PR Newswire | Aug 12, 2021 06:31AM EDT

08/12 05:30 CDT

Cano Health Announces Financial Results for the Second Quarter 2021Increases Full Year 2021 and 2022 Guidance MIAMI, Aug. 12, 2021

MIAMI, Aug. 12, 2021 /PRNewswire/ -- Cano Health, Inc. ("Cano Health" or the "Company") (NYSE: CANO), a leading value-based primary care provider for seniors and underserved communities, today announced financial results for the second quarter and six months ended June 30, 2021.

Second Quarter Highlights:

* Total membership of 156,038 including Medicare capitated members of 111,866, an increase of 57% and 54%, respectively, year-over-year * Total revenue of $393.2 million, an increase of 130% year-over-year * Net income of $4.9 million * Adjusted EBITDA of $24.8 million, an increase of 53% year-over year * On April 1, 2021, began providing services for approximately 8,100 Medicare beneficiaries as a Direct Contracting Entity (DCE) for the Centers for Medicare & Medicaid Services (CMS) * Cano Health shares began trading on the NYSE on June 4, 2021 * On June 11, 2021, completed the acquisition of University Health Care and its affiliates ("University") for approximately $600 million ($540 million in cash and $60 million in equity). University operates 13 medical centers and serves approximately 24,000 Medicare Advantage members * On June 17, 2021, purchased a small medical practice in Corpus Christi, Texas, where we intend to open de novo medical centers

"We are pleased to report our quarterly results for the first time as a publicly traded company and appreciate the interest of those who may be new to the Cano Health story," said Dr. Marlow Hernandez, Co-Founder, Chairman, and CEO of Cano Health.

"As we continue on our path to become America's Primary Care provider, I am proud of the many ways we are bringing our care model to more patients and measurably improving clinical outcomes - important work that accelerated in the second quarter. Our results reflect successful execution of our business model, and the contribution of our employees and affiliate providers. We are delivering on our promise of growth through increased membership, pursuit of highly accretive acquisitions, and the addition of new service lines, including CMS' DCE program."

Second Quarter Financial Results

* Total revenue of $393.2 million for the second quarter of 2021, compared to $171.2 million for the second quarter of 2020, a 130% increase driven by acquisitions and membership growth * Adjusted EBITDA of $24.8 million for the second quarter of 2021, compared to $16.2 million for the second quarter of 2020, a 53% increase * Net income of $4.9 million for the second quarter of 2021, compared to a net loss of $11.0 million for the second quarter of 2020

The Company had 170.3 million shares of Class A common stock outstanding and 306.8 million shares of Class B common stock outstanding at June 30, 2021. Our total share count for calculation of market capitalization is 477.1 million as of June 30, 2021.

COVID-19 UpdateThe United States has entered a fourth wave of the COVID-19 pandemic. Even though Florida is experiencing a record number of new COVID-19 cases, for Cano Health members, as of August 9, we have observed a seven-day daily average of 14.3 cases compared to a seven day daily average of 24.0 cases at Cano Health's pandemic peak in January 2021. For the month of August, thus far, we have observed 7.5 COVID-19 hospital admissions per 1,000 as compared to Cano Health's pandemic peak of 21.2 in July 2020. Our COVID-19 mortality rate continues to be at least 50% lower than the senior population in Florida. Additional detail is provided in our Second Quarter 2021 Financial Supplement found on the Investor Relations section of our website, canohealth.com/investors.

The medical claims expense ratio for the second quarter 2021 was 77.0%, compared to 73.0% in the first quarter for 2021. The increase was driven primarily by the inclusion of DCE members who we initially expect to have higher medical costs, and, to a lesser extent by higher elective procedure utilization and costs related to COVID-19.

For the first half of 2021, the medical claims expense ratio was 75.3%. For the full year of 2021, we are projecting a medical claims expense ratio of approximately 75.0%.

The Company expects a stable second half medical claims expense ratio primarily due to:

* Population health management through our proprietary health care analytics and treatment protocols powered by CanoPanorama * Comprehensive care management programs resulting in stable hospital admissions as demonstrated throughout the COVID-19 pandemic * Lower DCE medical costs, as our members are integrated into the Cano Health platform * 87% COVID-19 vaccination rate for our Medicare members, as of August 9, 2021 * Favorable seasonality in the second half of the year

Update on Recent Transactions

* As previously announced, acquired Doctor's Medical Center (DMC) for $300 million, on July 2 * Also, in July, deployed $15 million to acquire: * A behavioral health specialty group in South Florida with 27 providers, 14 clinics co-located within current Cano Health medical centers, and two stand-alone clinics, to better serve the mental health needs of Cano Health members, and * A practice with two medical centers in Las Vegas, Nevada adjacent to our three existing Las Vegas medical centers

* In August 2021, we deployed approximately $140 million and $30 million in equity to acquire medical practices and infrastructure managing affiliates in four states: Florida, New York, New Jersey, and New Mexico. For these medical practices and affiliates, in 2021, we expect to recognize approximately $14 million of Fee-for-Service and Other Revenue and $5 million of Adjusted EBITDA. In 2022, we expect to recognize approximately $200 million of Capitated Revenue and $16 million of Adjusted EBITDA from 15,000 capitated Medicare members served by these medical practices and affiliates. The projected increase in revenue and Adjusted EBITDA in 2022 is due to our expected success converting patients in these medical practices and affiliates into Cano Health value-based members

Balance Sheet and Cash Flow

* At June 30, 2021, Cano Health had approximately $319 million of cash, cash equivalents and restricted cash and $557 million of debt. On July 2, 2021, in connection with the purchase of DMC, Cano Health borrowed an additional $250 million through an unsecured loan * Since June 30, 2021, the Company has deployed net cash of approximately $205 million in connection with the July and August transactions described above under "Update on Recent Transactions" * Cash used in operating activities for the six months ended June 30, 2021 was $57 million. We expect cash used in operating activities in 2021 to be approximately $90 million with de novo and maintenance capital expenditures in the range of $40 million to $45 million. We expect cash flow from operating activities to be slightly positive in the fourth quarter of 2021 * For the full-year 2022, we expect the strength of our existing operations and the recent acquisitions to generate positive cash flows that will continue to support growth and allow us to deleverage over time

GuidanceThe Company is updating its previous guidance from July 6, 2021. Consistent with that guidance, the guidance below does not include the impact of any additional acquisitions, which the Company expects would be accretive to total revenue and Adjusted EBITDA.

The updated outlook for 2021, which now includes DCE and the recent transactions described above under "Update on Recent Transactions", is expected to be as follows:

* Membership: Approximately 215,000, an increase from the prior range of 205,000 to 210,000 * Total revenue: Approximately $1.6 billion, an increase from the prior guidance of $1.5 billion * Adjusted EBITDA: Approximately $115 million, reflecting an increase from the prior guidance of approximately $110 million * The Company continues to expect to open 15 to 20 de novo medical centers in 2021 * By year-end we expect to be operational in eight states plus Puerto Rico. The states include Florida, Texas, Nevada, New York, New Jersey, New Mexico, and two additional states that will be announced by the end of the third quarter

The updated outlook for 2022 is expected to be as follows:

* Membership: In the range of 275,000 to 280,000, an increase from the prior guidance of approximately 250,000 * Total revenue: In the range of $2.5 billion to $2.6 billion, an increase from the prior guidance of approximately $2.23 billion * Adjusted EBITDA: In the range of $165 million to $170 million, reflecting an increase from the prior guidance of approximately $150 million * The Company continues to expect to open 54 to 59 de novo medical centers in 2022

We have not reconciled our expectations as to non-GAAP measures in future periods to their most directly comparable GAAP measure because certain costs and expenses are outside of our 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 our results computed in accordance with GAAP.

Conference Call InformationCano Health will host a conference call today at 8:30 AM Eastern Time to review the Company's business and financial results for the second quarter ended June 30, 2021.

To access the live call and webcast, please dial (844) 684-0650 for U.S. participants, or +1 (343) 761-2594 for international participants, and reference the Cano Health Second Quarter 2021 Earnings Conference Call. The conference call will also be webcast live in the "Events & Presentations" section of the Investor page of the Cano Health website.

Following the conclusion of the live call, 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 StatementsThis press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, 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 2021 and 2022 fiscal years, our business strategies, the anticipated impact of the recent transactions on our business and future financial and operating results, the expected amount and timing of synergies from the recent transactions, 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; our ability to realize expected results with respect to patient membership, total revenue and earnings; our ability to enter into new markets and continue our growth; our ability to integrate our acquisitions and achieve desired synergies; changes in laws and regulations applicable to our business; our ability to maintain our relationships with health plans and other key payors; the impact of COVID-19 or another pandemic on our business and results of operation; 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"), including the risk factors identified in the definitive Proxy Statement/Prospectus filed with the SEC on May 7, 2021 and incorporated by reference into our Super 8-K filed on June 9, 2021 and in subsequent Quarterly Reports on Form 10-Q. 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 GAAP net income (loss) before interest expense, 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 losses incurred in the twelve months after the opening of a new facility), acquisition transaction costs (consisting of transaction costs, fair value adjustments in contingent consideration, management fees and corporate development payroll costs), restructuring and other charges, loss on extinguishment of debt, changes in fair value of an embedded derivative, 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 in 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 and income 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."

About Cano HealthCano Health operates value-based primary care medical centers and supports affiliated medical practices that specialize in primary care for seniors in Florida, Texas, Nevada, New York, New Jersey, New Mexico, and Puerto Rico, with additional markets in development. As part of its care coordination strategy, Cano Health provides sophisticated, high-touch population health management programs including telehealth, prescription home delivery, wellness programs, transition of care, and high-risk and complex care management.

Cano Health's personalized patient care and proactive approach to wellness and preventive care sets it apart from competitors. Cano Health has consistently improved clinical outcomes while reducing costs, affording patients the opportunity to lead longer and healthier lives. Cano Health serves a predominantly minority population (80% of its patients are Latino or African American) and low-income population (50% of its members are dual eligible for Medicare and Medicaid). For more information visit www.canohealth.com or www.canohealth.com/investors/.

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

UNAUDITED



Three Months Ended Six Months Ended

June 30, June 30,

(in thousands, except share and per share 2021 2020 2021 2020 data)

Revenue:

Capitated revenue $379,210 $163,927 $646,261 $291,643

Fee-for-service and 13,953 7,279 27,037 14,861 other revenue

Total revenue 393,163 171,206 673,298 306,504

Operating expenses:

Third-party medical 291,816 112,040 486,862 197,353 costs

Direct patient expense 43,782 22,554 78,069 40,333

Selling, general and 46,574 21,859 81,422 42,843 administrative expenses

Depreciation and 7,945 3,977 13,791 7,362 amortization expense

Transaction costs and 16,374 15,687 25,613 22,138 other

Total operating 406,491 176,117 685,757 310,029 expenses

Loss from operations (13,328) (4,911) (12,459) (3,525)

Other income and expense:

Interest expense (9,714) (5,717) (20,340) (9,382)

Interest income 1 79 2 159

Loss on extinguishment (13,225) - (13,225) - of debt

Change in fair value of - (306) - (306) embedded derivative

Change in fair value of 39,215 - 39,215 - warrant liabilities

Other expenses (25) (150) (25) (150)

Total other income 16,252 (6,094) 5,627 (9,679) (expense)

Net income (loss) before income tax 2,924 (11,005) (6,832) (13,204)benefit

Income tax benefit 2,023 19 1,309 32

Net income (loss) 4,947 (10,986) (5,523) (13,172)

Net income (loss) attributable to 3,181 (22) (3,551) (26) non-controlling interests

Net income (loss) attributable to Class A$1,766 (10,964)$(1,972) (13,146)common stockholders



Net income (loss) per share to Class A common$0.01 N/A $(0.01) N/A stockholders, basic

Net income (loss) per share to Class A common$(0.07) N/A $(0.10) N/A stockholders, diluted

Weighted-average shares used in computation of earnings per share:

Basic 167,134,853 N/A 166,691,634 N/A

Diluted 168,884,315 N/A 167,571,198 N/A

CONDENSED CONSOLIDATED BALANCE SHEETS

UNAUDITED

As of,

(in thousands, except share data) June 30, 2021 December 31, 2020

Assets

Current assets:

Cash, cash equivalents and restricted $319,277 $33,807 cash

Accounts receivable, net of unpaid 131,831 76,709 service provider costs

Inventory 1,176 922

Prepaid expenses and other current assets 20,105 8,937

Total current assets 472,389 120,375

Property and equipment, net 46,358 38,126

Goodwill 546,312 234,328

Payor relationships, net 395,185 189,570

Other intangibles, net 194,315 36,785

Other assets 4,654 4,362

Total assets 1,659,213 623,546

Liabilities and stockholder's equity

Current liabilities:

Current portion of notes payable 5,488 4,800

Current portion of equipment loans 324 314

Current portion of capital lease 978 876 obligations

Current portion of contingent 12,347 - consideration

Accounts payable and accrued expenses 46,465 33,180

Deferred revenue 1,313 988

Current portions due to sellers 22,020 27,129

Other current liabilities 3,734 1,333

Total current liabilities 92,669 68,620

Notes payable, net of current portion and 525,830 456,745 debt issuance costs

Warrants liabilities 123,843 -

Equipment loans, net of current portion 891 873

Capital lease obligations, net of current 1,667 1,580 portion

Deferred rent 4,868 3,111

Deferred revenue, net of current portion 4,623 4,277

Due to sellers, net of current portion - 13,976

Contingent consideration - 5,172

Other liabilities 16,471 11,648

Total liabilities 770,862 566,002

Stockholders' Equity / Members' Capital

Shares of Class A common stock $0.0001 par value (authorized 6,000,000,000 shares with 170,299,189 shares issued and 17 - 170,299,189 shares outstanding at June 30, 2021)

Shares of Class B common stock $0.0001 par value (authorized 1,000,000,000 shares with 306,843,662 shares issued and 31 - 306,843,662 shares outstanding at June 30, 2021)

Members' capital - 157,591

Additional paid-in capital 389,892 -

Accumulated deficit (101,885) (99,913)

Notes receivable, related parties (136) (134)

Total Stockholders' Equity / Members' 287,919 57,544 Capital attributable to Cano Health, Inc.

Non-controlling interest 600,432 -

Total Stockholders' Equity / Members' 888,351 57,544 Capital

Total Liabilities and Stockholders' $1,659,213 $623,546 Equity / Members' Capital

CONDENSED CONSOLIDATED CASH FLOWS

UNAUDITED

Six Months Ended

June 30,

(in thousands) 2021 2020

Cash Flows from Operating Activities:

Net loss $(5,523) $(13,172)

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense 13,791 7,362

Change in fair value of contingent consideration (211) -

Change in fair value of embedded derivative - 306

Change in fair value of warrant liabilities (39,215) -

Loss on extinguishment of debt 13,225 -

Amortization of debt issuance costs 8,540 1,089

Equity-based compensation 3,239 112

Paid in kind interest expense - 1,188

Changes in operating assets and liabilities:

Accounts receivable, net (54,973) (17,806)

Inventory (254) (273)

Other assets (5,925) (20)

Prepaid expenses and other current assets (16,790) (268)

Accounts payable and accrued expenses 23,407 8,516

Deferred rent 1,757 564

Deferred revenue 671 -

Other liabilities 1,681 (1,258)

Net cash used in operating activities (56,580) (13,143)



Cash Flows from Investing Activities:

Purchase of property and equipment (7,730) (3,971)

Acquisitions of subsidiaries including non-compete (617,576) (205,325)intangibles, net of cash acquired

Payments to sellers (23,963) (36,628)

Advances to related parties - (2)

Net cash used in investing activities (649,269) (245,926)



Cash Flows from Financing Activities:

Contributions from member - 101,906

Business combination and PIPE financing 935,362 -

Interest accrued due to seller 957 -

Payments of long-term debt (402,572) (338)

Debt issuance costs (11,274) (11,356)

Proceeds from long-term debt 295,000 150,000

Proceeds from delayed draw term loan 175,000 -

Repayments of delayed draw term loan (2,350) -

Proceeds from revolving credit facility - 9,700

Repayments of revolving credit facility - (9,700)

Proceeds from insurance financing arrangements 4,355 2,599

Payments of principal on insurance financing (2,941) (1,567) arrangements

Repayments of equipment loans (154) (187)

Repayments of capital lease obligations (64) (464)

Net cash provided by financing activities 991,319 240,593



Net increase (decrease) in cash, cash equivalents 285,470 (18,476) and restricted cash

Cash, cash equivalents and restricted cash at 33,807 29,192 beginning of year

Cash, cash equivalents and restricted cash at end $319,277 $10,716 of period



Supplemental cash flow information:

Interest paid (11,925) $(8,294)



Non-cash investing and financing activities:

Issuance of securities by Cano Health, Inc. in 60,000 - connection with acquisitions

Issuance of securities in PCIH in connection with - 34,300 acquisitions

Contingent consideration in connection with 9,200 - acquisitions

Due to seller in connection with acquisitions 295 16,288

Humana Affiliate Provider clinic leasehold 2,864 1,025 improvements

Capital lease obligations entered into for property 52 482 and equipment

Equipment loan obligations entered into for 183 103 property and equipment

Issuance of security in exchange for balance due to - 2,158 seller

RECONCILIATION OF NON-GAAP MEASURES

ADJUSTED EBITDA



Three Months Ended Six Months Ended June 30, June 30,

($ in thousands) 2021 2020 2021 2020

Net income (loss) $4,947 $(10,986)$(5,523) $(13,172)

Interest income (1) (79) (2) (159)

Interest expense 9,714 5,717 20,340 9,382

Income tax benefit (2,023) (19) (1,309) (32)

Depreciation and amortization $7,945 3,977 $13,791 7,362 expense

EBITDA $20,582 $(1,390) $27,297 $3,381

Stock-based compensation 3,168 57 3,239 112

De novo losses 6,968 956 12,480 2,348

Acquisition transaction costs 17,236 15,776 27,339 22,294 (1)

Restructuring and other (2) 2,811 531 3,222 716

Loss on extinguishment of debt 13,225 - 13,225 -

Change in fair value of embedded - 306 - 306 derivative

Change in fair value of warrant (39,215) - (39,215) - liabilities

Adjusted EBITDA $24,775 $16,236 $47,587 $29,157



De novo losses include those costs associated with the ramp up of new facilities that are not expected to be incurred past the first 12 months(1) after opening. These costs collectively are higher than comparable expenses incurred once such a facility has been open and generating revenue and would not have been incurred unless a new facility was being opened.

Acquisition transaction costs included $862 and $89 of corporate development payroll costs for the three months ended June 30, 2021 and 2020, respectively, and $1,726 and $156 of corporate development payroll2) costs for the six months ended June 30, 2021 and 2020, respectively. Corporate development payroll costs include those expenses directly related to the additional staff needed to support our increased acquisition activity.

KEY METRICS



Three Months Ended June 30,

2021 2020 % Change

Members:

Medicare 111,866 72,576 54.1 %

Medicaid 25,178 16,585 51.8 %

ACA 18,994 10,115 87.8 %

Total members 156,038 99,276 57.2 %



Member months:

Medicare 282,251 152,764 84.8 %

Medicaid 71,461 45,515 57.0 %

ACA 57,816 30,474 89.7 %

Total member months 411,528 228,753 79.9 %



PMPM:

Medicare $1,186 $ 847 40.0 %

Medicaid $612 $ 747 (18.1)%

ACA $14 $ 18 (22.2)%

Total PMPM $921 $ 717 28.5 %



Owned medical centers 90 61



Six Months Ended June 30,

2021 2020 % Change

Members:

Medicare 111,866 72,576 54.1 %

Medicaid 25,178 16,585 51.8 %

ACA 18,994 10,115 87.8 %

Total members 156,038 99,276 57.2 %



Member months:

Medicare 507,081 267,525 89.5 %

Medicaid 134,369 83,147 61.6 %

ACA 113,853 60,292 88.8 %

Total member months 755,303 410,964 83.8 %



PMPM:

Medicare $1,105 $ 880 25.6 %

Medicaid $613 $ 660 (7.1) %

ACA $29 $ 22 31.8 %

Total PMPM $856 $ 710 20.6 %



Owned medical centers 90 61

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 financial table included at the end of this press release. An explanation of this measure and how it is calculated is also included under the heading "Reconciliation of Non-GAAP Financial Measures."

Investor Relations Contacts:Alan Oshiki or Sydney IsaacsAbernathy MacGregor212.371.5999 / 713.817.9346aho@abmac.com / sri@abmac.com

Media Relations Contact:Patricia GraueBrunswick Group212.333.3810canohealth@brunswickgroup.com

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SOURCE Cano Health