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Cano Health, Inc. (CANO)·Q3 2023 Earnings Summary

Executive Summary

  • Revenue grew 19% year over year to $788.1M; Medical Cost Ratio improved sequentially to 91.8% from 103.5% in Q2, but Adjusted EBITDA remained negative at $(66.1)M and net loss expanded to $(491.7)M on a $354.0M non-cash goodwill impairment and elevated third-party medical costs .
  • Management executed strategic actions: sold substantially all Texas and Nevada assets for ~$66.7M value, exited California/New Mexico/Illinois, and remains on track to exit Puerto Rico by early 2024 to refocus on Florida Medicare Advantage and ACO REACH; workforce reduced by ~842 employees (~21%) targeting ~$65M annualized cost savings; targeting >$100M annualized third-party medical cost reductions by end of 2024 .
  • Liquidity tightened: ~$107M total liquidity at 9/30/23 (including $27M unrestricted cash and $80M revolver capacity); by 11/9/23, liquidity was ~$53M with the revolver fully drawn. Company expects to seek a waiver of “going concern” covenants by April 22, 2024 .
  • Outlook: No formal numerical guidance; management expects sequential operating performance improvement in Q4 2023 driven by operational improvements, medical cost recoveries, and seasonality .

What Went Well and What Went Wrong

What Went Well

  • Medicare Advantage performance stability improved in Q3 due to operational enhancements and medical cost initiatives, with sequentially better MCR versus Q2 (91.8% vs. 103.5%) .
  • Membership growth in Medicare, led by ACO REACH: total Medicare members reached 195,885 (+16.4% YoY), with ACO REACH at 64,328 (+62.4% YoY), supporting capitated revenue growth (+23% YoY to $770.3M) .
  • Strategic footprint rationalization and Florida focus: divested Texas/Nevada assets, exited CA/NM/IL, and progressing to exit Puerto Rico to optimize core Florida operations; “We expect these actions to improve the efficiency and quality of care delivery, ultimately improving health outcomes and our financial performance” — Mark Kent (CEO) .

What Went Wrong

  • Elevated third-party medical costs and higher utilization of supplemental benefits (e.g., OTC/flex cards, healthy food cards) drove MCR to 91.8% versus 78.2% a year ago; Adjusted EBITDA fell to $(66.1)M versus $18.2M in Q3 2022 .
  • Liquidity constraints intensified; revolver fully drawn and management anticipates needing waivers of going-concern covenants, highlighting balance sheet risk and near-term financing dependence .
  • Non-cash goodwill impairment of $354.0M pushed net loss to $(491.7)M; interest expense rose versus prior year, further pressuring reported results .

Financial Results

Quarterly P&L and Key Metrics

MetricQ1 2023Q2 2023Q3 2023
Total Revenue ($USD Millions)$866.9 $766.7 $788.1
Capitated Revenue ($USD Millions)$841.1 $743.3 $770.3
Fee-for-Service & Other Revenue ($USD Millions)$25.8 $23.4 $17.8
Net Income (Loss) ($USD Millions)$(60.6) $(270.7) $(491.7)
Diluted EPS ($USD)$(0.12) $(0.51) $(91.87)
Adjusted EBITDA ($USD Millions)$5.0 $(149.677) $(66.089)

Margins and Ratios

MetricQ1 2023Q2 2023Q3 2023
Medical Cost Ratio (Third-party medical costs / Capitated revenue)84.2% 103.5% 91.8%
Direct Patient Expense Ratio (% of Total Revenue)7.9% 7.4% 8.3%
SG&A Ratio ex-Stock Comp (% of Total Revenue)10.0% 12.7% 10.8%
Adjusted EBITDA Margin (% of Total Revenue)0.6% (19.5%) (8.4%)

Segment Revenue Mix

Segment Revenue ($USD Millions)Q1 2023Q2 2023Q3 2023
Medicare Advantage$491.9 $435.6 $469.4
Medicare ACO REACH$301.8 $260.1 $259.0
Total Medicare$793.6 $695.6 $728.4
Medicaid$44.4 $40.1 $41.8
ACA$3.0 $7.6 $0.1
Total Capitated Revenue$841.1 $743.3 $770.3
Fee-for-Service & Other$25.8 $23.4 $17.8
Total Revenue$866.9 $766.7 $788.1

KPIs

KPIQ1 2023Q2 2023Q3 2023
Total Members388,667 381,066 312,151
Medicare Advantage Members140,366 140,535 131,557
Medicare ACO REACH Members67,054 65,161 64,328
Total Medicare Members207,420 205,696 195,885
Medicaid Members81,509 77,290 62,717
ACA Members99,738 98,080 53,549
PMPM – Medicare Advantage ($)$1,180 $1,027 $1,115
PMPM – ACO REACH ($)$1,489 $1,309 $1,333
PMPM – Total Medicare ($)$1,281 $1,117 $1,184
PMPM – Medicaid ($)$183 $164 $197
PMPM – ACA ($)$11 $26 $—
Total PMPM ($)$734 $638 $771

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Membership (YE)FY 2023390K–400K (raised from 375K–385K on May 9, 2023) Withdrawn (Aug 10, 2023) Lowered/Withdrawn
Total RevenuesFY 2023$3.25B–$3.35B (raised May 9, 2023) Withdrawn (Aug 10, 2023) Lowered/Withdrawn
Medical Cost Ratio (MCR)FY 202381.0%–82.0% (unchanged on May 9, 2023) Withdrawn (Aug 10, 2023) Lowered/Withdrawn
Adjusted EBITDAFY 2023$75M–$85M (unchanged on May 9, 2023) Withdrawn (Aug 10, 2023) Lowered/Withdrawn
Workforce Cost ReductionsFY 2023–2024~$50M annualized (planned in Q3 start) ~$65M annualized (Q3 update) Raised
Third-Party Medical Cost ReductionsFY 2024 (target)Not quantified priorTargeting >$100M annualized by end of 2024 New/Expanded Target
Q4 2023 OutlookQ4 2023n/aExpect sequential operating performance improvement driven by operations, recoveries, seasonality Qualitative Outlook

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Supplemental benefits utilization driving medical costsQ1: Higher utilization of supplemental benefits and branded Rx pressured MCR ; Q2: ~$51M supplemental benefits in Q2 with $18M prior-period dev; MCR 103.5% Elevated utilization persists; MCR 91.8% (sequential improvement vs Q2) Improving QoQ, still elevated YoY
Strategic review/sale processInitiated comprehensive sale process and non-core divestitures Continues pursuing sale of company or assets; divested TX/NV; exits CA/NM/IL; exiting Puerto Rico Execution progress
Footprint rationalization to FloridaPlanned exits and consolidation; Florida-focused Focus on optimizing Florida MA and ACO REACH assets Ongoing
Workforce restructuringPlan to reduce ~17% workforce, ~$50M savings Reduced ~21% workforce; ~$65M annualized savings Expanded savings
Liquidity/going concernQ2: Liquidity ~$125M; “substantial doubt” about going concern; covenant relief via Side-Car amendment Liquidity ~$107M at 9/30; ~$53M on 11/9; expects waivers for going-concern covenants Deteriorated liquidity
Medical cost management initiativesEmphasized optimizing pharmacy, reducing ER visits/admissions, payor/specialty network enhancements Continued initiatives with target >$100M reductions by end 2024 Scaling programs

Management Commentary

  • “Cano Health is continuing to evaluate strategic interest in the Company... These actions are designed to position us to focus on and optimize our core Florida Medicare Advantage and ACO REACH assets... We expect these actions to improve the efficiency and quality of care delivery, ultimately improving health outcomes and our financial performance.” — Mark Kent, CEO .
  • “Third quarter results reflect improved performance and stability in the Medicare Advantage business due to operational enhancements and third-party medical cost initiatives.” — Press release highlights .
  • “Targeting over $100 million in annualized third-party medical cost reductions by the end of 2024 through medical cost initiatives and optimization of Medicare Advantage operations.” — Press release highlights .

Q&A Highlights

  • The Q3 2023 earnings call transcript could not be retrieved due to a document database inconsistency. As a result, specific Q&A themes and any guidance clarifications from analyst questions are unavailable from the transcript source. Management’s prepared remarks and press release provide qualitative context on operational improvements, cost reductions, strategic review, and liquidity actions .

Estimates Context

  • Attempts to fetch S&P Global consensus estimates for Q3 2023 EPS, revenue, and EBITDA were unsuccessful due to missing CIQ mapping for CANO; therefore, comparisons to Wall Street consensus are unavailable at this time. If required, we can revisit once the CIQ mapping is updated [SpgiEstimatesError: Missing CIQ mapping for ticker 'CANO'].

Key Takeaways for Investors

  • Sequential improvement in MCR (91.8% vs. 103.5% in Q2) is a positive inflection but remains elevated YoY; watch Q4 for confirmation of seasonal recoveries and cost program benefits .
  • Liquidity is tight and covenants loom; near-term trading likely sensitive to financing developments, asset sale proceeds (e.g., Medicaid FL, pharmacy), and progress on waivers .
  • Strategic refocus on Florida Medicare Advantage and ACO REACH should enhance density and unit economics; footprint exits reduce complexity and SG&A, with ~$65M annualized savings targeted .
  • Elevated supplemental benefit utilization is a key driver of cost pressure; management is attacking pharmacy mix, ER visits, and specialty referrals—track tangible reductions and PMPM stabilization through 2024 .
  • The $354M goodwill impairment resets book value and compounds headline losses; non-GAAP Adjusted EBITDA remains negative, but directional improvement vs. Q2 suggests early traction in cost initiatives .
  • Asset sales and strategic alternatives are catalysts; outcome probabilities and timing are uncertain, but proceeds and structure (debt paydown vs. operational investment) will shape the medium-term thesis .
  • Without current consensus comparisons, focus on internal cadence: sequential margin improvement, membership mix shift, and cost takeout execution as the core drivers of sentiment until coverage normalizes .