QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ||
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
(Address of principal executive offices) |
(Zip Code) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
Emerging growth company |
Page |
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PART I FINANCIAL STATEMENTS |
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Cautionary Note Regarding Forward-Looking Statements and Summary Risk Factors |
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1 |
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1 |
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3 |
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5 |
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9 |
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11 |
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59 |
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81 |
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81 |
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PART II. OTHER INFORMATION |
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83 |
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83 |
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136 |
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137 |
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137 |
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137 |
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137 |
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139 |
• |
the benefits of the Business Combination; |
• |
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 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 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 health epidemics, including the COVID-19 pandemic, on our business and industry and the actions we may take in response thereto; |
• |
expectations regarding the time during which we will be an emerging growth company under the JOBS Act; |
• |
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 |
• |
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; |
• |
other risks and uncertainties described in this Quarterly Report on Form 10-Q, including those under the section entitled “Risk Factors |
• |
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. |
• |
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. |
Item 1. |
Financial Statements |
(in thousands, except share and per share data) |
June 30, 2021 |
December 31, 2020 |
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Assets |
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Current assets: |
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Cash, cash equivalents and restricted cash |
$ | $ | ||||||
Accounts receivable, net of unpaid service provider costs (Related parties comprised $ |
||||||||
Inventory |
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Prepaid expenses and other current assets |
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|
|||||
Total current assets |
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Property and equipment, net (Related parties comprised $ December 31, 2020, respectively) |
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Goodwill |
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Payor relationships, net |
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Other intangibles, net |
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Other assets |
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Total assets |
$ | $ | ||||||
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|
|||||
Liabilities and stockholder’s equity |
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Current liabilities: |
||||||||
Current portion of notes payable |
$ | $ | ||||||
Current portion of equipment loans |
||||||||
Current portion of capital lease obligations |
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Current portion of contingent consideration |
— | |||||||
Accounts payable and accrued expenses (Related parties comprised $ as of December 31, 2020) |
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Deferred revenue (Related parties comprised $ as of December 31, 2020) |
||||||||
Current portions due to sellers |
||||||||
Other current liabilities |
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|
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Total current liabilities |
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Notes payable, net of current portion and debt issuance costs |
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Warrants liabilities |
— | |||||||
Equipment loans, net of current portion |
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Capital lease obligations, net of current portion |
||||||||
Deferred rent (Related parties comprised $ as of December 31, 2020) |
||||||||
Deferred revenue, net of current portion (Related parties comprised $ as of December 31, 2020) |
||||||||
Due to sellers, net of current portion |
— |
(in thousands) |
June 30, 2021 |
December 31, 2020 |
||||||
Contingent consideration |
— | |||||||
Other liabilities (Related parties comprised $ |
||||||||
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|
|
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Total liabilities |
||||||||
Stockholders’ Equity / Members’ Capital |
||||||||
Shares of Class A common stock $ |
— | |||||||
Shares of Class B common stock $ par value (authorized |
— | |||||||
Members’ capital |
— | |||||||
Additional paid-in capital |
— |
|||||||
Accumulated deficit |
( |
) | ( |
) | ||||
Notes receivable, related parties |
( |
) | ( |
) | ||||
|
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|
|
|||||
Total Stockholders’ Equity / Members’ Capital |
||||||||
Non-controlling interests |
— | |||||||
|
|
|
|
|||||
Total Stockholders’ Equity / Members’ Capital |
||||||||
|
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|
|
|||||
Total Liabilities and Stockholders’ Equity / Members’ Capital |
$ | $ | ||||||
|
|
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
( in thousands, except share and per share data ) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Revenue: |
||||||||||||||||
Capitated revenue (Related parties comprised $ , and $ and 2020, and in the six months ended June 30, 2021 and 2020, respectively) |
$ |
$ |
$ |
$ |
||||||||||||
Fee-for-service $ and respectively) |
||||||||||||||||
Total revenue |
||||||||||||||||
Operating expenses: |
||||||||||||||||
Third-party medical costs (Related parties comprised $ $ , and 2020, respectively) |
||||||||||||||||
Direct patient expense (Related parties comprised $ , and $, in the three months |
||||||||||||||||
Selling, general, and administrative expenses (Related parties comprised $ |
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Depreciation and amortization expense |
||||||||||||||||
Transaction costs and other (Related parties comprised $ $ 2021 and 2020, and in the six months ended June 30, 2021 respectively) |
||||||||||||||||
Total operating expenses |
||||||||||||||||
Loss from operations |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
Other income and expense: |
||||||||||||||||
Interest expense |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
Interest income (Related parties comprised $ |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(in thousands, except share and per share data) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Loss on extinguishment of debt |
( |
) |
— |
( |
) |
— |
||||||||||
Change in fair value of embedded derivative |
— |
( |
) |
— |
( |
) | ||||||||||
Change in fair value of warrant liabilities |
— |
— |
||||||||||||||
Other expenses |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
Total other income (expense) |
( |
) |
( |
) | ||||||||||||
Net income (loss) before income tax benefit |
( |
) |
( |
) |
( |
) | ||||||||||
Income tax benefit |
||||||||||||||||
Net income (loss) |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | ||||||
Net loss attributable to non-controlling interests |
( |
) | — |
( |
) |
— |
||||||||||
Net income attributable to Class A common stockholders |
$ |
$ |
— |
$ |
$ |
— |
||||||||||
Net income per share to Class A common stockholders, basic |
$ |
N/A |
$ |
$ |
N/A |
|||||||||||
Net loss per share to Class A common stockholders, diluted |
$ |
( |
) |
N/A |
$ |
( |
) |
$ |
N/A |
|||||||
Weighted-average shares used in computation of earnings per share: |
||||||||||||||||
Basic |
N/A |
N/A |
||||||||||||||
Diluted |
N/A |
N/A |
||||||||||||||
Three Months Ended June 30, 2021 |
||||||||||||||||||||||||||||||||||||||||||||
(in thousands, except shares) |
Member’s 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 |
$ |
— |
$ |
— |
— |
$ |
— |
$ |
— |
$ |
( |
) |
$ |
( |
) | $ |
$ |
|||||||||||||||||||||||||||
Retrospective application of reverse recapitalization |
( |
) |
— |
— |
— |
— |
— |
— |
— |
— |
||||||||||||||||||||||||||||||||||
|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
ADJUSTED BALANCE—March 31, 2021 |
$ |
— |
$ |
— |
— |
$ |
— |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
$ |
||||||||||||||||||||||||||||
Net loss business combination |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Business and PIPE financing |
( |
) |
( |
) |
— |
|||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||||||||||
Issuance of common stock for acquisitions |
— |
— |
— |
— |
— |
— |
( |
) |
||||||||||||||||||||||||||||||||||||
Interest on notes receivable |
— |
— |
— |
— |
— |
— |
— |
( |
) |
— |
— |
( |
) | |||||||||||||||||||||||||||||||
Net income |
— |
$ |
— |
— |
$ |
— |
— |
$ |
— |
$ |
— |
$ |
— |
$ |
$ |
|||||||||||||||||||||||||||||
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|
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|
|
|
|
|||||||||||||||||||||||
BALANCE—June 30, 2021 |
— |
— |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||||||||
|
|
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|
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|
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|
Three Months Ended June 30, 2020 |
||||||||||||||||||||||||||||||||||||||||||||
( in thousands, except shares) |
Member’s 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, 2020 |
— | $ | — | $ | — | — | $ | — | $ | — | $ | ( |
) | $ | ( |
) | $ | |
$ | |||||||||||||||||||||||||
Members’ contributions |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Issuance of common stock for acquisitions |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Issuance of common stock for due to seller s balance |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Interest on note s receivable |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
Net loss |
— | $ | — | — | $ | — | — | $ | — | $ | — | $ | — | $ | ( |
) | $ | — |
$ | ( |
) | |||||||||||||||||||||||
|
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|
|||||||||||||||||||||||
BALANCE—June 30, 2020 |
— | $ | — | $ | — | — | $ | — | $ | — | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||||||
|
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|
Six Months Ended June 30, 2021 |
||||||||||||||||||||||||||||||||||||||||||||
(in thousands except shares) |
Member’s 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, |
$ | — | $ | — | — | $ | — | $ | — | $ | ( |
) | $ | ( |
) | $ | — | $ | ||||||||||||||||||||||||||
Retrospective application reverse |
( |
) | — |
— |
— |
— |
— | — | — |
— |
||||||||||||||||||||||||||||||||||
ADJUSTED BALANCE—December 2020 |
$ | — |
$ | — |
— |
$ | — |
$ | $ | ( |
) | $ | ( |
) | $ | — |
$ | |||||||||||||||||||||||||||
Net business combination |
— |
— |
— |
— |
— |
— |
— |
— |
( |
) |
— |
( |
) | |||||||||||||||||||||||||||||||
Business combination |
( |
) |
( |
— |
||||||||||||||||||||||||||||||||||||||||
Stock-based compensation expense |
— |
— |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||||||||||
Issuance of |
— | — | — | — | — | — | ( |
) |
||||||||||||||||||||||||||||||||||||
Interest on note s receivable |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
Net income |
— | $ | — | — | $ | — | — | $ | — | $ | — | $ | — | $ | $ | |||||||||||||||||||||||||||||
BALANCE—June 30, 2021 |
— | $ | — | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||||||||||
Six Months Ended June 30, 2020 |
||||||||||||||||||||||||||||||||||||||||||||
(in thousands, except shares) |
Member’s 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, 2019 |
— | $ | — | $ | — | — | $ | — | $ | — | $ | ( |
) |
$ | ( |
) |
$ | $ | ||||||||||||||||||||||||||
Members’ contributions |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Stock - based |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Issuance of common stock for acquisitions |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Issuance of common stock for due to seller s balance |
— | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
Interest on note s receivable |
— | — | — | — | — | — | — | ( |
) | — | — | ( |
) | |||||||||||||||||||||||||||||||
Net loss |
— | — | — | — | — | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||
BALANCE—June 30, 2020 |
— | $ | — | $ | — | — | $ | — | $ | — | $ | ( |
) | $ | ( |
) | $ | $ | ||||||||||||||||||||||||||
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Six Months Ended June 30, |
||||||||
(in thousands) |
2021 |
2020 |
||||||
Cash Flows from Operating Activities: |
||||||||
Net loss |
$ | ( |
) | $ | ( |
) | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
Depreciation and amortization expense |
||||||||
Change in fair value of contingent consideration |
( |
) | — | |||||
Change in fair value of embedded derivative |
— | |||||||
Change in fair value of warrant liabilities |
( |
) | — | |||||
Loss on extinguishment of debt |
— | |||||||
Amortization of debt issuance costs |
||||||||
Equity-based compensation |
||||||||
Paid in kind interest expense |
— | |||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable, net |
( |
) | ( |
) | ||||
Inventory |
( |
) | ( |
) | ||||
Other assets |
( |
) | ( |
) | ||||
Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
Accounts payable and accrued expenses (Related parties comprised $ |
||||||||
Deferred rent (Related parties comprised $ |
||||||||
Deferred revenue (Related parties comprised $ |
— | |||||||
Other liabilities (Related parties comprised $ |
( |
) | ||||||
|
|
|
|
|||||
Net cash used in operating activities |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Cash Flows from Investing Activities: |
||||||||
Purchase of property and equipment (Related parties comprised $ |
( |
) | ( |
) | ||||
Acquisitions of subsidiaries including non-compete intangibles, net of cash acquired |
( |
) | ( |
) | ||||
Payments to sellers |
( |
) | ( |
) | ||||
Advances to related parties |
— | ( |
) | |||||
|
|
|
|
|||||
Net cash used in investing activities |
( |
) | ( |
) | ||||
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|
|||||
Cash Flows from Financing Activities: |
||||||||
Contributions from member |
— | |||||||
Business combination and PIPE financing |
— | |||||||
Interest accrued due to seller s |
— | |||||||
Payments of long-term debt |
( |
) | ( |
) | ||||
Debt issuance costs |
( |
) | ( |
) | ||||
Proceeds from long-term debt |
||||||||
Proceeds from delayed draw term loan |
— | |||||||
Repayments of delayed draw term loan |
( |
) | — |
Six Months Ended June 30, |
||||||||
(in thousands) |
2021 |
2020 |
||||||
Proceeds from revolving credit facility |
— | |||||||
Repayments of revolving credit facility |
— | ( |
) | |||||
Proceeds from insurance financing arrangements |
||||||||
Payments of principal on insurance financing arrangements |
( |
) | ( |
) | ||||
Repayments of equipment loans |
( |
) | ( |
) | ||||
Repayments of capital lease obligations |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Net cash provided by financing activities |
||||||||
|
|
|
|
|||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
( |
) | ||||||
Cash, cash equivalents and restricted cash at beginning of year |
||||||||
|
|
|
|
|||||
Cash, cash equivalents and restricted cash at end of period |
$ |
$ |
||||||
|
|
|
|
|||||
Supplemental cash flow information: |
||||||||
Interest paid |
$ | ( |
) |
$ | ( |
) | ||
Non-cash investing and financing activities: |
||||||||
Issuance of securities by Cano Health, Inc. in connection with acquisitions |
$ | — | ||||||
Issuance of securities in PCIH in connection with acquisitions |
— | |||||||
Contingent consideration in connection with acquisitions |
— | |||||||
Due to seller s in connection with acquisitions |
||||||||
Humana Affiliate Provider clinic leasehold improvements |
||||||||
Capital lease obligations entered into for property and equipment |
$ | |||||||
Equipment loan obligations entered into for property and equipment |
||||||||
Issuance of security in exchange for balance due to seller s |
— |
1. |
NATURE OF BUSINESS AND OPERATIONS |
(in thousands) |
Recapitalization |
|||
Cash - Jaws’ trust and cash, net of redemptions |
$ | |||
Cash - PIPE financing |
||||
Less: transaction costs and advisory fees paid |
( |
) | ||
Less: Distribution to PCIH shareholders |
( |
) | ||
|
|
|||
Net Business Combination and PIPE financing |
||||
Plus: Non-cash net assets assumed |
||||
Plus: Accrued transaction costs |
||||
Less: Capitalized transaction costs |
( |
) | ||
Less: Warrant liability assumed |
( |
) | ||
|
|
|||
Net contributions from Business Combination and PIPE financing |
$ | |||
|
|
Class A common stock |
Class B common stock |
|||||||
Common stock outstanding prior to Business Combination |
— | |||||||
Less: redemption of Jaws shares |
( |
) | — | |||||
|
|
|
|
|||||
Ordinary shares of Jaws |
— | |||||||
Jaws Sponsor Shares |
— | |||||||
Shares issued in PIPE financing |
— | |||||||
|
|
|
|
|||||
Business Combination and PIPE financing shares |
— | |||||||
Shares to PCIH shareholders |
— | |||||||
|
|
|
|
|||||
Total shares of common stock outstanding immediately after the Business Combination |
||||||||
|
|
|
|
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Three Months Ended June 30, |
||||||||||||||||
(in thousands) |
2021 |
2020 |
||||||||||||||
Revenue $ |
Revenue % |
Revenue $ |
Revenue % |
|||||||||||||
Capitated revenue: |
||||||||||||||||
Medicare |
$ | % | $ | % | ||||||||||||
Other capitated revenue |
% | % | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total capitated revenue |
% | % | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Fee-for-service |
||||||||||||||||
Fee-for-service |
% | % | ||||||||||||||
Pharmacy |
% | % | ||||||||||||||
Other |
% | % | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fee-for-service |
% | % | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | % | $ | % | ||||||||||||
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||||||||||||||
2021 |
2020 |
|||||||||||||||
(in thousands) |
Revenue $ |
Revenue % |
Revenue $ |
Revenue % |
||||||||||||
Capitated revenue: | ||||||||||||||||
Medicare |
$ | % | $ | % | ||||||||||||
Other capitated revenue |
% | % | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total capitated revenue |
% | % | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Fee-for-service |
||||||||||||||||
Fee-for-service |
% | % | ||||||||||||||
Pharmacy |
% | % | ||||||||||||||
Other |
% | % | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fee-for-service |
% | % | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | % | $ | % | ||||||||||||
|
|
|
|
|
|
|
|
As of, |
||||||||
(in thousands) |
June 30, 2021 |
December 31, 2020 |
||||||
Accounts receivable |
$ | $ | ||||||
Medicare risk adjustment |
||||||||
Unpaid service provider costs |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Accounts receivable, net |
$ | $ | ||||||
|
|
|
|
For the six months ended June 30, |
||||||||
(in thousands) |
2021 |
2020 |
||||||
Balance as at January 1, |
$ |
$ |
||||||
Incurred related to: |
||||||||
Current year |
||||||||
Prior years |
( |
) | ( |
) | ||||
|
|
|
|
|||||
Paid related to: |
||||||||
Current year |
||||||||
Prior years |
||||||||
|
|
|
|
|||||
|
|
|
|
|||||
Balance as at June 30, |
$ |
$ |
||||||
|
|
|
|
3. |
BUSINESS ACQUISITIONS |
(in thousands) |
||||
Accounts receivable, net of unpaid service provider costs |
$ | |||
Inventory |
||||
Property and equipment, net |
||||
Payor relationships |
||||
Non-compete intangibles |
||||
Other acquired intangibles |
||||
Other assets |
||||
Goodwill |
||||
Accounts payable and accrued expenses |
( |
) | ||
Total purchase price, including non-compete intangibles |
$ | |||
(in thousands) |
||||
Property and equipment |
$ | |||
Non-compete intangibles |
||||
Acquired intangibles |
||||
Goodwill |
||||
Other assets |
||||
Total purchase price, including non-compete intangibles |
$ | |||
(in thousands) |
||||
Cash and cash equivalents |
$ | |||
Accounts receivable |
||||
Inventory |
||||
Property and equipment |
||||
Non-compete intangibles |
||||
Acquired intangibles |
||||
Goodwill |
||||
Accounts payable |
( |
) | ||
|
|
|||
Total purchase price, including non-compete intangibles |
$ | |||
|
|
Six Months Ended June 30, |
||||||||
(in thousands) |
2021 |
2020 |
||||||
Assets Acquired |
||||||||
Accounts receivable |
$ | $ | ||||||
Other assets |
||||||||
Property and equipment |
||||||||
Goodwill |
||||||||
Intangibles |
||||||||
|
|
|
|
|||||
Total assets acquired |
||||||||
|
|
|
|
|||||
Liabilities Assumed |
||||||||
Due to sellers |
||||||||
Contingent consideration |
— | |||||||
Other liabilities |
||||||||
|
|
|
|
|||||
Total liabilities assumed |
||||||||
|
|
|
|
|||||
Net Assets Acquired |
||||||||
Issuance of Parent equity in connection with acquisitions |
||||||||
|
|
|
|
|||||
Acquisitions of subsidiaries, including non-compete intangibles, net of cash acquired |
$ | $ | ||||||
|
|
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Revenue |
$ | $ | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | $ | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
4. |
PROPERTY AND EQUIPMENT, NET |
As of |
||||||||||
(in thousands) |
June 30, 2021 |
December 31, 2020 |
||||||||
Assets Classification |
Useful Life | |||||||||
Leasehold improvements |
$ | $ | ||||||||
Machinery and equipment |
||||||||||
Automobiles |
||||||||||
Computer and equipment |
||||||||||
Furniture and equipment |
||||||||||
Construction in progress |
||||||||||
|
|
|
|
|||||||
Total |
||||||||||
Less: Accumulated depreciation and amortization |
( |
) | ( |
) | ||||||
|
|
|
|
|||||||
Property and equipment, net |
$ | $ | ||||||||
|
|
|
|
5. |
GOODWILL AND INTANGIBLES, NET |
(in thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||
Intangibles: |
||||||||||||
Trade names |
$ | $ | ( |
) | $ | |||||||
Brand |
( |
) | ||||||||||
Non-compete |
( |
) | ||||||||||
Customer relationships |
( |
) | ||||||||||
Payor relationships |
( |
) | ||||||||||
Provider relationships |
( |
) | ||||||||||
|
|
|
|
|
|
|||||||
Total intangibles, net |
$ | $ | ( |
) | $ | |||||||
|
|
|
|
|
|
(in thousands) |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||
Intangibles: |
||||||||||||
Trade names |
$ | $ | ( |
) | $ | |||||||
Brand |
( |
) | ||||||||||
Non-compete |
( |
) | ||||||||||
Customer relationships |
( |
) | ||||||||||
Payor relationships |
( |
) | ||||||||||
Provider relationships |
( |
) | ||||||||||
|
|
|
|
|
|
|||||||
Total intangibles, net |
$ | $ | ( |
) | $ | |||||||
|
|
|
|
|
|
Year ending December 31, |
Amount (in thousands) |
|||
Remainder of 2021 | $ | |||
2022 | ||||
2023 | ||||
2024 | ||||
2025 | ||||
Thereafter | ||||
|
|
|||
Total |
$ | |||
|
|
6. |
CAPITAL LEASE OBLIGATIONS |
Year ending December 31, |
Amount (in thousands) |
|||
Remainder of 2021 | $ | |||
2022 | ||||
2023 | ||||
2024 | ||||
2025 | ||||
|
|
|||
Total minimum lease payments |
||||
Less: amount representing interest |
( |
) | ||
|
|
|||
Less: current maturities |
( |
) | ||
|
|
|||
Total |
$ | |||
|
|
Year ending December 31, |
Amount (in thousands) |
|||
2021 | $ | |||
2022 | ||||
2023 | ||||
2024 | ||||
|
|
|||
Total minimum lease payments |
||||
Less: amount representing interest |
( |
) | ||
|
|
|||
Less: current maturities |
( |
) | ||
|
|
|||
$ | ||||
|
|
7. |
EQUIPMENT LOANS |
As of, |
||||||||
(in thousands) |
June 30, 2021 |
December 31, 2020 |
||||||
Notes payable bearing interest at 17.2%; due July 2022, secured by certain property and equipment |
$ | $ | ||||||
Notes payable bearing interest at 12.5%, 12.8%, and 11.0%; all due June 2023, all secured by certain property and equipment |
||||||||
Notes payable bearing interest at 10.68%; due June 2023, secured by certain property and equipment |
||||||||
Notes payable bearing interest at 7.24%; due April 2025, secured by certain property and equipment |
||||||||
Notes payable bearing interest at 4.15%; due December 2024, secured by certain property and equipment |
||||||||
Other equipment financing |
— | |||||||
|
|
|
|
|||||
Less: Current portion |
( |
) | ( |
) | ||||
|
|
|
|
|||||
$ | $ | |||||||
|
|
|
|
8. |
CONTRACT LIABILITIES |
(in thousands) |
For the three months ended June 30, 2021 |
|||
Balance as at March 31, 2021 |
$ |
|||
Increases due to amounts collected |
— | |||
Revenues recognized from current period increases |
( |
) | ||
Balance as at June 30, 2021 |
$ |
|||
(in thousands) |
For the six months ended June 30, 2021 |
|||
Balance as at January 1, 2021 |
$ |
|||
Increases due to amounts collected |
||||
Revenues recognized from current period increases |
( |
) | ||
Balance as at June 30, 2021 |
$ |
|||
9. |
REVOLVING CREDIT FACILITY |
10. |
LONG-TERM |
Long-Term Debt |
As of, |
|||||||
(in thousands) |
June 30, 2021 |
December 31, 2020 |
||||||
Term loan 3 |
$ | $ | ||||||
Term loan 4 |
— | |||||||
Delayed draw term loans |
— | |||||||
Less: Current portion of notes payable |
( |
) | ( |
) | ||||
Less: debt issuance costs |
( |
) | ( |
) | ||||
Notes payable, net of current portion |
$ | $ | ||||||
• |
• |
• |
(in thousands) |
||||
Year ending December 31, |
Amount |
|||
Remainder of 2021 |
$ | |||
2022 |
||||
2023 |
||||
2024 |
||||
2025 |
||||
Thereafter |
||||
|
|
|||
Total |
$ | |||
|
|
11. |
DUE TO SELLERS |
12. |
FAIR VALUE MEASUREMENTS |
• 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. | ||||
• Level 3 |
Inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Range as of |
||||||||
Unobservable Input |
June 1, 2020 |
June 30, 2020 |
||||||
Probability of change of control |
% | % | ||||||
Probability of issuance of debt |
% | % | ||||||
Expected date of event |
2020 |
2020 |
||||||
Discount rate |
% | % |
As of |
||||||||
Unobservable Input |
June 3, 2021 |
June 30, 2021 |
||||||
Exercise price |
$ | $ | ||||||
Stock price |
$ | $ | ||||||
Term (years) |
||||||||
Volatility |
% | % | ||||||
Rick free interest rate |
% | % | ||||||
Dividend yield |
||||||||
Public warrant price |
$ | $ |
(in thousands) |
Carrying Value |
Quoted Prices in Active Markets for Identical Items (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
Liabilities measured at fair value on a recurring basis: |
||||||||||||||||
Contingent consideration |
$ | $ | — | $ | — | $ | ||||||||||
Public Warrant Liabilities |
— | — | ||||||||||||||
Private Placement Warrant Liabilities |
— | — | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Liabilities |
$ | $ | $ | — | $ | |||||||||||
|
|
|
|
|
|
|
|
(in thousands) |
Carrying Value |
Quoted Prices in Active Markets for Identical Items (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
||||||||||||
Liabilities measured at fair value on a recurring basis: |
||||||||||||||||
Contingent consideration |
$ | $ | — | $ | — | $ | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Liabilities |
$ | $ | — | $ | — | $ | ||||||||||
|
|
|
|
|
|
|
|
Fair Value Measurements For the three months ended June 30, |
||||||||
2021 |
2020 |
|||||||
Opening Balance as at April 1, |
$ | $ | ||||||
Embedded derivative recognized under Term Loan 2 |
— | |||||||
Change in fair value of embedded derivative |
— | |||||||
Change in fair value of contingent consideration |
( |
) | — | |||||
Contingent consideration recognized due to acquisitions |
— | |||||||
Warrants acquired in the Business Combination |
— | |||||||
Change in fair value of warrants |
( |
) | — | |||||
Contingent consideration settled through equity |
( |
) | ||||||
Contingent consideration payments |
( |
) | — | |||||
|
|
|
|
|||||
Closing Balance as at June 30, |
$ | $ | ||||||
|
|
|
|
Fair Value Measurements For the six months ended June 30, |
||||||||
2021 |
2020 |
|||||||
Opening Balance as at January 1, |
$ | $ | ||||||
Embedded derivative recognized under Term Loan 2 |
— | |||||||
Change in fair value of embedded derivative |
— | |||||||
Change in fair value of contingent consideration |
( |
) | — | |||||
Contingent consideration recognized due to acquisitions |
— | |||||||
Warrants acquired in the Business Combination |
— | |||||||
Change in fair value of warrants |
( |
) | — | |||||
Contingent consideration settled through equity |
( |
) | ||||||
Contingent consideration payments |
( |
) | — | |||||
|
|
|
|
|||||
Closing Balance as at June 30, |
$ | $ | ||||||
|
|
|
|
13. |
VARIABLE INTEREST ENTITIES |
As of, |
||||||||
(in thousands) |
June 30, 2021 |
December 31, 2020 |
||||||
Total Assets |
$ | $ | ||||||
|
|
|
|
|||||
Total Liabilities |
$ | $ | ||||||
|
|
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Total revenue |
$ | $ | $ | $ | ||||||||||||
Operating expenses: |
||||||||||||||||
Direct patient expense |
||||||||||||||||
Selling, general and administrative expenses |
||||||||||||||||
Depreciation and amortization expense |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
|
|
|
|
|
|
|
|
14. |
RELATED PARTY |
15. |
EQUITY-BASED COMPENSATION |
As of June 3, 2021 |
||||
Closing Cano share price as of valuation date |
$ | |||
Risk-free interest rate |
% | |||
Expected volatility |
% | |||
Expected dividend yield |
% | |||
Expected cost of equity |
% |
Shares |
Weighted Average Grant Date Fair Value |
|||||||
Balance, January 1, 2021 |
||||||||
Granted |
$ | |||||||
Vested |
||||||||
Forfeitures |
||||||||
|
|
|
|
|||||
Balance, June 30, 2021 |
$ |
Shares |
Weighted Average Grant Date Fair Value |
|||||||
Balance, January 1, 2021 |
||||||||
Granted |
$ | |||||||
Vested |
||||||||
Forfeitures |
||||||||
|
|
|
|
|||||
Balance, June 30, 2021 |
$ |
16. |
COMMITMENTS AND CONTINGENCIES |
Year ending December 31 , |
Amount (in thousands) |
|||
Remainder of 2021 |
$ | |||
2022 |
||||
2023 |
||||
2024 |
||||
2025 |
||||
Thereafter |
||||
|
|
|||
Total |
$ | |||
|
|
17. |
INCOME |
For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
|||||||||||||||
(in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Jurisdictional earnings: |
||||||||||||||||
U.S . income (losses) |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
Foreign losses |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total income (losses) |
( |
) | ( |
) | ( |
) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Current: |
||||||||||||||||
U.S . Federal |
||||||||||||||||
U.S. State and local |
||||||||||||||||
Foreign |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total current tax benefit |
||||||||||||||||
Deferred: |
||||||||||||||||
U.S . Federal |
||||||||||||||||
U.S. State and local |
||||||||||||||||
Foreign |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total deferred tax benefit |
||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total tax benefit |
$ | $ | $ | $ | ||||||||||||
|
|
|
|
|
|
|
|
18. |
NET INCOME (LOSS) PER SHARE |
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
(in thousands, except shares and per share data) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Numerator: |
||||||||||||||||
Net income (loss) |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||
Less: net loss attributable to non-controlling interests |
( |
) | ( |
) | ||||||||||||
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|||||||||
Net income (loss) attributable to Class A common s tock holders |
||||||||||||||||
Dilutive effect of warrants on net income common |
|
|
( |
) |
|
|
N/A |
|
|
|
( |
) |
|
|
N/A |
|
Net income attributable to Class A common stockholders - Diluted |
( |
) | N/A | ( |
) | N/A | ||||||||||
Basic and Diluted Earnings Per Share denominator: |
||||||||||||||||
Weighted average common stock outstanding - basic |
N/A |
N/A |
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|
|
|
|
|
|||||||||
Net income per share - basic |
$ | N/A |
$ | N/A |
||||||||||||
Diluted Earnings Per Share: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of warrants on weighted average common |
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
Weighted average common stock outstanding - diluted |
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
$ |
( |
) |
|
|
N/A |
|
|
$ |
( |
) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
Three and six months ended June 30, 2021 |
||||
Public Warrants |
||||
Private Placement Warrants |
||||
Restricted Stock Units |
||||
Stock Options |
||||
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|
|||
Potential Common Stock |
||||
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19. |
SEGMENT |
20. |
SUBSEQUENT EVENTS |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• |
Patients low-income communities, including large minority and immigrant populations, with complex care needs, many of whom previously had very limited or no access to quality healthcare. We are proud of the impact we have made in these underserved communities. |
• |
Providers pre-authorizations, referrals, billing and coding. Our physicians receive ongoing training through regular clinical meetings to review the latest findings in primary care medicine. Furthermore, we offer above-average pay and no hospital call requirements. In addition, our physicians are eligible to receive a bonus based upon patient results, including reductions in patient emergency room visits and hospital admissions, among other metrics. |
• | Payors |
• | Primary Care Physicians and related entities A-4 Units and $2.6 million in other closing payments. PCP is comprised of eleven primary care centers and a managed services organization serving populations in the Broward County region of South Florida. |
• | HP Enterprises II, LLC and related entities A-4 Units and $16.1 million in deferred payments. Healthy Partners is comprised of sixteen primary care centers and a management services organization serving populations across Florida, including the Miami-Dade, Broward, Palm Beach, Treasure Coast and Central Florida areas. |
• | University Health Care and its affiliates . add-ons based on additional acquired entities. University is comprised of thirteen primary care centers, a managed services organization and a pharmacy serving populations throughout various locations in South Florida. |
June 30, 2021 |
December 31, 2020 |
June 30, 2020 |
||||||||||
Members |
156,038 | 105,707 | 99,276 | |||||||||
Owned medical centers |
90 | 71 | 61 |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
($ in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Revenue: |
||||||||||||||||
Capitated revenue |
$ | 379,210 | $ | 163,927 | $ | 646,261 | $ | 291,643 | ||||||||
Fee-for-service |
13,953 | 7,279 | 27,037 | 14,861 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
393,163 | 171,206 | 673,298 | 306,504 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Third-party medical costs |
291,816 | 112,040 | 486,862 | 197,353 | ||||||||||||
Direct patient expense |
43,782 | 22,554 | 78,069 | 40,333 | ||||||||||||
Selling, general, and administrative expenses |
46,574 | 21,859 | 81,422 | 42,843 | ||||||||||||
Depreciation and amortization expense |
7,945 | 3,977 | 13,791 | 7,362 | ||||||||||||
Transaction costs and other |
16,374 | 15,687 | 25,613 | 22,138 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
406,491 | 176,117 | 685,757 | 310,029 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(13,328 | ) | (4,911 | ) | (12,459 | ) | (3,525 | ) | ||||||||
Other income and expense: |
||||||||||||||||
Interest expense |
(9,714 | ) | (5,717 | ) | (20,340 | ) | (9,382 | ) | ||||||||
Interest income |
1 | 79 | 2 | 159 | ||||||||||||
Loss on extinguishment of debt |
(13,225 | ) | — | (13,225 | ) | — | ||||||||||
Change in fair value of embedded derivative |
— | (306 | ) | — | (306 | ) | ||||||||||
Change in fair value of warrant liabilities |
39,215 | — | 39,215 | — | ||||||||||||
Other expenses |
(25 | ) | (150 | ) | (25 | ) | (150 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income (expense) |
16,252 | (6,094 | ) | 5,627 | (9,679 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) before income tax benefit |
2,924 | (11,005 | ) | (6,832 | ) | (13,204 | ) | |||||||||
Income tax benefit |
2,023 | 19 | 1,309 | 32 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
4,947 | (10,986 | ) | (5,523 | ) | (13,172 | ) | |||||||||
Net income (loss) attributable to non-controlling interests |
(4,533 | ) | — | (15,003 | ) | — | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to Cano Health, Inc. |
$ | 9,480 | $ | — | $ | 9,480 | $ | — | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
(% of revenue) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Revenue: |
||||||||||||||||
Capitated revenue |
96.5 | % | 95.7 | % | 96.0 | % | 95.2 | % | ||||||||
Fee-for-service |
3.5 | % | 4.3 | % | 4.0 | % | 4.8 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating expenses: |
||||||||||||||||
Third-party medical costs |
74.2 | % | 65.4 | % | 72.3 | % | 64.4 | % | ||||||||
Direct patient expense |
11.1 | % | 13.2 | % | 11.6 | % | 13.2 | % | ||||||||
Selling, general, and administrative expenses |
11.8 | % | 12.8 | % | 12.1 | % | 14.0 | % | ||||||||
Depreciation and amortization expense |
2.0 | % | 2.3 | % | 2.0 | % | 2.4 | % | ||||||||
Transaction costs and other |
4.2 | % | 9.2 | % | 3.8 | % | 7.2 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expenses |
103.3 | % | 102.9 | % | 101.8 | % | 101.2 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(3.3 | )% | (2.9 | )% | (1.8 | )% | (1.2 | )% | ||||||||
Other income and expense: |
||||||||||||||||
Interest expense |
(2.5 | )% | (3.3 | )% | (3.0 | )% | (3.1 | )% | ||||||||
Interest income |
0.0 | % | 0.0 | % | 0.0 | % | 0.1 | % | ||||||||
Loss on extinguishment of debt |
(3.4 | )% | 0.0 | % | (2.0 | )% | 0.0 | % | ||||||||
Change in fair value of embedded derivative |
0.0 | % | (0.2 | )% | 0.0 | % | (0.1 | )% | ||||||||
Change in fair value of warrant liabilities |
10.0 | % | 0.0 | % | 5.8 | % | 0.0 | % | ||||||||
Other expenses |
0.0 | % | (0.1 | )% | 0.0 | % | 0.0 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other income (expense) |
4.1 | % | (3.6 | )% | 0.8 | % | (3.1 | )% | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) before income tax benefit |
0.8 | % | (6.5 | )% | (1.0 | )% | (4.3 | )% | ||||||||
Income tax benefit |
0.5 | % | 0.0 | % | 0.2 | % | 0.0 | % | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
1.3 | % | (6.5 | )% | (0.8 | )% | (4.3 | )% | ||||||||
Net income (loss) attributable to non-controlling interests |
(1.2 | )% | $ | — | (2.2 | )% | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) attributable to Cano Health, Inc. |
2.5 | % | $ | — | 1.4 | % | $ | — | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||||||||||||||
2021 |
2020 |
|||||||||||||||
($ in thousands) |
Revenue $ |
Revenue% |
Revenue $ |
Revenue% |
||||||||||||
Capitated revenue: |
||||||||||||||||
Medicare |
$ | 334,700 | 85.1 | % | $ | 129,385 | 75.6 | % | ||||||||
Other capitated revenue |
44,510 | 11.4 | % | 34,542 | 20.2 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total capitated revenue |
379,210 | 96.5 | % | 163,927 | 95.8 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Fee-for-service |
||||||||||||||||
Fee-for-service |
4,389 | 1.1 | % | 1,246 | 0.7 | % | ||||||||||
Pharmacy |
8,217 | 2.1 | % | 5,718 | 3.3 | % | ||||||||||
Other |
1,347 | 0.3 | % | 315 | 0.2 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fee-for-service |
13,953 | 3.5 | % | 7,279 | 4.2 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | 393,163 | 100.0 | % | $ | 171,206 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
||||||||||||||||
2021 |
2020 |
|||||||||||||||
($ in thousands) |
Revenue $ |
Revenue% |
Revenue $ |
Revenue% |
||||||||||||
Capitated revenue: |
||||||||||||||||
Medicare |
$ | 561,079 | 83.3 | % | $ | 235,395 | 76.8 | % | ||||||||
Other capitated revenue |
85,182 | 12.7 | % | 56,248 | 18.4 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total capitated revenue |
646,261 | 96.0 | % | 291,643 | 95.2 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Fee-for-service |
||||||||||||||||
Fee-for-service |
8,937 | 1.3 | % | 3,011 | 1.0 | % | ||||||||||
Pharmacy |
15,523 | 2.3 | % | 11,054 | 3.6 | % | ||||||||||
Other |
2,577 | 0.4 | % | 796 | 0.2 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fee-for-service |
27,037 | 4.0 | % | 14,861 | 4.8 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | 673,298 | 100.0 | % | $ | 306,504 | 100.0 | % | ||||||||
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
||||||||||||
2021 |
2020 |
% Change |
||||||||||
Members: |
||||||||||||
Medicare |
111,866 | 72,576 | 54.1 | % | ||||||||
Medicaid |
25,178 | 16,585 | 51.8 | % | ||||||||
ACA |
18,994 | 10,115 | 87.8 | % | ||||||||
|
|
|
|
|||||||||
Total members |
156,038 | 99,276 | 57.2 | % | ||||||||
|
|
|
|
|||||||||
Member months: |
||||||||||||
Medicare |
282,251 | 152,764 | 84.8 | % | ||||||||
Medicaid |
71,461 | 45,515 | 57.0 | % | ||||||||
ACA |
57,816 | 30,474 | 89.7 | % | ||||||||
|
|
|
|
|||||||||
Total member months |
411,528 | 228,753 | 79.9 | % | ||||||||
|
|
|
|
|||||||||
Per Member Per Month (“PMPM”): |
||||||||||||
Medicare |
$ | 1,186 | $ | 847 | 40.0 | % | ||||||
Medicaid |
$ | 612 | $ | 747 | (18.1 | )% | ||||||
ACA |
$ | 14 | $ | 18 | (22.2 | )% | ||||||
Total PMPM |
$ | 921 | $ | 717 | 28.5 | % | ||||||
Owned medical centers |
90 | 61 |
Six Months Ended June 30, |
||||||||||||
2021 |
2020 |
% Change |
||||||||||
Members: |
||||||||||||
Medicare |
111,866 | 72,576 | 54.1 | % | ||||||||
Medicaid |
25,178 | 16,585 | 51.8 | % | ||||||||
ACA |
18,994 | 10,115 | 87.8 | % | ||||||||
|
|
|
|
|||||||||
Total members |
156,038 | 99,276 | 57.2 | % | ||||||||
|
|
|
|
|||||||||
Member months: |
||||||||||||
Medicare |
507,081 | 267,525 | 89.5 | % | ||||||||
Medicaid |
134,369 | 83,147 | 61.6 | % | ||||||||
ACA |
113,853 | 60,292 | 88.8 | % | ||||||||
|
|
|
|
|||||||||
Total member months |
755,303 | 410,964 | 83.8 | % | ||||||||
|
|
|
|
|||||||||
Per Member Per Month (“PMPM”): |
||||||||||||
Medicare |
$ | 1,105 | $ | 880 | 25.6 | % | ||||||
Medicaid |
$ | 613 | $ | 660 | (7.1 | )% | ||||||
ACA |
$ | 29 | $ | 22 | 31.8 | % | ||||||
Total PMPM |
$ | 856 | $ | 710 | 20.6 | % | ||||||
Owned medical centers |
90 | 61 |
Three Months Ended June 30, |
||||||||||||||||
($ in thousands) |
2021 |
2020 |
$ Change |
% Change |
||||||||||||
Revenue: |
||||||||||||||||
Capitated revenue |
$ | 379,210 | $ | 163,927 | $ | 215,283 | 131.3 | % | ||||||||
Fee-for-service |
13,953 | 7,279 | 6,674 | 91.7 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total revenue |
$ | 393,163 | $ | 171,206 | $ | 221,957 | ||||||||||
|
|
|
|
|
|
Three Months Ended June 30, |
||||||||||||||||
($ in thousands) |
2021 |
2020 |
$ Change |
% Change |
||||||||||||
Operating expenses: |
||||||||||||||||
Third-party medical costs |
$ | 291,816 | $ | 112,040 | $ | 179,776 | 160.5 | % | ||||||||
Direct patient expense |
43,782 | 22,554 | 21,228 | 94.1 | % | |||||||||||
Selling, general, and administrative expenses |
46,574 | 21,859 | 24,715 | 113.1 | % | |||||||||||
Depreciation and amortization expense |
7,945 | 3,977 | 3,968 | 99.8 | % | |||||||||||
Transaction costs and other |
16,374 | 15,687 | 687 | 4.4 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expenses |
$ | 406,491 | $ | 176,117 | $ | 230,374 | ||||||||||
|
|
|
|
|
|
Three Months Ended June 30, |
||||||||||||||||
($ in thousands) |
2021 |
2020 |
$ Change |
% Change |
||||||||||||
Other income and expense: |
||||||||||||||||
Interest expense |
$ | (9,714 | ) | $ | (5,717 | ) | $ | (3,997 | ) | 69.9 | % | |||||
Interest income |
1 | 79 | (78 | ) | -98.7 | % | ||||||||||
Loss on extinguishment of debt |
(13,225 | ) | — | (13,225 | ) | 0.0 | % | |||||||||
Change in fair value of embedded derivative |
— | (306 | ) | 306 | -100.0 | % | ||||||||||
Change in fair value of warrant liabilities |
39,215 | — | 39,215 | 0.0 | % | |||||||||||
Other expenses |
(25 | ) | (150 | ) | 125 | -83.3 | % | |||||||||
|
|
|
|
|
|
|||||||||||
Total other income (expense) |
$ | 16,252 | $ | (6,094 | ) | $ | 22,346 | |||||||||
|
|
|
|
|
|
Six Months Ended June 30, |
||||||||||||||||
($ in thousands) |
2021 |
2020 |
$ Change |
% Change |
||||||||||||
Revenue: |
||||||||||||||||
Capitated revenue |
$ | 646,261 | $ | 291,643 | $ | 354,618 | 121.6 | % | ||||||||
Fee-for-service |
27,037 | 14,861 | 12,176 | 81.9 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total revenue |
$ | 673,298 | $ | 306,504 | $ | 366,794 | 119.7 | % | ||||||||
|
|
|
|
|
|
Six Months Ended June 30, |
||||||||||||||||
($ in thousands) |
2021 |
2020 |
$ Change |
% Change |
||||||||||||
Operating expenses: |
||||||||||||||||
Third-party medical costs |
$ | 486,862 | $ | 197,353 | $ | 289,509 | 146.7 | % | ||||||||
Direct patient expense |
78,069 | 40,333 | 37,736 | 93.6 | % | |||||||||||
Selling, general, and administrative expenses |
81,422 | 42,843 | 38,579 | 90.0 | % | |||||||||||
Depreciation and amortization expense |
13,791 | 7,362 | 6,429 | 87.3 | % | |||||||||||
Transaction costs and other |
25,613 | 22,138 | 3,475 | 15.7 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expenses |
$ | 685,757 | $ | 310,029 | $ | 375,728 | ||||||||||
|
|
|
|
|
|
Six Months Ended June 30, |
||||||||||||||||
($ in thousands) |
2021 |
2020 |
$ Change |
% Change |
||||||||||||
Other income and expense: |
||||||||||||||||
Interest expense |
$ | (20,340 | ) | $ | (9,382 | ) | $ | (10,958 | ) | 116.8 | % | |||||
Interest income |
2 | 159 | (157 | ) | (98.7 | )% | ||||||||||
Loss on extinguishment of debt |
(13,225 | ) | $ | — | (13,225 | ) | — | % | ||||||||
Change in fair value of embedded derivative |
— | (306 | ) | 306 | (100.0 | )% | ||||||||||
Change in fair value of warrant liabilities |
39,215 | $ | — | 39,215 | — | % | ||||||||||
Other expenses |
(25 | ) | (150 | ) | 125 | (83.3 | )% | |||||||||
|
|
|
|
|
|
|||||||||||
Total other income (expense) |
$ | 5,627 | $ | (9,679 | ) | $ | 15,306 | |||||||||
|
|
|
|
|
|
Six Months Ended June 30, |
||||||||
($ in thousands) |
2021 |
2020 |
||||||
Net cash used in operating activities |
$ | (56,580 | ) | $ | (13,143 | ) | ||
Net cash used in investing activities |
(649,269 | ) | (245,926 | ) | ||||
Net cash provided by financing activities |
991,319 | 240,593 | ||||||
|
|
|
|
|||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
285,470 | (18,476 | ) | |||||
Cash, cash equivalents and restricted cash at beginning of year |
33,807 | 29,192 | ||||||
|
|
|
|
|||||
Cash, cash equivalents and restricted cash at end of period |
$ | 319,277 | $ | 10,716 | ||||
|
|
|
|
• | Net loss for the six months ended June 30, 2021 of $5.5 million compared to net loss for the six months ended June 30, 2020 of $13.2 million; |
• | Increases in accounts receivable, net of $55.0 million for the six months ended June 30, 2021 compared to increases in accounts receivable, net for the six months ended June 30, 2020 of $17.8 million due to the addition of new contracts from our acquisitions and increased member counts across existing providers which was partially offset by the assumption of service provider liabilities from those acquisitions; |
• | Increases in accounts payable and accrued expenses for the six months ended June 30, 2021 of $23.4 million compared to increases in accounts payable and accrued expenses for the six months ended June 30, 2020 of $9.0 million due to the addition of new third-party provider payments related to businesses acquired after the first quarter of 2020 and higher accrued transaction costs; and |
• | Increases in prepaid expenses and other current assets of $16.8 million for the six months ended June 30, 2021 compared to increases in prepaid expenses and other current assets for the six months ended June 30, 2020 of $0.3 million due to higher prepaid insurance payments and prepaid bonus incentives. |
• | allow investors to evaluate our performance from management’s perspective, resulting in greater transparency with respect to supplemental information used by us in our financial and operational decision making; |
• | provide better transparency as to the measures used by management and others who follow our industry to estimate the value of our company; and |
• | allow investors to view our financial performance and condition in the same manner that our significant lenders and landlords require us to report financial information to them in connection with determining our compliance with financial covenants. |
• | although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; |
• | Adjusted EBITDA does not reflect: (1) changes in, or cash requirements for, our working capital needs; (2) the potentially dilutive impact of non-cash stock-based compensation; (3) tax payments that may represent a reduction in cash available to us; or (4) net interest expense/income; and |
• | other companies, including companies in our industry, may calculate EBITDA and/or Adjusted EBITDA or similarly titled measures differently, which reduces its usefulness as a comparative measure. |
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
($ in thousands) |
2021 |
2020 |
2021 |
2020 |
||||||||||||
Net income (loss) |
$ |
4,947 |
$ |
(10,986 |
) |
$ |
(5,523 |
) |
$ |
(13,172 |
) | |||||
Interest income |
(1 | ) | (79 | ) | (2 | ) | (159 | ) | ||||||||
Interest expense |
9,714 | 5,717 | 20,340 | 9,382 | ||||||||||||
Income tax benefit |
(2,023 | ) | (19 | ) | (1,309 | ) | (32 | ) | ||||||||
Depreciation and amortization expense |
$ | 7,945 | 3,977 | $ | 13,791 | 7,362 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
EBITDA |
$ |
20,582 |
$ |
(1,390 |
) |
$ |
27,297 |
$ |
3,381 |
|||||||
|
|
|
|
|
|
|
|
|||||||||
Stock-based compensation |
3,168 | 57 | 3,239 | 112 | ||||||||||||
De novo losses (1) |
6,968 | 956 | 12,480 | 2,348 | ||||||||||||
Acquisition transaction costs (2) |
17,236 | 15,776 | 27,339 | 22,294 | ||||||||||||
Restructuring and other |
2,811 | 531 | 3,222 | 716 | ||||||||||||
Loss on extinguishment of debt |
13,225 | — | 13,225 | — | ||||||||||||
Change in fair value of embedded derivative |
— | 306 | — | 306 | ||||||||||||
Change in fair value of warrant liabilities |
(39,215 | ) | — | (39,215 | ) | — | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ |
24,775 |
$ |
16,236 |
$ |
47,587 |
$ |
29,157 |
||||||||
|
|
|
|
|
|
|
|
(1) | De novo losses include those costs associated with the ramp up of new facilities and that are not expected to be incurred past the first 12 months after opening. These costs collectively are higher than comparable expenses incurred once such a facility has been open and generating revenue and would not have been incurred unless a new facility was being opened. |
(2) | Acquisition transaction costs included $0.9 million and $0.1 million of corporate development payroll costs for the three months ended June 30, 2021 and 2020, respectively, and $1.7 million and $0.2 million of corporate development payroll costs for the six months ended June 30, 2021 and 2020, respectively. Corporate development payroll costs include those expenses directly related to the additional staff needed to support our increased acquisition activity. |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
Item 4. |
Controls and Procedures |
(a) | Disclosure Controls and Procedures |
(b) | Changes in Internal Control over Financial Reporting |
Item 1. |
Legal Proceedings |
Item 1A. |
Risk Factors |
• | the health status of our members; |
• | higher levels of hospitalization among our members; |
• | higher than expected utilization of new or existing healthcare services or technologies; |
• | an increase in the cost of healthcare services and supplies, whether as a result of inflation or otherwise; |
• | changes to mandated benefits or other changes in healthcare laws, regulations and practices; |
• | increased costs attributable to specialist physicians, hospitals and ancillary providers; |
• | changes in the demographics of our members and medical trends; |
• | contractual or claims disputes with providers, hospitals or other service providers within and outside a health plan’s network; |
• | the occurrence of catastrophes, major epidemics or pandemics, including COVID-19, or acts of terrorism; and |
• | the reduction of health plan premiums. |
• | requiring us to change or increase our products and services provided to members; |
• | increasing the regulatory, including compliance, burdens under which we operate, which, in turn, may negatively impact the manner in which we provide services and increase our costs of providing services; |
• | adversely affecting our ability to market our products or services through the imposition of further regulatory restrictions regarding the manner in which plans and providers market to Medicare Advantage or traditional Medicare enrollees; or |
• | adversely affecting our ability to attract and retain members. |
• | we may not be able to successfully enter into contracts with local payors on terms favorable to us or at all, including as a result of competition for payor relationships with other potential players, some of whom may have greater resources than we do, which competition may intensify due to the ongoing consolidation in the healthcare industry; |
• | we may not be able to recruit or retain a sufficient number of new members to execute our growth strategy, and we may incur substantial costs to recruit new members and we may be unable to recruit a sufficient number of new members to offset those costs; |
• | we may not be able to hire sufficient numbers of physicians and other staff and may fail to integrate our employees, particularly our medical personnel, into our care model; |
• | per-member revenue in new markets may be lower than in our existing markets, including as a result of geographic cost index-based adjustments by CMS; |
• | we may not be able to hire sufficient numbers of physicians and other staff and may fail to integrate our employees, particularly our medical personnel, into our care model; |
• | when expanding our business into new states, we may be required to comply with laws and regulations that may differ from states in which we currently operate; and |
• | depending upon the nature of the local market, we may not be able to implement our business model in every local market that we enter; for example, we may be unable to offer all services that we offer in our current markets (e.g., transportation), which could negatively impact our revenues and financial condition. |
• | managing a larger combined company and consolidating corporate and administrative infrastructures; |
• | the inability to realize any expected synergies and cost-savings; |
• | difficulties in managing geographically dispersed operations, including risks associated with entering markets in which we have no or limited prior experience; |
• | underperformance of any acquired business relative to our expectations and the price we paid; |
• | negative near-term impacts on financial results after an acquisition, including acquisition-related earnings charges; |
• | the assumption or incurrence of additional debt obligations or expenses, or use of substantial portions of our cash; |
• | the issuance of equity securities to finance or as consideration for any acquisitions that dilute the ownership of our stockholders; |
• | claims by terminated employees and shareholders of acquired companies or other third parties related to the transaction; |
• | problems maintaining uniform procedures, controls and policies with respect to our financial accounting systems; |
• | unanticipated issues in integrating information technology, communications and other systems; and |
• | risks associated with acquiring intellectual property, including potential disputes regarding acquired companies’ intellectual property. |
• | Medicare and Medicaid reimbursement rules and regulations; |
• | federal Anti-Kickback Statute, which, subject to certain exceptions known as “safe harbors,” prohibits the knowing and willful offer, payment, solicitation or receipt of any bribe, kickback, rebate or other remuneration for referring an individual, in return for ordering, leasing, purchasing or recommending or arranging for or to induce the referral of an individual or the ordering, purchasing or leasing of items or services covered, in whole or in part, by any federal healthcare program, such as Medicare and Medicaid. A person or entity can be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act (the “FCA”); |
• | the federal physician self-referral law, commonly referred to as the Stark Law, and analogous state self-referral prohibition statutes, which, subject to limited exceptions, prohibit physicians from referring Medicare or Medicaid patients to an entity for the provision of certain “designated health services” if the physician or a member of such physician’s immediate family has a direct or indirect financial relationship (including an ownership interest or a compensation arrangement) with an entity, and prohibit the entity from billing Medicare or Medicaid for such “designated health services.” The Stark Law excludes certain ownership interests in an entity from the definition of a financial relationship, including ownership of investment securities that could be purchased on the open market when the designated health services referral was made and when the entity had stockholder equity exceeding $75 million at the end of the corporation’s most recent fiscal year or on average during the previous 3 fiscal years. “Stockholder equity” is the difference in value between a corporation’s total assets and total liabilities; |
• | federal civil and criminal false claims laws, including the FCA, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery; |
• | the Civil Monetary Penalty statute and associated regulations, which authorizes the government agent to impose civil money penalties, an assessment, and program exclusion for various forms of fraud and abuse involving the Medicare and Medicaid programs; |
• | the criminal healthcare fraud provisions of HIPAA, and related rules that prohibit knowingly and willfully executing, or attempting to execute, a scheme or artifice to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private), and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any material false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it; |
• | federal and state laws regarding telemedicine services, including necessary technological standards to deliver such services, coverage restrictions associated with such services, the amount of reimbursement for such services, the licensure of individuals providing such services; |
• | federal and state laws and policies related to the prescribing and dispensing of pharmaceuticals and controlled substances; |
• | federal and state laws related to the advertising and marketing of services by healthcare providers; |
• | state laws regulating the operations and financial condition of risk bearing providers, which may include capital requirements, licensing or certification, governance controls and other similar matters; |
• | state and federal statutes and regulations that govern workplace health and safety; |
• | federal and state laws and policies that require healthcare providers to maintain licensure, certification or accreditation to enroll and participate in the Medicare and Medicaid programs, to report certain changes in their operations to the agencies that administer these programs and, in some cases, to re-enroll in these programs when changes in direct or indirect ownership occur; |
• | state laws pertaining to kickbacks, fee splitting, self-referral and false claims, some of which are not consistent with comparable federal laws and regulations, including, for example, not being limited in scope to relationships involving government health care programs; |
• | state insurance laws governing what healthcare entities may bear financial risk and the allowable types of financial risks, including direct primary care programs, provider-sponsored organizations, Accountable Care Organizations, Independent Physician Associations, and provider capitation; and |
• | Federal and state laws pertaining to the provision of services by nurse practitioners and physician assistants certain settings, physician supervision of those services, and reimbursement requirements that depend on the types of services provided and documented and relationships between physician supervisors and nurse practitioners and physician assistants. |
• | suspension or termination of our participation in government payment programs; |
• | refunds of amounts received in violation of law or applicable payment program requirements dating back to the applicable statute of limitation periods; |
• | loss of our required government certifications or exclusion from government payment programs; |
• | loss of our licenses required to operate healthcare facilities or administer pharmaceuticals in the states in which we operate; |
• | criminal or civil liability, fines, damages or monetary penalties for violations of healthcare fraud and abuse laws, including the federal Anti-Kickback Statute, Civil Monetary Penalties Law, Stark Law and FCA, state laws and regulations, or other failures to meet regulatory requirements; |
• | enforcement actions by governmental agencies and/or state law claims for monetary damages by patients who believe their PHI has been used, disclosed or not properly safeguarded in violation of federal or state patient privacy laws, including HIPAA and the Privacy Act of 1974; |
• | mandated changes to our practices or procedures that significantly increase operating expenses; |
• | imposition of and compliance with corporate integrity agreements that could subject us to ongoing audits and reporting requirements as well as increased scrutiny of our billing and business practices which could lead to potential fines, among other things; |
• | termination of various relationships and/or contracts related to our business, including payor agreements, joint venture arrangements, medical director agreements, real estate leases and consulting agreements with physicians; and |
• | harm to our reputation which could negatively impact our business relationships, affect our ability to attract and retain members and physicians, affect our ability to obtain financing and decrease access to new business opportunities, among other things. |
• | administrative or legislative changes to base rates or the bases of payment; |
• | limits on the services or types of providers for which Medicare will provide reimbursement; |
• | changes in methodology for member assessment and/or determination of payment levels; |
• | the reduction or elimination of annual rate increases; or |
• | an increase in co-payments or deductibles payable by beneficiaries. |
• | refunding amounts we have been paid pursuant to the Medicare or Medicaid programs or from payors; |
• | state or federal agencies imposing fines, penalties and other sanctions on us; |
• | temporary suspension of payment for new patients to the facility or agency; |
• | decertification or exclusion from participation in the Medicare or Medicaid programs or one or more payor networks; |
• | self-disclosure of violations to applicable regulatory authorities; |
• | damage to our reputation; |
• | the revocation of a facility’s or agency’s license; and |
• | loss of certain rights under, or termination of, our contracts with payors. |
• | limiting funds otherwise available for financing our working capital, capital expenditures, acquisitions, investments and other general corporate purposes by requiring us to dedicate a portion of our cash flows from operations to the repayment of debt and the interest on this debt; |
• | making it more difficult for us to satisfy our obligations with respect to our debt; |
• | increasing our vulnerability to general adverse economic and industry conditions; |
• | exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest; |
• | limiting our flexibility in planning for and reacting to changes in the industry in which we compete; and |
• | making us more vulnerable in the event of a downturn in our business. |
• | incur or guarantee additional indebtedness; |
• | incur liens; |
• | pay dividends and distributions on, or redeem, repurchase or retire our capital stock; |
• | make investments, acquisitions, loans, or advances; |
• | engage in mergers, consolidations, liquidations or dissolutions; |
• | sell, transfer or otherwise dispose of assets, including capital stock of subsidiaries; |
• | engage in certain transactions with affiliates; |
• | change of the nature of our business; |
• | prepay, redeem or repurchase certain indebtedness; and |
• | designate restricted subsidiaries as unrestricted subsidiaries. |
• | limited in how we conduct our business; |
• | unable to raise additional debt or equity financing to operate during general economic or business downturns; or |
• | unable to compete effectively or to take advantage of new business opportunities. |
• | develop and enhance our member services; |
• | continue to expand our organization; |
• | hire, train and retain employees; |
• | respond to competitive pressures or unanticipated working capital requirements; or |
• | pursue acquisition opportunities. |
• | We failed to establish controls to ensure the completeness and accuracy of information used to estimate and record certain accruals or make other closing adjustments in the financial statement close process. |
• | We failed in the process of accounting for business combinations related to the design and operation of controls to record and measure the identifiable assets acquired, the liabilities assumed and any non-controlling interests recognized as part of a business combination. |
• | JAWS failed in the process of accounting for a significant and unusual transaction related to the warrants it issued in connection with its IPO in May 2020, which resulted in a material misstatement of our warrant liabilities, transaction costs, change in fair value of warrant liabilities, additional paid-in capital, accumulated deficit and related financial disclosures for the year ended December 31, 2020 and unaudited quarterly financial information as of and for the three and six months ended June 30, 2020 and three and nine months ended September 30, 2020. |
• | Furthermore, we did not have a sufficient complement of personnel with an appropriate level of knowledge, experience, and oversight commensurate with their financial reporting requirements to ensure proper selection and application of GAAP. |
• | hiring additional senior level and staff accountants to support the timely completion of financial close procedures and provide additional needed technical expertise; and |
• | in the interim, continuing to engage third parties as required to assist with technical accounting, application of new accounting standards, tax matters and valuations and the technical accounting associated with business combinations resulting from potential future acquisitions. |
• | implementing enhanced documentation of policies and procedures, along with allocating resources dedicated to training and monitoring these policies and procedures and recruiting personnel with appropriate levels of skills commensurate with their roles. |
• | allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend, or other rights or preferences superior to the rights of shareholders; |
• | provide for a classified board of directors with staggered three-year terms; |
• | provide that any amendment, alteration, rescission or repeal of our bylaws or certain provisions of our Certificate of Incorporation by our shareholders will require the affirmative vote of the holders of a majority of at least two-thirds (2/3) of the outstanding shares of capital stock entitled to vote thereon as a class; and |
• | establish advance notice requirements for nominations for elections to our board or for proposing matters that can be acted upon by shareholders at shareholder meetings. |
• | market conditions in our industry or the broader stock market; |
• | actual or anticipated fluctuations in our quarterly financial and operating results; |
• | issuance of new or changed securities analysts’ reports or recommendations; |
• | sales, or anticipated sales, of large blocks of our stock; |
• | additions or departures of key personnel; |
• | regulatory, legislative or political developments; |
• | litigation and governmental investigations; |
• | changing economic conditions; |
• | investors’ perception of us; |
• | events beyond our control such as weather and war; and |
• | any default on our indebtedness. |
• | a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our Board; |
• | the ability of our Board to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; |
• | the limitation of the liability of, and the indemnification of, our directors and officers; |
• | the right of our Board to elect a director to fill a vacancy created by the expansion of our Board or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our Board; |
• | the requirement that directors may only be removed from our Board for cause; |
• | the requirement that a special meeting of stockholders may be called only by a majority of our directors, whether not there exists any vacancies or unfilled seats, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; |
• | controlling the procedures for the conduct and scheduling of our Board and stockholder meetings; |
• | the requirement for the affirmative vote of holders of (i) (a) at least 66-2/3%, in case of certain provisions, or (b) a majority, in case of other provisions, of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal certain provisions of our Certificate of Incorporation, and (ii) (a) at least 66-2/3%, in case of certain provisions, or (b) a majority, in case of other provisions, of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend, alter, change or repeal certain provisions of our Bylaws, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our Board and also may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; |
• | the ability of our Board to amend the Bylaws, which may allow our Board to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquirer to amend the Bylaws to facilitate an unsolicited takeover attempt; and |
• | advance notice procedures with which stockholders must comply to nominate candidates to our Board or to propose matters to be acted upon at a stockholders’ meeting, which could preclude stockholders from bringing matters before annual or special meetings of stockholders and delay changes in our Board and also may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company. |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Item 3. |
Defaults Upon Senior Securities |
Item 4. |
Mine Safety Disclosures |
Item 5. |
Other Information |
Item 6. |
Exhibits |
* | Filed herewith. |
** | Furnished herewith. |
+ | Indicates a management contract or any compensatory plan, contract or arrangement. |
August 16, 2021 | By: | /s/ Dr. Marlow Hernandez |
Chief Executive Officer | |||||
Marlow Hernandez | (Principal Executive Officer) | |||||||
August 16, 2021 | By: | /s/ Brian D. Koppy |
Chief Financial Officer | |||||
Brian D. Koppy | (Principal Financial Officer) | |||||||
August 16, 2021 | By: | /s/ Mark Novell |
Chief Accounting Officer | |||||
Mark Novell | (Principal Accounting Officer) |