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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 March 31, 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-20220331_g1.jpg
__________________________________________
Cano Health, Inc.
(Exact name of registrant as specified in its charter)
__________________________________________

Delaware
(State or other jurisdiction of incorporation or organization)

9725 NW 117th Avenue, 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 May 6, 2022 the registrant had 207,747,333 shares of Class A common stock outstanding and 276,722,704 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:

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;
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;
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 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.

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.

ii






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

























iii



CANO HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands, except share and per share data)March 31, 2022December 31, 2021
Assets
Current assets:
Cash, cash equivalents and restricted cash$113,052 $163,170 
Accounts receivable, net of unpaid service provider costs191,724 133,433 
Prepaid expenses and other current assets18,859 20,632 
Total current assets323,635 317,235 
Property and equipment, net95,595 85,261 
Operating lease right-of-use assets152,180 132,173 
Goodwill772,704 769,667 
Payor relationships, net569,086 576,648 
Other intangibles, net241,963 248,973 
Other assets16,602 13,582 
Total assets$2,171,765 $2,143,539 
Liabilities and stockholders' equity
Current liabilities:
Current portion of notes payable$6,444 $6,493 
Current portion of finance lease liabilities1,448 1,295 
Current portion of contingent consideration3,062 3,123 
Accounts payable and accrued expenses 93,368 80,829 
Current portions due to sellers1,480 17,357 
Current portion of operating lease liabilities18,383 15,275 
Other current liabilities34,472 36,664 
Total current liabilities158,657 161,036 
Notes payable, net of current portion and debt issuance costs915,738 915,266 
Long term portion of operating lease liabilities141,477 122,935 
Warrant liabilities52,982 80,144 
Long term portion of finance lease liabilities2,738 2,181 
Contingent consideration30,700 35,300 
Other liabilities 31,696 28,109 
Total liabilities1,333,988 1,344,971 
Stockholders’ Equity
Shares of Class A common stock $0.0001 par value (6,000,000,000 shares authorized and 205,026,367 and 180,113,551 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)
20 18 
Shares of Class B common stock $0.0001 par value (1,000,000,000 shares authorized and 276,722,704 and 297,385,981 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)
28 30 
Additional paid-in capital464,262 397,443 
Accumulated deficit(78,100)(78,760)
Total Stockholders' Equity before non-controlling interests386,210 318,731 
Non-controlling interests451,567 479,837 
Total Stockholders' Equity837,777 798,568 
Total Liabilities and Stockholders' Equity $2,171,765 $2,143,539 
The accompanying Notes are an integral part of these Condensed Financial Statements

4

CANO HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

Three Months Ended
March 31,
(in thousands, except share and per share data)20222021
Revenue:
Capitated revenue (Related parties comprised $0 and $179,509 for the three months ended March 31, 2022 and 2021, respectively)
$674,351 $261,357 
Fee-for-service and other revenue (Related parties comprised $0 and $412 for the three months ended March 31, 2022 and 2021, respectively)
29,986 13,245 
Total revenue704,337 274,602 
Operating expenses:
Third-party medical costs (Related parties comprised $0 and $133,844 for the three months ended March 31, 2022 and 2021, respectively)
535,779 195,046 
Direct patient expense (Related parties comprised $1,454 and $1,430 for the three months ended March 31, 2022 and 2021, respectively)
60,677 34,237 
Selling, general, and administrative expenses (Related parties comprised $1,677 and $1,091 for the three months ended March 31, 2022 and 2021, respectively)
96,587 35,009 
Depreciation and amortization expense19,036 5,846 
Transaction costs and other8,375 8,954 
Change in fair value of contingent consideration(4,661)285 
Total operating expenses715,793 279,377 
Loss from operations(11,456)(4,775)
Other income and expense:
Interest expense(13,284)(10,626)
Interest income1 1 
Loss on extinguishment of debt(1,428) 
Change in fair value of warrant liabilities27,162  
Total other income (expense)12,451 (10,625)
Net income (loss) before income tax expense995 (15,400)
Income tax expense1,080 714 
Net loss$(85)$(16,114)
Net loss attributable to non-controlling interests(745)— 
Net income attributable to Class A common stockholders$660 $— 
Net income per share attributable to Class A common stockholders, basic$0.00 N/A
Net loss per share attributable to Class A common stockholders, diluted$0.00 N/A
Weighted-average shares outstanding:
Basic191,410,221 N/A
Diluted468,132,925 N/A
The accompanying Notes are an integral part of these Condensed Financial Statements

5

CANO HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / MEMBERS' CAPITAL
(UNAUDITED)

(in thousands, except shares)Members' CapitalClass A SharesClass B SharesAdditional Paid-in CapitalNotes ReceivableAccumulated DeficitNon-Controlling InterestsTotal Equity
SharesAmountSharesAmountSharesAmount
BALANCE—December 31, 2021— $— 180,113,551 $18 297,385,981 $30 $397,443 $ $(78,760)$479,837 $798,568 
Stock-based compensation expense— — — — — — 13,816 — — — 13,816 
Issuance of common stock for acquisitions— — 2,857,167 — — — 15,771 — — — 15,771 
Exchange of Class B common stock for Class A common stock— — 20,663,277 2 (20,663,277)(2)33,083 — — (33,083) 
ESPP Issuance— — 1,392,372 — — — 9,707 — — — 9,707 
Impact of transactions affecting non-controlling interests— — — — — (5,558)— — 5,558  
Net loss— — — — — — — — 660 (745)(85)
BALANCE—March 31, 2022— $— 205,026,367 $20 276,722,704 $28 $464,262 $ $(78,100)$451,567 $837,777 

(in thousands, except shares)Members' CapitalClass A SharesClass B SharesAdditional Paid-in CapitalNotes ReceivableAccumulated DeficitNon-Controlling InterestsTotal Equity
SharesAmountSharesAmountSharesAmount
BALANCE—December 31, 2020306,843,662 $31 — $— — $— $157,560 $(134)$(107,832)$— $49,625 
Stock-based compensation expense— — — — — — 71 — — — 71 
Notes receivable - related parties— — — — — — — (1)— — (1)
Net loss— — — — — — — — (16,114)— (16,114)
BALANCE—March 31, 2021306,843,662 $31 — $— — $— $157,631 $(135)$(123,946)$— $33,581 

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

6

CANO HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

Three Months Ended
March 31,
(in thousands)20222021
Cash Flows from Operating Activities:
Net loss$(85)$(16,114)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense19,036 5,846 
Change in fair value of contingent consideration (4,661)285 
Change in fair value of warrant liabilities(27,162) 
Loss on extinguishment of debt1,428  
Amortization of debt issuance costs748 2,170 
Non-cash lease expense1,705  
Stock-based compensation13,816 71 
Changes in operating assets and liabilities:
Accounts receivable, net (58,291)(6,929)
Other assets(3,060)(882)
Prepaid expenses and other current assets1,773 (6,537)
Interest accrued due to sellers97 536 
Accounts payable and accrued expenses (Related parties comprised $0 and $421 for the years ended March 31, 2022 and 2021, respectively)
10,010 5,973 
Other liabilities (Related parties comprised $0 and $1,073 for the years ended March 31, 2022 and 2021, respectively)
7,443 893 
Net cash used in operating activities(37,203)(14,688)
Cash Flows from Investing Activities:
Purchase of property and equipment (Related parties comprised $1,677 and $1,073 for the years ended March 31, 2022 and 2021, respectively)
(7,776)(2,645)
Acquisitions of subsidiaries including non-compete intangibles, net of cash acquired(3,495)(898)
Payments to sellers(2,186)(6,155)
Other (1)
Net cash used in investing activities(13,457)(9,699)
Cash Flows from Financing Activities:
Capitalized transaction costs related to merger (2,414)
Payments of long-term debt(1,611)(1,200)
Debt issuance costs(87) 
Proceeds from insurance financing arrangements2,529 1,702 
Payments of principal on insurance financing arrangements(690)(567)
Repayments of equipment loans(129)(76)
Repayments of capital lease obligations(340)(263)
Employee stock purchase plan contributions870  
Net cash provided by (used in) financing activities542 (2,818)
Net decrease in cash, cash equivalents and restricted cash(50,118)(27,205)
Cash, cash equivalents and restricted cash at beginning of year163,170 33,807 
Cash, cash equivalents and restricted cash at end of period$113,052 $6,602 
The accompanying Notes are an integral part of these Condensed Financial Statements

7

CANO HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Supplemental cash flow information:
Interest paid4,525 8,260 
Income taxes paid8  
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange of lease liabilities26,364 651 
Issuance of class A common stock for acquisitions15,771  
Due to sellers in connection with acquisitions100  
Addition to construction in process funded through accounts payable2,972  
Humana Affiliate Provider clinic leasehold improvements
2,173 1,073 
ESPP issuance9,707  

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

8

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 42.6% controlling ownership as of the Closing Date and March 31, 2022, respectively. Certain members of PCIH who retained their common unit interests in PCIH held the remaining 64.9% and 57.4% non-controlling ownership interests as of the Closing Date and March 31, 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.

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 shares 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.

9

CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 March 31, 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 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.

Basis of Presentation

These Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2022 and 2021 and the Condensed Consolidated Balance Sheet at March 31, 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 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
10

CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 three-months ended March 31, 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.

Accounting Standards Issued But Not Yet Adopted

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." The ASU improves comparability after business combinations by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. ASU 2021-08 is effective for the Company on January 1, 2023, with early adoption permitted. The Company is currently evaluating the potential effect of this ASU on its consolidated financial statements.

3.    REVENUE AND ACCOUNTS RECEIVABLE

The Company’s revenue streams for the three months ended March 31, 2022 and 2021 were as follows:


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CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
20222021
(in thousands)Revenue $Revenue %Revenue $Revenue %
Capitated revenue
  Medicare$615,217 87.3 %$220,178 80.2 %
  Other capitated revenue59,134 8.4 %41,179 15.0 %
Total capitated revenue674,351 95.7 %261,357 95.2 %
Fee-for-service and other revenue
  Fee-for-service9,970 1.4 %4,548 1.7 %
  Pharmacy11,515 1.6 %7,306 2.7 %
  Other8,501 1.3 %1,391 0.4 %
Total fee-for-service and other revenue29,986 4.3 %13,245 4.8 %
Total revenue$704,337 100.0 %$274,602 100.0 %

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 March 31, 2022 and December 31, 2021.

As of
(in thousands)March 31, 2022December 31, 2021
Accounts receivable$280,461 $227,889 
Medicare risk adjustment68,592 21,072 
Unpaid service provider costs(157,329)(115,528)
Accounts receivable, net$191,724 $133,433 

Concentration of Risk

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

For the three months ended March 31,
20222021
Revenues65.1%73.0%

As of
March 31, 2022December 31, 2021
Accounts receivable48.8%43.3%

Payors that represented greater than 10% of our total revenue included three payors that were approximately 65.1% for the three months ended March 31, 2022 and two payors that were approximately 65.5% for the Three months ended March 31, 2021.



12

CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4.    UNPAID SERVICE PROVIDER COSTS

Activity in unpaid service provider costs for the three months ended March 31, 2022 and 2021 is summarized below:

(in thousands)20222021
Balance as of January 1,$129,110 $54,524 
Incurred related to:
Current year401,771 136,755 
Prior years3,326 (4,785)
405,097 131,970 
Paid related to:
Current year207,279 98,761 
Prior years104,785 49,739 
312,064 148,500 
Balance as of March 31,
$222,142 $37,994 

The foregoing reconciliation reflects an increase in our estimate during the three months ended March 31, 2022 of $3.3 million due to higher utilization rates and a decrease in our estimate during the three months ended March 31, 2021 of $4.8 million due to lower than expected utilization rates. $64.8 million and $2.4 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 March 31, 2022 and March 31, 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 March 31, 2022 and March 31, 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 as well as insurance and cost recovery reimbursement of $2.0 million for the three months ended March 31, 2022. The Company recorded excess loss insurance premiums of $1.7 million and reimbursements of $1.0 million for the three months ended March 31, 2021. 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 March 31, 2022 and December 31, 2021, the Company recorded insurance recoveries and amounts due from a third party for other cost recoveries of $16.3 million and $15.2 million, respectively.


5.    BUSINESS ACQUISITIONS

During the three months ended March 31, 2022, the Company completed three asset acquisitions for a total purchase price of $3.6 million. 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 $3.0 million of goodwill and $0.6 million of acquired identifiable intangible assets related to brands, 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 10K for the fiscal year ended December 31, 2021.

13

CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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

6.    PAYOR RELATIONSHIPS AND OTHER INTANGIBLES, NET

As of March 31, 2022, the Company’s total intangibles, net consisted of the following:

(in thousands)Weighted-Average Amortization PeriodGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Intangibles:
Trade names9.00 years$1,409 $(826)$583 
Brand19.26 years183,253 (11,781)171,472 
Non-compete4.90 years76,271 (15,917)60,354 
Customer relationships18.24 years880 (196)684 
Payor relationships20.00 years609,417 (40,331)569,086 
Provider relationships5.12 years12,242 (3,372)8,870 
Total intangibles, net$883,472 $(72,423)$811,049 
    

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

(in thousands)Weighted-Average Amortization PeriodGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Intangibles:
Trade names9.00 years$1,409 $(787)$622 
Brand19.26 years183,238 (9,037)174,201 
Non-compete4.92 years75,794 (12,110)63,684 
Customer relationships18.24 years880 (184)696 
Payor relationships20.00 years609,362 (32,714)576,648 
Provider relationships5.12 years12,242 (2,472)9,770 
Total intangibles, net$882,925 $(57,304)$825,621 

The Company recorded amortization expense of $15.1 million and $3.6 million for the three months ended March 31, 2022 and 2021, respectively.

Expected amortization expense for the Company’s existing amortizable intangibles for the next five years, and thereafter, as of March 31, 2022 is as follows:

14

CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Amount (in thousands)
2022 - remaining$44,543 
202357,843 
202455,712 
202554,242 
202647,063 
Thereafter551,646 
Total$811,049 

We periodically assess our long-lived assets, such as brand names, for impairment whenever events or changes in circumstances indicate that the carrying value 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.

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. We 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 March 31, 2022 were as follows (in thousands):

OperatingFinanceTotal
2022 - remaining$20,133$1,269$21,402
202328,7871,37730,164
202426,6881,09527,783
202523,94566124,606
202621,70518821,893
Thereafter82,998583,003
Total minimum lease payments204,2564,595208,851
Less: amount representing interest(44,396)(409)(44,806)
Lease liabilities$159,860$4,186$164,045

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

OperatingCapitalTotal
2022$23,051$1,485$24,536
202324,5771,07825,655
202422,56179723,358
202520,48936420,853
202618,42410718,531
Thereafter67,56967,569
Total minimum lease payments176,6713,831180,502
Less: amount representing interest(38,461)(355)(38,815)
Lease liabilities$138,210$3,476$141,687

15

CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Rent expense for the three months ended March 31, 2022 and 2021 amounted to approximately $7.2 million and $4.1 million, respectively.

8.    OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following as of:

(in thousands)March 31, 2022December 31, 2021
Service fund liability$16,547 $11,451 
Acquired provider payments liability10,255 10,255 
Employee Stock Purchase Plan withholding liability870 10,494 
Other6,800 4,464 
$34,472 $36,664 


9.    CONTRACT LIABILITIES

As further explained in Note 13, “Related Party Transactions”, the Company entered into certain agreements with Humana, Inc. ("Humana") under which the Company receives administrative payments in exchange for providing care coordination services at certain clinics licensed to the Company over the term of such agreements. The Company’s contract liabilities balance related to these payments from Humana was $8.2 million and $6.1 million as of March 31, 2022 and December 31, 2021, respectively. The short-term portion was recorded in other current liabilities and the long-term portion was recorded in other liabilities. The Company recognized $0.6 million and $1.5 million in revenue from contract liabilities recorded during the three months ended March 31, 2022 and March 31, 2021, respectively.

A summary of significant changes in the contract liabilities balance during the period is as follows:

(in thousands)Deferred revenue
Balance at December 31, 2021$6,059 
Increases due to amounts collected2,750 
Revenues recognized from current period increases(620)
Balance at March 31, 2022$8,189 

Of the March 31, 2022 contract liabilities balance, the Company expects to recognize the following amounts as revenue in the succeeding years:

Years ended December 31,Amount (in thousands)
2022 - remaining$1,966
20232,628
20242,442
20251,112
202641
Total$8,189

10.    DEBT

The Company’s notes payable were as follows as of March 31, 2022 and December 31, 2021:

16

CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(in thousands)20222021
Term loan$642,822 $644,432 
Senior Notes300,000 300,000 
Less: Current portion of notes payable(6,444)(6,493)
936,378 937,939 
Less: debt issuance costs(20,640)(22,673)
Notes payable, net of current portion and debt issuance costs$915,738 $915,266 

Term Loan

Pursuant to a Credit Agreement with Credit Suisse and the other lenders party thereto (the “Credit Agreement”), the Company has a senior secured term loan (together with the revolving line of credit, the "Credit Facilities"). Obligations under the Credit Facilities are secured by substantially all of the Company’s assets. The Credit Facilities contain a financial maintenance covenant (which is for the benefit of the lenders under the revolving line of credit only), requiring the Company to not exceed a total first lien secured net debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio, which is tested quarterly only if the Company has exceeded a certain amount drawn under its revolving line of credit. As of March 31, 2022, the financial covenant did not apply.

The term loan is subject to principal amortization repayments due on the last business day of each calendar quarter equal to 0.25% of the initial principal amount, as applicable, based on the funding dates. Amortization payments commenced on March 31, 2021. The outstanding amount of unpaid principal and interest associated with the term loan is due on the maturity date of November 23, 2027. Prior to the maturity date, the Company may elect to prepay, in whole or in part at any time without premium or penalty, other than in connection with certain repricing transactions and customary breakage costs.

As of March 31, 2022, the revolving line of credit had an aggregate amount of commitments of $120.0 million and no loans were drawn and its available balance net of letters of credit was $119.0 million. As of March 31, 2022, the Company had one letter of credit outstanding in favor of a third party in the face amount of $1.0 million against the revolving line of credit. As of March 31, 2022 and December 31, 2021, two health plans required the Company to maintain restricted cash balances for an aggregate amount of $7.2 million and $3.5 million, respectively, which are presented within cash, cash equivalents and restricted cash.

On January 14, 2022, the Company entered into an amendment to the Credit Agreement, pursuant to which the outstanding principal amount of term loans was replaced with an equivalent amount of new term loans having substantially similar terms, except with a lower interest rate margin applicable to the new term loan. The amendment of the Credit Agreement implemented a forward-looking term rate based on the secured overnight financing rate (“SOFR”) as the replacement of LIBOR as the benchmark interest rate for borrowings under the term loan and revolving line of credit, and certain other provisions. The new interest rate applicable to the term loan and borrowing under the revolving line of credit was revised to 4.00% plus the greater of SOFR and the applicable credit spread adjustment or 0.50%; provided that if the Company achieves a public corporate rating from S&P of at least B and a public rating from Moody's of at least B2, then for as long as such ratings remain in effect, a margin of 3.75% shall be applicable. The Company has not reached the applicable ratings. The amendment represented a partial extinguishment and resulted in a write-off of deferred issuance costs of $1.3 million and has been recorded as a loss on extinguishment of debt for the three months ended March 31, 2022.

Senior Notes

On September 30, 2021, the Company issued senior unsecured notes for a principal amount of $300.0 million (the "Senior Notes") in a private offering. The Senior Notes bear interest at 6.25% per annum, payable semi-annually on April 1st and October 1st of each year, commencing April 1, 2022. As of March 31, 2022, the effective interest rate of the Senior Notes was 6.66%. Principal on the Senior Notes is due in full on October 1, 2028. The Senior Notes are not subject to any amortization payments.

17

CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Prior to October 1, 2024, the Company may redeem some or all of the Senior Notes at a price equal to 100% of the principal amount redeemed, plus accrued and unpaid interest, plus a make-whole premium. Prior to October 1, 2024, the Company may also redeem up to 40% of the aggregate principal amount of the notes with the net cash proceeds of certain equity offerings, at a redemption price of 106.25%, plus accrued and unpaid interest. On or after October 1, 2024, the Company may redeem some or all of the Senior Notes at a redemption price of 100% to- 103.13%, plus accrued and unpaid interest, depending on the date that the Senior Notes are redeemed.

Future Principal Payments on Term Loan and Senior Notes

The following table sets forth the Company’s future principal payments as of March 31, 2022, assuming another mandatory prepayment does not occur:

(in thousands)
Year ending December 31,Amount
2022 - remainder$4,833
20236,444
20246,444
20256,444
20266,444
Thereafter912,213
Total$942,822

As of March 31, 2022 and December 31, 2021, the balance of debt issuance costs totaled $21.5 million and $23.3 million, respectively, and are being amortized into interest expense over the life of the loan using the effective interest method. Of the balance as of March 31, 2022, $20.6 million was related to the term loan and the Senior Notes reflected as a direct reduction to the long-term debt balances, while the remaining $0.9 million was related to the revolving line of credit, and reflected in prepaid expenses and other current assets.

For the three months ended March 31, 2022 and 2021 the Company recognized interest expense of $13.3 million and $10.6 million, respectively, of which $0.7 million and $2.2 million, respectively, were related to the amortization of debt issuance costs.


11.    FAIR VALUE MEASUREMENTS

ASC 820, "Fair Value Measurements and Disclosures", provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy under the accounting standard are described as follows:

Level 1    Inputs to the valuation methodology are unadjusted quoted prices for identical
assets or liabilities in active markets that the Company has the ability to access.
Level 2    Inputs to the valuation methodology include:
quoted prices for similar assets or liabilities in active markets;
quoted prices for identical or similar assets or liabilities in inactive markets;
inputs other than quoted prices that are observable for the asset or liability;
inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
18

CANO HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Level 3    Inputs to the valuation methodology are unobservable and significant to the fair
value measurement.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The carrying amounts of financial instruments including cash, accounts receivable, accounts payable, accrued liabilities, due to sellers and short-term borrowings approximate fair value due to the short maturities of such instruments. The fair value of the Company’s debt using Level 2 inputs was approximately $925.0 million and $945.0 million as of March 31, 2022 and December 31, 2021, respectively.

The following is a description of the valuation methodology used for liabilities measured at fair value.

Contingent Consideration: On June 11, 2021, we entered into a purchase agreement with University Health Care and its affiliates (“University”). The transaction was financed, in part, through contingent consideration which will be earned by University from acquisition add-ons based on additional acquired entities. The consideration is valued at fair value applying a Scenario Based method.

On August 11, 2021, the Company issued 2,720,966 shares of Class A common stock (the “escrowed shares”) to the escrow agent, on behalf of the seller, as part of the consideration in connection with an acquisition. The amount of shares was based on a $30.0 million purchase price divided by the average share price of the Company during the twenty consecutive trading days preceding the closing date of the transaction. The shares were deposited in escrow and will be released to the seller upon the satisfaction of certain performance metrics in 2022 and 2023. The final number of escrowed shares will be calculated by multiplying the initial share amount by an earned share percentage ranging from 0% to