITDA of $(66.1) million, down from $18.2 million in the prior year
- Higher third-party medical costs led to a medical cost ratio of 91.8% in Q3 2023, compared to 78.2% in Q3 2022
Executive Management Highlights
- Third quarter results reflect improved performance and stability in the Medicare Advantage business due to operational enhancements and third-party medical cost initiatives
- Targeting over
in annualized third-party medical cost reductions by the end of 2024 through medical cost initiatives and optimization of Medicare Advantage operations$100 million - Implemented operational reorganization expected to yield approximately
in annualized direct patient expense reductions and SG&A cost reductions beginning in 3Q 2023 and through year-end 2024$65 million
Third Quarter 2023 Financial Results
- Total membership of 312,151 including 195,885 Medicare capitated members, an increase of
6% and16% year-over-year, respectively, which amounts exclude membership related to the September 2023 sale of substantially all of our assets inTexas andNevada - Total revenue of
, compared to$788.1 million in the prior year, an increase of$665.0 million 19% year-over-year - Net loss of
, compared to a net loss of$(491.7) million in the prior year, primarily driven by a non-cash goodwill impairment of$(112.0) million and unfavorable operating results, primarily due to higher third-party medical costs$(354.0) million - Adjusted EBITDA1 of
, compared to$(66.1) million in the prior year$18.2 million
In the third quarter of 2023, capitated revenue of
Adjusted EBITDA of
"Cano Health is continuing to evaluate strategic interest in the Company while working every day to provide quality care for our patients," said Mark Kent, Cano Health's Chief Executive Officer. "As of today, we have completed the sale of our
Update on Strategic Actions
On September 25, 2023 the Company sold substantially all of the assets associated with the operation of Cano Health's senior-focused primary care centers in
In the third quarter of 2023, the Company implemented a plan designed to further restructure its operations to streamline and simplify the organization to improve efficiency and reduce costs. These actions include workforce reductions, which are expected to reduce our selling, general and administrative costs in future periods compared to current levels. In connection with its restructuring plan, in the third quarter of 2023, the Company reduced staffing by approximately 842 employees, or
Cano Health continues to pursue 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.
Liquidity & Capital Management Update
As of September 30, 2023 the Company's total liquidity was approximately
The Credit Suisse Credit Agreement and the 2023 Side-Car Credit Agreement both contain a covenant that will require the Company's 2023 Form 10-K to not contain any qualification or explanatory paragraph as to the Company's "going concern" status (except for any such qualification or explanatory paragraph pertaining to (i) the maturity of certain indebtedness occurring within 12 months of the relevant audit or (ii) any breach or anticipated breach of any financial covenant).
The Company's current liquidity as of November 9, 2023 was approximately
Based on the amount of the Company's available liquidity at November 9, 2023 and its current forecast of available liquidity for the 12 months following the anticipated filing of its 2023 Form 10-K, the Company expects that it will be required to seek a waiver of this "going concern" covenant from the respective lenders under both agreements on or before April 22, 2024. We encourage investors to review the Company's Q3 2023 Form 10-Q for other important information regarding the Company's liquidity.
Ongoing initiatives to generate additional liquidity include the Company's continued pursuit of its strategic review, which may result in the sale of all or substantially all of the Company's business, as referenced above, and/or the sale of certain lines of business, such as the Company's Medicaid business in
2023 Outlook
The Company expects sequential operating performance improvement in the fourth quarter of 2023, driven by operational improvements, third-party medical cost recoveries, and the favorable impact of seasonality.
The operational improvements include:
- The cost reduction benefits attributable to exiting the Company's markets in
Texas ,Nevada ,California ,New Mexico , andIllinois ; - Restructuring operations to streamline and simplify the organization, improve efficiency and reduce costs; and
- Continued optimization of our operations to improve patient outcomes and lower medical costs by improving payor relations and affiliate partnerships, reducing high-cost emergency room visits, improving our generic dispensing rate, enhancing our arrangements with specialty networks, and strengthening our patient engagement programs.
As of November 9, 2023, after giving effect to the Company's 1-for-100 reverse stock split completed on November 3, 2023, the Company had approximately 2.9 million shares of Class A common stock and 2.5 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 5.4 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, 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 belief that we remain on track to exit our operations in
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) exit our operations in
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."
About Cano Health
Cano Health (NYSE: CANO) is a high-touch, technology-powered healthcare company delivering personalized, value-based primary care to approximately 310,000 members. Founded in 2009, with its headquarters in
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. |
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | |||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
(in thousands, except share and per share data) | 2023 | 2022 | 2023 | 2022 | |||
Revenue: | |||||||
Capitated revenue | $ 770,269 | $ 625,895 | $ 2,354,667 | $ 1,955,739 | |||
Fee-for-service and other revenue | 17,804 | 39,133 | 67,062 | 102,804 | |||
Total revenue | 788,073 | 665,028 | 2,421,729 | 2,058,543 | |||
Operating expenses: | |||||||
Third-party medical costs | 706,922 | 489,565 | 2,184,882 | 1,566,661 | |||
Direct patient expense | 65,547 | 63,867 | 190,731 | 177,190 | |||
Selling, general and administrative expenses | 80,821 | 111,765 | 276,712 | 314,617 | |||
Depreciation and amortization expense | 26,740 | 25,343 | 81,213 | 64,215 | |||
Transaction costs and other | 7,862 | 5,033 | 27,073 | 19,616 | |||
Change in fair value of contingent | 13,100 | 900 | (2,800) | (9,525) | |||
Goodwill impairment loss | 354,000 | — | 354,000 | — | |||
Credit loss on other assets | — | — | 62,000 | — | |||
Total operating expenses | 1,254,992 | 696,473 | 3,173,811 | 2,132,774 | |||
Income (loss) from operations | (466,919) | (31,445) | (752,082) | (74,231) | |||
Other income and expense: | |||||||
Interest expense | (29,646) | (16,451) | (79,870) | (42,868) | |||
Interest income | 258 | 4 | 357 | 7 | |||
Loss on extinguishment of debt | — | — | — | (1,428) | |||
Change in fair value of warrant liabilities | 5,365 | (65,721) | 5,696 | (8,383) | |||
Other income (expense) | (900) | 354 | 855 | 884 | |||
Total other income (expense) | (24,923) | (81,814) | (72,962) | (51,788) | |||
Net income (loss) before income tax expense | (491,842) | (113,259) | (825,044) | (126,019) | |||
Income tax expense (benefit) | (145) | (1,248) | (2,017) | 641 | |||
Net income (loss) | $ (491,697) | $ (112,011) | $ (823,027) | $ (126,660) | |||
Net income (loss) attributable to non- | (231,210) | (57,783) | (393,637) | (67,759) | |||
Net income (loss) attributable to Class A | $ (260,487) | $ (54,228) | $ (429,390) | $ (58,901) | |||
Net income (loss) per share attributable to Class | $ (91.87) | $ (23.34) | $ (161.33) | $ (27.86) | |||
Net income (loss) per share attributable to Class | $ (91.87) | $ (23.34) | $ (161.33) | $ (27.86) | |||
Weighted-average shares used in computation | |||||||
Basic | 2,835,250 | 2,323,142 | 2,661,495 | 2,114,090 | |||
Diluted | 2,835,250 | 2,323,142 | 2,661,495 | 2,114,090 |
CONSOLIDATED BALANCE SHEETS (UNAUDITED) | ||||
As of, | ||||
(in thousands) | September 30, 2023 | December 31, 2022 | ||
Assets | ||||
Current assets: | ||||
Cash, cash equivalents and restricted cash | $ 41,331 | $ 27,329 | ||
Accounts receivable, net of unpaid service provider costs | 87,499 | 233,816 | ||
Prepaid expenses and other current assets | 15,894 | 79,603 | ||
Total current assets | 144,724 | 340,748 | ||
Property and equipment, net | 94,153 | 131,325 | ||
Operating lease right of use assets | 149,671 | 177,892 | ||
Goodwill | 88,918 | 480,375 | ||
Payor relationships, net | 543,810 | 567,704 | ||
Other intangibles, net | 185,372 | 226,059 | ||
Other assets | 5,283 | 4,824 | ||
Total assets | $ 1,211,931 | $ 1,928,927 | ||
Liabilities and stockholders' deficit | ||||
Current liabilities: | ||||
Accounts payable and accrued expenses | $ 135,941 | $ 105,733 | ||
Current portion of notes payable | 116,238 | 6,444 | ||
Current portion of finance lease liabilities | 3,125 | 1,686 | ||
Current portions due to sellers | 47,396 | 46,016 | ||
Current portion operating lease liabilities | 22,964 | 24,068 | ||
Other current liabilities | 40,270 | 24,491 | ||
Total current liabilities | 365,934 | 208,438 | ||
Notes payable, net of current portion and debt issuance costs | 951,339 | 997,806 | ||
Long term portion of operating lease liabilities | 140,067 | 166,347 | ||
Warrants liabilities | 1,677 | 7,373 | ||
Long term portion of finance lease liabilities | 7,663 | 3,364 | ||
Due to sellers, net of current portion | 1,500 | 15,714 | ||
Contingent consideration | — | 2,800 | ||
Other liabilities | 2,852 | 32,810 | ||
Total liabilities | 1,471,032 | 1,434,652 | ||
Stockholders' Deficit | ||||
Shares of Class A common stock | 28 | 22 | ||
Shares of Class B common stock | 25 | 27 | ||
Additional paid-in capital | 593,271 | 538,614 | ||
Accumulated deficit | (715,422) | (286,032) | ||
Total Stockholders' Deficit before non-controlling interests | (122,098) | 252,631 | ||
Non-controlling interests | (137,003) | 241,644 | ||
Total Stockholders' Deficit | (259,101) | 494,275 | ||
Total Liabilities and Stockholders' Deficit | $ 1,211,931 | $ 1,928,927 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||
Nine Months Ended September 30, | ||||
(in thousands) | 2023 | 2022 | ||
Cash Flows from Operating Activities: | ||||
Net loss | $ (823,027) | $ (126,660) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Depreciation and amortization expense | 81,213 | 64,215 | ||
Change in fair value of contingent consideration | (2,800) | (9,525) | ||
Change in fair value of warrant liabilities | (5,696) | 8,383 | ||
Goodwill impairment loss | 354,000 | — | ||
Intangible assets disposals | 1,467 | |||
Loss on extinguishment of debt | — | 1,428 | ||
Fixed asset abandonment | 2,200 | — | ||
Amortization of debt issuance costs | 3,872 | 2,743 | ||
Non-cash lease expense | 2,010 | 8,367 | ||
Class A shares issued for bonus award | — | 2,194 | ||
Stock-based compensation | 7,285 | 42,641 | ||
Paid in kind interest expense | 13,564 | — | ||
Credit loss on other assets | 62,000 | — | ||
Gain on Sale Transaction | (386) | |||
Changes in operating assets and liabilities: | ||||
Accounts receivable, net | 146,317 | (75,913) | ||
Other assets | 1,216 | 10,885 | ||
Prepaid expenses and other current assets | 1,979 | (47,492) | ||
Interest accrued due to seller | — | 100 | ||
Accounts payable and accrued expenses | 46,309 | 30,955 | ||
Other liabilities | 23,811 | 3,521 | ||
Net cash (used in) provided by operating activities | (84,666) | (84,158) | ||
Cash Flows from Investing Activities: | ||||
Purchase of property and equipment | (18,139) | (39,061) | ||
Acquisitions of subsidiaries including non-compete intangibles, net of cash acquired | — | (4,995) | ||
Payments to sellers | (6,557) | (4,097) | ||
Proceeds from Sale Transaction | 33,542 | |||
Net cash provided (used in) by investing activities | 8,846 | (48,153) | ||
Cash Flows from Financing Activities: | ||||
Payments of long-term debt | (4,834) | (4,833) | ||
Debt issuance costs | (9,256) | (88) | ||
Proceeds from long-term debt | 150,000 | — | ||
Proceeds from revolving line of credit | 165,000 | — | ||
Repayments of revolving line of credit | (209,000) | — | ||
Proceeds from insurance financing arrangements | 2,690 | 2,529 | ||
Payments of principal on insurance financing arrangements | (2,201) | (2,070) | ||
Other | (2,577) | — | (4,600) | |
Net cash provided (used in) by financing activities | 89,822 | (6,762) | ||
Net increase (decrease) in cash, cash equivalents and restricted cash | 14,002 | (139,073) | ||
Cash, cash equivalents and restricted cash at beginning of year | 27,329 | 163,170 | ||
Cash, cash equivalents and restricted cash at end of period | $ 41,331 | $ 24,097 |
Reconciliation of Non-GAAP Adjusted EBITDA (UNAUDITED) | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
(in thousands) | 2023 | 2022 | 2023 | 2022 | ||||
Net income (loss) | $ (491,697) | $ (112,011) | $ (823,027) | $ (126,660) | ||||
Interest income | (258) | (4) | (357) | (7) | ||||
Interest expense | 29,646 | 16,451 | 79,870 | 42,868 | ||||
Income tax expense (benefit) | (145) | (1,248) | (2,017) | 641 | ||||
Depreciation and amortization expense | 26,740 | 25,343 | 81,213 | 64,215 | ||||
EBITDA | $ (435,714) | $ (71,469) | $ (664,318) | $ (18,943) | ||||
Stock-based compensation | (4,083) | 11,041 | 7,285 | 42,641 | ||||
Goodwill impairment loss | 354,000 | — | 354,000 | — | ||||
Transaction costs (1) | 8,215 | 6,733 | 28,302 | 24,445 | ||||
Restructuring and other | 3,758 | 5,245 | 10,441 | 8,846 | ||||
Change in fair value of contingent consideration | 13,100 | 900 | (2,800) | (9,525) | ||||
Loss on extinguishment of debt | — | — | — | 1,428 | ||||
Change in fair value of warrant liabilities | (5,365) | 65,721 | (5,696) | 8,383 | ||||
Reserve on other assets | — | — | 62,000 | — | ||||
Adjusted EBITDA | $ (66,089) | $ 18,171 | $ (210,786) | $ 57,275 | ||||
(1) Transaction costs included | |||
Adjusted EBITDA has been adjusted to exclude |
Key Metrics (UNAUDITED) | ||||||
Three Months Ended September 30, | ||||||
2023 | 2022 | % Change | ||||
Members: (3) | ||||||
Medicare Advantage | 131,557 | 128,731 | 2.2 % | |||
Medicare ACO REACH | 64,328 | 39,615 | 62.4 % | |||
Total Medicare | 195,885 | 168,346 | 16.4 % | |||
Medicaid | 62,717 | 73,865 | (15.1) % | |||
ACA | 53,549 | 52,385 | 2.2 % | |||
Total members | 312,151 | 294,596 | 6.0 % | |||
Member months: | ||||||
Medicare Advantage | 421,141 | 383,645 | 9.8 % | |||
Medicare ACO REACH | 194,267 | 119,936 | 62.0 % | |||
Total Medicare | 615,408 | 503,581 | 22.2 % | |||
Medicaid | 211,764 | 218,807 | (3.2) % | |||
ACA | 171,674 | 149,872 | 14.5 % | |||
Total member months | 998,846 | 872,260 | 14.5 % | |||
Per Member Per Month ("PMPM"): (4) | ||||||
Medicare Advantage | $ 1,115 | $ 1,127 | (1.1) % | |||
Medicare ACO REACH | $ 1,333 | $ 1,215 | 9.7 % | |||
Total Medicare | $ 1,184 | $ 1,148 | 3.1 % | |||
Medicaid | $ 197 | $ 191 | 3.1 % | |||
ACA | $ — | $ 40 | (100.0) % | |||
Total PMPM | $ 771 | $ 718 | 7.4 % | |||
Medical centers | 133 | 151 |
(3) Membership reflects end of period results, which excludes membership related to the Sale Transaction. | |||
(4) Third quarter 2023 PMPM includes the members from the Sale Transaction that occurred on September 25, 2023, which were approximately 14,450 members. |
Key Metrics (UNAUDITED) | ||||||
Nine Months Ended September 30, | ||||||
2023 | 2022 | % Change | ||||
Members: (5) | ||||||
Medicare Advantage | 131,557 | 128,731 | 2.2 % | |||
Medicare ACO REACH | 64,328 | 39,615 | 62.4 % | |||
Total Medicare | 195,885 | 168,346 | 16.4 % | |||
Medicaid | 62,717 | 73,865 | (15.1) % | |||
ACA | 53,549 | 52,385 | 2.2 % | |||
Total members | 312,151 | 294,596 | 6.0 % | |||
Member months: | ||||||
Medicare Advantage | 1,262,062 | 1,102,625 | 14.5 % | |||
Medicare ACO REACH | 595,564 | 367,326 | 62.1 % | |||
Total Medicare | 1,857,626 | 1,469,951 | 26.4 % | |||
Medicaid | 699,673 | 627,634 | 11.5 % | |||
ACA | 752,287 | 411,138 | 83.0 % | |||
Total member months | 3,309,586 | 2,508,723 | 31.9 % | |||
Per Member Per Month ("PMPM"): (6) | ||||||
Medicare Advantage | $ 1,107 | $ 1,189 | (6.9) % | |||
Medicare ACO REACH | $ 1,378 | $ 1,320 | 4.4 % | |||
Total Medicare | $ 1,194 | $ 1,222 | (2.3) % | |||
Medicaid | $ 181 | $ 223 | (18.8) % | |||
ACA | $ 14 | $ 48 | (70.8) % | |||
Total PMPM | $ 711 | $ 780 | (8.8) % | |||
Medical centers | 133 | 151 |
(5) Membership reflects end of period results, which excludes membership related to the Sale Transaction. | |||
(6) Nine months ended September 30, 2023 PMPM includes the members from the Sale Transaction that occurred on September 25, 2023, which were approximately 14,450 members. |
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SOURCE Cano Health, Inc.
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