Cano Health Receives NYSE Notice of Non-Compliance with Market Capitalization Criteria

Rhea-AI Summary

Cano Health, Inc. (NYSE: CANO) announced an acceleration of its Transformation Plan, targeting $290 million of cost reductions by the end of 2024. The company's strategic shift aims to improve Medical Cost Ratio, reduce expenses, and maximize productivity and liquidity.

Positive

• Acceleration of Transformation Plan to achieve $290 million in cost reductions by 2024
• Strategic shift to improve Medical Cost Ratio, reduce expenses, and maximize productivity and liquidity

Negative

• Noncompliance with NYSE Listing Rule due to low market capitalization and stockholders' equity
• Potential suspension and delisting proceedings by NYSE
• Expectation of approximately $30 million in pre-tax charges to implement plans in 2024

Insights

Financial Analyst

The announcement by Cano Health, Inc. regarding noncompliance with NYSE Listing Rule due to low market capitalization and shareholder equity signals a critical juncture for the company. The market typically reacts to such news with heightened sensitivity, as it may affect investor confidence and share liquidity. The company's Transformation Plan, aimed at cost reduction and improving financial metrics such as the Medical Cost Ratio (MCR) and Adjusted EBITDA, is a strategic move to mitigate the impact of this noncompliance.

From a financial perspective, the targeted $290 million in cost reductions by the end of 2024 could lead to a significant improvement in operating margins. However, the expected $30 million in pre-tax charges to implement these plans is a substantial figure that investors must weigh against potential future savings. The company's focus on prioritizing its Medicare Advantage and ACO Reach lines of business could streamline operations, but the divestiture and consolidation of assets will require careful execution to avoid disruption to core services.

Additionally, the ongoing review of strategic alternatives to recapitalize or refinance could result in corporate transactions that might alter the company's capital structure. Investors should monitor these developments closely, as they can have profound implications for the stock's value and the company's long-term viability.

Market Research Analyst

Considering Cano Health's operational shift, the healthcare sector is witnessing a trend towards cost optimization and efficiency. The company's initiative to improve MCR and reduce direct patient expense (DPE) is in line with industry efforts to manage healthcare costs more effectively. The decision to exit the Puerto Rico operations and conduct a strategic review of its Medicaid business in Florida reflects a focused approach to optimize its market presence based on performance metrics.

The healthcare industry is particularly sensitive to changes in payment models and cost structures, making Cano Health's renegotiation efforts with payors and the restructuring of contractual arrangements a potentially impactful move. By prioritizing Medicare Advantage and ACO Reach, Cano Health is aligning with the broader industry shift towards value-based care models that are designed to improve patient outcomes while controlling costs.

Investors and competitors alike should note Cano Health's aggressive cost management strategies as a bellwether for how other companies in the sector might respond to similar financial pressures. The outcome of these initiatives could serve as a case study for the effectiveness of such transformation plans in the healthcare industry.

Legal Expert

From a legal standpoint, Cano Health's noncompliance with the NYSE Listing Rule triggers a procedural response that includes submitting a business plan to demonstrate compliance within an 18-month cure period. This compliance issue does not constitute a violation of material debt or other obligations, which is an important distinction for stakeholders. The company's proactive engagement with advisors to explore a sale or significant corporate transactions suggests a comprehensive approach to address its capital structure challenges.

The legal intricacies of Cano Health's strategic moves, including asset divestitures and partnership terminations, will require rigorous due diligence to ensure that all transactions are executed in accordance with relevant laws and regulations. The potential sale of the company or its assets further complicates the legal landscape, as it involves scrutiny from regulatory bodies, potential antitrust considerations and the management of shareholder interests.

Stakeholders should be aware of the legal ramifications of these strategic decisions, as they could influence the company's ability to execute its Transformation Plan and impact its legal standing and reputation within the healthcare sector.

Accelerates Transformation Plan, Now Targeting $290 million of Cost Reductions

MIAMI, Dec. 29, 2023 /PRNewswire/ -- Cano Health, Inc. (NYSE: CANO) ("Cano Health" or the "Company") announced today that it was notified by NYSE Regulation Inc. (the "NYSE") that it is not in compliance with Section 802.01B of the NYSE Listed Company Manual (the "Listing Rule") because the Company's total market capitalization has been less than $50 million over a 30 trading-day period and its stockholders' equity is less than $50 million.

Pursuant to the Listing Rule, the Company has 10 business days from receipt of the Notice to send a letter to the NYSE confirming receipt of the Notice and to indicate whether it intends to cure the deficiencies. If the Company determines to cure such deficiencies, the Company would then submit a business plan (the "Plan") within 45 days of receipt of the Notice that demonstrates that the Company will regain compliance with the Listing Rule within 18 months of receipt of the Notice. Upon receipt of the Plan, the NYSE would have up to 45 days to review and determine whether the Company has made a reasonable demonstration of its ability to come into conformity with the relevant standards within the cure period. The NYSE may either accept the Plan, at which time the Company would be subject to ongoing quarterly monitoring for compliance with the Plan, or the NYSE may not accept the Plan and the Company would be subject to suspension and delisting proceedings. Under the NYSE rules, during the 18-month cure period, the Company's Class A common stock will remain eligible for continued listing and trading on the NYSE, subject to the Company's compliance with other continued listing requirements.

The current noncompliance with the NYSE Listing Rule does not affect the Company's ongoing business operations or its U.S. Securities and Exchange Commission ("SEC") reporting requirements, nor does it trigger any violation of its material debt or other obligations.

As previously disclosed by the Company, including in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, filed with the SEC on November 13, 2023, the Company has shifted its strategic direction to focus on executing its Transformation Plan that is designed to: (i) improve the Company's Medical Cost Ratio ("MCR"); (ii) reduce its direct patient expense ("DPE") and selling, general & administrative ("SG&A") expenses; (iii) improve the Company's gross profit and Adjusted EBITDA; and (iv) maximize the Company's productivity, cash flow and liquidity. The Transformation Plan primarily includes the following measures:

• Driving medical cost management initiatives to improve the Company's MCR;
• Lowering third party medical costs through negotiations with payors, including restructuring contractual arrangements with payors and specialty network;
• Expanding initiatives to optimize its DPE and SG&A expenses--
  • reducing operating expenses, including reduction of permanent staff; and
  • significantly reducing all other non-essential spending;
• Prioritizing the Company's Medicare Advantage and ACO Reach lines of business through improving patient engagement and access;
• Divesting and consolidating certain assets and operations, inclusive of exiting certain markets--
  • exiting its Puerto Rico operations by the beginning of 2024;
  • conducting a strategic review of the Company's Medicaid business in Florida, pharmacy assets and other specialty practices; and
  • consolidating underperforming owned medical centers and delaying renovations and other capital projects;
• Evaluating the performance its affiliate provider relationship—
  • terminating underperforming affiliate partnerships; and
• Pursuing a comprehensive process to identify and evaluate interest in a sale of the Company, or all or substantially all of its assets, including having engaged advisors to assist in the process.

As a result of accelerating these initiatives, the Transformation Plan is now targeted to achieve approximately $290 million of cost reductions by the end of 2024, inclusive of the $65 million of planned cost reductions previously disclosed. The Company expects to recognize approximately $30 million in pre-tax charges to implement these plans during 2024, consisting principally of lease exit costs and employee termination benefits. The Company expects that substantially all of these charges will be paid in cash over 2024 and 2025.

As part of this strategic shift, the Company also has been engaged in reviewing and continues to review strategic alternatives to recapitalize, refinance or otherwise optimize its capital structure (the "Ongoing Review"), which may ultimately result in the Company pursuing one or more significant corporate transactions or other remedial measures. The Ongoing Review includes an evaluation of available options to regain compliance with the Listing Rule. The Company can provide no assurances that it will be able to satisfy any of the steps outlined above and maintain the listing of its shares on the NYSE or the results of the Ongoing Review.

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," "believes," "foresees," "forecasts," "plans," "intends," "estimates" or other words or phrases of similar import, including, without limitation, statements regarding our anticipated performance, operations, financial strength, potential, and prospects for long-term shareholder value creation, our anticipated results of operations, including our business strategies, our projected costs, prospects and plans, and other aspects of our operations or operating results, as well as statements made in this press release regarding the Company's plans to (i) regain compliance with the Listing Rule; (ii) execute one or more aspects of its Transformation Plan; (iii) pursue strategic alternatives to recapitalize, refinance or otherwise optimize its capital structure, which may ultimately result in the Company pursuing one or more significant corporate transactions or other remedial measures; and (iv) achieve approximately $290 million of cost reductions by the end of 2024 and recognize approximately $30 million in charges to implement the Transformation Plan during 2024, and the timing of the payment of such charges, and the related expected benefits from pursuing such plan. 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, the regulatory environment, competitive conditions, and/or consumer receptivity to our services; changes in our strategy, future operations, prospects and plans; 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 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, 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 and 2024 (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, our experiencing delays or difficulties in, and/or unexpected or less than anticipated results from its efforts to (i) regain compliance with the NYSE Listing Rule; (ii) implement the Company's Transformation Plan; (iii) consummate one or more transactions to recapitalize, refinance or otherwise optimize its capital structure, such as due to less than expected liquidity and/or difficulties and/or delays in consummating one or more transactions to sell all or part of the Company; and/or (iv) achieve the targeted cost reductions and/or any of the other expected benefits from its Transformation Plan, such as due to higher than expected costs and charges to achieve one or more aspects of such plan. For a detailed discussion of other 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 SEC, including, without limitation, our 2022 Form 10-K. 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 press release. Additionally, the business and financial materials and any other statement or disclosure on or made available through the Company's websites or other websites referenced herein shall not be incorporated by reference into this press release.

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 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 through its primary care medical centers and supporting affiliated providers. For more information, visit canohealth.com or investors.canohealth.com.

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SOURCE Cano Health, Inc.

FAQ

What is the latest announcement from Cano Health, Inc. (NYSE: CANO)?

Cano Health, Inc. (NYSE: CANO) announced an acceleration of its Transformation Plan, targeting $290 million of cost reductions by the end of 2024.

What are the main goals of Cano Health, Inc.'s strategic shift?

The strategic shift aims to improve Medical Cost Ratio, reduce expenses, and maximize productivity and liquidity.

Why is Cano Health, Inc. (NYSE: CANO) not in compliance with the NYSE Listing Rule?

The company's total market capitalization has been less than $50 million over a 30 trading-day period and its stockholders' equity is less than $50 million, leading to noncompliance with the NYSE Listing Rule.

What are the potential consequences of noncompliance with the NYSE Listing Rule?

Noncompliance may lead to suspension and delisting proceedings by NYSE.

What are the expected pre-tax charges for Cano Health, Inc. (NYSE: CANO) in 2024?

The company expects to recognize approximately $30 million in pre-tax charges to implement its plans during 2024, consisting principally of lease exit costs and employee termination benefits.