Cano Health(CANO) - 2022 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Cautionary Note Regarding Forward-Looking Statements This section details forward-looking statements, emphasizing their inherent risks and the potential for actual results to differ materially from expectations - Forward-looking statements cover areas such as the ability to recognize benefits from acquisitions, financial performance, strategy changes, regulatory impacts, membership growth, and the ability to control medical costs[8] - Key risks that could cause actual results to differ include the ability to maintain NYSE listing, security price volatility, economic downturns, the need for additional capital, and difficulties in managing growth[11] Financial Statements (Unaudited) The unaudited financial statements reveal increased assets and liabilities, a net loss of $112.0 million for Q3 2022, and a significant decrease in cash and cash equivalents Condensed Consolidated Balance Sheets The balance sheet shows total assets at $2.20 billion, a sharp decline in cash to $24.1 million, and an increase in total liabilities to $1.41 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash, cash equivalents and restricted cash | $24,097 | $163,170 | | Accounts receivable, net | $202,037 | $133,433 | | Goodwill | $787,885 | $769,667 | | Total Assets | $2,196,139 | $2,143,539 | | Liabilities & Equity | | | | Notes payable, net | $914,394 | $915,266 | | Total Liabilities | $1,413,105 | $1,344,971 | | Total Stockholders' Equity | $783,034 | $798,568 | Condensed Consolidated Statements of Operations Q3 2022 revenue increased to $665.0 million, but net loss widened to $112.0 million, with nine-month revenue reaching $2.06 billion and net loss at $126.7 million Statement of Operations Highlights (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $665,028 | $498,931 | $2,058,543 | $1,117,114 | | Capitated Revenue | $625,895 | $473,763 | $1,955,739 | $1,064,604 | | Loss from Operations | ($31,445) | ($33,592) | ($74,231) | ($92,929) | | Net Loss | ($112,011) | ($64,840) | ($126,660) | ($117,240) | | Net Loss per Share (basic) | ($0.23) | ($0.14) | ($0.28) | ($0.11) | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $84.2 million, investing activities used $48.2 million, and overall cash and equivalents decreased by $139.1 million Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($84,158) | ($94,493) | | Net cash used in investing activities | ($48,153) | ($1,112,848) | | Net cash provided by (used in) financing activities | ($6,762) | $1,382,447 | | Net decrease in cash | ($139,073) | $175,106 | Notes to Interim Condensed Consolidated Financial Statements These notes detail accounting policies, business structure, revenue recognition, debt, fair value measurements, and other significant financial disclosures - The company provides value-based medical care, focusing on Medicare Advantage, DCE, ACO, and Medicaid members[37][38][41] Revenue Breakdown (Nine Months Ended Sep 30, 2022) | Revenue Stream | Amount (in thousands) | % of Total | | :--- | :--- | :--- | | Medicare Capitated | $1,795,820 | 87.2% | | Other Capitated | $159,919 | 7.8% | | Fee-for-service & Other | $102,804 | 5.0% | | Total Revenue | $2,058,543 | 100.0% | - During the first nine months of 2022, the company completed seven asset acquisitions for a total purchase price of $41.7 million, consisting of cash, deferred payments, and Class A common stock[73] - Total debt as of September 30, 2022, consists of a $639.6 million term loan and $300.0 million in senior notes[93][97][98] - The company is involved in a class-action lawsuit filed in March 2022, alleging violations of the Securities Exchange Act related to disclosures about due diligence and revenue recognition[165][167] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses significant revenue growth driven by membership and acquisitions, a widening net loss due to increased expenses, and liquidity management Overview and Key Performance Metrics This section outlines the company's value-based care model and highlights significant growth in membership to 294,596 and medical centers to 151 - The company's business model is built on capitated contracts with major health plans, aligning incentives to improve health outcomes and manage costs effectively[188][193] Key Performance Metrics | Metric | Sep 30, 2022 | Sep 30, 2021 | % Change | | :--- | :--- | :--- | :--- | | Membership | 294,596 | 210,663 | 39.8% | | Medical centers | 151 | 113 | 33.6% | Results of Operations Q3 2022 revenue grew 33.3% to $665.0 million, while operating expenses increased, leading to a nine-month net loss of $126.7 million despite 84.3% revenue growth Comparison of Three Months Ended September 30, 2022 and 2021 (in thousands) | Item | Q3 2022 | Q3 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $665,028 | $498,931 | $166,097 | 33.3% | | Third-party medical costs | $489,565 | $381,316 | $108,249 | 28.4% | | SG&A Expenses | $111,765 | $76,618 | $35,147 | 45.9% | | Net Loss | ($112,011) | ($64,840) | ($47,171) | 72.7% | Comparison of Nine Months Ended September 30, 2022 and 2021 (in thousands) | Item | 9M 2022 | 9M 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $2,058,543 | $1,117,114 | $941,429 | 84.3% | | Third-party medical costs | $1,566,661 | $868,177 | $698,484 | 80.5% | | SG&A Expenses | $314,617 | $158,786 | $155,831 | 98.1% | | Net Loss | ($126,660) | ($117,240) | ($9,420) | 8.0% | Liquidity and Capital Resources The company's cash decreased to $24.1 million, with $120.0 million available on its credit facility, and management expects sufficient liquidity for the next 12 months - The company has financed operations through the 2021 Business Combination and debt, expecting to require additional capital for strategic growth initiatives[278][279] Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($84,158) | ($94,493) | | Net cash used in investing activities | ($48,153) | ($1,112,848) | | Net cash (used in) provided by financing activities | ($6,762) | $1,382,447 | - Management believes current cash and available credit will fund operations for at least the next 12 months, though this is a forward-looking estimate subject to risks[283] Non-GAAP Financial Metrics The company utilizes non-GAAP metrics like Adjusted EBITDA, which significantly increased to $116.8 million for the nine months ended September 30, 2022 Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Loss | ($112,011) | ($64,840) | ($126,660) | ($117,240) | | Interest, Taxes, D&A | $40,542 | $33,527 | $107,721 | $66,343 | | EBITDA | ($71,469) | ($31,316) | ($18,943) | ($50,897) | | Stock-based compensation | $11,041 | $9,451 | $42,641 | $13,130 | | De novo losses | $24,282 | $10,178 | $59,567 | $24,561 | | Transaction costs | $6,733 | $12,503 | $24,445 | $39,297 | | Other adjustments | $71,866 | $12,833 | $9,132 | ($10,000) | | Adjusted EBITDA | $42,453 | $13,649 | $116,842 | $16,112 | Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures have occurred since the 2021 Annual Report, with interest rate risk remaining the primary exposure - There have been no material changes to the company's market risk disclosures since the 2021 Form 10-K[305] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective due to un-remediated material weaknesses in financial closing and accounting processes - Management concluded that disclosure controls and procedures were not effective as of September 30, 2022[306] - The ineffectiveness is due to material weaknesses identified in the 2021 Form 10-K, which have not yet been fully remediated, relating to financial closing, business combination accounting, and personnel expertise[307][308] - Remediation efforts are underway, including enhancing policies, procedures, training, and recruiting skilled personnel, with management believing progress has been made[309][310] PART II. OTHER INFORMATION Legal Proceedings The company is involved in a class action lawsuit filed in March 2022, as detailed in Note 16, and other ordinary course litigation - The company is involved in legal proceedings, most notably a class action lawsuit described in Note 16 of the financial statements[315] Risk Factors No material changes to risk factors have occurred since the 2021 Form 10-K filing - No material changes to risk factors have occurred since the 2021 Form 10-K filing[316] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2022, the company issued Class A common stock in unregistered transactions primarily for asset acquisitions and related fees - Issued 5,859,438 shares of Class A common stock on August 16, 2022, to Belen Health, LLC, pursuant to an asset purchase agreement[317] - Issued a total of 6,895,830 shares of Class A common stock in multiple unregistered transactions during Q3 2022 for acquisitions and related fees[317][318][319] Other Information There is no other information to report for this item - None[326] Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications by the CEO and CFO, and XBRL data files - The exhibit index lists all documents filed with or furnished as part of the report, including officer certifications and XBRL files[329]