PROSPECTUS SUPPLEMENT NO. 3		Filed Pursuant to Rule 424(b)(3)
(to prospectus dated April 6, 2022)		Registration No. 333-258736

CANO HEALTH, INC.

Up to 75,335,383 Shares of Class A Common Stock

 

 

This prospectus supplement is being filed to update and supplement the information contained in the prospectus dated April 6, 2022 (as supplemented or amended from time to time, the “Prospectus”), which forms part of our Registration Statement on Form S-1, as amended (File No. 333-258736). This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the information contained or incorporated by reference in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 9, 2022, which is set forth below.

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

Our Class A common stock is listed on The New York Stock Exchange under the symbol “CANO”. On August 11, 2022, the closing price of our Class A common stock was $4.93 per share.

 

 

Investing in our securities involves risks that are described in the “Risk Factors” section beginning on page 13 of the Prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus supplement is August 12, 2022.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

or

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 001-39289

 

 

 

Cano Health, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		98-1524224
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
9725 NW 117th Avenue, Miami, FL		33178
(Address of principal executive offices)		(Zip Code)

(855) 226-6633

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Class A common stock, $0.0001 par value per share		CANO		The New York Stock Exchange
Warrants to purchase one share of Class A common stock, each at an exercise price of $11.50 per share		CANO/WS		The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of August 5, 2022 the registrant had 231,917,186 shares of Class A common stock outstanding and 253,974,171 shares of Class B common stock outstanding.

 

 

 

Table of Contents

 

		Page
PART I FINANCIAL INFORMATION
Cautionary Note Regarding Forward-Looking Statements			3
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June  30, 2022 and December 31, 2021			5
Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2022 and June 30, 2021			6
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months ended June 30, 2022 and June 30, 2021			7
Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2022 and June 30, 2021			10
Notes to Interim Condensed Consolidated Financial Statements			11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures About Market Risk			55
Item 4. Controls and Procedures			55
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			57
Item 1A. Risk Factors			57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			57
Item 3. Default Upon Senior Securities			57
Item 4. Mine Safety Disclosures			57
Item 5. Other Information			57
Item 6. Exhibits			58
SIGNATURES			59

 

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this report may include, for example, statements about:

 

•

our ability to recognize the benefits of the Business Combination (as defined herein) and our other recent acquisitions, which may be affected by, among other things, competition and our ability to grow and manage growth profitability;

 

•

our financial and business performance;

 

•

changes in our strategy, future operations, financial position, estimated revenues, forecasts, projected costs, prospects and plans;

 

•

changes in applicable laws or regulations, including with respect to health plans and payors and our relationships with such plans and payors, and provisions that impact Medicare and Medicaid programs;

 

•

our ability to realize expected results with respect to patient membership, revenue and earnings;

 

•

our ability to grow market share in existing markets or enter into new markets and success of acquisitions;

 

•

our ability to predict and control our medical claims expense ratio;

 

•

the risk that we may not be able to procure sufficient space as we continue to grow and open additional medical centers;

 

•

our predictions about the need for our wellness centers after the coronavirus disease 2019 (“COVID-19 pandemic”), including the attractiveness of our offerings and member retention rates;

 

•

competition in our industry, the advantages of our products and technology over competing products and technology existing in the market, and competitive factors including with respect to technological capabilities, cost and scalability;

 

•

the impact of the COVID-19 pandemic or any other pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide on our business, financial condition and results of operations and the actions we may take in response thereto;

 

•

our future capital requirements and sources and uses of cash;

 

•

our business, expansion plans and opportunities;

 

•

our ability to access new capital through sales of shares of our Class A common stock or issuance of indebtedness, which may harm our liquidity and / or our ability to grow our business;

 

•

anticipated financial performance, including gross margin, and the expectation that our future results of operations will fluctuate on a quarterly basis for the foreseeable future;

 

•

our expected capital expenditures, cost of revenue and other future expenses, and the sources of funds to satisfy liquidity needs;

 

•

our ability to maintain proper and effective internal controls;

 

•

our ability to predict changes to the DCE and ACO program as it relates to benchmarks and shared savings;

 

•

our ability to implement remediation plans to address the material weaknesses that are described in Part I, Item 4. of this Quarterly Report on Form 10-Q; and

 

•

the outcome of any known and unknown litigation and regulatory proceedings.

 

3

These forward-looking statements are based on information available to us at the time of this Quarterly Report on Form 10-Q and current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties, and other factors. As a result of a number of known and unknown risks and uncertainties, our actual results or performance may be materially different from those expressed or implied by these forward-looking statements. Some factors that could cause actual results to differ include:

 

•

the ability to maintain the listing of our Class A common stock and warrants on the New York Stock Exchange (“NYSE”);

 

•

the price of our securities may be volatile due to a variety of factors, including the volatility in capital markets, changes in the competitive and highly regulated industries in which we operate, variations in performance across competitors, changes in laws and regulations affecting our business and changes in our capital structure;

 

•

the risk of downturns in the economy and the possibility of rapid change in the highly competitive industry in which we operate;

 

•

the risk that we will need to raise additional capital to execute our business plan, which may not be available on acceptable terms or at all; and

 

•

the risk that we experience difficulties in managing our growth and expanding operations.

 

4

CANO HEALTH, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

(in thousands, except share and per share data)		June 30, 2022				December 31, 2021
Assets
Current assets:
Cash, cash equivalents and restricted cash		$	47,847			$	163,170
Accounts receivable, net of unpaid service provider costs			200,990				133,433
Prepaid expenses and other current assets			38,466				20,632
Total current assets			287,303				317,235
Property and equipment, net			106,198				85,261
Operating lease right-of-use assets			168,554				132,173
Goodwill			777,163				769,667
Payor relationships, net			561,733				576,648
Other intangibles, net			234,127				248,973
Other assets			6,327				13,582
Total assets		$	2,141,405			$	2,143,539
Liabilities and stockholders’ equity
Current liabilities:
Current portion of notes payable		$	6,444			$	6,493
Current portion of finance lease liabilities			1,561				1,295
Current portion of contingent consideration			198				3,123
Accounts payable and accrued expenses (Related parties comprised $1,475 and $144 as of June 30, 2022 and December 31, 2021, respectively)			69,419				80,829
Current portions due to sellers			4,317				17,357
Current portion of operating lease liabilities			20,726				15,275
Other current liabilities			39,390				36,664
Total current liabilities			142,055				161,036
Notes payable, net of current portion and debt issuance costs			914,890				915,266
Long term portion of operating lease liabilities			157,408				122,935
Warrant liabilities			22,807				80,144
Long term portion of finance lease liabilities			2,923				2,181
Contingent consideration			27,800				35,300
Other liabilities			32,525				28,109
Total liabilities			1,300,408				1,344,971
Stockholders’ Equity
Shares of Class A common stock $0.0001 par value (6,000,000,000 shares authorized and 218,028,952 and 180,113,551 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively)			22				18
Shares of Class B common stock $0.0001 par value (1,000,000,000 shares authorized and 264,527,434 and 297,385,981 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively)			27				30
Additional paid-in capital			495,642				397,443
Accumulated deficit			(83,433	)			(78,760	)
Total Stockholders’ Equity before non-controlling interests			412,258				318,731
Non-controlling interests			428,739				479,837
Total Stockholders’ Equity			840,997				798,568
Total Liabilities and Stockholders’ Equity		$	2,141,405			$	2,143,539

The accompanying Notes are an integral part of these Condensed Financial Statements

 

5

CANO HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except share and per share data)		2022				2021				2022				2021
Revenue:
Capitated revenue (Related parties comprised $0 and $128,394, in the three months ended June 30, 2022 and 2021, respectively, and $0 and $308,204, in the six months ended June 30, 2022 and 2021, respectively)		$	655,493			$	329,484			$	1,329,844			$	590,841
Fee-for-service and other revenue (Related parties comprised $0 and $219, in the three months ended June 30, 2022 and 2021, respectively, and $0 and $631, in the six months ended June 30, 2022 and 2021, respectively)			33,880				14,097				63,671				27,342
Total revenue			689,373				343,581				1,393,515				618,183
Operating expenses:
Third-party medical costs (Related parties comprised $0 and $115,975, in the three months ended June 30, 2022 and 2021, respectively, and $0 and $249,819, in the six months ended June 30, 2022 and 2021, respectively)			541,317				291,816				1,077,097				486,862
Direct patient expense (Related parties comprised $3,064 and $58, in the three months ended June 30, 2022 and 2021, respectively, and $4,518 and $1,488, in the six months ended June 30, 2022 and 2021, respectively)			52,647				35,607				113,323				69,844
Selling, general, and administrative expenses (Related parties comprised $3,305 and $1,840, in the three months ended June 30, 2022 and 2021, respectively, and $5,452 and $3,763, in the six months ended June 30, 2022 and 2021, respectively)			106,179				47,159				202,849				82,168
Depreciation and amortization expense			19,836				7,945				38,872				13,791
Transaction costs and other (Related parties comprised $0, $1,465, in the three months ended June 30, 2022 and 2021, respectively, and $0 and $1,483, in the six months ended June 30, 2022 and 2021, respectively)			6,207				16,114				14,583				25,068
Change in fair value of contingent consideration			(5,764	)			(496	)			(10,425	)			(211	)
Total operating expenses			720,422				398,145				1,436,299				677,522
Income (loss) from operations			(31,049	)			(54,564	)			(42,784	)			(59,339	)
Other income and expense:
Interest expense			(13,134	)			(9,714	)			(26,418	)			(20,340	)
Interest income			2				1				3				2
Loss on extinguishment of debt			—				(13,225	)			(1,428	)			(13,225	)
Change in fair value of warrant liabilities			30,175				39,215				57,337				39,215
Other income (expenses)			251				(25	)			530				(25	)
Total other income			17,294				16,252				30,024				5,627
Net income (loss) before income tax expense			(13,755	)			(38,312	)			(12,760	)			(53,712	)
Income tax expense (benefit)			809				(2,023	)			1,889				(1,309	)
Net income (loss)		$	(14,564	)		$	(36,289	)		$	(14,649	)		$	(52,403	)
Net income (loss) attributable to non-controlling			(9,231	)			(40,844	)			(9,976	)			(56,958	)
Net income (loss) attributable to Class A common stockholders		$	(5,333	)		$	4,555			$	(4,673	)		$	4,555
Net income (loss) per share attributable to Class A common stockholders, basic		$	(0.03	)		$	0.03			$	(0.02	)		$	0.03
Net income (loss) per share attributable to Class A common stockholders, diluted		$	(0.03	)		$	(0.06	)		$	(0.03	)		$	(0.06	)
Weighted-average shares outstanding:
Basic			210,053,037				167,134,853				200,783,129				166,691,634
Diluted			474,580,471				168,884,315				465,310,563				167,571,198

The accompanying Notes are an integral part of these Condensed Financial Statements

 

6

CANO HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY / MEMBERS’ CAPITAL

(UNAUDITED)

Three Months Ended June 30, 2022 and 2021

 

(in thousands, except shares)		Members’ Capital								Class A Shares								Class B Shares								Additional Paid-in Capital				Accumulated Deficit				Non- Controlling Interests				Total Equity
		Shares				Amount				Shares				Amount				Shares				Amount
BALANCE—March 31, 2022			—			$	—				205,026,367			$	20				276,722,704			$	28			$	464,262			$	(78,100	)		$	451,567			$	837,777
Stock-based compensation expense			—				—																—				17,783				—				—				17,783
Issuance of Class A common stock upon vesting of restricted stock units			—				—				807,315				1												(5,086	)							5,085				—
Exchange of Class B common stock for Class A common stock			—				—				12,195,270				1				(12,195,270	)			(1	)			18,682				—				(18,682	)			—
Net income (loss)			—				—				—																				(5,333	)			(9,231	)			(14,564	)
BALANCE—June 30, 2022			—			$	—				218,028,952			$	22				264,527,434			$	27			$	495,642			$	(83,433	)		$	428,739			$	840,997

The accompanying Notes are an integral part of these Condensed Financial Statements

 

7

CANO HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY / MEMBERS’ CAPITAL

(UNAUDITED)

 

(in thousands, except shares)		Members’ Capital								Class A Shares								Class B Shares								Additional Paid-in Capital				Notes Receivable				Accumulated Deficit				Non- Controlling Interests				Total Equity
		Shares				Amount				Shares				Amount				Shares				Amount
BALANCE—March 31, 2021			14,629,533			$	157,662				—			$	—				—			$	—			$	—			$	(135	)		$	(123,943	)		$	—			$	33,584
Retrospective application of reverse recapitalization			292,214,129				(157,631	)			—				—				—				—				157,631				—				—				—				—
ADJUSTED BALANCE—March 31, 2021			306,843,662				31				—				—				—				—				157,631				(135	)			(123,943	)			—				33,584
Net loss prior to business combination			—				—				—				—				—				—				—				—				(49,102	)			—				(49,102	)
Business combination and PIPE financing			(306,843,662	)			(31	)			166,243,491				17				306,843,662				31				169,093				—				112,306				491,677				773,093
Stock-based compensation expense			—				—				—				—				—				—				3,609				—				—				—				3,609
Issuance of common stock for acquisitions			—				—				4,055,698				—				—				—				60,000				—				—				—				60,000
Impact of transactions affecting non-controlling interests			—				—				—				—				—				—				(34,094	)			—				—				34,094				—
Notes receivable - related parties			—				—				—				—				—				—				—				(1	)			—				—				(1	)
Net income (loss)			—				—				—				—				—				—				—				—				4,552				8,258				12,810
BALANCE—June 30, 2021			—				—				170,299,189			$	17				306,843,662			$	31				356,239			$	(136	)		$	(56,187	)		$	534,029			$	833,993

The accompanying Notes are an integral part of these Condensed Financial Statements

 

8

CANO HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY / MEMBERS’ CAPITAL

(UNAUDITED)

Six Months Ended June 30, 2022 and 2021

 

(in thousands, except shares)		Members’ Capital								Class A Shares								Class B Shares								Additional Paid-in Capital				Accumulated Deficit				Non- Controlling Interests				Total Equity
		Shares				Amount				Shares				Amount				Shares				Amount
BALANCE—December 31, 2021			—			$	—				180,113,551			$	18				297,385,981			$	30			$	397,443			$	(78,760	)		$	479,837			$	798,568
Stock-based compensation expense			—				—				—				—				—				—				31,600				—				—				31,600
Issuance of Class A common stock upon vesting of restricted stock units			—				—				807,315				1				—				—				(5,086	)			—				5,085				—
Issuance of common stock for acquisitions			—				—				2,857,167				—				—				—				15,771				—				—				15,771
Exchange of Class B common stock for Class A common stock			—				—				32,858,547				3				(32,858,547	)			(3	)			51,765				—				(51,765	)			—
Employee Stock Purchase Plan Issuance			—				—				1,392,372				—				—				—				9,707				—				—				9,707
Impact of transactions affecting non-controlling interests			—				—				—				—				—				—				(5,558	)			—				5,558				—
Net income (loss)			—				—				—				—				—				—				—				(4,673	)			(9,976	)			(14,649	)
BALANCE—June 30, 2022			—			$	—				218,028,952			$	22				264,527,434			$	27			$	495,642			$	(83,433	)		$	428,739			$	840,997

 

(in thousands, except shares)		Members’ Capital								Class A Shares								Class B Shares								Additional Paid-in Capital				Notes Receivable				Accumulated Deficit				Non- Controlling Interests				Total Equity
		Shares				Amount				Shares				Amount				Shares				Amount
BALANCE—December 31, 2020			14,629,533			$	157,591				—			$	—				—			$	—			$	—			$	(134	)		$	(107,832	)		$	—			$	49,625
Retrospective application of reverse recapitalization			292,214,129				(157,560	)			—				—				—				—				157,560				—				—				—				—
ADJUSTED BALANCE—December 31, 2020			306,843,662				31				—				—				—				—				157,560				(134	)			(107,832	)			—				49,625
Net loss prior to business combination			—				—				—				—				—				—				—				—				(65,213	)			—				(65,213	)
Business combination			(306,843,662	)			(31	)			166,243,491				17				306,843,662				31				169,093				—				112,306				491,677				773,093
Stock-based compensation expense			—				—				—				—				—				—				3,680				—				—				—				3,680
Issuance of common stock for acquisitions			—				—				4,055,698				—				—				—				60,000				—				—				—				60,000
Impact of transactions affecting non-controlling interests			—				—				—				—				—				—				(34,094	)			—				—				34,094				—
Notes receivable - related parties			—				—				—				—				—				—				—				(2	)			—								(2	)
Net income (loss)			—				—				—				—				—				—				—				—				4,552				8,258				12,810
BALANCE—June 30, 2021			—			$	—				170,299,189			$	17				306,843,662			$	31			$	356,239			$	(136	)		$	(56,187	)		$	534,029			$	833,993

The accompanying Notes are an integral part of these Condensed Financial Statements

 

9

CANO HEALTH, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		Six Months Ended June 30,
(in thousands)		2022				2021
Cash Flows from Operating Activities:
Net loss		$	(14,649	)		$	(52,403	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense			38,872				13,791
Change in fair value of contingent consideration			(10,425	)			(211	)
Change in fair value of warrant liabilities			(57,337	)			(39,215	)
Loss on extinguishment of debt			1,428				13,225
Amortization of debt issuance costs			1,570				8,541
Non-cash lease expense			3,642				—
Stock-based compensation			31,600				3,680
Changes in operating assets and liabilities:
Accounts receivable, net			(67,557	)			(6,441	)
Other assets			7,158				(5,925	)
Prepaid expenses and other current assets			(17,834	)			(16,341	)
Interest accrued due to sellers			100				957
Accounts payable and accrued expenses (Related parties comprised $1,331 and $111 for the six months ended June 30, 2022 and 2021, respectively)			(9,362	)			14,426
Other liabilities (Related parties comprised $0 and $1,242 for the six months ended June 30, 2022 and 2021, respectively)			10,621				7,816
Net cash provided by (used in) operating activities			(82,173	)			(58,100	)
Cash Flows from Investing Activities:
Purchase of property and equipment (Related parties comprised $3,567 and $2,864 for the six months ended June 30, 2022 and 2021, respectively)			(20,431	)			(7,730	)
Acquisitions of subsidiaries including non-compete intangibles, net of cash acquired			(4,995	)			(614,394	)
Payments to sellers			(3,847	)			(23,963	)
Net cash provided by (used in) investing activities			(29,273	)			(646,087	)
Cash Flows from Financing Activities:
Business combination and PIPE financing			—				935,362
Payments of long-term debt			(3,222	)			(402,572	)
Debt issuance costs			(88	)			(11,274	)
Proceeds from long-term debt			—				295,000
Proceeds from delayed draw term loan			—				175,000
Repayments of delayed draw term loan			—				(2,350	)
Proceeds from insurance financing arrangements			2,529				1,702
Payments of principal on insurance financing arrangements			(1,380	)			(993	)
Principal payments under finance leases			(679	)			(64	)
Repayment of equipment loans			(261	)			(154	)
Employee stock purchase plan withholding tax payments			(776	)			—
Net cash provided by (used in) financing activities			(3,877	)			989,657
Net increase (decrease) in cash, cash equivalents and restricted cash			(115,323	)			285,470
Cash, cash equivalents and restricted cash at beginning of year			163,170				33,807
Cash, cash equivalents and restricted cash at end of period		$	47,847			$	319,277
Supplemental cash flow information:
Interest paid			27,670				11,925
Income taxes paid			82				—
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange of lease liabilities			50,297				—
Issuance of class A common stock for acquisitions			15,771				60,000
Contingent consideration in connection with acquisitions			—				9,600
Due to sellers in connection with acquisitions			3,533				295
Addition to construction in process funded through accounts payable			3,580				—
Humana Affiliate Provider clinic leasehold improvements			2,928				2,864
Employee stock purchase plan issuance			9,707				—
Capital lease obligations entered into for property and equipment			—				52
Equipment loan obligations entered into for property and equipment			—				183

The accompanying Notes are an integral part of these Condensed Financial Statements

 

 

10

CANO HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

1.	NATURE OF BUSINESS AND OPERATIONS

Nature of Business

Cano Health, Inc. (“Cano Health”, or the “Company”), formerly known as Primary Care (ITC) Intermediate Holdings, LLC (“PCIH”), provides value-based medical care for its members through a network of primary care physicians across the U.S. and Puerto Rico. The Company focuses on providing high-touch population health and wellness services to Medicare Advantage, Medicare Global and Professional Direct Contracting Entity (“DCE”), Medicare patients under Accountable Care Organizations (“ACO”) and Medicaid capitated members, particularly in underserved communities by leveraging a proprietary technology platform to deliver high-quality health care services. The Company also operates pharmacies in the network for the purpose of providing a full range of managed care services to its members.

On June 3, 2021 (the “Closing Date”), Jaws Acquisition, Corp. (“Jaws”), consummated the previously announced business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement, dated as of November 11, 2020 (as amended, the “Business Combination Agreement”) by and among Jaws, Jaws Merger Sub, LLC, a Delaware limited liability company (“Merger Sub”), PCIH, and PCIH’s sole member, Primary Care (ITC) Holdings, LLC (“Seller”). Upon the closing of the Business Combination, Jaws was reincorporated in the State of Delaware and changed its name to “Cano Health, Inc.”

Unless the context requires, “the Company”, “we”, “us”, and “our” refer, for periods prior to the completion of the Business Combination, to PCIH and its consolidated subsidiaries, and for periods upon or after the completion of the Business Combination, to Cano Health, Inc. and its consolidated subsidiaries, including PCIH, and its subsidiaries.

Pursuant to the Business Combination Agreement, on the Closing Date, Jaws contributed cash to PCIH in exchange for 69.0 million common limited liability company units of PCIH (“PCIH Common Units”) equal to the number of shares of Jaws’ Class A ordinary shares outstanding on the Closing Date as well as 17.25 million Class B ordinary shares owned by Jaws Sponsor, LLC (the “Sponsor”). In connection with the Business Combination, the Company issued 306.8 million shares of the Company’s Class B common stock to existing shareholders of PCIH. The Company also issued 80.0 million shares of the Company’s Class A common stock in a private placement for $800.0 million (the “PIPE Investors”).

Following the consummation of the Business Combination, substantially all of the Company’s assets and operations are held and conducted by PCIH and its subsidiaries. As the Company is a holding company with no material assets other than its ownership of PCIH Common Units and its managing member interest in PCIH, the Company has no independent means of generating revenue or cash flow. The Company’s ability to pay taxes and pay dividends depend on the financial results and cash flows of PCIH and the distributions it receives from PCIH. The Company’s only assets are equity interests in PCIH, which represented a 35.1% and 45.2% controlling ownership as of the Closing Date and June 30, 2022, respectively. Certain members of PCIH who retained their common unit interests in PCIH held the remaining 64.9% and 54.8% non-controlling ownership interests as of the Closing Date and June 30, 2022, respectively. These members hold economic interest in PCIH through PCIH Common Units and a corresponding number of non-economic Class B common stock, which enables the holder to one vote per share.

Our organizational structure following the completion of the Business Combination is commonly referred to as an umbrella partnership-C (or Up-C) corporation structure. This organizational structure allowed the Seller, the former sole owner and managing member of PCIH, to retain its equity ownership in PCIH, an entity that is classified as a partnership for U.S. federal income tax purposes, in the form of PCIH Common Units. The former stockholders of Jaws and the PIPE Investors who, prior to the Business Combination, held Class A ordinary shares or Class B ordinary shares of Jaws, by contrast, received equity ownership in Cano Health, Inc., a Delaware corporation that is a domestic corporation for U.S. federal income tax purposes.

 

11

CANO HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Subject to the terms and conditions set forth in the Business Combination Agreement, the Seller and its equity holders received aggregate consideration with a value equal to $3,534.9 million, which consisted of (i) $466.5 million of cash and (ii) $3,068.4 million of Cano Health, Inc.’s common stock or 306.8 million shares of Class B common stock based on a reference stock price of $10.00 per share.

Following the closing of the Business Combination, Class A stockholders owned direct controlling interests in the combined results of PCIH and Cano Health, Inc. while the Seller as the sole Class B stockholder owned indirect economic interests in PCIH shown as non-controlling interests in the unaudited condensed consolidated financial statements of Cano Health, Inc. The indirect economic interests are held by the Seller in the form of PCIH Common Units that can be redeemed for Class A common stock together with the cancellation of an equal number of shares of Class B common stock in Cano Health, Inc. The non-controlling interests will decrease over time as shares of Class B common stock and PCIH Common Units are exchanged for shares of Class A common stock in Cano Health, Inc.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The portion of an entity not wholly-owned by the Company is presented as non-controlling interests. All significant intercompany balances and transactions are eliminated in consolidation. The financial statements of the Company’s subsidiaries are prepared using accounting policies consistent with those of the Company.

The Company has interests in various entities and considers itself to control an entity if it is the majority owner of or has voting control over such entity. The Company also assesses control through means other than voting rights (“variable interest entities” or “VIEs”) and determines which business entity is the primary beneficiary of the VIE. The Company consolidates VIEs when it is determined that the Company is the primary beneficiary of the VIE. Included in the consolidated results of the Company are Cano Health Texas, PLLC, Cano Health Nevada, PLLC, Cano Health California, PC and Cano Health Illinois, PLLC (collectively, the “Physicians Groups”), which the Company has concluded are VIEs. All material intercompany accounts and transactions have been eliminated in consolidation.

Risks and Uncertainties

As of June 30, 2022, the Company’s coverage area is primarily in the State of Florida. Given this concentration, the Company is subject to adverse economic, regulatory, or other developments in the State of Florida that could have a material adverse effect on the Company’s financial conditions and operations. In addition, federal, state and local laws and regulations concerning healthcare affect the healthcare industry. The Company’s long-term success is dependent on the ability to successfully generate revenues; maintain or reduce operating costs; obtain additional funding when needed; and ultimately, achieve profitable operations. The Company is not able to predict the content or impact of future changes in laws and regulations affecting the healthcare industry; however, management believes that its existing cash position, along with expected cash generation through operations and revolving line of credit, will be sufficient to fund operating and capital expenditure requirements through at least twelve months from the date of issuance of these unaudited condensed consolidated financial statements.

 

12

CANO HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Basis of Presentation

These Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021, the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021, and the Condensed Consolidated Balance Sheet at June 30, 2022 are unaudited and, in the opinion of our management, contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation. Our interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K (“Form 10-K”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 14, 2022.

The Company was deemed the accounting acquirer in the Business Combination of Jaws based on an analysis of the criteria outlined in Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations” (“ASC 805”), as the Company’s former owner retained control after the Business Combination. Refer to Note 1, “Nature of Business”, for details surrounding the Business Combination. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of the Company issuing stock for the net assets of Jaws, accompanied by a recapitalization. The net assets of Jaws were stated at historical cost, with no goodwill or other intangible assets recorded.

While Jaws was the legal acquirer in the Business Combination, because the Company was deemed the accounting acquirer, the historical financial statements of PCIH became the historical financial statements of the combined company upon the consummation of the Business Combination. As a result, the unaudited condensed consolidated financial statements reflect the historical operating results of PCIH prior to the Business Combination, the combined results of Jaws and the Company following the close of the Business Combination, the assets and liabilities of the Company at their historical cost, and the Company’s equity structure for all periods presented.

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. Such reclassifications impacted the classification of: inventory, current and long-term portion of equipment loans, due to seller, accounts payable and accrued expenses and current and long-term deferred revenue. These reclassifications had no impact on net loss as previously presented.

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company described its significant accounting policies in Note 2 to the audited consolidated financial statements for the year ended December 31, 2021 included in its Form 10-K. During the six months ended June 30, 2022, there were no significant changes to those accounting policies.

Recent Accounting Pronouncements

Adoption of New Accounting Standards

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions related to certain contract modifications and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another rate that is expected to be discontinued. The guidance was effective upon issuance and generally can be applied to applicable contract modifications and hedge relationships prospectively through December 31, 2022. The Company elected to use the practical expedients within the standard when accounting for a portion of the amendment to the term loan. The adoption did not impact net income.

 

13

CANO HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

3.	REVENUE AND ACCOUNTS RECEIVABLE

The Company’s revenue streams for the three and six months ended June 30, 2022 and 2021 were as follows:

 

		Three Months Ended June 30,
		2022								2021
(in thousands)		Revenue $				Revenue %				Revenue $				Revenue %
Capitated revenue
Medicare		$	602,613				87.4	%		$	284,974				82.8	%
Other capitated revenue			52,880				7.6	%			44,510				13.0	%
Total capitated revenue			655,493				95.0	%			329,484				95.8	%
Fee-for-service and other revenue
Fee-for-service			9,701				1.4	%			4,389				1.3	%
Pharmacy			12,759				1.9	%			8,217				2.4	%
Other			11,420				1.7	%			1,491				0.5	%
Total fee-for-service and other revenue			33,880				5.0	%			14,097				4.2	%
Total revenue		$	689,373				100.0	%		$	343,581				100.0	%

 

		Six Months Ended June 30,
		2022								2021
(in thousands)		Revenue $				Revenue %				Revenue $				Revenue %
Capitated revenue
Medicare		$	1,217,831				87.5	%		$	505,659				81.8	%
Other capitated revenue			112,013				8.0	%			85,182				13.8	%
Total capitated revenue			1,329,844				95.5	%			590,841				95.6	%
Fee-for-service and other revenue
Fee-for-service			19,671				1.4	%			8,937				1.4	%
Pharmacy			24,274				1.7	%			15,523				2.5	%
Other			19,726				1.4	%			2,882				0.5	%
Total fee-for-service and other revenue			63,671				4.5	%			27,342				4.4	%
Total revenue		$	1,393,515				100.0	%		$	618,183				100.0	%

Accounts Receivable

The Company’s accounts receivable balances are summarized for the periods indicated below. The Company’s accounts receivable are presented net of the unpaid service provider costs. A right of offset exists when all of the following conditions are met: 1) each of the two parties owed the other determinable amounts; 2) the reporting party has the right to offset the amount owed with the amount owed to the other party; 3) the reporting party intends to offset; and 4) the right of offset is enforceable by law. The Company believes all of the aforementioned conditions existed as of June 30, 2022 and December 31, 2021.

 

14

CANO HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

		As of
(in thousands)		June 30, 2022				December 31, 2021
Accounts receivable		$	404,203			$	227,889
Medicare risk adjustment			74,220				21,072
Unpaid service provider costs			(277,433	)			(115,528	)
Accounts receivable, net		$	200,990			$	133,433

Concentration of Risk

Contracts with three of the payors accounted for the following amounts:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
Revenues			64.7	%			64.6	%			64.9	%			67.5	%

 

		As of
		June 30, 2022				December 31, 2021
Accounts receivable			56.3	%			43.3	%

Payors that represented greater than 10% of our total revenue included three payors that represented approximately 64.7% and 64.9% of our total revenue for the three and six months ended June 30, 2022, respectively and two payors that represented approximately 60.3% and 56.1% of our total revenue for the three and six months ended June 30, 2021, respectively.

 

4.	UNPAID SERVICE PROVIDER COSTS

Activity in unpaid service provider costs for the six months ended June 30, 2022 and 2021 is summarized below:

 

(in thousands)		2022				2021
Balance as of January 1,		$	129,110			$	54,524
Incurred related to:
Current year			843,427				305,665
Prior years			2,576				(519	)
			846,003				305,146
Paid related to:
Current year			543,984				224,825
Prior years			120,997				54,005
			664,981				278,830
Balance as of June 30,		$	310,132			$	80,840

 

15

CANO HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

The foregoing reconciliation reflects an increase in our estimate during the six months ended June 30, 2022 of $2.6 million due to higher utilization rates and a decrease in our estimate during the six months ended June 30, 2021 of $0.5 million due to lower than expected utilization rates. $32.7 million and $14.3 million of the liabilities for medical services incurred but not reported (“IBNR”) were included in other current liabilities in the consolidated balance sheet as they were in a net deficit position as of June 30, 2022 and June 30, 2021, respectively.

The Company maintains a provider excess loss insurance policy to protect against claim expenses exceeding certain levels that are incurred by the Company on behalf of members and uses a third-party cost recovery firm which specialize in care coordination charges. As of both June 30, 2022 and June 30, 2021, the Company’s excess loss insurance deductible was $0.1 million and maximum coverage was $2.0 million per member per calendar year. The Company recorded excess loss insurance premiums of $2.5 million and $4.9 million for the three and six months ended June 30, 2022, respectively, and cost recovery reimbursement of $1.6 million and $3.6 million for the three and six months ended June 30, 2022, respectively. The Company recorded excess loss insurance premiums of $1.8 million and $3.5 million for the three and six months ended June 30, 2021,respectively, and reimbursements of $0.8 million and $1.8 million for the three and six months ended June 30, 2021, respectively. The Company recorded these amounts on a net basis in the caption third-party medical costs in the accompanying unaudited condensed consolidated statements of operations. The Company records excess loss insurance recoveries in accounts receivable and third-party cost recoveries in long term other assets on the accompanying unaudited condensed consolidated balance sheets. As of June 30, 2022 and December 31, 2021, the Company recorded insurance recoverables and amounts due from a third party for other cost recoveries of $30.1 million and $15.2 million, respectively.

 

5.	BUSINESS ACQUISITIONS

During the six months ended June 30, 2022, the Company completed four asset acquisitions for a total purchase price of $8.5 million. The consideration transferred included $5.0 million in cash, $0.7 million in deferred cash payments, and the remaining $2.8 million was recorded as a liability to issue registered shares prior to September 30, 2022 or to be settled in cash. The acquisitions were each accounted for as business combinations. The Company does not consider these acquisitions to be material, individually or in aggregate, to the Company’s unaudited condensed consolidated financial statements. The purchase price allocations substantially resulted in $7.5 million of goodwill and $0.8 million of acquired identifiable intangible assets related to brand names, non-compete agreements, and payor relationships valued using the income method. Acquisition-related costs were not material and were expensed as incurred in the unaudited condensed consolidated statements of operations.

In the prior year, the Company completed various acquisitions for a total purchase price of $1.1 billion. The most significant of these acquisitions were University Health Care and Affiliates and Doctor’s Medical Center, LLC and Affiliates for $607.9 million and $300.7 million, respectively. For further details refer to Note 3 “Business Acquisitions” in the Company’s Form 10-K for the fiscal year ended December 31, 2021.

While the Company uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the asset acquisition date, the estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the asset acquisition date, the Company records adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. For changes in the valuation of intangible assets between the preliminary and final purchase price allocation, the related amortization is adjusted in the period it occurs. Subsequent to the measurement period, any adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is identified. Transaction costs that are incurred in connection with an asset acquisition, other than costs associated with the issuance of debt or equity securities, are expensed as incurred.

 

16

CANO HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

6.	PAYOR RELATIONSHIPS AND OTHER INTANGIBLES, NET

As of June 30, 2022, the Company’s total intangibles, net consisted of the following:

 

(in thousands)		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Intangibles:
Trade names		$	1,409			$	(865	)		$	544
Brand names			183,263				(14,823	)			168,440
Non-compete agreements			76,273				(19,768	)			56,505
Customer relationships			880				(208	)			672
Payor relationships			609,687				(47,954	)			561,733
Provider relationships			12,242				(4,276	)			7,966
Total intangibles, net		$	883,754			$	(87,894	)		$	795,860

As of December 31, 2021, the Company’s total intangibles, net consisted of the following:

 

(in thousands)		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Intangibles:
Trade names		$	1,409			$	(787	)		$	622
Brand names			183,238				(9,037	)			174,201
Non-compete agreements			75,794				(12,110	)			63,684
Customer relationships			880				(184	)			696
Payor relationships			609,362				(32,714	)			576,648
Provider relationships			12,242				(2,472	)			9,770
Total intangibles, net		$	882,925			$	(57,304	)		$	825,621

The Company recorded amortization expense of $15.5 million and $5.5 million for the three months ended June 30, 2022 and 2021, respectively, and $30.6 million and $9.1 million for the six months ended June 30, 2022 and 2021, respectively.

Expected amortization expense for the Company’s existing amortizable intangibles for the next five years, and thereafter, as of June 30, 2022 was as follows:

 

		Amount (in thousands)
2022 - remaining		$	31,712
2023			58,351
2024			56,346
2025			54,713
2026			46,612
Thereafter			548,126
Total		$	795,860

We periodically assess our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Changes or consolidation of the use of any of our brand names could result in a reduction in their remaining estimated economic lives, which could lead to increased amortization expense.

 

17

CANO HEALTH, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

7.

LEASES

The Company leases offices, operating medical centers, vehicles and medical equipment. Leases consist of finance and operating leases, and have a remaining lease term of 1 year to 10 years. The Company elected the practical expedient, which allows the Company to exclude leases with a lease term less than 12 months from being recorded on the balance sheet. The Company adopted the practical expedient related to the combining of lease and non-lease components, which allows us to account for the lease and non-lease components as a single lease component.

Future minimum lease payments under operating and finance leases as of June 30, 2022 were as follows (in thousands):

 

		Operating				Finance				Total
2022 - remaining		$	14,822			$	956			$	15,778
2023			32,204				1,536				33,740
2024			30,027				1,256				31,283
2025			27,173				822				27,995
2026			24,898				311				25,209
Thereafter			99,714				43				99,757
Total minimum lease payments			228,838				4,924				233,762
Less: amount representing interest			(50,704	)			(440	)			(51,144	)
Lease liabilities		$	178,134			$	4,484			$	182,618

Future minimum lease payments under operating and capital leases as of December 31, 2021 were as follows (in thousands):

 

		Operating				Finance				Total
2022		$	23,051			$	1,485			$	24,536
2023			24,577				1,078				25,655
2024			22,561				797				23,358
2025			20,489				364				20,853
2026			18,424				107				18,531
Thereafter			67,569				—				67,569
Total minimum lease payments			176,671				3,831				180,502
Less: amount representing interest			(38,461	)			(355	)			(38,815	)
Lease liabilities		$	138,210			$	3,476			$	141,687

The Company recorded rent expense of $8.2 million and $4.9 million for the three months ended June 30, 2022 and 2021, respectively, and $15.4 million and $9.0 million for the six months ended June 30, 2022 and 2021, respectively.

 

18