Cano Health, Inc. (CANO) on Q1 2022 Results - Earnings Call Transcript
Operator: Good morning and welcome to Cano’s Health First Quarter 2022 Earnings Call. Currently, all participants are in a listen-only mode. After the speaker’s presentation there will be question-and-answer session. Please be advised that today’s conference is being recorded. Hosting today's call are Dr. Marlow Hernandez, Chairman and Chief Executive Officer; and Brian Koppy, Chief Financial Officer. The Cano Health press release, webcast link and other related materials are available on the Investor Relations section of Cano Health's website. These statements are made as of May 9, 2022, and reflect management's views expectations at this time, and are subject to various risks, uncertainties and assumptions. As a reminder, this call contains forward-looking statements regarding future events and financial performance, including our guidance for the 2022 fiscal year. We intend these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. We caution you that the forward-looking statements reflect our best judgment as of today based on factors that are currently known to us and actual future events or results could differ materially. During the call, we will also discuss non-GAAP financial measures. The non-GAAP financial measures we will discuss today are not prepared in accordance with GAAP. A reconciliation of the GAAP and non-GAAP results is provided in today's press release and on the Investor Relations section of our website. With that, I'll turn the call over to Dr. Marlow Hernandez, Co-Founder, Chairman and CEO of Cano Health. Please go ahead. Marlow Hernandez: Good morning. Thank you and welcome to the call. We appreciate you joining us today. I like to take this opportunity to thank the entire Cano Health team for their hard work and dedication to our mission. With strong growth and membership, revenue and adjusted EBTIDA the Cano Health team delivered yet another strong quarter and continued to position the company for future growth, all the while providing quality healthcare improve outcomes for now more than 269,000 members. This quarter once again demonstrates the continued momentum of our business. We drove top line revenue growth 156% year-over-year by continuing to execute on our build by manage growth strategy. Further, we achieved adjusted EBITDA growth of 157% year-over-year, even while making the investments required by our fast pace of growth. This is important validation of the fundamental earnings power of our business model. We have just begun to build scale and density in many new markets, which we believe will provide us with the opportunities to leverage our investments and generate additional earnings for further growth in a virtuous cycle. Our national care platform has proven to add value to entire populations, a key demographic we served as Medicare patients. We ended the quarter with more than 160,000 Total Capitated Medicare members, which included over 119,000 Medicare Advantage members and over 41,000 Medicare Direct Contracting Entity or DCE members. We’re excited about the significant growth in our DCE membership in 2022, which broadens our potential to provide value based primary care to Medicare patients who were formerly fee for service. DCE members were above or January one level by approximately 11,000 members, reflecting 2022 roster reconciliations. The majority of our DCE members are served by our 1000 Plus affiliate physicians, allowing us to serve more patients, gain market insights in places like New York, New Jersey and Arizona where we don't presently have owned medical centers and build scale and density quickly and efficiently. We expect DCE to be marginally accretive to EBITDA in 2022 and expect margins to improve over time as more intensive primary care leads to fewer hospitalizations, and better overall health outcomes. Our Medicare Advantage membership grew sequentially in the first quarter, the lower than our generate one estimates due to on-going management of our Puerto Rico affiliates, retaining those affiliates that are most committed to value based primary care and due to timing of convergence of fee for service Medicare patients to Medicare Advantage in new markets, which we expect to pick up in the second half of this year. Combined Medicare Advantage and Medicare DCE membership represented 60% of our total membership compared to 56% in Q4. Even with natural attrition and DCE membership during the year, we expect total membership in Medicare to remain about 60% of total members through 2022, due to growth in our Medicare Advantage membership. Turning to owned medical centers, we ended the quarter with 137 Medical Centers up from 130 at the end of Q4 as we have done historically, the majority of our new centers will be added in the second half of the year to coincide with the annual enrollment period. Also, as in the past, we're continuing to grow organically by building centers and adding tuck-ins through the integration of existing affiliates and small independent practices because patients and facilities are blended with our own nearby medical centers. The average costs with tuck-in medical center is about 1.5 million lower than the roughly 1.8 million we typically spend to build a new medical center. Generally we expect tuck-in medical centers to break even on an EBITDA basis in year one as we add services and offer value based Medicare programs to fee for service Medicare patients and turn profitable in year two with a significantly faster ramp than ground up builds. Let me tell you about two of our recent tuck-ins. One of these quarter’s tuck-ins is an independent medical center in a rapidly growing Las Vegas market. The center is run by a well-respected physician who has been serving her community for many years and serves primarily commercial and fee-for-service Medicare patients. As we add services to this center, we expect to increase the number of value based capitated Medicare members at the center. Another tuck-in is an affiliate of Medical Center in South Florida that will move to an under construction kind of help the novel by the end of this year. This now former affiliate had about 260 members already contracted with us and bring at least 500 additional fee-for-service Medicare members. Again as we add services for patients expand the medical center, we expect to increase the number of value based Medicare members we serve. Let me now highlight some of our clinical results. Healthy Heart, our cardiovascular prevention program has significantly improved statin use among participating patients with diabetes and atherosclerotic cardiovascular disease, increasing the number of patients at an LDL goal of less than 70 by 108%. In addition, our clinical operations team is making measurable progress in reducing the progression of chronic kidney disease or CKD. Their protocols which are now integrated into CanoPanorama, maybe more effective than approved drugs to treat CKD such as SGLT2 inhibitors. These are just a few of the clinical activities underway to support our demonstrated success in reducing hospital admissions, ER visits, and improving significantly mortality rates. Overall, our performance this quarter reinforces our confidence and kind of helps national care platform, which is designed to improve access quality and wellness and our growth strategy of building, buying and managing medical centers to achieve scale and density which in turn produces profitable growth. We're proud of the critical role Cano Health plays in transforming the U.S. healthcare system and redefining primary care, particularly for underserved communities. Yet, we're only just beginning. I look forward to share with you our vision of the future, at our upcoming investor day on June 7. Now I'll turn the call over to our CFO, Brian Koppy, who will walk you through on our financial performance and outlook. Brian Koppy: Thank you, Marlow. And thanks everyone for joining us today. The total membership increased 130% to approximately 269,000 members in the first quarter. This represents an increase of more than 150,000 members from the first quarter of 2021. In the first quarter, 44% of our members were Medicare Advantage, 15% were Medicare DCE, 25% were Medicaid and 15% were ACA. Total revenue for the quarter was approximately $704 million, up from approximately $275 million a year ago and $492 million in the fourth quarter. Total capitated revenue was approximately $674 million in the quarter, up from approximately $465 million in the fourth quarter. This 45% sequential increase was driven by a mix shift toward Medicare members, a 22% increase in member months and a 19% increase in total capitated revenue per member per month or PMPM. Our Medicare PMPM in the quarter was $1,283, which is in line with the estimated $1,280 PMPM for 2022 we discussed on our fourth quarter call. Additional information about our membership mix and our PMPM or revenue per member per month by line of business is available in our press release and updated financial supplement slides posted this morning on our website. Our medical cost ratio or MCR in the quarter was 79.5% compared to 74.6% a year ago, driven by the significant increase in new DCE members. Excluding DCE, our MCR was 74%, which was below our Q1 2021 MCR prior to the start of the DCE program. As we have discussed in the past, DCE members initially have an MCR in the mid-to-high 90s, which we expect to decline over time as we provide value based primary care services to improve management of chronic conditions. For 2022, we expect to maintain -- are in the range of 76% to 76.5% as discussed on our fourth quarter call. This reflects our expectation that total MCR in the second half will be significantly lower than the total MCR in the first half. This is primarily due to the positive impact of stop loss insurance as members with higher cost medical conditions reached the maximum amount we are responsible for under our policies in addition to lower electric procedures during the holidays, and the continued integration of DCE patients into our population health platform. Direct patient expense was 8.6% of revenue. This was lower than the usual 11% to 12% we see each quarter, primarily as a result of higher Medicare DCE revenue, which has lower direct patient expense than other capitated revenue. SG&A in the quarter was 13.9% of revenue or 11.7%, excluding stock-based compensation. Adjusted EBITDA in the quarter was $45 million, up from $17.5 million a year ago, producing an adjusted EBITDA margin of 6.4%. Now, let me turn to our cash flow and liquidity. We ended the first quarter with about $113 million in cash and our $120 million revolving line of credit was undrawn. Total debt at the end of the first quarter was $938 million, and includes long term debt, capital leases, and payments due to sellers. Our total net debt was $825 million, defined as total debt less cash. During the first quarter 2022, cash used in operating activities was $37 million. This was largely related to working capital requirements. For the full year of 2022, we continue to expect to generate positive operating cash flows as a result of the strong start of the year for the company and as we discussed, the Medicare risk adjustment payments will continue to come in throughout the year, with the largest payment expected in June or July. As Marlow -- the quarter with 137 medical centers. Within those centers, we had over 400 employee providers. We are now on track to expand our own medical centers to the range of 184 to 189 by the end of the year. So now let me summarize our 2022 outlook, which remains unchanged since our last guidance in March. We expect membership for 2022 to be in the range of 290,000 to 295,000. Total revenue is expected to be approximately $2.8 billion to $2.9 billion. For the full year 2022, we expect our MCR will be in the range of 76% to 76.5%. We expect to operate 184 to 289 owned medical centers by the end of 2022 and our adjusted EBITDA is expected to be $230 million to $240 million. Additionally, we expect interest expense of $60 million to $65 million, stock-based compensation expense of $60 million to $65 million, and capital expenditures of $40 million to $60 million. As we announced a few weeks ago, we will be holding an investor day on June 7 at 9:30 a.m. Eastern time focusing on the company's strategic priorities, business model, growth drivers and financial look. A live webcast of the investor day presentation along with supporting materials will be available on the day of event on Cano’s Health Investor Relations website. With that, I will ask the operator to open the call to your questions. Operator: Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Adam Braun from Bank of America. Your line is open. Please go ahead. Adam Braun: Hey, thanks. Appreciate the question. Yes, you mentioned the 60% target, I think for Capitated MA membership for the rest of the year. And you mentioned how it was like a big part of ramping the tuck-in centers. So I'm wondering how we should think about that longer term if the 60% makes sense, or is it some sort of target or if it should go higher than that? Marlow Hernandez: Good morning, this is Marlow. Let me take that question. First, we're referring to 60% for the Medicare Capitated Membership as a whole, not just the Medicare Advantage hard to predict which value based model patients will select on any given month or quarter though the trend is toward Medicare Advantage. But we are confident in having a target for the year. That is 60% of our total membership be Medicare Capitated and given the run rates we see in the patient preference. Over time, it is likely that that will be the percentage but we also serve a number of other populations and in Cano we don't turn patients away. That's been our mantra from day one. And thus if we can be a solution to an entire population, and that brings other value based membership. That is something that we will continue to serve. However, our focus and where we provide the most value is for patients on Medicare. Our model is designed in such a way that we have this holistic, evidence based approach to senior healthcare in particular, and underserved populations in even more focus, given the significant structural problems we have as health healthcare system in the United States. Therefore, a significant portion of our patient population will continue to be Medicare and specifically Medicare Advantage at this point, what we feel comfortable guiding to the 60% target for Medicare membership as a percentage of total. Adam Braun: Okay, I appreciate that. If I could do one more follow up. I think the you mentioned affiliates were around 1000. And that was the same as last quarter and it sounds like you, you may be cut some underperforming ones and maybe added a few but just in general, how should we think about the growth of that business? Is that something that should basically be stable from here? Or is it continued part of the expansion strategy to go into new states with affiliates first, and grow with the clinics or slower than the clinics? How should we think about it? Marlow Hernandez: Sure, our growth strategy has always been to build buy manage, therefore, we will continue to add affiliates as we continue to add owned medical centers, hard to predict how they will be in proportion to each other because we are specifically designed to provide a market solution. And in certain markets, it makes more sense to have affiliates. In other markets, it makes more sense to have own medical centers. In most markets, it will be a combination, but that combination will reflect the specific market dynamics because we're targeting to serve the most amount of patients in the least amount of time, with the most value creation as defined as the best clinical outcomes, the lowest risk, the best capital, efficiency and ROI. And that is not a one size fits all, a great differentiator for our company, as we have shown historically, is that we can adapt to the different markets with respect to the lines of business and the specific growth avenues. While the non-negotiable, what is scalable, and portable, we have distilled into three essentials, which is access quality and wellness that we're going to solve for through a number of growth avenues. Our base business is simple. Our business model is simple. It's investing in primary care prevention, which reduces downstream costs, depending on the specific needs of the market, the populations, the payers, the providers we're going to utilize the growth avenue that is the most appropriate for that market in order to achieve the best results. And like what I answered in the previous question, I think that we can give you that near term visibility, but we will continue to be grounded on access quality and wellness and building buying and managing medical centers. And we know that that proportion in those populations being served are going to vary depending on the needs of the specific markets. Adam Braun: Thanks, appreciate it. Operator: Our next question comes from the line of Andrew Mock from UBS. Your line is open. Please go ahead. Unidentified Analyst: Hi, good morning. Brian, you mentioned favorable experience around your stop loss insurance is driving significantly lower MLR in the back half of the year. Can you expand on that a bit which patient groups are impacted by this and how big of an impact is expected to be? Thanks. Brian Koppy: Yes, no great question. Thank you. It is going to clarify. Yes, what I'm referring to is in the back half of the year, we will have the positive effect of stop loss taking in members that have reached their individual stop loss limit. So that's really how we think of the seasonality of our business. We're mainly Medicare Advantage type plans so members don't have co pays and deductibles, what happens at the back half of the year is our individual stop loss will kick in for those members. So our overall claims experience is really capped at that point. So you do not see any incremental claim costs come through for those members. And that's why you see, and what we've what we've guided to, in the second half MCR will be much more improved over the first half MCR with our overall book of business. Unidentified Analyst: Got it. So the change in MCR expectation really doesn't have anything to do with the back end weighted clinic openings, or is this fully kind of stop loss impact that you're describing. Brian Koppy: Yes, it's more the it's more stop loss and the utilization. And then also, the third point that I mentioned, too, is we do expect that the DCE program will continue to see improvements throughout the year. So that's those are really the big three components when you look at first half second half. Unidentified Analyst: Got it. That's helpful. And you have 137 centers today, full year guidance implies another 50 or so centers opening this year. Can you put some color around the M&A pipeline and then also help clarify, if acquired clinics will skew more toward affiliate or independent practices? Thanks. Brian Koppy: Yes, sure. I'll reiterate a little bit about I was talking about it right now. We it's really market by market, our market leaders are the ones driving the decisions to determine the best use of capital, the best deployment of growth, whether it's, through the buy, build manage strategy, and we're really trying to be, we want to keep that optionality open. We have a number of centers that were already planning but then we're being flexible in terms of what's the next best deployment of our capital as we go through the year in terms of some tuck-ins or additional expansions through new centers within those sites. So, we're really trying to keep that center flexibility. And that's important for us to maximize these in the growth potential within each of the markets. But at the end of the day, we have a line of sight; we believe we'll be able to get to that added capacity, which is critically important for our continued growth. As you can see our strong membership growth is coming online. And we want to grow without that membership, through adding capacity in the various markets we're in. Unidentified Analyst: Got in. And if I could just sneak in one last one here. Given that you're leaning into some of the tuck-in M&A, can you help us understand how transaction multiples have trended over the past 12 months or so? Thanks. Brian Koppy: Sure, I think it's very similar to what we talked about last quarter, where we have a very active and robust pipeline in terms of market intelligence around what are the opportunities, as we're expanding in each of these markets, we have people in the field working the opportunities, and I would say, we've seen some of the multiples become much more attractive. And that's really making the market local market leadership, continue to reassess how they want to effectively grow their markets. So I think that's given and we're still seeing those multiples, become a little more attractive than we've seen in the past. And, we'll continue to be prudent and diligent and doing the assessment and the analysis to make sure we're deploying capital in the most effective use with the highest return. Unidentified Analyst: Great, thanks for the color. Operator: Our next question comes from the line of Gary from Colin. Your line is open. Please go ahead. Unidentified Analyst: Hi, good morning. Just following up on your comments about EBITDA seasonality. Just a little bit appreciate the comments you've made so far. Is there anything else that we should be thinking about? I guess it looks like, historically, maybe third quarter has been the strongest EBITDA quarter. Does it make sense to be modeling that way? Or should we really just sort of be modeling, sequential improvement through the course of the year? Any help would be appreciated? Brian Koppy: Yes, no, it's a good question. There’s always a little bit of timing between that I'll call it June, July does it hit second, third, and then third, fourth. I would view that our sequential pattern should increase quarterly throughout the year. So it's kind of a first second third fourth type of pattern historical trends tend to be a little difficult as everyone knows, through COVID and various different things, changing the views of the quarterly patterns. But as we sit here today, I would expect sequential improvement throughout the throughout the year. Unidentified Analyst: Got it. And then just looking at, the DSO, which is a net number, has those provider claims made it off that that looked really stable sequentially, and year-over-year. Is there anything worth calling out to think about as the year progresses? I know DCE only settles once annually. But since reporting a net number, maybe that doesn't really drive that DSO number higher, but just wondering if there's any color to think about? Or if you think that sort of 25 day net number is, it's pretty good to be thinking about? Brian Koppy: Yes, I think that's a good question. I think a lot of people, you'll see that our net AR is up sequentially. But that is sort of where you are going is that increase is really due to the higher DCE membership that we saw this quarter with the higher associated revenue. And keep in mind we also have the MRA that we're accounting for this quarter as well. So those are two drivers, when you look sequentially fourth quarter to first quarter that's increasing that AR. And this is where we look at the business from a DSO to DCP ratio. So think about the DSO in the quarter, roughly 26 days, that's flat sequentially. Compare that to DCP, which is 37 days, up slightly from fourth quarter. And you can't really see that yet. You'll see that when the queue is filed. So we had unpaid provider claims in the quarter of roughly $222 million, which I said you'll see in the queue. So when you take that ratio of DSO to DCP, looking at it fourth quarter to first quarter, it's really in line. So we feel good about that. And I think that that's a good way to think of that as you as we go forward that that relationship holdings throughout the year. Unidentified Analyst: Last one for me just looking at the $1,379 per member per month revenue on the DCE enrollments. And I realized here in year two of direct contracting, I think there's only a two or 3% haircut, versus benchmark. So that numbers much closer to the real Medicare benchmark for those members. But the 1379 does that does seem high? Is that just geography? Or does that reflect that your DCE membership still has a very high component of, of dual eligibles and highly comorbid population? Brian Koppy: Yes, no, you're right on. It's really it's really geographic driven. We have the DCE membership is quite widespread, and that PMPM is highly correlated to the geographic presence of those members. Unidentified Analyst: Okay, thank you. Brian Koppy: Thank you. Operator: Our next question comes from line of Jason Cassorla from Citi. Your line is open. Please go ahead. Jason Cassorla: Great, thanks for the questions. You noted that the majority of the DCE membership is served by our affiliate physicians. But can you help on what the absolute split is of your DCE membership between your own centers and affiliates at this point? And then maybe just a follow on to that, in the past, you've noted something like a mid-single digit margin upside, as affiliates kind of come under the Cano owned model and aggregate over time. Would you expect a similar experience for DCE members within that affiliates that become owned? Or are there nuances that we should consider that will make that comparable? Thanks. Brian Koppy: Sure, for the DCE membership, certainly, a majority of that membership is coming from the affiliates and is will be outside of the called I’ll call it the Cano medical centers. And that's just the nature of how CMS is assigning that membership to those affiliates, so that I would expect to continue. And then as far as the DCE, MCR improve, we've talked about how we're around 96% or so, in the first quarter, we would expect that to see some sequential some improvement as we go to the back half of the year getting into the low 90s, probably, as we kind of exit fourth quarter 2022. And a lot of that is given that we the big focus is on member engagement and changing the member behavior in order to engage with the primary care doctor and receive a high quality care treatment plan, which will then as we talked about lower emergency room usage, lower hospital admissions, etcetera. And that helps drive that MCR down. Jason Cassorla: Got it. Okay, thanks. That's really helpful. And then just the follow up, outside of the MLR kind of backdrop, it looks like costs were relatively well managed, obviously, MLR was impacted by the revenue considerations there in DCE, but maybe can you just give us an update on how the labor and inflationary cost backdrop is trending for Cano if you're seeing any incremental pressure on cost, perhaps on an absolute basis? And maybe any area cost areas where you're watching out for at this time? Brian Koppy: Sure, yes, I mean, from us I think we're affected by overall inflation, as the entire country is. But one thing that's important to note, in our medical centers, we do not have a significant number of RNs. And that's where you see a lot of the wage inflation within the healthcare system has been most pronounced. So by the fact that we have fewer RNs, that helps keep our costs under control. But we certainly are seeing higher wages amongst front desk and call center staff. But we'll continue to manage through those. And really, it baked most of those factors into our outlook for the full year. But clearly, expense control is always top of my mind. So we're going to watch it very closely. Jason Cassorla: Got it. Great. Thank you. Operator: Our next question comes from Brian Tanquilut from Jeffries. Your line is open. Please go ahead. Jack Sullivan: Hey, good morning, guys. It's Jack Sullivan on for Brian. Brian just wanted to touch back on that assumption around DCE and the progression of MLR there. So I guess, understand that it's going to come from better member engagement. Are there any stats you can give us thus far on patients you've had from the onset of DCE through today, and how they're trending on maybe it's visits per quarter, visits per month any sort of metrics are quantifiable. So you can put around what you're seeing there already, and what's expected or baked into expectations for the rest of the year. Thanks. Brian Koppy: Yes, I think I'll just point you to the how, if you remember, the program started April of last year, we were we were the initial launch of the program, we were booking MCR around 90%. And then as you re trended to the fourth quarter of 2021, that MCR was significantly down to roughly, I think it was, like 90%, 95% or so. So we saw, we saw good four or five point improvement in that short amount of time. So, do I do we know exactly how much improvement we're going to get out of this large new cohort? Not exactly, but if we continue with our operational engagement programs and our management of those members, we will continue to expect to see that improvement of DCE throughout the year. And we'll certainly give more color on that as we continue to engage with those members. Jack Sullivan: Got it. That's helpful. And then one more for me just as we think about markets that were entered or really expanded in 2021. Specifically thinking about Nevada and Texas here, any color you can give us on how those are trending or things that you're seeing. Marlow Hernandez: Well, let me take that one. And very proud of our performance in Texas and Nevada. We have seen utilization data that is beyond our expectations, good. The admissions per 1000, the quality scores have been in line or above estimates, as well. The MPS scores have or net promoter scores have mirrored those of our initial markets in Florida in the different regions that we've been operating for years. The ramp bug in membership, now the ability to accelerate growth, through full deployment of our build by manage model and the added growth that we're seeing from DCE membership, as well as our service to other populations and value based programs. It's really exciting. And I think you can take a look at the other filings and see the performance. There will, of course, be providing additional color at our upcoming investor day. But I’ve got to really congratulate our team in Texas and Nevada. It's very exciting, what's happening there. And we will have significant scale and density in a very short amount of time in key markets in Texas and Nevada by the end of this year. Jack Sullivan: Got it. Thanks again. Nice job in the quarter. And looking forward to then. Marlow Hernandez: Thank you. Operator: Our next question comes from the line of Justin Lake from Wolfe Research. Your line is open. Please go ahead. Justin Lake: Thanks. Good morning. First question just on de novo losses. Can you give us a number that you expect to have for the year? I can't remember if he got it for that or not? Brian Koppy: Yes, we didn't. We didn't guide to that, Justin. I think you kind of you make some assumptions around the new medical center openings and how to how to view how many of those will come through new builds versus more of the tuck-ins. That's really the way to think of it. Justin Lake: We're in like, the $60 million range. Is our estimate of that that ballpark? Brian Koppy: Yes, 60 million ish, maybe a little bit higher, which feels about right to me. Just quick off the top my head. Justin Lake: Okay. Then in the quarter, there was around 15 million of losses. Can you can you remind us how many centers they use, like a rolling 12-month convention there? How many centers were in that number? Brian Koppy: Yes, I have the -- I know we brought on line 20 last year, so but I'll get back to the rolling number on. Yes, it's well, we'll I think we've talked in the past about when those centers have come on. So we can kind of take that take a look at that scheduling, and talk that through. Justin Lake: Okay, but this, that first quarter number in your mind was kind of in line ish, where you would have expected of it. Brian Koppy: Yes, that's correct. Justin Lake: And then on cash flow. I think you said you expect the company to be cash flow positive for the years, is that correct? Brian Koppy: Yes, cash flow from operations positive? That's correct. Justin Lake: Okay, and any kind of estimate you want to give us there in terms of what you're thinking for the year? Brian Koppy: No, I think what we've talked about in the past is, we've Well, what I've talked about today, I should say, we -- first quarter was a good start to the year seeing positive momentum in the business. And I think it's also important to know that in that June July time period that the Medicare risk adjustment payment comes through. So that's when you really see that, at least in that quarter, that shift in our operating cash flow from negative to positive. Justin Lake: Got it. Got it. I guess what I'm trying to get to is just, if it's modestly positive with the, with the de-novo as the tuck-in acquisitions, the how do you kind of see the cash balance running through the year? At some point, we put it to the credit markets or… Brian Koppy: No, I think where you going? That's a great, great point. And it's important, in order for us to our guidance that we put out today does not assume that we need any additional capital to achieve the 2022 guidance. So we think we're on a good trajectory to be able to do that, based on the performance, we're seeing the great based on the good membership that we're seeing per roll through, and just really the overall operations of the business is doing quite well. So we're feeling very positive about our achievement of our 2022 games. Justin Lake: Okay, great. And then I guess last question, just to follow up I know there was a question earlier on tuck-ins. And the kind of nature of those deals are, if you look back, historically are more of those tuck-ins or most of those tuck-ins been affiliated in terms of what you've done so far. Brian Koppy: Just under this model, it's a mixed bag over time, and we will analyze our own affiliates for those who have the added growth potential within our model and the ROI on that deployment of capital versus a nearby practice. In both scenarios, we could think about transitioning those providers and membership to own medical centers that are already established or building new ones, or expanding their physical centers. There's a lot of factors that we take into account to make that kind of decision. But I would say it's mixed, even roughly 50:50. And in a to your last question, as we have reiterated several times, our guidance for 2022 does not include inorganic growth does not require additional capital financing. Our business model gives us profitable growth, which is great optionality for this year and beyond to continue to grow and the way that it makes the most sense for our shareholders. As Brian mentioned, we've got a robust pipeline. And we will continue to look for ways to deploy all of our growth avenues to reach the most patients and the least amount of time with the least amount of risk, but the best ROI. And so we, in the future, look to a capital raise in the case that we find opportunities that are so attractive from the M&A side that it merits us going to capital markets or looking at other forms of financing. Operator: Our next question comes in line of Josh Raskin from Nephron Research. Your line is open. Please go ahead. Josh Raskin: Hi, thanks. Good morning. Just looking at the revenue run rate, first quarter you're kind of already above the low end of the guidance. We've got a whole bunch of de-novo opening through the year and MA lives will grow. Is there some assumption on DCE attrition, or are you looking at Medicaid re-verifications that don't end up in exchanges? I’m just curious what the offsets to the growth are? Or was it just simply conservatism? Brian Koppy: Yes, Josh, I think, I would say that we've always talked about some slight attrition in the DCE as you go through the year, because you for us, we generally get our membership, pick up through the claims assignment in the beginning of the year, and then you'll have some just natural attrition within that program throughout the year. And I think that's just the way we're thinking of it. And right now, we feel good about our overall guidance, and we're, we're guiding the street to and we'll update that as we go through the year. Josh Raskin: Okay. All right. So there's nothing bigger specific there. And then just the performance of the centers. I'm just curious, if you see anything different across new geographies, understanding that, a lot of the geographies have been added in the last call it 18 months or so. But are you seeing any differences in geographies? And then I'm also curious if you've got centers that are heavily filled with a specific payer, are there differences in your performance with specific payers versus others? Marlow Hernandez: Josh, so what we have seen, and Brian was talking you through our DCE performance for last year, as an example, Medicare program but different than Medicare Advantage. And within Medicare Advantage, we have seen significant improvement irrespective of our payer partner. That does depend on what we've been talking about. Since we really started growing outside of South Florida, which is the need to achieve scale and density. There is a there's a metro station for sure, as we serve members over time but there's an important component to having a critical number of patients than improve the patient level economics. And that will have to be achieved not only on a regional basis, but also on an individual service fund or patient panel within a given payer, when you only have a dozen members, for example, with a certain payer, one member that is particularly ill can significantly affect performance. Whereas, of course, when you have several 1000, members, it's a lot harder for any outliers to cause any significant negative impact. And that is something that would then have to be taken into account. But what we have seen across the dozens of markets that we operate in with dozens of payer partners is once you have a level of market level, scale and density, and then you have a significant number of patients, and at least 1000 or so with a given payer partner within a patient panel, then the performance will generally be in line with those of that market or those of other pairs for that given region and line of business. That all being said, there are plans are more established that have more favorable contracts in a given region. And as a result, we are highly selective of the payers that we work with, we need to ensure that we have the appropriate specialty network, we need to make sure that the service being given to patients on the payer side and the different data feeds that we want to integrate to kind of panorama, are there for us to offer optimal services and ensure the best outcomes for our patients, but generally giving you a long answer to the question. But the short response is that we see similar performance, with all things being equal. Josh Raskin: That actually may okay, so it's more important, it sounds like getting that critical mass or critical scale within a specific contract is probably the most important factor. Whereas, the specific plans all tend to perform relatively well or relatively aligned with the overall once you get to that critical mass. That's the right way to think about it. Marlow Hernandez: That's the right way to think about it. In the context of the overall membership, you're managing at a market, and in the context of the payers own market share, and infrastructure for that given market. If it's already an established payer that already has some material, market share and infrastructure, it does tend to perform equally, but that is very different than one that has just started for the same exact reasons that I mentioned, that affects our own patient panel. Josh Raskin: Yes, got you. All right. Thanks. Operator: We have another question from the line of Adam Ron from Bank of America. Your line is open. Please go ahead. Adam Ron: Hey, this is Adam. Sorry, if you hear noise in the background, but just hoping you can give a little bit more color on utilization in the quarter and what you were seeing in terms of COVID and non-COVID. And what you're expecting for the rest of the year, just because you mentioned Q1 excluding DCE was lower MLR versus Q1 2021. But last year, I think MLR was ramping up throughout the year. And now you're saying it's ramping down. So I'm just curious what you saw in the quarter and what you're expecting for the back half on the non-DCE? Marlow Hernandez: Yes, I think for very similar to what other people saw, we saw a little bit of higher utilization in January, as we came into the new year, but it stabilized but overall, the cost of that increase utilization were in line So we believe we're trending in the right direction and -- the impact. And really as we go through the year, the lower utilization of the back half of the year tends to come more from just the number of days and the holidays, etcetera. So we're not expecting anything abnormal, or unusual, I'll put it as we've seen in the past. So as we go from first quarter down to fourth quarter, we should see some improvement in the MCR, as I mentioned earlier. And, we'll keep a close eye on it as we look at our emissions and other key operational statistics that we track every day, every week, every month. Adam Ron: I appreciate it. And one last one. Thanks for all the questions. In the quarter, you added seven centers, five of which were in Florida, which is already your biggest market? And no, I don't think any new states for 2022. So I was just curious what the philosophy is on new markets, expanding into new states or adding capacity within existing markets is the idea at this point to keep the amount of states constant and grow in market and full year may be in a stronger capital position. I'm just curious what how you think about that? Brian Koppy: Yes, I'll take I'll take that one. Yes, I think you're we were very focused on scale and density. And that's right, are the states we're in. We're going to continue to expand within those markets and add our buy build, add through our buy, build manage strategy. And really, we are true believers in the scale and density provides so many incremental benefits. When you go from, 2, 3, 5, 10, 12, 20 medical centers in a close proximity, you can leverage a significant number of our costs, whether it's contracting SG&A and just overall improvements in our operational effectiveness. And so, we're going to stick to the states that we're in, at least for this year, as we look at our opportunities, and where we're where we have planned growth. And, we're not growing at the exclusion of Florida, Florida is still an important market. So we'll continue to grow there. But we still have great opportunities in the states that we're in, that we've entered in as well. Adam Ron: Makes sense. Thanks so much. Operator: That does conclude the -- session, I'll turn back the call over to Brian Koppy. Brian Koppy: Great, thank you. I appreciate everyone's time today. And just as one last reminder, we do have our Investor Day coming on 7th, so we look forward to talking to everyone then. Thank you for your time and have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.CANO Ratings Summary
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Cano Health Stock Plunges 46% on Going Concern Warning
Cano Health (NYSE:CANO) witnessed a dramatic decline of over 46% in its stock price pre-market today following the issuance of a warning about its going concern status, coupled with an announcement about its exploration of a potential sale.
Cano Health disclosed its current inadequacy of liquidity to meet its financial obligations for the next year, encompassing operational, investment, and financing needs.
In a statement, Cano Health expressed management's assessment that there exists significant uncertainty regarding the company's ability to maintain operations as a going concern within the upcoming year.
During the second quarter, Cano Health reported total revenue of $766.7 million, which fell short of the projected $829 million. The adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) exhibited a loss of $149.7 million, a stark contrast to the anticipated profit of $12 million.
The company's loss per share for the period amounted to $0.51, worse than the predicted loss of $0.40 per share.
