Executive Summary

Q4 2022 revenue rose 38% year over year to $680.4M; Adjusted EBITDA (prior definition) increased to $35.7M, while reported net loss was $(301.7)M due to a non-cash goodwill impairment of $(323.0)M .
Medical cost ratio (MCR) improved to 76.1% in Q4; excluding Medicare DCE/ACO REACH, Q4 MCR was 71.7%, indicating better underlying cost control; total 2022 MCR was 79.1% .
2023 guidance: revenue $3.10–$3.25B, MCR 81–82%, Adjusted EBITDA $75–$85M (new definition, de novo losses no longer added back), membership 375–385K; management is shifting to optimize existing operations and materially reduce de novo investments .
Liquidity update: closed a $150M senior secured term loan (14% cash/PIK for two years, then 13% cash; warrants for ~29.5M shares at $0.01), with ~$179M liquidity as of 2/28/2023; a key catalyst for near-term solvency and operating flexibility .

What Went Well and What Went Wrong

What Went Well

Strong top-line growth: Q4 revenue +38% y/y; capitated revenue +40% y/y; Q4 Adjusted EBITDA (prior def.) more than tripled vs prior-year quarter .
MCR improvement: Q4 MCR 76.1% and Q4 PMPM third-party medical costs down y/y; excluding DCE/ACO REACH, Q4 MCR was 71.7%, down ~600 bps y/y, driven by lower costs across service lines .
Strategic pivot to profitability: management will “focus on optimizing our operations to unlock embedded profitability… and… improve liquidity and cash flow” and “significantly reduce de novo investments in 2023” .
- Quote: “We completed 2022 with membership well above our initial expectations, and revenue and Adjusted EBITDA in line with our most recent guidance… we will focus on optimizing our operations… and maximize long-term shareholder value.” — Dr. Marlow Hernandez .

What Went Wrong

Large GAAP loss: Q4 net loss $(301.7)M, driven by a $(323.0)M goodwill impairment; highlights balance sheet pressure from prior growth and acquisitions .
Lower revenue PMPM from newer members in 2H22: Q3 commentary noted capitated revenue PMPM ~5% lower y/y and ~9% lower q/q, lifting MCR vs internal expectations .
Ongoing dilution and leverage concerns: 2023 term loan carries double-digit interest and included warrants for ~29.5M shares; interest expense guided at ~$100M in 2023, with liquidity still tight (unrestricted cash ~$18M at 2/28/2023) .

Financial Results

Metric	Q4 2021	Q2 2022	Q3 2022	Q4 2022
Total Revenue ($USD Millions)	$492.3	$689.4	$665.0	$680.4
Capitated Revenue ($USD Millions)	$464.5	$655.5	$625.9	$651.2
Net Income (Loss) ($USD Millions)	$0.5	$(14.6)	$(112.0)	$(301.7)
Diluted EPS ($USD)	$(0.12)	$(0.03)	$(0.23)	$(0.61)
Adjusted EBITDA – Prior def. ($USD Millions)	$11.1	$29.4	$42.5	$35.7
Adjusted EBITDA – New def. ($USD Millions)	$(4.9)	$9.9	$18.2	$16.3
Adjusted EBITDA Margin – Prior def. (%)	2.3%	4.3%	6.4%	5.2%
Medical Cost Ratio (MCR) (%)	78.1%	82.6%	78.2%	76.1%
MCR excl. DCE/ACO REACH (%)	—	~80.6%	~73.0%	71.7%

Segment revenue mix

Segment ($USD Millions)	Q4 2021	Q3 2022	Q4 2022
Medicare Advantage	$380.8	$432.2	$434.2
Medicare DCE/ACO REACH	$29.1	$145.7	$162.5
Medicaid	$50.7	$41.9	$48.8
ACA	$3.9	$6.0	$5.7
Total Capitated Revenue	$464.6	$625.9	$651.2
Fee-for-Service & Other	$27.7	$39.1	$29.2
Total Revenue	$492.2	$665.0	$680.4

KPIs

KPI	Q4 2021	Q3 2022	Q4 2022
Total Members	227,005	294,596	309,590
Medicare Advantage PMPM ($)	$1,098	$1,127	$1,084
Medicare DCE/ACO REACH PMPM ($)	$1,261	$1,215	$1,374
Total PMPM ($)	$706	$718	$718
Medical Centers (count)	130	151	172

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Total Revenue ($USD Billions)	FY 2023	—	$3.10–$3.25	New
Membership (000s)	FY 2023 YE	—	375–385	New
MCR (%)	FY 2023	—	81–82	New
Adjusted EBITDA ($USD Millions, new def.)	FY 2023	—	$75–$85	New
Total Medical Centers (count)	FY 2023 YE	—	177	New
Interest Expense ($USD Millions)	FY 2023	—	~100 (~90 cash, ~10 non-cash PIK)	New
Stock-based Compensation ($USD Millions)	FY 2023	—	~50	New
Capital Expenditures ($USD Millions)	FY 2023	—	~15	New
MCR (%)	FY 2022	79.5–80.5 (Nov 9, 2022)	81.0–82.0 (Mar 1, 2023)	Raised

Earnings Call Themes & Trends

Note: We attempted to retrieve the Q4 2022 earnings call transcript but encountered a document retrieval error; call themes below are derived from Q2/Q3/Q4 press releases and the Q4 financial supplement.

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q4 2022)	Trend
MCR dynamics and PMPM	Q2: Higher acuity new members increased MCR (82.6%); expected to improve as cohorts mature . Q3: Capitated revenue PMPM ~5% lower y/y and ~9% lower q/q, lifting MCR vs internal plan; underlying medical costs PMPM improved .	Q4: MCR improved to 76.1%; excluding DCE/ACO REACH, Q4 MCR 71.7%; 2022 MCR 79.1% .	Improving ex-DCE; headline MCR up in 2023 due to mix .
Growth vs profitability focus	Q2: Added centers; increased FY membership/revenue guidance; lowered Adj. EBITDA guidance; highlighted de novo pressures . Q3: Reduced FY medical centers target; prioritize cash flow and cost management .	Q4: Reduce de novo materially; optimize existing center capacity; shift Adj. EBITDA definition (no de novo add-backs) .	Pivot to profitability and cash generation .
Capital structure and liquidity	Notable cash drawdown in 2022; no term loan yet .	Secured $150M term loan (parri passu; high coupon; warrants); liquidity ~$179M at 2/28/2023 .	Liquidity improved short term; leverage/cost of capital elevated .
Regulatory program (DCE/ACO REACH)	DCE uncertainty noted in guidance; PYD impact and lower projected DCE contribution .	Higher proportion of ACO REACH members expected to raise 2022/2023 total MCR; ex-DCE MCR materially lower .	Mix shift raises headline MCR .
Operational optimization	Q3 emphasized leveraging existing capacity and cost control .	Q4 reiterates optimization to unlock embedded profitability; increase capacity utilization .	Continuing execution focus .

Management Commentary

“We completed 2022 with membership well above our initial expectations, and revenue and Adjusted EBITDA in line with our most recent guidance. In 2023, we will focus on optimizing our operations to unlock embedded profitability… improve liquidity and cash flow, and maximize long-term shareholder value.” — Dr. Marlow Hernandez, CEO .
“While financial results were below our expectations due to lower revenue from new membership growth, existing membership performed in line with expectations… we are optimizing key areas of the business to leverage existing assets and prioritize cash flow.” — Dr. Marlow Hernandez (Q3 release) .
“We expect new higher acuity members, while pressuring current performance, will provide opportunities for more profitable results going forward as we leverage our population health platform to improve the health of these patients.” — Dr. Marlow Hernandez (Q2 release) .

Q&A Highlights

We attempted to read the full Q4 2022 earnings call transcript but encountered a document retrieval error (“database inconsistency”), and were unable to access Q3/Q2 transcripts as well. As a result, Q&A details and any guidance clarifications from live Q&A are unavailable from our source set .

Estimates Context

We attempted to retrieve S&P Global consensus estimates for Q4 2022 (EPS, revenue, EBITDA), but the CIQ mapping for CANO was unavailable in our SPGI data connector (SpgiEstimatesError). Therefore, Wall Street consensus comparisons are unavailable via S&P Global for this period.

Key Takeaways for Investors

Underlying cost performance improved: Q4 MCR at 76.1%; excluding DCE/ACO REACH, Q4 MCR was 71.7%, reflecting better medical cost control across lines .
Growth remained robust but mix matters: Medicare DCE/ACO REACH mix increased, lifting headline MCR; Medicare Advantage and Medicaid revenue PMPM trends remain a key watch item .
Profitability pivot: de novo investments to be significantly reduced in 2023; new Adjusted EBITDA definition removes de novo add-backs, sharpening focus on core operating profitability .
Liquidity bridge secured at a cost: $150M term loan with high coupons and warrants boosts near-term liquidity ( ~$179M at 2/28/23) but adds financing expense and dilution risk; 2023 interest expense guided at ~$100M .
Execution priority: management aims to increase capacity utilization at existing centers and optimize platform to improve cash from operations; track progress via PMPM trends, admissions per thousand, and SG&A ratios .
Membership scale: YE 2022 membership 309,590 (+36% y/y) with Medicare capitated members at 179,536 (+42% y/y); 2023 YE target 375–385K .
Guidance watch: 2023 targets (revenue, MCR, Adjusted EBITDA) imply caution from mix and cost of capital; monitor updates as the ACO REACH mix stabilizes and cohort maturation progresses .

Cano Health, Inc. (CANO)·Q4 2022 Earnings Summary