Primary care company Cano Health aims to sell certain non-core assets to narrow its operating focus to its Medicare Advantage provider division.
The company is looking to turn around its financial performance as its losses grew to $60 million in the first quarter of the year.
"We began this process in the first quarter with our team and expect to complete the initial divestments in the coming months," Cano Health CEO Dr. Marlow Hernandez said last week during the company's first-quarter earnings call.
The healthcare provider said it hired Oppenheimer & Co. as a financial advisor to sell certain non-core assets following a comprehensive evaluation of the company’s operations.
Cano Health recently took out a $150 million loan as its cash continues to dwindle and its losses ballooned in 2022. As of March 31, 2023, the company's total liquidity was $152 million.
The company runs value-based primary care centers and provides support to other primary care practices treating senior patients. It operates 172 medical centers in 10 states and provides care to 388,000 members. Membership increased 44% from the first quarter of 2022. Cano Health's membership includes 207,000 Medicare capitated members, up 29% from a year ago.
Cano Health has established a "differentiated Medicare Advantage-focused business model," Hernandez said. Based on the historic performance of the company's more established medical centers, Cano Health's management expects to unlock "substantial embedded profitability as its medical centers continue to mature," he told analysts and investors during the earnings call.
"With a track record of industry-leading clinical outcomes and patient engagement, we are uniquely positioned to capture additional share of a compelling market opportunity, helping more patients live longer and healthier lives. We expect to continue our disciplined growth trajectory throughout 2023 and remain squarely focused on near-term execution to achieve sustainable profitability and build long-term value," he said.
The divestiture of certain non-core assets will create important flexibility to strengthen the company's high-performing Medicare Advantage operations," Hernandez said.
The company brought in $867 million in Q1 revenue, up 23% from $704.3 million the prior year.
"We are pleased to start the year with solid operating and financial performance that was generally in-line with our expectations," Hernandez said. "Over the past six months, our management team has implemented a range of initiatives to improve our cost structure, improve operating cash flow, and simplify and optimize our business model. The first quarter results reflect meaningful operating efficiencies, and while we recognize there is more work to be done, as we continue to execute on our action plan, we expect our earnings trajectory to improve and accelerate, particularly in the second half of the year."
The company's quarterly net loss of $61 million, or a loss of 12 cents per share, compares to a net loss of $85,000 a year ago, primarily driven by a higher operating loss, the change in fair value of warrant liabilities, and higher interest expense, executives said.
Cano Health's Q1 results topped Wall Street analysts' expectations.
The company expects membership to reach 390,000 to 400,000 by the end of the year. And Cano Health is projecting total revenue in the range of $3.25 billion to $3.35 billion for 2023, an increase from the prior range of $3.15 billion to $3.25 billion.
The primary care company plans to "dial back" the addition of new medical centers this year which is expected to reduce cash use and capital expenditures. It is strategically focused on accelerating medical center consolidation and optimizing existing center capacity, executives said.
The company is mired in an internal boardroom drama and faces increasing pressure to improve its financial performance as three former directors have their sights set on a leadership overhaul. Cano Health recently took steps to change up its leadership structure, including separating the roles of chairman and chief executive officer.
In March, three board directors including early investor Barry Sternlicht, who collectively represent 36% of Cano health's stock, resigned in protest of the primary care company's management. The shareholders sent an open letter outlining their resignation from the company's board, expressed concerns related to CEO conduct and governance issues, and called for urgent leadership and strategic changes.
The three former directors then signaled they intend to form a group to "pursue changes" at the company which may include moves to oust the CEO and the sale of non-core assets.
Sternlicht and two other former directors of Cano Health commenced litigation in Delaware state court on April 28 against Cano Health seeking to compel the company to reopen the window to nominate new board members, according to a SEC filing.