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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 September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
cano-20210930_g1.jpg
__________________________________________
Cano Health, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________
Commission File Number: 001-39289

Delaware
(State or other jurisdiction of incorporation or organization)

9725 NW 117th Avenue, Suite #200, Miami, FL
(Address of principal executive offices)

98-1524224
(IRS Employer Identification No.)

33178
(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 classTrading Symbol(s)Name of each exchange on which registered
Class A common stock, $0.0001 par value per shareCANOThe New York Stock Exchange
Warrants to purchase one share of Class A common stock, each at an exercise price of $11.50 per shareCANO/WSThe 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     ☐
Non-accelerated filer     ☒
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 November 8, 2021 the registrant had 180,410,977 shares of Class A common stock outstanding and 299,575,289 shares of Class B common stock outstanding.





Table of Contents
Page
PART I FINANCIAL INFORMATION
2
PART II. OTHER INFORMATION


i






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:

the benefits of the Business Combination (as defined herein) and the acquisitions described in this Quarterly Report on Form 10-Q;

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;
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 need for our wellness centers after the coronavirus disease 2019, or 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 expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012;
our future capital requirements and sources and uses of cash;
our business, expansion plans and opportunities;
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; and
the outcome of any known and unknown litigation and regulatory proceedings.

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.

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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 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 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;
the risk that we experience difficulties in managing our growth and expanding operations; and
other risks and uncertainties described in this Quarterly Report on Form 10-Q, including those under the section entitled “Risk Factors.”

























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SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. This summary should be read in conjunction with the risk factors detailed more fully below and should not be relied upon as an exhaustive summary of the material risks facing our business.

Under most of our agreements with health plans, we assume some or all of the risk that the cost of providing services will exceed our compensation.

Our revenues and operations are dependent upon a limited number of key existing payors and our continued relationship with those payors, and disruptions in those relationships (including renegotiation, non-renewal or termination of capitation agreements) or the inability of such payors to maintain their contracts with the Centers for Medicare and Medicaid Services could adversely affect our business.

COVID-19 or other pandemic, epidemic, or outbreak of an infectious disease may have an adverse effect on our business, results of operations, financial condition and cash flows, the nature and extent of which are highly uncertain and unpredictable.

Reductions in the quality ratings of the health plans we serve or our Medicare Risk Adjustment scores could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Our medical centers are concentrated in certain geographic regions, which makes us sensitive to regulatory, economic, environmental and competitive conditions in those regions.

We primarily depend on reimbursements by third-party payors, which could lead to delays and uncertainties in the reimbursement process.

We have a history of net losses, we anticipate increasing expenses in the future, and we may not be able to achieve or maintain profitability.

We depend on our senior management team and other key employees, and the loss of one or more of these employees or an inability to attract and retain other highly skilled employees could harm our business.

If we fail to manage our growth effectively, we may be unable to execute our business plan, maintain high levels of service and member satisfaction or adequately address competitive challenges.

We may not be able to identify suitable de novo expansion opportunities, engage with payors in new markets to continue extension of financial risk-sharing model agreements that have proved successful in our existing markets or cost-effectively develop, staff and establish such new medical centers in new markets.






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We conduct business in a heavily regulated industry, and if we fail to comply with applicable state and federal healthcare laws and government regulations or lose governmental licenses, we could incur financial penalties, become excluded from participating in government healthcare programs, be required to make significant operational changes or experience adverse publicity, which could harm our business.

We may not be able to identify suitable acquisition candidates, complete acquisitions or successfully integrate acquisitions, and acquisitions may not produce the intended results or may expose us to unknown or contingent liabilities.

Reductions in Medicare reimbursement rates or changes in the rules governing the Medicare program could have a material adverse effect on our financial condition and results of operations.

Our business could be harmed if the Affordable Care Act (“ACA”) is overturned or by any legislative, regulatory or industry change that reduces healthcare spending or otherwise slows or limits the transition to more assumption of risk by healthcare providers.

Our use, disclosure, and other processing of personally identifiable information, including health information, is subject to the regulations implementing the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, and their implementing regulations (“HIPPA”), and other federal and state privacy and security regulations. If we suffer a data breach or unauthorized disclosure, we could incur significant liability including government and private investigations and claims of privacy and security non-compliance. We could also suffer significant reputational harm as a result and, in turn, a material adverse effect on our member base and revenue.

We may be subject to legal proceedings and litigation, including intellectual property, privacy and medical malpractice disputes, which are costly to defend and could materially harm our business and results of operations.

Our existing indebtedness could adversely affect our business and growth prospects. The terms of the Credit Agreement (defined herein) restrict our current and future operations, particularly our ability to respond to changes or to take certain actions.

If we are unable to adequately address these and other risks we face, our business, results of operations, financial condition and prospects may be harmed.














v


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CANO HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands, except share data)September 30, 2021December 31, 2020
Assets
Current assets:
Cash, cash equivalents and restricted cash$208,913 $33,807 
Accounts receivable, net of unpaid service provider costs (Related parties comprised $92 and $50,015 as of September 30, 2021 and December 31, 2020, respectively)
223,644 76,709 
Inventory1,777 922 
Prepaid expenses and other current assets30,788 8,937 
Total current assets465,122 120,375 
Property and equipment, net (Related parties comprised $18,897 and $22,659 as of September 30, 2021 and December 31, 2020, respectively)
64,156 38,126 
Goodwill765,511 234,328 
Payor relationships, net584,265 189,570 
Other intangibles, net256,327 36,785 
Other assets4,703 4,362 
Total assets$2,140,084 $623,546 
Liabilities and stockholders' equity / members' capital
Current liabilities:
Current portion of notes payable$6,493 $4,800 
Current portion of equipment loans513 314 
Current portion of capital lease obligations1,006 876 
Current portion of contingent consideration8,406  
Accounts payable and accrued expenses (Related parties comprised $0 and $112 as of September 30, 2021 and December 31, 2020, respectively)
76,654 33,180 
Deferred revenue (Related parties comprised $0 and $988 as of September 30, 2021 and December 31, 2020, respectively)
1,815 988 
Current portions due to sellers24,687 27,129 
Other current liabilities20,000 1,333 
Total current liabilities139,574 68,620 
Notes payable, net of current portion and debt issuance costs916,111 456,745 
Warrants liabilities138,493  
Equipment loans, net of current portion1,454 873 
Capital lease obligations, net of current portion1,559 1,580 
Deferred rent (Related parties comprised $0 and $92 as of September 30, 2021 and December 31, 2020, respectively)
5,387 3,111 
Deferred revenue, net of current portion (Related parties comprised of $0 and $4,277 as of September 30, 2021 and December 31, 2020, respectively)
4,698 4,277 
Due to sellers, net of current portion170 13,976 
Contingent consideration38,300 5,172 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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CANO HEALTH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Other liabilities (Related parties comprised $0 and $8,142 as of September 30, 2021 and December 31, 2020, respectively)
36,325 11,648 
Total liabilities1,282,071 566,002 
Stockholders’ Equity / Members' Capital
Shares of Class A common stock $0.0001 par value (6,000,000,000 shares authorized and 171,594,914 shares issued and outstanding at September 30, 2021)
17  
Shares of Class B common stock $0.0001 par value (1,000,000,000 shares authorized and 305,670,386 shares issued and outstanding at September 30, 2021)
31  
Members' capital 157,591 
Additional paid-in capital363,060  
Accumulated deficit(52,547)(99,913)
Notes receivable, related parties (134)
Total Stockholders' Equity / Members’ Capital attributable to Class A common stockholders310,561 57,544 
Non-controlling interests547,452  
Total Stockholders' Equity / Members’ Capital858,013 57,544 
Total Liabilities and Stockholders' Equity / Members’ Capital$2,140,084 $623,546 
        
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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CANO HEALTH, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months EndedNine Months Ended
September 30,September 30,
(in thousands, except share and per share data)2021202020212020
Revenue:
Capitated revenue (Related parties comprised $0 and $131,945, and $335,383 and $239,692, in the three months ended September 30, 2021 and 2020, and in the nine months ended September 30, 2021 and 2020, respectively)
$501,780 $252,974 $1,148,041 $544,617 
Fee-for-service and other revenue (Related parties comprised $0 and $82, and $631 and $426, in the three months ended September 30, 2021 and 2020, and in the nine months ended September 30, 2021 and 2020, respectively)
25,018 10,159 52,055 25,020 
Total revenue526,798 263,133 1,200,096 569,637 
Operating expenses:
Third-party medical costs (Related parties comprised $0 and $90,166, and $249,819 and $167,109, in the three months ended September 30, 2021 and 2020, and in the nine months ended September 30, 2021 and 2020, respectively)
379,316 184,926 866,177 382,279 
Direct patient expense (Related parties comprised $6 and $1,016, and $1,502 and $2,161, in the three months ended September 30, 2021 and 2020, and in the nine months ended September 30, 2021 and 2020, respectively)
57,708 31,108 135,777 71,441 
Selling, general, and administrative expenses (Related parties comprised $4,225 and $3,289, and $9,814 and $8,428, in the three months ended September 30, 2021 and 2020, and in the nine months ended September 30, 2021 and 2020, respectively)
75,926 27,391 157,348 70,234 
Depreciation and amortization expense16,955 5,379 30,746 12,741 
Transaction costs and other (Related parties comprised $0 and $0, and $1,483 and $5,369 in the three months ended September 30, 2021 and 2020 and nine months ended September 30, 2021 and 2020, respectively)
6,528 7,716 32,140 29,854 
Total operating expenses536,433 256,520 1,222,188 566,549 
Income (loss) from operations(9,635)6,613 (22,092)3,088 
Other income and expense:
Interest expense(16,023)(12,346)(36,363)(21,728)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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CANO HEALTH, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Interest income (Related parties comprised $0 and $0, and $0 and $236, in the three months ended September 30, 2021 and 2020, and in the nine months ended September 30, 2021 and 2020, respectively)
1 80 4 239 
Loss on extinguishment of debt  (13,225) 
Change in fair value of embedded derivative (5,138) (5,444)
Change in fair value of warrant liabilities(14,650) 24,565  
Other expenses(29) (54)(150)
Total other expense(30,701)(17,404)(25,073)(27,083)
Net loss before income tax benefit (expense)(40,336)(10,791)(47,165)(23,995)
Income tax benefit (expense)(547)(326)762 (294)
Net loss$(40,883)$(11,117)$(46,403)$(24,289)
Net loss attributable to non-controlling interests(26,246)— (41,283)— 
Net loss attributable to Class A common stockholders$(14,637)$— $(5,120)$— 
Net loss per share attributable to Class A common stockholders, basic$(0.09)N/A$(0.03)N/A
Net loss per share attributable to Class A common stockholders, diluted$(0.09)N/A$(0.08)N/A
Weighted-average shares used in computation of earnings per share:
Basic170,871,429 N/A168,100,210 N/A
Diluted170,871,429 N/A169,312,258 N/A
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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CANO HEALTH, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / MEMBERS' CAPITAL
(UNAUDITED)
Three Months Ended September 30, 2021
(in thousands, except shares)Class A SharesClass B SharesAdditional Paid-in CapitalNotes ReceivableAccumulated DeficitNon-Controlling InterestsTotal Equity
SharesShares
BALANCE—June 30, 2021170,299,189 $17 306,843,662 $31 $389,892 $(136)$(37,640)$536,187 $888,351 
Stock-based compensation expense— — — — 8,909 — — — 8,909 
Issuance of common stock for acquisitions122,449 — — — 1,500 — (11)11 1,500 
Exchange of Class B common stock for Class A common stock1,173,276 — (1,173,276)— 2,309 — (259)(2,050) 
Impact of transactions affecting non-controlling interests — — — — (39,550)— — 39,550  
Settlement of notes receivable, net— — — — — 136 — — 136 
Net loss— — — — — — (14,637)(26,246)(40,883)
BALANCE—September 30, 2021171,594,914 $17 305,670,386 $31 $363,060 $ $(52,547)$547,452 $858,013 

Three Months Ended September 30, 2020
(in thousands, except shares)Members' CapitalClass A SharesClass B SharesAdditional Paid-in CapitalNotes ReceivableAccumulated DeficitNon-Controlling InterestsTotal Equity
SharesAmountSharesAmountSharesAmount
BALANCE - June 30, 2020 $261,718  $  $ $ $(132)$(38,213)$392 $223,765 
Members distributions— (6,125)— — — — — — — — (6,125)
Stock-based compensation expense— 66 — — — — — — — — 66 
Interest on notes receivable— — — — — — — (1)— — (1)
Net loss—  — — — — — — (11,117) (11,117)
BALANCE—September 30, 2020 $255,659  $  $ $ $(133)$(49,330)$392 $206,588 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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CANO HEALTH, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / MEMBERS' CAPITAL
(UNAUDITED)
Nine Months Ended September 30, 2021
(in thousands, except shares)Members' CapitalClass A SharesClass B SharesAdditional Paid-in CapitalNotes ReceivableAccumulated DeficitNon-Controlling InterestsTotal Equity
SharesAmountSharesAmountSharesAmount
BALANCE—December 31, 202014,629,533 $157,591  $  $ $ $(134)$(99,913)$ $57,544 
Retrospective application of reverse recapitalization292,214,129 (157,560)— — — — 157,560 — — —  
ADJUSTED BALANCE - December 31, 2020306,843,662 $31  $  $ $157,560 $(134)$(99,913)$ $57,544 
Net loss prior to business combination— — — — — — — — (32,078)— (32,078)
Business combination and PIPE financing(306,843,662)(31)166,243,491 17 306,843,662 31 169,093 — 85,663 518,320 773,093 
Stock-based compensation expense— — — — — — 12,148 — — — 12,148 
Issuance of common stock for acquisitions— — 4,178,147 — — — 61,500 — (840)840 61,500 
Exchange of Class B common stock for Class A common stock— — 1,173,276 — (1,173,276)— 2,309 — (259)(2,050) 
Impact of transactions affecting non-controlling interests— — — — — — (39,550)— — 39,550  
Settlement of notes receivable, net— — — — — — — 134 — — 134 
Net loss— — — — — — — — (5,120)(9,208)(14,328)
BALANCE—September 30, 2021 $ 171,594,914 $17 305,670,386 $31 $363,060 $ $(52,547)$547,452 $858,013 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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CANO HEALTH, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / MEMBERS' CAPITAL
(UNAUDITED)
Nine Months Ended September 30, 2020
(in thousands, except shares)Members' CapitalClass A SharesClass B SharesAdditional Paid-in CapitalNotes ReceivableAccumulated DeficitNon-Controlling InterestsTotal Equity
SharesAmountSharesAmountSharesAmount
BALANCE - December 31, 2019 $123,242  $  $ $ $(130)$(25,041)$392 $98,463 
Members' contributions— 95,782 — — — — — — — — 95,782 
Stock-based compensation expense— 177 — — — — — — — — 177 
Issuance of common stock for acquisitions— 34,300 — — — — — — — — 34,300 
Issuance of common stock for due to sellers balance— 2,158 — — — — — — — — 2,158 
Interest on notes receivable— — — — — — — (3)— — (3)
Net loss— — — — — — — — (24,289) (24,289)
BALANCE—September 30, 2020 $255,659  $  $ $ $(133)$(49,330)$392 $206,588 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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CANO HEALTH, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
(in thousands)20212020
Cash Flows from Operating Activities:
Net loss$(46,403)$(24,289)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense30,746 12,741 
Change in fair value of contingent consideration (4,152) 
Change in fair value of embedded derivative 5,444 
Change in fair value of warrant liabilities(24,565) 
Loss on extinguishment of debt13,225  
Amortization of debt issuance costs7,653 3,851 
Write off of other receivables 531 
Equity-based compensation12,148 177 
Changes in operating assets and liabilities:
Accounts receivable, net (Related parties comprised $(92) and $0 as of September 30, 2021 and 2020, respectively)
(95,991)(33,286)
Inventory(856)(484)
Other assets(6,578)217 
Prepaid expenses and other current assets(27,358)163 
Accounts payable and accrued expenses (Related parties comprised $(112) and $(52) as of September 30, 2021 and 2020, respectively)
56,626 10,480 
Deferred rent (Related parties comprised $(92) and $0 as of September 30, 2021 and 2020, respectively)
2,236 868 
Deferred revenue1,147  
Other liabilities(9,376)2,544 
Net cash used in operating activities(91,498)(21,043)
Cash Flows from Investing Activities:
Purchase of property and equipment (Related parties comprised $5,697 and $5,358 as of September 30, 2021 and 2020, respectively)
(23,221)(9,442)
Acquisitions of subsidiaries including non-compete intangibles, net of cash acquired(1,068,661)(205,325)
Payments to sellers(24,148)(38,748)
Other (39)
Net cash used in investing activities(1,116,030)(253,554)
Cash Flows from Financing Activities:
Contributions from member 95,782 
Business combination and PIPE financing935,362  
Interest accrued due to sellers1,208 1,082 
Payments of long-term debt(656,294)(2,378)
Debt issuance costs(17,689)(5,655)
Proceeds from long-term debt1,120,000 184,096 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements

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CANO HEALTH, INC. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Proceeds from revolving credit facility 9,700 
Repayments of revolving credit facility