Cano Health, Inc. (CANO) on Q2 2021 Results - Earnings Call Transcript
Operator: Good morning, and welcome to Cano Health Second Quarter 2021 Earnings Call. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Today's call will be approximately 60 minutes only. Please be advised that today's conference is being recorded. Hosting today's call are Dr. Marlow Hernandez, Co-Founder, 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. The statements are made as of August 12th, 2021, 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 2021 and 2022 fiscal years. 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. We caution you that the forward looking statements reflect our best judgment as of today based on factors that are currently not 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-revenue 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. Dr. Marlow Hernandez: Thank you, fellas, and welcome everyone to our second quarter earnings call. This is a very exciting time for Cano Health, and I appreciate you've taken the time to hear about our progress and our plans for continued growth. I'm proud to report that once again, we had a very strong quarter of revenue growth as well as adjusted EBITDA growth and operational expansion. Our company, since its founding in 2009, has consistently delivered results for its patients and stakeholders. We're a company that has made and will continue to make transformational social and financial impacts through our sophisticated population health platform, which we grow through building buying and managing medical centers. We started out as a single Medical Center, today we're one of the largest primary care operators in the United States. At its core, Cano Health has a differentiated growth model with unique assets both technological and physical with market leadership in some of the countries largest and most attractive managed care markets. Let me give you an example in Miami Dade County, arguably the country's number one market for managed care. We are the number one primary care provider for Medicare Advantage members. And when I say number one, I'm also referring to quality metrics, medical cost management and membership growth. We have a five star and security rating for a population that is predominantly low income and has been chronically and historically underserved. We also have lower mortality, lower cost, which means more grandmas and more grandpas will be there for their families, living the retirement they deserve or simply following their passions. For those that are new to the Cano Health story, let me give you a brief overview of what makes Cano Health different. What makes us special even beyond odd numbers, our mission is to provide patients with high quality, high touch primary care, producing better outcomes and lower costs, creating significant value for all stakeholders. Our vision is to be the national leader in primary care. Now, let me tell you about the Cano difference from a business perspective. When you combine our national care platform built on access, quality and wellness, with our flexible growth model building, buying and managing, the result is speed, density and scale which translate to capital efficiency and profitable growth. We primarily operate in the 800 billion Medicare market with a focus on Medicare Advantage or MA, the private sector alternative to traditional Medicare for seniors offered by health insurance companies. This MA market is growing at 8% to 10% per year. And yes, less than 20% of Medicare patients are currently receiving care within a comprehensive value based model. That's our wheelhouse, which explains the enormous growth potential of our company. Cano Health is a leader in value based primary care, that is were paid a flat fee per patient, per month, rather than I see for patient visit or procedure. Approximately 96% of our revenue comes in the form of recurring capitated payments from health plans and the Centers for Medicare and Medicaid of CMS. We are transforming healthcare from the current analog state, which is transactional and fragmented to one that is digital, one that is personalized and coordinated. In addition, we are proud of the role we play in making healthcare in America more equitable, reserve predominantly underserved communities. Approximately 80% of our patients are Latinos and African Americans, and we reflect the ethnic and cultural makeup of the communities we serve. Our staff, like our patients are 80% minority and that extends all the way to the C-suite and Board of Directors. This is critical in every industry, but particularly in healthcare where trust and understanding are absolute necessities to provide optimal clinical outcomes. Let me now address the COVID-19 pandemic. Life expectancy in the United States fell by 1.5 years, the biggest drop since World War II, according to a recent study in the British Medical Journal. Among Hispanic Americans, the decline was even more 3.9 years. And among African Americans, the decline was similarly heads running 3.3 years. Yet at Cano Health, our COVID mortality for seniors and remember our patient population is 80% Hispanic, African-American has been far lower than the national average even though we serve an older, poorer and sicker population. As published in the American Journal of Managed Care in June 2021, Cano Health obtains a 60% reduction in COVID-19 mortality compared to a Mirror Group in Florida. In other words, for the same or lower costs than other primary care providers, we have proven our ability to provide patients with a longer and fuller life even during the COVID-19 pandemic. We intend to continue to grow and bring our care model to more patients across the country. With that, let me summarize our growth strategy which leverages speed, density and scale to reach the most patients while ensuring optimal capital efficiency, which has become our clear competitive advantage. Since 2017, approximately 40% of our membership growth has been organic and the balance inorganic. Our financial and clinical performance is a direct result of our ability to execute on our business model and our growth avenues. Simply put, we build, we buy, we manage. First, build. We grow organically, by expanding our assisting practices and building new medical centers. In the second quarter, our organic membership growth was 30% year-over-year. It is important to note that not all the nobles are created equal. We have found that in a market, where we have built scale and density de novo will perform better than one built in isolation. This is due to various contractual, local and operational reasons. Second, buy. Cano Health grows through targeted acquisitions. We source evaluate and rapidly integrate acquisitions improving their operating and financial performance. Since 2017, Cano Health has completed 35 acquisitions, and our average adjusted EBITDA growth for acquisitions has been approximately 30% year-over-year in the first year, and 15% in the second year, with continued strong growth thereafter. Like the de novo, this growth avenues, leverages, density and scale to optimize performance. Finally, manage. We provide management services to affiliated primary care practices, improving their financial and clinical outcomes. These affiliate relationships serve as a robust source of additional clinical capacity, allowing us to rapidly build scale and density. An important differentiator that I want to talk to you about now is our proprietary technology platform CanoPanorama. CanoPanorama is the basis for our population health management. It is composed of dozens of modules, hundreds of daily metrics and thousands of support tools and algorithms. It is a systematic approach, which goes beyond just the basics of primary care, just the basics of testing treatments and vaccinations. CanoPanorama is designed to help predict and prevent disease to individualize care for the patient, while optimizing the health of an entire community. It is about connecting people processes and technology to make everyday miracles happen with the results measured by the lives we touch, and by the lives we save. It's about utilizing our protocols to detect cancer early stages to identify heart disease before a patient has a heart attack. And when our patients do better, we do better, because we have aligned clinical and financial outcomes that benefit communities, staff, payers and shareholders. As an example, if we extrapolated the results from the 2021 study on COVID-19 outcomes, which I referenced earlier, and every senior citizen in Florida, since the start of the COVID-19 pandemic had received Cano like care powered by a system like CanoPanorama. We believe more than 10,000 people in Florida would be alive today. From a clinical perspective, this is a Cano Health difference. Now, let me describe the Cano model or Cano like care like care, which is what we call our care delivery model. We provide our members with standardized primary care services based on access, quality and wellness. This is evidenced by our net promoter score of 77 average over the last 12 months are 5 Star NCQA ratings from our largest health plans and our lower hospitalizations, ER visits and mortality rates, which are well below Medicare averages. Cano Health delivers more accessible care by providing services like transportation, 24x7 urging care line, and home visits, and telehealth would provide higher quality through care coordination, prevent the screenings and disease management. We provide a wide array of wellness options from exercise classes to nutrition workshops. Another important detail is that, Cano Health doctors see fewer patients than average and spend their time focused on delivering care rather than filling out forms. That's what drew me as a young physician to build the first Cano Health Clinic and partner with an exceptional group of professionals to create our care delivery model. Now I'd like to spend some time discussing specific strategic highlights from the past few months that have me particularly excited about Cano Health's future growth. On April 1st, we began managing patients under CMS Direct Contracting Entity program or DCE. DCE is today in its infancy, but we see great promise in the program. Cano Health is well positioned to be a solution for this and other value-based programs. Very few companies have the infrastructure and track record, particularly for the underserved population that kind of Cano Health has, which is in perfect alignment with CMS goals of measurably increasing quality while controlling costs. On June 4th, Cano Health shares began trading on the New York Stock Exchange as a newly publicly traded company. On June 11th, we acquired the University Health Care with 13 facilities and approximately 24,000 Medicare Advantage members. And a few weeks later on July 2nd, we acquired Doctor's Medical Center or DMC. While this is a third quarter event, it's an important development that adds additional scale and density to our operations in Florida and allows us to deliver more targeted services to our members. DMC operates 18 facilities, serves 52,000 members, including approximately 7,000 Medicare Advantage members, 31,000 Medicaid members and 14,000 ACA members. We have also entered into other smaller, yet important transactions, over the past couple of months that reflect our strategy to build density in our markets. In June, we purchased two small practices in Texas, one in San Antonio where we have four de novo centers and one in Corpus Christi, where we'll be opening multiple de novo centers. In July, we're signing an agreement to acquire practice with two medical centers in Las Vegas, Nevada, adjacent to our three existing Las Vegas centers. Also in July, we acquired a Behavioral Health Specialty Group in South Florida with 27 providers, 14 clinics co-located within current Cano Health medical centers and two standalone clinics to better serve the mental health needs of Cano Health members. We have worked with these providers for several years and as a result of this transaction, we're excited to now have the specialty service in-house to directly provide behavioral healthcare to our patients, which is particularly timely during the COVID 19 pandemic. I'm also proud to report that, in August, 2021, we deployed approximately $140 million of cash 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 EBITDA in 2022 is due to expect the success converting patients in these medical practices and affiliates into Cano Health value-based members. While, each of these events serve as an important marker of Cano Health expansion, taken together to represent the mosaic we're building across our markets to serve more patients while accelerating growth. Our overarching goal is to be able to measurably improve health outcomes profitably and sustainably, all while building lifelong bonds with communities and the people we serve. As a result of the positive events outlined above, we also announced this morning's press release that we are increasing our guidance for 2021 and 2022. We have built considerable density and scale in our home markets, fueling profitable growth, and accelerating our builds by manage strategy across the country. Brian will provide the details shortly. But before Brian begins, I want to thank all Cano Health employees who did the hard work of delivering this strong quarter. It's been an extraordinary couple of years for our company for many reasons, and there with all our employees have proven themselves skilled, committed professionals, who regularly achieve the impossible. With that, I'm happy to introduce our Chief Financial Officer, Brian Koppy, who joined us just before public listening and since he made himself an integral invaluable member of the Cano Health family. Brian Koppy: Thank you, Marlow, and thank you, everyone for joining us today. I'm extremely proud to be part of this great company and its 3,000 plus employees. From my experience of 20-plus years in the healthcare industry, I truly believe Cano Health, who is patient centered, service focused and mission driven to deliver superior primary care medical services has the right strategy build by manage to deliver long-term sustainable, profitable growth. Turning now to our results. In the second quarter, we've demonstrated that our core business continues to meet our high expectations. We produced healthy top line membership and adjusted EBITDA growth numbers this quarter, showcasing not only the strength of our core business and growth strategy, but also our cost and operational management. We have continued to execute on our flexible growth model. And to a speed, density and scale we expect to continue to achieve consistent growth. The positive trends in our performance and the effective integration of our new medical centers and affiliates will provide continue revenue and earnings performance to achieve our guidance. Our focused on membership grow so our membership increased 57% to 156,000 members in the second quarter. This is a 99,000 member increase from a year ago. In the second quarter 72% of our members were Medicare, 16% were Medicaid and 12% were ACA. Note that our quarter and Medicare membership also includes roughly 24,000 Medicare Advantage members from our June 11th acquisition of University Health Care. Medicare membership also includes about 8,000 beneficiaries assigned to us under CMS' DCE program. This was the first quarter we reported DCE results as the program began on April 1, 2021. Following the quarter we closed on a DMC partnership. Looking at membership post the DMC acquisition or pro forma as of June 30th, our membership is now approximately 208,000, and we have 108 medical centers with over 1,000 employed and affiliate providers ready to serve our members. Additional details about our membership makes in our PMPM or per member per month revenue by line of business is available in our press release an update investor slides posted this morning on our website. Total revenue in the second quarter was $393 million, which included capitated revenue of $370 million and other revenue of $14 million was up 130% year-over-year and reflects strong membership growth and operational expansion. Total capitated Medicare revenue in the second quarter was $335 million and includes DCE revenue of approximately $29 million. The Medicare revenue PMPM was approximately $1,180, up 40% year-over-year, primarily driven by improvements in our Puerto Rico operations. Medicaid revenue PMPM was approximately $610. Projecting Medicaid PMPM is going forward. It is important to note that the Medicaid membership acquired to our DMC acquisition runs at a lower PMPM than our current book due to its higher pediatric enrollment and therefore will lower the overall Medicaid PMPM outlook. The medical claims expense ratio for the second quarter of 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 electric procedure utilization a cost related to COVID-19. For the first half of 2021, the medical claims expense ratio was 75.3%. For the full year 2021, we are projecting a medical claims expense ratio of approximately 75%. We expect to stable second half medical claims expense ratio primarily due to ongoing population health management, which leverages the analytics and treatment protocols of CanoPanorama. Comprehensive care management programs, which we expect to maintain stable hospital missions as well as lower DCE medical costs per member as they are integrated into the Cano Health platform, also high vaccination rates for our Medicare members, which about 87% of these members are vaccinated, adding a level of protection against the current COVID-19 surge, which is a surge of vaccinesand expectations for normal seasonality. We've typically realized lower medical claims in the second half as compared to the first half. Moving on to direct patient expense. For the second quarter direct patient expense was $44 million, an increase of $21 million versus the prior year quarter. The increase was generally volume driven due to our growth. Overall, our direct expense ratio improves 200 basis points to 11.1%. Selling, general and administrative expenses were $47 million for the second quarter of 2021, an increase of $25 million. The increase was encouraged to support the continued growth of our business and expansion which other states. Overall our SG&A ratio improve 100 basis points to 11.8%. The Company recorded stock-based compensation expense of $3.2 million for the second quarter. For the full year 2021, we expect stock-based compensation expense to be approximately $16 million to $20 million. Adjusted EBITDA of $25 million for the second quarter of 2021 compared to $16 million for the second quarter of 2020 represent a 53% increase. And as a result, our adjusted EBITDA margin for the second quarter was 6.3%. Interest expense was $10 million for the second quarter of 2021, an increase a $4 million as compared to prior year quarter. For the full year 2021, we expect interest expense to be approximately $15 million. Regarding shares outstanding, there are about 477 million shares of combined Class A and Class B shares outstanding as of June 30th. I would note that this morning we also filed a required S-1 registration to authorize employees' shares for resale. There is no impact on share count as a result of this filing. Now, let me turn to our cash flow and liquidity. We ended the second quarter with about $319 million in cash and $30 million available under our revolving line of credit. Debt at the end of the second quarter was $557 million and includes term debt, capital leases and payments due to sellers. For the six months ending June 30th, cash used and operating activities was $57 million, an increase of $43 million, and we deployed approximately $618 million for acquisitions. On July 2nd, we closed on our DMC acquisition and used $300 million of cash and subsequently borrowed an additional $250 million. In addition, throughout July and August, we deployed approximately $155 million on the transactions model discussed. As a result pro forma for the acquisitions after the end of the second quarter, our net debt is $693 million and our total net debt to pro forma adjusted EBITDA ratio is 4.3. We expect cash used in operating activities to be approximately $90 million for the full year 2021 with de novo and maintenance CapEx expenditures in the range of $40 million to $45 million for 2021. However, as our profitable growth continues, we expect to be cash flow positive in the fourth quarter of 2021. And for the full year of 2022, we expect the strength of our existing operations and the recent acquisitions generate positive cash flows that will continue to support growth and allow us to deliver overtime. Now turning to our updated guidance. For 2021, we expect membership to be approximately 215,000, an increase from the prior range of 205,000 to 210,000. For revenue, revenue is projected to be approximately $1.6 billion, an increase of the prior guidance of $1.5 billion. Adjusted EBITDA 2021 adjusted EBITDA is now projected to be approximately $115 million, reflecting an increase from the prior guidance of approximately 110 million. For 2021, we remain on pace to open 15 to 20 de novo medical centers. By the end of the third quarter, we expect to have more than half completed. 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. Turning to 2022 guidance. For membership, we expect membership in 2022 will be in the range of 275,000 to 280,000, an increase from the priority or guidance of approximately $250,000, 250,000 memberships. Revenue is expected to be between $2.5 billion to $2.6 billion, an increase of the prior guidance of approximately $2.2 billion. Adjusted EBITDA for 2022 is now projected to being approximately $165 million to $170 million, reflecting an increase from the prior guidance of approximately $150 million. In 2022, we expect to open 54 to 59 de novo medical centers in the states I just mentioned, as we execute on our market density strategy. The capital expenditures for each of our de novo medical centers are expected to be approximately $1.3 million to $1.8 million each. Additionally, approximately two-thirds of these de nova centers will be expected to be outside of Florida, with a majority expected to be completed in the second half of 2022. Today's guidance is an update from the previous guidance disclosed on July 6, 2021, and consistent with that guidance. The guidance does not include the impact of any additional acquisitions, which the Company expects would be accretive to membership revenue and adjusted EBITDA. In conclusion, the recent events demonstrate the effectiveness of tax at whole strategy to leverage multiple avenues, to generate growth through building, buying and managing medical practices. Utilizing these growth avenues individually or in combination, depending on the opportunities available results in the most efficient use of capital, which we believe allows us to manage the greatest number of patients in the shortest amount of time and with the least amount of risk, which ensures profitable growth and market leadership. With that, I'll ask the operator to open the call to your questions. Operator: Your first question comes from the line Jailendra Singh with Credit Suisse. Jailendra Singh: Thank you and good morning everyone and congratulations on your first earning call as the public company. Thanks for all the colors around cost trends that you are seeing and expectations for second half. I was wondering if you could flush out a little bit more about your confidence in second half. I mean, I'm getting like MLR on your second half to improve on squeeze half actually ex-DC. I completely understand that trenches being a little bit, not as bad as peak of COVID, but with all the COVID projections being things are likely to get worse before they get better. What gives you comfort around your expectations for second half and why you are not likely to see cost strength from your peers that are highlighting but maybe with some lag or maybe highlight some confidence that that you're unlikely to be blindsided? If it is technology and market itself, members itself, so just give us a comfort that how we should think about a second house then given what some of your peers have been reporting? Dr. Marlow Hernandez: Yes. So, Jailendra, this is Marlow. Thanks for your question. We've certainly seen an increase in COVID cases and hospitalizations, which does account for a minority of a medical claims expense, increase in first half of the year. But we are seeing a significant difference in terms of hospitalizations, certainly in clinical progression and outcomes, compared to the rest of Florida and many other primary care providers. And those are the statistics that we cited on the supplement deck, that I want to point everyone to on our website. For example, we have served the seven day average of cases of 14.3 compared to our peak of 24, even though in Florida, it's at record levels. And our hospitalizations are a 2.0 per 1,000, rather than 6.6 per 1,000 when we were at peak in July of last year. So, we're significantly off from the Cano peaks while Florida is making nearly daily record levels. In addition to that, we have a very sophisticated population health platform that I referenced in my remarks CanoPanorama. And from the time that our patient joins us, when during the lobby, they are going to start to get a risk stratification with personalized care plan, then the doctor sees the patient and those diagnoses, those referrals, those treatments, those lab results then modify such care plans in a systematic way, using 20 plus modules, hundreds of different protocols that we employ through our bridges and algorithms, and support tools that are all working in concert, to intervene early to help predict and prevent disease. And this is published data, American Journal of Managed Care and I would point you to read the study. But also you can see it in how stable our total emissions have been. So, we have a graph in those supplement materials, which show the COVID admissions and our total admission, and while they are correlated, you can see there, how remarkably stable they have been. And while we are living in unprecedented times, and managing during COVID is challenging, we have 18-months of track record with great financial and clinical results and more broader for years, we have had industry leading APCs, or missions per 1,000 quality metrics. We publish mortality reductions for the past four years, not just during COVID. Therefore, we feel highly confident in our full-year MLR. And as a result, they're maintaining and increasing our outlook for this year and next year. And let me also say that while MLR medical claims expense ratio is a factor, we have multiple other levers that we can pull as part of managing the business. Let me point you to our SG&A coming down in the last report, considerably inconsistently. That alongside our other components of the business, which gives us diversification, which gives us an ability to feel highly confident about our outlook, including what Brian mentioned, by getting the DCE members now plugged in. And you've seen in the past that we have published about a member after six months, significantly or rapidly decreases their medical claims as their fully integrated into the counter model. There are a number of factors like our vaccination rates, 87% of our COVID of our patients are vaccinated with the COVID vaccine 80% of our associates are vaccinated as well. And on the strength of our care management programs or public health platform, our density, the amount of access quality and wellness that we are able to offer our patients each and every day and the multiple levers we have is why we feel strong and confident in our '21 outlook and also our '22 outlook. Jailendra Singh: That's really helpful, color. Just one quick clarification, how real time is your data like if somebody is off your members show up and I've been hospitalized. Do you get immediate alert or something that takes time to try to understand like that my part, my point about you getting blindsided like mean, how real time information and how about your members? Dr. Marlow Hernandez: I'm glad you asked the questions, Jailendra. It's immediate. It is real time. Effectively the minute that a patient is registered hits the ER, it comes to us and our care management processes begin. Therefore, data that we're showing you on the supplement so that data as of August 9th, we get that on a daily basis. In fact, we track over 140 different variables on a daily basis for COVID alone through CanoPanorama. So, you're seeing CanoPanorama at work and that gives us a great deal of visibility and confidence. Jailendra Singh: And then, you talked about let's make up about 2022 outlook on MLR cost trends as well, maybe I understanding you might get for most testing detail, but can you provide or maybe guide any color around the underlying cost and assumptions for next year versus 2021 on both MA book as well as your DCE book? Dr. Marlow Hernandez: Yes, thanks. As you know, we've provided both revenue and adjusted EBITDA outlook for our business, and overall, we are confident in the adjusted EBITDA margin embedded in our 2022 guidance, which we have an increase with today's announcement. As more individual details develop, we will share to be able to provide more color on the components of that 2022 financial outlook, but I'll just return back to you. For 2021, we feel confident in the projected MLR of approximately 75% for the full year, which is in line with the 75.3% we are seeing in the first half of the year. And includes the DCE membership, which as we said runs at a higher medical expense ratio than our traditional Medicare Advantage. So, as we kind of turn the page into 2022, we feel real good about both that top line and bottom line projection, which would assume some relative normalcy in the MLR. Jailendra Singh: And then the next one I had on this, the medical practices you acquired in four states in August, which you plan to convert to value based members next year. Maybe discuss your comfort and confidence around these -- transitioning these previously unmanaged people service lives through value based care. Clearly, I'm assuming it's comfort somewhat uncertainty and higher MLR right, given the lack of experience there, but help us understand that comfort there? Dr. Marlow Hernandez: Yes, no, I appreciate the question. So we do have data to give us confidence. And while not at global cap or even straight cap, we can still have fee for service historical data on these numbers. And then the addition of MA contracts, DCE contracts can give us great confidence. Even that one way or the other, those numbers would be within our capitated book of business. And we'd have data for those members to give us the comfort in us projecting are both '21 and '22 margins for those medical practice and affiliates. Brian Koppy: Yes, Jailendra, this is Brian. I would just keep in mind. We buy good businesses with great management teams. These providers and affiliates that we are acquiring come with superior management teams, and we feel real good about how they're going to deliver performance for 2022. Jailendra Singh: One big picture last question here. One of the top concerns, which has led on shares, is around your company's ability to replicate your success in Florida to other markets you are entering. Maybe spend some time there. What type of your confidence level? How you think that you're experiencing Florida be handy in other markets as well? And just, do you plan to provide regular updates on the new centers and markets as reopen on a regular basis? Dr. Marlow Hernandez: Yes, I'll take that question. First, as I said, that, when we go to new markets, we deploy our build, buy and manage strategy. We do not like to use a single growth avenue or build in isolation we manage as a region. And hence, for individual centers, we do not provide specifics, while you do have our typical de novo economics as we expect. But we do have a great deal of confidence in replicating the model outside of Florida because we're already seen the numbers from membership, revenue and margins and our budgets. We've been very successful in Puerto Rico, for example, very successful and our starts in Texas and Nevada will be announcing various other states. As Brian mentioned, we have only acquired assets, we've acquired some great people that are joining the team and that is the key. And yes, as we fully integrate those regions into Panorama will provide updates. But you can count on us continuing to expand our care platform of access, quality and wellness and growing it in the three key ways that we do by building, buying and managing. And we always ask ourselves the key single question which is. What is the growth avenue that results in the most efficient use of capital to manage the most amount of lives in the shortest amount of time with the least amount of risk? And that ensures sustainable profits and market leadership and everywhere across the country. Particularly in dense pockets of Medicare eligible, dual eligible members, historically and chronically underserved, there is a great deal of costs that could be taken out. And we're one of the few companies that have proven our ability to do just that. And let me also point for 10 years in dozens of markets, so multiyear, multi geography track record, we have been able to measurably increase quality, while reducing costs. And as long as we do that, everything else follows. Operator: Your next question comes from the line of Josh Raskin with Nephron Research. Josh Raskin: Just one quick follow-up to, I don't know whose question three or four from Jailendra, but the booking of the hospital expenses. So I understand that's real time. But how do you get color on the actual DRG across for avenue, but when you have a better sense of that? Dr. Marlow Hernandez: Yes, one great question, Josh. We have very sophisticated systems to provide real time accruals, literally yesterday based on the number of ER visits, admissions, referrals, ICD code, CPT that we're getting in our system, many of which in real time. We're able to very accurately estimate our cost. And yes, it is based on historical type of information on per admission and actually doesn't change all that much on an average permission basis. Of course, we get new data from new disease states like COVID then we adjust such algorithms and that allows us to very accurately project. Josh Raskin: Okay, got you. And then, I think you mentioned a little more though on the sort of non-COVID utilization coming back. I'm curious if you view that as pent-up demand. It's a system reopens. And then I didn't hear anything about a headwind from risk adjusters, which seems to be a common industry or frame this quarters. I'll be curious to get your view there. Dr. Marlow Hernandez: Well, actually the answer is the same to both questions. We have, as you know, the majority of our business in Florida. Florida had one of the shortest stay-at-home orders and that combined with the fact that, we actually increased the number of visits during COVID, including during the stay-at-home orders, and we have published data on that as well. It gives us the necessary confidence in our documentation accuracy to meet the acuity of our patients when you see them, and you're able to document conditions that ensures that you've got the revenues cover your costs, as you know. And then the second part as to the pent-up demand or procedures we saw some of that in the second half of last year. Florida opened up relatively quickly as compared to other parts of the country, and as you can see by our APCs, which are influenced to raise significant extent by elective procedures, you have remarkable consistency. So, given that we saw more patients then particularly in early stages and given that Florida opened earlier and that's where the majority of our patients are albeit we're expanding rapidly outside. We also have Texas, which also open relatively early. We do not expect a material headwind. But as I mentioned, COVID is challenging and we did see a modest impact from COVID admissions and some of those elective procedures, but that's being baked into our full year forecast and into our 2022. Josh Raskin: Got you. And then if I could just ask one more quick one on the EBITDA, on the guidance. How much of the EBITDA guidance is coming from acquisitions, and I know you've anticipated acquisitions. So I guess the real question is. Did the acquisitions have any impact on your guidance or are you just sort of filling in the bucket that was coming from acquisitions previously? Dr. Marlow Hernandez: Yes. No, great questions. So when we put our three year projections, November of last year for the pipe, as we prepared to go public, we laid out that three year plan. We have since beaten our 2020 projections, because at that time, it didn't have four year 2020, and we have raised guidance three times in 2021 and included in one of those guidance raises is that, we've removed acquisitions from our outlook. So, not only have we achieved and exceeded our goals that we set out during our initial projections in November of last year. But, we now are confident in meeting and exceeding those without acquisitions for '21 and '22. Mind you, we did do of course, some material acquisitions for this year and '21. But as a result of our acquisitions this year, and our rock solid organic growth for this year up 22 does not require a single acquisition. Now, we will continue to do acquisitions, we have multiple growth avenues, that is a major differentiator for us. But if we do acquisitions, those will be directly accretive to our guidance. So, if we acquire X amount of revenue, and EBITDA, you will see us add those directly to the outlook that we're providing. Operator: Your next question comes from Justin Lake with Wolfe Research. Justin Lake: Good morning. Couple of questions here. First, on DCE, you talked about numbers having a little bit higher cost and 29 million a premium. Can you talk about what you're booking -- what you booked the MLR in the second quarter, they already give us some idea on that cost side and how you're thinking about that for the back half of the year? Brian Koppy: Yes, a great question. Yes, we've I mean, we are taking a very weak food and inappropriate position. As far as our DCE members, as we talked, they're coming into us unmanaged, we expect them, we expect to wrap them into our operating model, and over time, improve their overall performance. As you look at the, the MLR, for that business is going to be, 98% or so as we initially start. But then as we improve that performance of that membership, we should see that improve over time. And as Marlow mentioned, three to six months, we start to see improvement in our members. And that'll certainly carry into 2022. Justin Lake: And where do you see that margin now that you've had some time with this business kind of being at a norm within? Let's say, next year? Where would you expect that margin to kind of settle out? Dr. Marlow Hernandez: Justin, this is Marlow, I appreciate the question. But at this point, we've got three months of data on a new CMS program. And as Brian mentioned, we take a very prudent approach to our forecasting, we do see DCE as a big source of growth. For us, very large additional TAM, we are effectively not baking any EBITDA from DCE because like any new membership, it will take us some time to fully integrate them into our pop health platform. And for us, it's about predictability and profitability. We believe that it will be favorable. And that is what I can tell you today. But we cannot give a specific number until we get more data and get those numbers fully plugged in. So, stay tuned. Justin Lake: Okay, and then you talked about $155 million of additional acquisitions. Was that in the prior guidance that you gave in early July, or is that in addition to? Dr. Marlow Hernandez: That's a great question. And thank you, we're trying to make sure everyone fully understands our guidance last time excluded any incremental upside from acquisitions, as we announced today. The acquisitions were accretive to our guidance, and that's that'll be how we think through acquisitions going forward as well. So, that's all new upside opportunity. And as we mentioned, it's really strong revenue growth and EBITDA for 2022, as we convert those 15,000 members or so onto our platform, Justin Lake: Okay. Is there anything you could tell us, you give us the membership number, but what you think on revenue for '21 and '22 as well as EBITDA contribution for '21 and '22 from this incremental acquisition? Dr. Marlow Hernandez: Yes, for sure. In our press release, we talked about its 16 million for 2021, I'm sorry, 14 million for 2021. And then as we convert the members, it'll be $200 million of revenue in 2022. And that's built into the updated guidance that we provided today for both 2021 and 2022. Justin Lake: And could you give EBITDA there as well? Dr. Marlow Hernandez: Yes, we did, Justin. It's 5 million of EBITDA that we expect for the balance of this year, and 16 million of adjusted EBITDA for 2021. Justin Lake: And then lastly, just you talked about a little bit higher costs. And I think you mentioned elective surgeries. What are your peers talked about seeing higher outpatient clause? Or do they specifically said March and April? I'm curious if you saw something similar in the same timeframe, any market specific anything you can tell us about cost around there? Dr. Marlow Hernandez: What I can tell you is that part A is the single most important variable, hence the APT stability that you have there and the supplemental deck. It's probably the most important single statistic, but there's a part B cost as well of specialists. And when you lump them all together, A, B and D, which is pharmacy, then you get the full medical claims expense picture. And we are not nuancing of what is a minority variance in medical claims between the catch up in outpatient procedure versus just COVID admissions. And while we have seen it, we're comfortable with it. We have booked them into this year's numbers and feel comfortable about the next for the reasons that I mentioned. There for the short answer is it exists, but we do not see it as a material headwind, and we're confident in our numbers. Operator: Your next question is a follow-up from Jailendra Singh with Credit Suisse. Jailendra Singh: I was wondering if you could spend some time on Humana partnership. How many of your de novo centers, you're opening this year next year at Humana focus? And our economics from the Humana centers any significantly different from what your own traditional centers? Dr. Marlow Hernandez: Thank you, Jailendra. So let me first say that we're very proud to have Humana as a partner. They share our value-based philosophy and have great leadership and infrastructure. We have centers open under half or Humana lines program. At this point, our seven, we do plan on opening a few more this year. It's a relative minority of our centers. As we know we're opening 15 to 20 centers this year and 54, 59 Medical centers next year. And we do see it as part of our market entry and supplementation consistent with our speed, scale and density objectives of our growth strategy. In terms of the economics, we do see similar economics and the Humana centers versus non-Humana, and what I mean Humana centers, I mean, centers that are owned and operated by Cano Health that are exclusive to Humana's Medicare Advantage, but we do take other payers for other lines of business and certainly DCE as well, within those centers. You can see in those centers, a bit slower growth, because you have one MA payer rather than all of them. And that is something that is regardless whether it is Humana Anthem United, it presents a bit of a challenge that must be managed through. Yet, we're growing significantly and if you ask them as to our performance, believe they will tell you exceeding expectations, because our value promise is so strong that we have embedded demand beyond expectations. And thus to reach all patients, given that we are pair agnostic, the overwhelming majority of our centers take all pairs, and we have other great pair partners as well in United and Anthem and Aetna and Centene and so forth, is because we want to make sure that we serve all members, who would benefit from Cano like care for the statistics that I mentioned, staggering increasing mortality, particularly in minority populations. The huge amounts of fraud, waste and abuse that we see that can go to meaningfully improving the health of a patient and entire community. It's very important for us to be there and give patients all the optionality that they need and deserve. But again, we plan to continue opening centers in partnership with Humana as well as we do with other payer partners. Operator: And at this time, there are no further questions. Dr. Marlow Hernandez: All right. Thank you. Thank you everybody for joining. Brian Koppy: Thank you. Operator: Ladies and gentlemen, that does conclude today's conference. We 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.
