Cano Health, Inc. (CANO)·Q2 2023 Earnings Summary

Executive Summary

• Cano Health reported Q2 2023 revenue of $766.7M (+11% y/y, -12% q/q), with an Adjusted EBITDA loss of $(149.7)M and MCR spiking to 103.5% due to lower-than-expected MRA revenue and elevated supplemental benefit utilization .
• Management withdrew FY2023 guidance and initiated a formal sale process, alongside exiting California, New Mexico, Illinois in 2023 and Puerto Rico by 1/1/2024; they also announced a ~17% workforce reduction targeting ~$50M annualized cost savings .
• Liquidity stood at ~$101M as of Aug 9 (cash and cash equivalents excluding ~$14M restricted), with a waiver on leverage covenants and an amendment increasing term loan interest to 16% PIK through Feb 2025; management concluded there is substantial doubt about going concern within one year .
• Q2 was pressured by ~$88M unfavorable out-of-period items (≈$44M lower MRA, ≈$44M prior period medical cost development) and $62M reserve on MSP Recovery Class A stock; strategic actions and seasonality expected to support H2 improvement, though guidance was withdrawn .
• Wall Street consensus estimates from S&P Global were unavailable for CANO, limiting formal beat/miss analysis (S&P Global data unavailable; consensus mapping error).

What Went Well and What Went Wrong

What Went Well

• Membership growth remained strong: total members 381,066 (+35% y/y), including Medicare capitated 205,696 (+26% y/y) .
• Decisive strategic actions: pursuing sale of the Company or assets; exiting non-core geographies and consolidating Texas/Nevada footprint to focus on core Medicare Advantage and ACO REACH .
• Cost program initiated: ~700 headcount reduction (~17%) expected to yield ~$50M annualized cost reductions through end of 2024; quote: “Cano Health took critical strategic steps… intended to accelerate our strategy to enhance operational efficiency and… improve the management of our medical costs.” – Mark Kent, Interim CEO .

What Went Wrong

• MRA revenue shortfall and prior period development: ~$(58)M below guidance in Q2 (≈$44M out-of-period), and ~$44M unfavorable prior period medical costs; MCR rose to 103.5% (vs 82.6% y/y, 84.2% q/q) .
• Elevated supplemental benefits utilization across health plans drove significant medical costs ($51M in Q2; $13M in Q1), with $18M of Q2 related to unfavorable prior period development .
• Liquidity and solvency risk: liquidity ~$101M as of Aug 9 and management’s going-concern warning within one year; term loan amended with 16% PIK rate and formal sale process required by lenders .

Financial Results

Segment revenue breakdown:

KPIs:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Cano Health is evaluating strategic interest in the Company to ensure we continue caring for our patients, while maximizing value for our stakeholders… Cano Health took critical strategic steps during the second quarter of 2023 that are intended to accelerate our strategy to enhance operational efficiency and execute on the plan to improve the management of our medical costs.” – Mark Kent, Interim CEO .
• “We are pleased to start the year with solid operating and financial performance… as we continue to execute on our action plan, we expect our earnings trajectory to improve and accelerate, particularly in the second half of the year.” – Dr. Marlow Hernandez, CEO (Q1 remarks) .

Q&A Highlights

• Management addressed drivers of MCR deterioration: lower-than-expected MRA revenue (~$58M, incl. ~$44M out-of-period) and higher supplemental benefit utilization ($51M in Q2; $18M prior period) .
• Strategic footprint changes and sale process: detailed exit timelines (CA/NM/IL in fall 2023; Puerto Rico by 1/1/24), consolidation in TX/NV, and focus on core geographies (Florida) .
• Liquidity and capital structure: covenant waiver and Side-Car amendment terms (16% PIK, participation rights), intent to repay revolver post-amendment; acknowledgment of going-concern risk .
• Note: Full call transcript is available via third-party sources (e.g., Seeking Alpha) .

Estimates Context

• S&P Global consensus estimates for Q2 2023 were unavailable for CANO due to a mapping issue, so formal beat/miss analysis cannot be provided (S&P Global data unavailable).
• Actuals for context: | Metric | Q2 2023 Actual | |--------|-----------------| | Revenue ($USD Millions) | $766.7 | | Diluted EPS (Class A) ($USD) | $(0.51) | | Adjusted EBITDA ($USD Millions) | $(149.7) |

Key Takeaways for Investors

• Near-term risk elevated: withdrawal of FY23 guidance and going-concern disclosure reflect heightened uncertainty; liquidity constrained and cost of capital high under amended term loan .
• H2 improvement targeted: management expects operational improvements, medical cost recoveries, seasonality, and removal of non-recurring items to support performance, but execution and payor dynamics are critical .
• Strategic focus: exiting non-core geographies and consolidating centers should reduce complexity and costs, with Florida core market prioritized for MA/ACO REACH .
• Medical cost management remains key: elevated supplemental benefits utilization and MRA revenue shortfalls drove Q2 losses; tightening utilization management and coding accuracy are priority levers .
• Balance sheet vigilance: monitor liquidity, revolver repayment, covenant compliance, and any asset sale proceeds; credit amendment terms increase financial burden .
• Membership scale intact: total members +35% y/y, with MA/ACO REACH growth; PMPM down sharply signals mix and pricing pressures that must be offset by cost control .
• Corporate action potential: formal sale process could catalyze stock moves; outcomes (full sale, asset divestitures, or capital raises) will drive scenario paths .

Sources: Cano Health Q2 2023 8-K with press release and financial supplement ; Q1 2023 8-K press release and supplement ; Q4 2022 8-K press release and supplement . External PR (Q2 press release) .