Cano Health Announces Financial Results for the Third Quarter 2022

Rhea-AI Summary

Cano Health, as of November 9, 2022, reported its financial results for Q3 2022. Total membership reached 294,596, including 168,346 Medicare members, reflecting a 40% year-over-year increase. Total revenue was $665.0 million, up 33% year-over-year. Despite these gains, the company reported a net loss of $(112.0) million, largely due to a $65.7 million fair value adjustment on warrant liabilities. Adjusted EBITDA surged 211% to $42.5 million. Updated guidance for full-year 2022 projects total revenue between $2.70 billion and $2.75 billion, lower than prior estimates.

Positive

• Total membership increased by 40% year-over-year.
• Total revenue rose to $665.0 million, a 33% increase from the prior year.
• Adjusted EBITDA improved by 211% year-over-year to $42.5 million.
• Medical cost ratio (MCR) improved to 78.2%, down from 80.5% the previous year.

Negative

• Net loss of $(112.0) million impacted by a $65.7 million adjustment on warrant liabilities.
• Capitated revenue PMPM decreased by approximately 5% year-over-year.
• Updated revenue guidance decreased from $2.85-$2.90 billion to $2.70-$2.75 billion.

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

 

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(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

 

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SOURCE Cano Health, Inc.

FAQ

What were Cano Health's Q3 2022 financial results?

Cano Health reported total revenue of $665.0 million, a net loss of $(112.0) million, and an adjusted EBITDA of $42.5 million.

How much did Cano Health's membership grow in Q3 2022?

Cano Health's total membership increased by 40% year-over-year, reaching 294,596.

What is Cano Health's updated revenue guidance for 2022?

The updated guidance for total revenue is in the range of $2.70 billion to $2.75 billion.

What was Cano Health's medical cost ratio in Q3 2022?

The medical cost ratio in Q3 2022 was 78.2%, an improvement from 80.5% in the prior year.

When will Cano Health hold its third quarter earnings conference call?

Cano Health's conference call is scheduled for 5:00 PM ET on November 9, 2022.