Cano Health, Inc. (CANO) on Q3 2021 Results - Earnings Call Transcript
Operator: Good morning, and welcome to Cano Health Third 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. Please be advice 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. These statements are made as of November 9, 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 Act. 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. We undertake no obligation to revise or update any forward-looking statements rather as a result of new information, future events of otherwise. 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 historical 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 and welcome everyone to our third quarter earnings call. We appreciate you joining us to discuss our third quarter in which Cano Health delivered stronger results and operational expansion. As a result of our continued momentum, we're once again raising guidance for 2021 and 2022. Before I go into more detail in the quarter, I want to thank first and foremost, the entire Cano Health team are 3,600 dedicated professionals who through their passion and commitment, provide patients with industry leading health care, and perhaps more importantly, they provide patients with hope and dignity. Every day, we're bringing new solutions to patients and communities across the country, and we're transforming healthcare from the inequitable and unsustainable status quo that it presently is to a 21st century model. Thanks to our team. This 21st century model is about removing barriers to optimal patient outcomes by ensuring access, quality and wellness for all patients. This is the basis for Cano Health's vision to become America's primary care provider. And that vision got closer to becoming reality this past quarter. Once again, we drove strong revenue and earnings growth through increased memberships and medical care optimization. Today, we have the privilege of serving more members than ever, because we have continued to produce better outcomes for our patients at lower costs. Our strategies built by management medical centers, drive scale and density in key markets, which is in turn continuing to feel our profitable growth. We're also enhancing care delivery by launching novel programs such as Healthy Heart by Dr. Juan Rivera, to tackle the high incidence and high cost of cardiovascular disease in America. At the core of our strong financial and clinical performance this quarter, is our tech-enabled value based care model that helps control costs, while keeping our members healthy and out of the hospital. The backbone of that model is CanoPanorama. I've discussed this in previous calls. CanoPanorama is a unique population health platform that provides an end-to-end solution for patients, clinicians and healthcare professionals to improve the health of individual patient while optimizing the health of an entire community. During these difficult times, CanoPanorama has helped us navigate the COVID-19 pandemic, by allowing us to coalesce real time actionable data from multiple sources including hospital admissions, emergency room visits, laboratory diagnostic, primary care visits and specialist consults. Taken together, this integrated data are used by primary care providers and other clinicians to assess risk and guide customized treatment plans while allowing Cano Health to optimize the well being of our entire patient population. In addition, the CanoPanorama our platform supports the rapid scalability of our operations by empowering medical centers to achieve Cano Health high standards for clinical quality and financial performance within just a few months, drive growth through building buying and managing medical centers. In fact, it's because of our technical infrastructure and growth avenues that I'm pleased to announce that we have already accomplished our stated 2021 goal of being operational in eight states plus Puerto Rico. As I've discussed in the past, our corporate strategy is to build scale and density in key markets, which we define as those with high Medicare Advantage density and underserved populations. And we achieve that through a flexible growth model. An important component of that growth model is the opening of the noble medical centers. As I share with you before a de novo a market where we have already built scale and density will always outperform a de novo in isolation. So far this year we have entered several new markets and increase our density in existing markets. We're especially excited about our recent market entries into Los Angeles and Chicago. We believe the opportunity in these markets is substantial, which is why we think in due time they will rival our presence in our largest foreign markets in Florida. In addition, we are very excited to have expanded our presence in New Mexico and Southeastern Texas including de novo and Florida and Nevada, we have thus far opened 16 de novo medical centers in 2021 on pace or 20 by the end of this year. Turning to our acquisitions, we are very happy with our performance to date, both of our major acquisitions this year, University Health Care and Doctor's Medical Center or DMC have validated the rigorous standards, which we apply when we selected them. We objectively evaluate their clinical quality, track record of care management and compliance and potential for membership growth as well as other synergies with an enhanced performance in these key areas through CanoPanorama and powered integration. At Cano Health, newly onboarded clinicians and healthcare professionals can leverage CanoPanorama to measurably improve patient care in the way that they have always wanted to. Moreover, they can also participate in various equity ownership programs. The combination of professional fulfillment and ownership stake makes Cano Health a great and unique place to work. The results speak for themselves. For example, within University and DMC we have a voluntary clinician retention rate of nearly 100%. Let me now talk to you about an exciting new program within our medical centers. We're constantly refining primary care delivery and setting new industry standards. That is why we believe that Healthy Heart by Dr. Juan will have such a dramatic and positive impact in U.S. health care. Dr. Juan Rivera is a highly respected leader in cardiovascular care. After completing his cardiovascular fellowship at Johns Hopkins, he built a thriving private practice, became a national medical thought leader and serves as Chief Medical Correspondent for the Univision TV network. He's a trusted health care figure, particularly within the Hispanic community, and we are honored to be working with them on this important endeavor. The Healthy Heart program is designed to predict and prevent cardiovascular disease through early detection, individualized treatment of risk factors, and education about healthy lifestyle choices. The program is designed to significantly reduce the probability of a patient suffering heart attack or stroke. And when our patients live healthier lives, we all do better because through our value based model, our clinical and financial objectives are aligned. Speaking about keeping our patients healthy, let me give you an update on COVID-19 and how that has been impacting our patients since our last quarterly call in August. In the financial supplement deck posted on our website this morning, you will find slides showing our seven day daily average for COVID-19 case instance and hospital admissions. It also illustrates our average monthly total and COVID-19 admissions per 1,000 patients since May of 2020. As you can see in the illustration, our case incidents and hospitalizations have fallen dramatically over the last two months, which were already below Cano's pandemic peaks. As we continue to manage successfully through the cases and admissions experienced by our members, we're evolving our protocols to address variants like delta and stand ready to adopt new anti-retrovirals and other therapies, which has strong clinical data. We are very proud of the success we've achieved in protecting our patients from virus with a mortality rate that is at least 50% lower than the senior population of Florida. I've said this before, but it bears repeating, statistically, one of the safest places for patients to be during this pandemic or at any time is that a Cano Health Medical Center as one of our members. Lastly, I want to touch on the Cano Health value proposition. We have provided additional slides and our financial supplements posted today on our website to illustrate this topic. We perform a necessary service to a growing population under a recurring revenue model supported by the government. Our services are substantially different from other models, offering significantly more benefits to members for the same or lower cost. We can provide more services, because our outsized investments in primary care, where we focus on prevention and thereby lower downstream costs. Cano Health spends about 12% of the revenue and receives from payers on primary care. That's roughly two times more than national average. By investing more of our patients who come to our centers on average 20 times per year, we can identify new conditions earlier, actively manage chronic conditions better and coordinate care more efficiently. Our providers serve as a trusted source for members, health care needs, keeping our members healthier and out of the emergency rooms. Our focus and investment in primary care reduces medical waste and other third-party medical expenditures. And that in turn, lowers the cost to patients while improving their physical and economic health so that they can be there for their families and pursue their passions. Our operating models have demonstrated the benefits of our investment in primary care by improving quality while driving down overall medical costs. Our cohort analysis of Medicare Advantage capitated revenue for our members illustrates that revenue increases by a 6% CAGR as members' age and chronic conditions are identified. But here's the more important is we find that due to CanoPanorama, our platform for managing those chronic conditions combined with our ability to change member behaviors through removing the barriers to access quality and wellness, the medical costs decline by a 6% CAGR. They're repeating because that is a dramatic contrast, not only to the 6% increase in revenues because of aging chronic conditions, but we would expect a 9% CAGR increase for this similar cohort of Medicare Advantage patients outside of the Cano Health model. The bottom line is this, our improvements in our medical claims ratio is primarily driven by medical cost reductions, not premium increases. In summary, our achievements this quarter have an advance or vision to become America's primary care providers because we have continued to produce better outcomes out of lower costs and this creates significant value for all stakeholders. Now, I will turn the call over to our Chief Financial Officer, Brian Koppy, who will walk you through additional details on our financial performance and outlook. Brian Koppy: Thank you, Marlow and thank you everyone for joining us today. We posted excellent financial results in the quarter, which are a testament to our employees work every day to provide patient centered, service focused and mission driven primary care medical services to our members. We continue to execute on our build and manage strategy to deliver long-term sustainable, profitable growth. Our goal is to achieve consistent growth in operating results as we grow rapidly in key markets. This quarter demonstrates our ability to do just that. We produce healthy revenue, membership and adjusted EBITDA growth. We controlled our third-party and direct patient care expenses, while expanding our corporate spending in anticipation for future growth into new markets. We also continue the effective integration of our newly acquired medical centers and affiliates. This quarter's solid result puts us on track to beat our prior guidance for 2021 and 2022. Memberships increased 105% year-over-year to approximately 211,000 members in the third quarter. This is an approximate 108,000 member increase from a year ago. In the quarter 57% of our members were Medicare, 30% were Medicaid and 13% of our ACA. Note that our quarter end membership includes roughly 7,000 Medicare Advantage members, 31,000 Medicaid members and 14,000 ACA members from our July 2nd acquisition of Doctor's Medical Center or DMC. Additional detail about our membership mix and our PMPM for per member per month revenue by line of business is available in our press release and updated financial supplement slides posted this morning on our website. Total revenue in the third quarter was $527 million, which included capitated revenue of 502 million and other revenue of 25 million. It was up 100% year-over-year. This reflects strong membership growth and operational expansion. Total capitated Medicare revenue in the third quarter was $447 million. Medicare revenue PMPM was approximately $1,241 an increase primarily driven by recent acquisitions, improvements in our Puerto Rico operations, and increased member engagement. Medicaid revenue PMPM was approximately $271. As mentioned at our second quarter call, the acquisition of DMC with its high pediatric enrollment reduced our Medicaid PMPM in the quarter. We expect this lower PMPM to continue in future periods. The medical claims expense ratio for the third quarter of 2021 was 75.6% compared to 77% in the second quarter of 2021. The sequential decline was primarily driven by the continued effectiveness of our CanoPanorama powered care and utilization management programs based on data driven prediction, prevention and intervention. We expect a fourth quarter medical claims expense ratio of approximately 74%. As discussed last quarter, we typically realize a lower medical claims expense ratio in the second half as compared to the first half. The fourth quarter tends to have the lowest medical claims expense ratio of year because members and specialists defer elective procedures due to holidays and more of our higher cost members are covered by stop-loss insurance. For the full year of 2021, we continue to project in medical claims expense ratio of approximately 75%. Moving on to direct patient expense. For the third quarter, direct patient expense was $58 million, an increase of $14 million versus the second quarter of 2021. The increase was generally volume driven due to our growth. Overall, our direct patient expense ratio sequentially improved approximately 10 basis points to 11%. Selling, general, and administrative expenses was $76 million for the third quarter of 2021, an increase of $29 million from the second quarter of 2021. Overall, our SG&A ratio increased 260 basis points sequentially to 14.4%. The primary drivers of the sequential increase were higher stock compensation expense and higher professional fees primarily related to transactions. The Company recorded stock-based compensation expense of approximately $9 million for the third quarter. For the full year 2021, we expect stock-based compensation expense to be approximately $27 million based on currently granted awards, which is higher than the previous estimate. The increase from the prior estimate was primarily driven by the implementation of the Company's Employee Stock Purchase Plan or ESPP as well as employee stock grants awarded during the quarter. The rollout of our ESP plan was very well received by our employees, and we are encouraged by the participation rate which further aligns our employees with creating long term value for our shareholders. Adjusted EBITDA was $35 million for the third quarter of 2021 compared to $23 million for the third quarter of 2020 and 53% increase. As a result, our adjusted EBITDA margin for the third quarter was 6.7% versus 6.3% last quarter. Interest expense was $16 million for the quarter of 2021 for the third quarter of 2021, which includes $3.5 million in one-time expenses related to our recent financing activities. For the full year of 2021, we expect interest expense to be approximately $50 million. And as a reminder, regarding shares outstanding there are about 480 million shares of combined Class A and Class B shares outstanding as of today. This includes approximately 2.7 million shares issued as consideration for an acquisition third quarter that are currently held in escrow and which will be released to the seller upon the satisfaction of certain performance metrics in 2022 and 2023. Now, let me turn to our cash flow and liquidity. We ended the third quarter with about $209 million in cash and $60 million available under our revolving line of credit. Total debt at the end of the third quarter was $952 million and includes term debt capital leases and payments due to sellers. Our total net debt is $743 million defined as total debt less cash. Our ratio of total net debt to adjusted EBITDA, pro forma for complete acquisitions is 4.8 million. For the nine months ending September 30th, cash used and operating activities was $91 million, an increase of $70 million from the prior year, and we deployed approximately $1.1 billion for acquisitions. For the full year 2021, we expect cash used and operating activities to be approximately $90 million, confirming our previous estimate that cash used in operations in the fourth quarter will be slightly positive. De novo and maintenance CapEx expenditures are expected to be approximately $50 million for 2021. For the full year of 2022, we expect the strength of our existing operations and the recent acquisitions to generate positive operating cash flows that will continue to support growth and allow us to delver over time. Now turning to our updated 2021 guidance, we expect membership to be approximately 218,000, an increase from the prior range of approximately 215,000. Revenue is projected to be approximately 1.7 billion versus prior guidance of 1.6 billion. Adjusted EBITDA is now projected to be approximately $118 million compared to our prior guidance of approximately $115 million. We expect to open 20 de novo medical centers and operate approximately 130 owned medical centers by year-end. For 2022, we are also improving our outlook. We expect membership for 2022 to be in the range of 280,000 to 285,000 from the previous estimate of 275,000 to 280,000. Revenue is expected to be approximately 2.6 billion to 2.7 billion compared to the previous estimate of 2.5 billion to 2.6 million. And adjusted EBITDA expected to be $170 million to $175 million, an increase from the previous estimate of $165 million to $170 million. Importantly, as the 2022 open enrollment period is underway, we will provide updated projections early next year. In 2022, we continue to expect to open 54 to 59 de novo medical centers to support our market density strategy. A majority of these de novos will be built outside of Florida and most are expected to be completed in the second half of 2022. The capital expenditures expected for each of our de novo medical centers remains at approximately $1.5 million. In conclusion, our ongoing success continues to build momentum and demonstrate the effectiveness of Cano Health strategy to build scale and density by generating growth through building, buying and managing medical practices. Using these growth avenues individually or in combination, depending on the opportunities available results in the most efficient use of capital. This allows us to manage the greatest number of patients in the shortest amount of time and with the least amount of risk, ensuring consistent, sustainable and profitable growth and market leadership. With that, I'll 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 is from the line of Jailendra Singh from Credit Suisse. Your line is now open. Jailendra Singh: A couple of persons, if I can. Brian, just one follow-up on your implied 4Q MLR outlook of 74%, some of your peers have talked about 4Q MLR seasonally higher than 3Q MLR, I understand there are variances around the stop-loss production et cetera. But anything else would you call out compared with what some other companies have talked about? And remind us about the threshold for the stop-loss protection you guys have? And any data around what percentage of your members have already hit that threshold? Brian Koppy: Sure. As we talked about, we're projecting a full year medical claims expense ratio approximately 75%, which then given a year-to-date, expense ratio of 75.4% implies approximately 74% in the fourth quarter. This is a lot about what we talked about last time in terms of our pattern within our medical claims expense ratio. We certainly expect the second half MCR to be lower than the first half. And it really truly is driven by our population health management, which is -- has our proprietary health care analytics, and treatment protocols, which is all powered by a CanoPanorama, which we've been talking about. In further, we have comprehensive care management programs that result in stable hospital admission, as demonstrated throughout the COVID pandemic, for example. And then, you really do have favorable seasonality in the second half of the year, generally due to lower utilization, lower business days, during the holidays, which will drive down the fourth quarter medical cost ratio. And when you think about our Medicare Advantage benefit plans, most of them have zero co-pays or deductibles. So, there's no seasonality from that perspective, it's a relatively stable overall MCR throughout the year with the exception as you move into the back half the year, you have some of the seasonality. But as you mentioned, we also do have the stop-loss protection that will kick in for those high claimants that have incurred costs in the first half or three quarters a year. And generally speaking, that's a roughly about $150,000 attachment point on those a give or take, it does by various pairs. But that's generally where the attachment point will be for most of the members. So from that perspective, we feel really good about what we've done and be able accomplish this year and managing our medical claims ratio throughout the pandemic and to feel good about our full year projection of approximately 75%. Jailendra Singh: And then my quick follow-up, it seems you guys are well on track on hitting de novo's outlook for this year and for expectations for next year, seems like you are maintaining that. This is another area where there has been some confusion. Maybe spend some time on the visibility you have on those 2022 de novo target. How many of those are related to Humana partnership? Any color you can provide on first half, second half cadence? Any details would be helpful. Thank you. Dr. Marlow Hernandez: Yes, let me take that questions Jailendra. Despite COVID-related delay, were on track for this year and next year, and that's really the bottom line. Some sensors have taken a bit longer than what we would have liked to open, but overall, we're doing very well. And we are reiterating our forecasts to before 59 and for this year, we're confident and obviously the high end of our initial range of 15 to 20 at 20. Generally, we open centers more in the second half of the year. The reason for that is, of course, open enrollment. And that out indexes, the enrollment, those periods, Q3, Q4, that we generally have in to Q1, Q2 for example. And thus having the centers open in January, February, with cash burn until you get a material number of enrollments is not the best use of capitals. So primarily because of that, we tend to stagger them in the second half of the year. But as I mentioned, well on track for this year and next, in fact, we're seeing better than expected demand and that is also driving why we are increasing our guidance this year, which we're flowing through next in terms of revenue by 100 million and the membership of the -- the strength of our model is really that we've got a proven track record of improving patient outcomes in multiple geographies and that's bringing us a lot of new patients and ensuring profitable growth as it relates to your Humana affiliated centers. Humana is a great partner of ours. We expect low digit, single digits in terms of the number of Humana exclusive centers. We will continue to open them as part of our buy build manage strategy, but the majority will be payer. The overwhelming majority will be payer agnostic centers. Also, let me say that the majority will be outside of Florida in markets like Texas, California and Illinois. Operator: You're next questions is from the line of Ralph Giacobbe from Citi. Your line is now open. Ralph Giacobbe: The 1,241 Medicare PMPM was a little bit higher than recent trends and that has bounced around a little bit. Just wondering, is that largely related to the deal maybe DCE? And how do you see that as sort of a sustainable base or expect volatility within that? Dr. Marlow Hernandez: Yes, thank. Yes, that is a lot of the continued improvement that is coming with the mix of the acquisitions as we bring them on board. And that 1,200 or so PMPM that is certainly what we would view as a run ratable projection for our Medicare population and similar with the on the Medicaid, as we've talked about the acquisitions, the mix of those coming in, change the overall PMPM for that around 270. And once again, we still -- we also believe that will be the run rate projections for our Medicaid business going forward. Ralph Giacobbe: And then just related to that. You showed on the slide 6% premium CAGR and that sort of illustrative example. As we think about 2022 and sort of the better rate outlook overall and the risk adjustment piece, which I think is going to be a smaller tailwind, didn't want you sort of suggested in the past, but nonetheless, I imagine it's still positive for next year. How should we think about PMPM rate increase for 2022? Dr. Marlow Hernandez: I would say that we would expect to continue the historical trend, which you have seen in our materials of significantly lowering medical expense over a member tenure clearly with the high number of the de novos particularly in 2022, and the need to integrate all of those new populations into Panorama, which occurs within a three to six months period. There will be, I believe, a consistency with what you're seeing this year, but also an investment with those new members which come in at generally lower premiums and lower contribution margins. Therefore, the full value will not be seen for another year or two, but certainly very excited about next year. We are not only significantly growing our top line growth and membership, but we're growing our bottom line as well. And we're investing a lot of those profits, right back into the business, opening more centers, being able to continue to fine tune. Our already highly differentiated population health platform, and tuck-in affiliates, accelerating the pace of our de novos and organic growth in the process. So, as a result of our scale and density that we already have our market leadership in some of the country's top markets for value based care, Medicare Advantage. We've got an enviable opportunity to continue to build out not only in those markets, but across the country as well and do so profitably continuing to invest in the growth and in the platform, which is already highly differentiated. Operator: Your next question is from the line of Josh Raskin from Nephron Research. Your line is now open. Josh Raskin: My question I guess two questions. The first one is just eight states in Puerto Rico, I think he defined that now as 40 specific markets. So when do you think you have enough data to get a sense of operating trends including the medical cost management, the implementation of CanoPanorama et cetera? And then maybe even taking a step back with 40 separate markets now, how is that working from a management perspective? What gives you confidence that you're going to be able to sort of juggle all of the markets as they all come on? Dr. Marlow Hernandez: Yes. Thanks for the question, Josh. We are very excited about the opportunities and our new markets. Let me also continue to stress that we believe in scale and density, therefore, we're focused on key markets within those states. We have experienced to-date, not only a greater expected demand, but a very pleasant surprise has been how quickly those markets, medical centers affiliates, perform to channel health quality standards. I'll highlight one, for example, our NPS score, our NPS score for the Company is consistently now in the low 80s. And you see that NPS scores across multiple states within multiple markets, a great amount of scalability and portability that is being proved out in patient service, but also in quality scores in APCs and in a number of other operating metrics. So that gives us combined with the demand and differentiation, a great deal of confidence in our model, operating for 10 plus years now in 40 markets with scale within a number of them getting to scale rather quickly. And it goes back to the basic business pieces of our model. It's a necessary service, recurring revenues to a growing population and not only is it highly differentiated, it's incredibly scarce. And that's combined with the real world data that I just mentioned for patient service and quality outcomes. And that, of course, leads to financial performance, which is I had of plans. You can add to that, the fact that we've got a great inexperienced team. And we're building that further, everyday, highly confident in our market leadership, highly confident in our corporate leadership. And this is why we are now forecasting increases to top and bottom line this year and next. Josh Raskin: And then maybe second question just on leverage, let's call it 4.5 times EBITDA at this point. Is that an impediment, and I understand there's no M&A in guidance. So I know you don't need this status. But as you think about opportunities that are going to relay to your point, incredibly scarce, fragmented industry first. Is your leverage ratio mount impediment in some ways to potential M&A? Would you consider using equity for larger transactions? Brian Koppy: Yes, it's a great question. We keep a close eye to our pipeline, understanding what opportunities are out there. But we continue to believe we are well positioned to deliver on our growth strategy. While current debt levels are at the upper range of where we would like to be, we expect the strength of our existing operations and recent acquisitions to support our growth and allow us to deliver over time. And we'll keep all opportunities on the table as we look at the various growth options that we have in front of us. And what we continue to do is we continue to find very good businesses, and we continue to improve upon those businesses, which help us grow, which generate cash, and which generates improved earnings, which allows us to reduce our overall leverage. So, we'll continue to do that. And this quarter, I think, is a great example of our continued financial improvement. As we go through next couple quarters it continuing this momentum that will open us up to greater opportunities. Operator: Your next question is from the line of Matthew Shea from Piper Sandler. Your line is now open. Matthew Shea: Wondered, if you could expand on the Los Angeles and Chicago expansions, was I missing something? Was there not an acquisition there? Or did you be with de novos? Just looking for some color? Brian Koppy: Yes, our strategy is always to build buy manage, and we generally stand up all three legs of the stool in any market at scale. We've opened de novos in both of those markets in Los Angeles and Chicago. And we have and will continue to do locally adjacent tuck-in acquisitions that conserve as accelerated de novos, many of these are practices that have been in those communities respected for many years, but simply do not have the tools, the infrastructure to do value based care, and hence, they are not serving value based members. Today, some are at very limited scale and once we plug them into CanoPanorama, we're able to measurably improve patient outcomes and increase significantly a membership and bring a number of other synergies. Therefore, the short answer is yes, opened de novos. Tuck-in local acquisitions plus, if the opportunity is right, we may make a larger type of decision and more material one, which we would of course report at the time. And just to be clear, there is no specific that I would like to share today, but we are always looking to capitalize on our platform and enviable market opportunity. And we believe we do that, as Brian mentioned. And we said repeatedly by achieving scale and density. And then we select out the growth avenue that allows us to manage the most amount of patience and the least amount of time with the least amount of risk. Dr. Marlow Hernandez: I'll just add that. It's one where I think your question was implying, do we always lead with an acquisition. Now, that's the nice part about the model. We have the optionality to lead market expansion in multiple avenues and so we keep that option on the table every time we look at the various markets we enter and the deployment of capital. Matthew Shea: And then just drilling into the de novo side, now opened 16 centers to-date, is there any way to think about how many were opened in Q3 versus maybe in Q4 such as like October? And then assuming somewhere opened in October, what gave you the confidence to raise the full year numbers for 2022? Dr. Marlow Hernandez: Well, as I said, there were several centers that took us a little bit longer because of COVID to have them open. I don't know the exact count September as we opened quite a number and we had soft opening on some. The confidence is that we've got 16 open service stations and we've got clear visibility to 20 and also the visibility into this 54 to 59 well ahead of our forecasts for centers and membership. Operator: Your next question is from the line of Brian Tanquilut from Jefferies. Your line is now open. Brian Tanquilut: So I guess just a housekeeping question for me to start. As I looked at your 3Q member month, since implied membership was about a quarter and the number of MA commercial members was about a quarter month end. Is that the right way to think about that? And is there anything on revenue recognition, probably revenue recognition should be thinking about in terms of the ending quarter number? Brian Koppy: No, I don't think, I mean, the membership comes in pretty ratably. And then keep in mind that it's difficult when you, how you're thinking about the member months with the acquisitions. So that'll skew some of the analysis, I think, what you're trying to get to. But generally, it's pretty stable other than when acquisitions come in that all -- when we roll them into our systems that will materially change the member month count as we go through each of the quarters, if that's what you're driving. Brian Tanquilut: And then just a follow-up. As I think about your direct contracting numbers, just anything you can share with us in terms of the performance to-date that you're seeing there? Brian Koppy: Yes, it's very consistent with what we saw in the second quarter. We are still very bullish on the DCE program. We think it provides long-term sustainable growth opportunities. And importantly, as we talked about today and in the past is, as we bring them on to our, into our system and our CanoPanorama and our clinical operations teams takeover to manage the care of the DCE members, we really believe will continue to improve that book of business and integrate them into the overall Medicare population. So I'm very happy with how it's moving along and where we expect the growth to come from as we move into 2022 with that DCE program. Operator: Your next question is from the line of Justin Lake from Wolfe Research. Your line is now open. Justin Lake: I wanted to ask the question. One of you your peers gotten a DOJ request around transportation and third-party marketing relationship? So, I believe you haven't received anything, but wanted to confirm that? And then also just ask you, in terms of your relationships with third-party agents, are you sourcing any of your patient growth from brokers or anything else like that third parties or is 100% of your patients coming from your direct efforts, your own employees? Brian Koppy: Justin, we have not received any such notice. We provide transportation to facilitate access to essential primary care services, as it relates to the use of third-party marketers. We have not. We do not and will not use third-party marketers. We believe demand generation is part of our competitive work and want to control every aspect of it, including compliance. There are bright lines for us that we simply don't cross. And our strategy is proven. Dr. Marlow Hernandez: And let me reiterate here, our track record of growth, compliance, our history over a 10-year period. Prior to going public, we were listed as the fastest growing primary care company in the country. Since going public, we have exceeded all expectations within a culture of compliance that is centered on our provision of services centered on patients. So short answer is, we do not use third-party marketers and will not use third-party marketers. Justin Lake: And then my follow-up here is around center growth. So you've got a very robust plan for next year. Just as we think about forward from there. Is that in a kind of high 50s number in terms of new centers, a kind of target that we should use to kind of think about future growth post 2022, in terms of de novos? Or where would you kind of focus us in terms of the three to five year outlook in terms of center growth without being I know it's tough to be too specific? Brian Koppy: Yes, great question. Just take us back. We focus on building, buying and managing. So, our projections for de novo growth, de novo centers will be flexible and change over time dependent on opportunities that are presented to us. But as we said, we have 54 to 59 in 2022. I know everyone's looking for where we would want to go from there. I think that's probably a good benchmark to use. But I'll reserve the statement that we'll continue to refine those longer term outlook, as we start to continue to increase our density and our scale in the various markets, given our build buy manage strategy. So, I think that's the way to think about it as of now. Operator: There are no further questions. Presenters please continue. Brian Koppy: All right. Well, thank you everyone for joining and if there's any follow-up questions, please reach out to myself or Amy Wilson. Thank you. Dr. Marlow Hernandez: Thanks everyone. Appreciate your time. Operator: And with that, this concludes today's conference call. Thank you for attending. 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.
