Cano Health 10Q 2024 Q1 Quarterly report

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, 2024

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

For the transition period from ____________ to

Commission File Number: 001-39289

__________________________________________

Cano Health, Inc.

(Exact name of registrant as specified in its charter)

__________________________________________

Delaware

(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 class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, $0.01 par value per share

*N/A

* On February 5, 2024 the New York Stock Exchange (the “NYSE”) determined to commence proceedings to delist and immediately suspended the registrant’s Class A Common Stock, par value $0.01 per share, from trading on the NYSE, which delisting became effective on February 16, 2024. The registrant’s Class A Common Stock began trading on the OTC Pink Marketplace on February 6, 2024 under the symbol “CANOQ.”

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 7, 2024, the registrant had 4,756,751 shares of Class A common stock outstanding and 652,649 shares of Class B common stock outstanding. Share amounts reflect the 1-for-100 Reverse Stock Split that the Company completed on November 3, 2023.

Explanatory Note

As previously disclosed in Current Reports on Form 8-K filed by Cano Health, Inc. (the “Company”) on February 5, 2024 and February 7, 2024 with the SEC, on February 4, 2024 the Company and certain of its direct and indirect subsidiaries (such subsidiaries, together with the Company, the “Debtors”) commenced filing voluntary petitions (the “Chapter 11 Cases”) in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) seeking relief under Chapter 11 of the U.S. Code (the “Bankruptcy Code”). The Chapter 11 Cases are being jointly administered under Case No. 24-10164. The Debtors continue to operate their business and manage their properties as “debtors-in-possession”

under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.



Table of Contents			Page
PART I FINANCIAL INFORMATION
Cautionary Note Regarding Forward-Looking Statements
Item 1. Financial Statements			6
Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023			6
Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2024 and March 31, 2023			7
Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three Months ended March 31, 2024 and March 31, 2023			8
Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2024 and March 31, 2023			9
Notes to Interim Condensed Consolidated Financial Statements			11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			57
Item 4. Controls and Procedures			57
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			58
Item 1A. Risk Factors			58
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities			58
Item 3. Defaults Upon Senior Securities			58
Item 4. Mine Safety Disclosures			58
Item 5. Other Information			58
Item 6. Exhibits			58
SIGNATURES			60

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements relate to future events and involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and could materially affect actual results, performance or achievements. Such forward-looking statements include, without limitation, our anticipated performance, operations, financial strength, potential, and prospects for long-term shareholder value creation, our anticipated results of operations, including our business strategies, our projected costs, prospects and plans, and other aspects of our operations or operating results. These forward-looking statements generally can be identified by phrases such as “will,” “expects,” “anticipates,” “believes,” “foresees,” “forecasts,” “plans,” “intends,” “estimates” or other words or phrases of similar import, including, without limitation:

i.the Company's Chapter 11 Cases in the Bankruptcy Court including, without limitation, the outcome thereof and the Company’s expectations as to receipt of and timing for the Bankruptcy Court approvals and the timing of its emergence from the proceedings, as well as the expected benefits of the proceedings, such as that they will strengthen the Company’s financial condition, position the Company to advance its ongoing Transformation Plan that is designed to significantly reduce costs, enhance productivity, and improve cash flow, ensure patients continue to receive high-quality care across medical centers and improve health outcomes for patients at a lower cost;

ii.the Restructuring Support Agreement between the Company, certain of its direct and indirect subsidiaries and the lenders party thereto, dated as of February 4, 2024 (together with the Restructuring Term Sheet and all other exhibits and schedules attached thereto, the "RSA"), the transactions and strategic alternatives contemplated thereby, and the expected benefits thereof, including that, if successfully implemented through a chapter 11 plan of reorganization approved by the Bankruptcy Court, it will enable the Company to substantially reduce its debt and position the Company to achieve long-term success and maximize value;

iii.the availability of liquidity from the Company’s debtor-in-possession financing, including the DIP Credit Agreement, and the various conditions to which such debtor-in-possession financing is subject and the risk that these conditions may not be satisfied for various reasons, including for reasons outside of the Company’s control, as well as the Company’s planned uses of such funds, including, without limitation that the new capital will provide sufficient liquidity to support the Company’s ongoing operations throughout the restructuring process;

iv.the Company's anticipated results of operations, operating performance. financial strength and our potential and prospects for long-term shareholder value creation, including our expectations regarding executing our business strategy, our projected costs, prospects and plans, and other aspects of our operations or operating results, such as (a) our pursuing several initiatives designed to improve its profitability, liquidity, cash flow and net cash, such as controlling and reducing operating expenses, limiting capital expenditures, selling assets and operations and exiting certain markets, with efforts to reduce operating expenses including reducing permanent staff, lowering its third party medical costs through negotiations with payors and restructuring contractual arrangements with payor and specialty networks, consolidating underperforming owned medical centers and terminating underperforming affiliate partnerships, delaying renovations and other capital projects and significantly reducing all other nonessential spending; (b) shifting our strategic direction, including the following measures, among others: (i) focusing our membership base towards Medicare Advantage and ACO Realizing Equity, Access, and Community Health ("ACO REACH") and Medicare patients under Accountable Care Organizations ("ACO") and improving patient engagement; (ii) selling certain assets and operations; and (iii) performing a strategic review of our Medicaid business in Florida, pharmacy assets and other specialty practices; and (c) our plans to pursue a process to identify interest in the sale of the Company or all or substantially all of its assets;

v.our plans to achieve our expected business and financial results, including patient membership objectives, targeted medical claims expense ratios, estimated reimbursement rates, estimated revenues, estimated gross margins, and estimated cost levels;

vi.our expectations regarding the impact of changes in applicable laws, rules 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;

vii.our expected principal sources of funds, cash and liquidity, including operating revenues, cash on hand and funds available for borrowing under the DIP Facility, and other permissible borrowings, as well as the availability of funds from the Company taking certain measures, including, among other things, reducing discretionary spending and the Company's expectation to generate additional liquidity from cost reductions resulting from its cost reduction initiatives, as well as funds provided by selling certain assets and our expectation that our existing cash position will not be sufficient to fund our operating and capital expenditure requirements through at least the next 12 months from the date of issuance of our unaudited condensed consolidated financial statements included in this Q1 2024 Form 10-Q;

viii.our expected principal uses of funds, including amounts required for payment of operating expenses; capital expenditure requirements; debt service payments and costs; cash tax payments; payments in connection with our restructuring programs; severance not otherwise included in our restructuring programs; costs related to litigation; and payments in connection with discontinuing non-core business lines and/or exiting and/or entering certain markets; and our estimates of the amount and timing of such operating and other expenses; and our expectation that in 2024, we will incur approximately $80.6 million in cash interest payments and approximately $4.8 million in capital expenditures; our expectations regarding the outcome of any pending legal or regulatory proceedings;

ix.our estimates and judgments regarding our various tax positions, including regarding our deferred tax assets, our belief that no tax uncertainties exist based on analyzing our filing positions in the Federal, State, local and foreign jurisdictions where we are required to file income tax returns for all open tax years and our belief that we have adequately provided for any reasonably foreseeable outcomes related to the Internal Revenue Service ("IRS") tax examination of our income tax return for the year ended December 31, 2020 and that any settlement related thereto will not have a material adverse effect on our consolidated financial statements;

x.the Company’s execution of one or more aspects of its Transformation Plan, including the benefits from such activities, including our expectations regarding achieving approximately $290 million of cost reductions by the end of 2024, including approximately $111 million in initiatives currently in process or already implemented, and the effect of restructuring activities, restructuring costs and charges, the timing of restructuring payments and the benefits from such activities, including our expectations regarding our plan to further restructure our operations to streamline and simplify the organization to improve efficiency and reduce costs, including workforce reductions, and the expected reduction in our selling, general and administrative costs in future periods compared to current levels; and

xi.the Company’s expectations and beliefs regarding its internal control over financial reporting.

These forward-looking statements are based on information available to us at the time of this report and our current expectations, forecasts and assumptions, and involve a number of judgments, risks and uncertainties. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known or unknown factors, and it is impossible for us to anticipate all factors that could affect our actual results. It is uncertain whether any of the events anticipated by our forward-looking statements will transpire or occur, or if any of them do, what impact they will have on our results of operations and financial condition. Important risks and uncertainties that could cause our actual results and financial condition to differ materially from those indicated in our forward-looking statements include, among others, changes in market or industry conditions, changes in the regulatory environment, competitive conditions, and/or consumer receptivity to our services; changes in our strategy, future operations, prospects and plans; developments and uncertainties related to the Direct Contracting Entity program; our ability to realize expected financial results, including with respect to patient membership, total revenue and earnings; our ability to predict and control our medical cost ratio; our ability to grow market share in existing markets and continue our growth; our ability to integrate our acquisitions and achieve desired synergies; our ability to maintain our relationships with health plans and other key payors; our future capital requirements and sources and uses of cash, including funds to satisfy our liquidity needs; our ability to attract and retain members of management and our Board of Directors; and/or our ability to recruit and retain qualified team members and independent physicians.

iii

Actual results may also differ materially from such forward-looking statements for a number of other reasons, including those set forth in our filings with the U.S. Securities and Exchange Commission (the "SEC"), including, without limitation, the risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "2023 Form 10-K"), filed with the U.S. Securities and Exchange Commission ("SEC") on April 1, 2024, as well as our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we have filed with the SEC during 2024 (which may be viewed on the SEC’s website at http://www.sec.gov or on our website at investors.canohealth.com/ir-home), as well as reasons including, without limitation:

i.various risks associated with the Chapter 11 Cases, including, but not limited to, the Debtors’ ability to obtain Bankruptcy Court approval with respect to any relief sought in the Chapter 11 Cases, the effects of the Bankruptcy Petitions on the Company and on the interests of various stakeholders, Bankruptcy Court rulings during the Chapter 11 Cases and the outcome of the Chapter 11 Cases in general, the length of time the Debtors will remain in Chapter 11, risks associated with any third-party motions during the Chapter 11 Cases, the potential adverse effects of the Chapter 11 Cases on the Company’s liquidity or results of operations and increased legal and other professional costs necessary to execute the Company’s reorganization, whether the Company will emerge, in whole or in part, from insolvency proceedings as a going concern, employee attrition and the Company’s ability to retain senior management and other key personnel due to the distractions and uncertainties imposed in part by the Chapter 11 Cases and the trading price and volatility of the Company’s Common Stock;

ii.less than expected benefits from the RSA, such as difficulties and/or delays in consummating one or more transactions arising from its pursuit of strategic alternatives;

iii.less than expected access to liquidity and greater than anticipated costs and expenses, as well as various risks associated with the conditions to which the Company’s debtor-in-possession financing is subject and the risk that these conditions may not be satisfied for various reasons, including for reasons outside of the Company’s control;

iv.unexpected developments that adversely impact our ability to achieve or maintain our anticipated results of operations, operating performance, financial strength and our potential and prospects for long-term shareholder value creation, such as due to (a) less than anticipated capacity utilization at our medical centers; (b) higher than expected costs and expenses; (c) less than anticipated growth in revenues, Adjusted EBITDA margins and/or cash flows; (d) difficulties and/or delays in improving our operational execution, enhancing our cost discipline, and/or achieving positive free cash flow, such as due to a broad recessionary economic environment, higher interest rates and/or a higher inflationary environment; (e) our inability to predict changes to the Medicare Advantage, ACO REACH and ACO programs as it relates to benchmarks and shared savings and (f) less than expected access to liquidity;

v.unexpected developments that adversely impact our ability to execute our business strategy, such as due to (a) unexpected changes in the payor mix of our patients and potential decreases in our reimbursement rates; (b) unexpected developments with respect to the renegotiation, non-renewal or termination of capitation agreements with health plans; (c) less than expected consumer acceptance of our services and offerings and/or less than expected member retention rates; (d) greater than anticipated competition in our industry, less than anticipated advantages of our services, products and technology over competing services, products and technology existing in the market, and other competitive factors, including with respect to technological capabilities, cost and scalability; (e) difficulties or delays in exiting certain market and/or selling the Company or all or substantially all of its assets, such as due to tightness in the credit markets, higher inflation or other factors, regulatory disruptions or delays and/or securing third party agreements and approvals; (f) unexpected developments that adversely impact our ability to execute our plan to identify opportunities to maximize shareholder value, including the sale of the Company, such as due to our inability to consummate one or more transactions, whether due to higher interest rates, regulatory restrictions or other market factors; and/or (g) possible actions that vendors and other third parties that we deal with may take to impose enhanced credit controls that effectively increase our cost base or make it difficult for us to maintain services and supplies required to conduct our business, as well as unexpected developments with respect to the shift in our strategic direction that could adversely affect our plans to reduce our costs and expenses and/or generate additional sources of liquidity, such as, among other things, our inability, in whole or in part to complete one or more asset sales and/or negotiate for better payment terms and conditions, such that we are not unable to achieve positive financial performance on an acceptable timeline; and/or

less than expected benefits from and/or higher than expected costs and expenses related to our restructuring program, such as delays in realizing or less than the expected cost reductions;

vi.unexpected developments that adversely impact our ability to achieve our expected financial results, such as due to (a) unexpected changes in anticipated Medicare reimbursement rates or changes in the rules governing the Medicare program; (b) unexpected changes in reimbursements by third-party payors and payments by individuals; (c) unexpected changes in Medicare’s risk adjustment payment system; (d) unexpected developments with respect to our estimates of revenues and refund liabilities that we recognize under our risk agreements with health plans; and/or (e) unexpected developments with respect to our estimates about our third-party medical costs (including incurred but not report medical service accruals), including our expectation that our third-party medical costs will increase given the healthcare spending trends within the Medicare population;

vii.unanticipated changes in laws, rules and/or regulations, such as those that result in less than expected payments from health plans and other payors;

viii.the unavailability of funds under the DIP Facility, and/or other permissible borrowings; the unavailability of funds from difficulties, delays in or the Company's inability to take other measures, such as reducing discretionary spending and/or less than expected liquidity from cost reductions resulting from the implementation of its restructuring programs and from other cost reduction initiatives, and/or from selling certain assets, as well as less than anticipated sources of liquidity, such as due to (a) delays in or our inability to complete non-core asset sales, in whole or in part; (b) unanticipated demands on our available sources of cash; (c) tightness in the credit or M&A markets; (d) unexpected changes in our future capital requirements which depend on many factors, including our growth rate, medical expenses and/or our review of all aspects of our value-based care platform;

ix.unexpected developments regarding the outcome of any pending legal or regulatory proceedings;

x.unexpected developments impacting our tax positions, such as our deferred tax assets not being realized in future periods in expected amounts, which could result in adjustments to our valuation allowances and provision for income taxes and/or unexpected developments in our tax audit;

xi.less than expected cost reductions and/or any of the other expected benefits from its Transformation Plan, such as due to higher than expected costs and charges to achieve one or more aspects of such plan or delays in achieving such benefits; and/or

xii.difficulties, delays or unanticipated internal control deficiencies or weaknesses that could affect the Company’s plans to remediate the material weaknesses that it identified in its internal control over financial reporting as described in the Company's 2023 Form 10-K and in this Q1 2024 Form 10-Q or difficulties or delays in completing its remediation of those material weaknesses.

For a detailed discussion of other risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements, please refer to our risk factor disclosure included in our filings with the SEC, including, without limitation, our 2023 Form 10-K. Investors should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties. Factors other than those listed above could also cause our results to differ materially from expected results. Forward-looking statements speak only as of the date they are made and, except as required by law, we undertake no obligation or duty to publicly update or revise any forward-looking statement, whether to reflect actual results of operations; changes in financial condition; changes in general U.S. or international economic, industry conditions; changes in estimates, expectations or assumptions; or other circumstances, conditions, developments or events arising after the issuance of this report. Additionally, the business and financial materials and any other statement or disclosure on or made available through our websites or other websites referenced herein shall not be incorporated by reference into this report.

The Company cautions that trading in the Company’s securities during the pendency of the Chapter 11 Cases is highly speculative and poses substantial risks. Trading prices for the Company’s securities may bear little or no relationship to the actual recovery, if any, by holders of the Company’s securities in the Chapter 11 Cases. Holders of shares of the Company’s Class A Common Stock could experience a complete loss on their investment, depending on the outcome of the Chapter 11 Cases.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in thousands, except share and per share data)	March 31, 2024		December 31, 2023
Assets
Current assets:
Cash, cash equivalents and restricted cash	$	177,993	$	75,763
Accounts receivable, net of unpaid service provider costs	54,218		75,801
Equity securities at fair value	1,400		18,160
Prepaid expenses and other current assets	21,470		13,099
Total current assets	255,081		182,823
Property and equipment, net	47,578		54,641
Operating lease right-of-use assets	60,035		78,458

Payor relationships, net	517,758		525,511
Other intangibles, net	160,913		167,453
Other assets	4,181		4,853
Total assets	$	1,045,546	$	1,013,739
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable and accrued expenses (Related parties comprised $6,973 and $6,239 as of March 31, 2024 and December 31, 2023, respectively)	$	60,116	$	108,347
Current portion of notes payable, net of debt issuance costs	183,750		1,157,318
Current portion of finance lease liabilities	2,734		3,196
Current portions due to sellers	—		48,221
Current portion of operating lease liabilities	13,653		22,750
Other current liabilities	6,745		75,594
Total current liabilities	266,998		1,415,426

Long term portion of operating lease liabilities	61,725		124,329

Long term portion of finance lease liabilities	5,841		7,044


Other liabilities	—		1,941
Liabilities subject to compromise	1,720,188		—
Total liabilities	2,054,752		1,548,740
Stockholders’ Deficit1
Shares of Class A common stock $0.01 par value (60,000,000 shares authorized and 4,728,586 and 3,608,119 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively)	46		35
Shares of Class B common stock $0.01 par value (10,000,000 shares authorized and 653,643 and 1,775,506 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively)	7		18
Additional paid-in capital	413,881		532,424
Accumulated deficit	(1,296,156)		(880,450)

Total Stockholders' Deficit before non-controlling interests	(882,222)		(347,973)
Non-controlling interests	(126,984)		(187,028)
Total Stockholders' Deficit	(1,009,206)		(535,001)
Total Liabilities and Stockholders' Deficit	$	1,045,546	$	1,013,739

1 Authorized and outstanding share and per-share amounts for all periods reflect the 1-for-100 Reverse Stock Split that the Company completed on November 3, 2023.

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

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended March 31,
(in thousands, except share and per share data)	2024		2023
Revenue:
Capitated revenue	$	669,075	$	841,074
Fee-for-service and other revenue	15,351		25,835
Total revenue	684,426		866,909
Operating expenses:
Third-party medical costs	640,991		708,331
Direct patient expense (Related parties comprised $0 and $4,115 in the three months ended March 31, 2024 and 2023, respectively)	45,865		68,427
Selling, general, and administrative expenses (Related parties comprised $(304) and $1,327 in the three months ended March 31, 2024 and 2023, respectively)	89,109		96,473
Depreciation and amortization expense	18,371		27,221
Transaction costs	1,200		10,086
Change in fair value of contingent consideration	—		(4,100)


Total operating expenses	795,536		906,438
Income (loss) from operations	(111,110)		(39,529)
Other income (expense):
Interest expense (excludes $22,093 of contractual interest for the three months ended March 31, 2024)	(14,930)		(23,505)
Interest income	497		9

Change in fair value of warrant liabilities	—		2,008
Other income (expense)	(10,715)		432
Total other income (expense)	(25,148)		(21,056)
Reorganization items, net	(341,911)		—
Net income (loss) before income tax expense	(478,169)		(60,585)
Income tax (expense) benefit	(36)		—
Net income (loss)	(478,205)		(60,585)
Net income (loss) attributable to non-controlling interests	(62,499)		(32,435)
Net income (loss) attributable to Class A common stockholders2	$	(415,706)	$	(28,150)

Net income (loss) per share attributable to Class A common stockholders, basic2	$	(90.46)	$	(11.74)
Net income (loss) per share attributable to Class A common stockholders, diluted2	$	(91.10)	$	(12.03)
Weighted-average shares outstanding2:
Basic	4,595,364		2,398,021
Diluted	5,249,007		5,034,402

2 Weighted-average shares outstanding and per-share amounts for all periods reflect the 1-for-100 Reverse Stock Split that the Company completed on November 3, 2023.

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

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(UNAUDITED)

Three Months Ended March 31, 2024 and 2023


(in thousands, except shares)	Class A Shares3		Class B Shares3			Additional Paid-in Capital			Accumulated Deficit		Non-Controlling Interests		Total Equity
		Shares	Amount		Shares			Amount
BALANCE—December 31, 2022		2,241,186	$	22	2,687,946	$	27		$	538,614	$	(286,032)	$	241,644	$	494,275
Stock-based compensation expense, net		—	—		—	—			9,351		—		—		9,351
Issuance of Class A common stock upon vesting of restricted stock units		403							(96)				96		—
Issuance of common stock for acquisitions		97,249	1		—	—			14,302		—		—		14,303
Exchange of Class B common stock for Class A common stock		51,565	1		(51,565)	(1)			3,570		—		(3,570)		—
Warrants exercised		216,209	2		—	—			214		—		—		216
Debt discount - warrants issued		—	—		—	—			45,698		—		—		45,698
Employee Stock Purchase Plan Issuance		11,583	—		—	—			1,143		—		—		1,143
Impact of transactions affecting non-controlling interests		—	—		—	—			(17,802)		—		17,802		—
Net income (loss)		—	—		—	—			—		(28,150)		(32,435)		(60,585)
BALANCE—March 31, 2023		2,618,195	$	26	2,636,381	$	26		$	594,994	$	(314,182)	$	223,537	$	504,401


(in thousands, except shares)	Class A Shares3		Class B Shares3			Additional Paid-in Capital			Accumulated Deficit		Non-Controlling Interests		Total Equity
		Shares	Amount		Shares			Amount
BALANCE—December 31, 2023		3,608,119	$	35	1,775,506	$	18		$	532,424	$	(880,450)	$	(187,028)		$	(535,001)
Stock-based compensation expense, net		—	—		—	—			4,000		—		—			4,000


Exchange of Class B common stock for Class A common stock		1,121,863	11		(1,121,863)	(11)			(151,763)		—		151,763		—	—



Impact of transactions affecting non-controlling interests		(1,396)	—		—	—			29,220		—		(29,220)			—
Net income (loss)		—									(415,706)		(62,499)			(478,205)
BALANCE—March 31, 2024		4,728,586	$	46	653,643	$	7		$	413,881	$	(1,296,156)	$	(126,984)		$	(1,009,206)

3 All outstanding share amounts reflect the 1-for-100 Reverse Stock Split that the Company completed on November 3, 2023.

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

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended March 31,
(in thousands)	2024		2023
Cash Flows (used in) from Operating Activities:
Net loss	$	(478,205)	$	(60,585)
Adjustments to reconcile net loss to net cash (used in) from operating activities:
Depreciation and amortization expense	18,371		27,221
Change in fair value of contingent consideration	—		(4,100)
Change in fair value of warrant liabilities	—		(2,008)
Change in securities held at fair value	10,324		—



Other non-cash charges	382		—

Amortization of debt issuance costs	505		1,117
Non-cash lease expense	1,182		793
Non-cash reorganization items, net	337,333		—
Stock-based compensation, net	4,000		9,351
Paid in kind interest expense	—		2,071
Net loss on Sale Transaction, Other Divestitures and other	1,320		—
Changes in operating assets and liabilities:
Accounts receivable, net	21,582		(8,406)
Other assets	96		(121)
Prepaid expenses and other current assets	(8,379)		(3,673)

Accounts payable and accrued expenses (Related parties comprised of $(734) and $(1,714) for the three months ended March 31, 2024 and 2023, respectively)	39,041		11,543
Other liabilities	3,620		(2,673)
Net cash (used in) provided by operating activities	$	(48,828)	(29,470)

Cash Flows from (used in) Investing Activities:
Purchase of property and equipment (Related parties comprised of $0 and $(436) for the three months ended March 31, 2024 and 2023, respectively)	(814)		(5,080)

Payments to sellers	(1,748)		(4,379)
Sale of equity securities	6,436		—

Net cash provided (used in) by investing activities	$	3,874	(9,459)

Cash Flows from (used in) Financing Activities:

Payments of long-term debt	—		(1,611)
Debt issuance costs	(4,159)		(9,209)
Proceeds from DIP Credit Facility	150,000		—
Proceeds from long-term debt	—		150,000
Proceeds from CS Revolving Line of Credit	—		15,000
Repayments of CS Revolving Line of Credit	—		(99,000)
Proceeds from insurance financing arrangements	2,712		2,690
Payments of principal on insurance financing arrangements	(1,369)		(734)
Principal payments under finance leases	—		(540)


Other	—		(108)
Net cash provided (used in) by financing activities	$	147,184	56,488

Net increase (decrease) in cash, cash equivalents and restricted cash	102,230		17,559

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

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


Cash, cash equivalents and restricted cash at beginning of year	75,763		27,329
Cash, cash equivalents and restricted cash at end of period	$	177,993	$	44,888

Supplemental cash flow information:
Interest paid	805		25,204
Income taxes paid	3		—
Cash paid for Reorganization items, net	4,577		—

Non-cash investing and financing activities:


Change in ROU assets due to modifications	(13,474)		11,471
Issuance of Class A common stock for acquisitions	—		14,303



Changes to construction in process funded through accounts payable	—		889

Humana Affiliate Provider clinic leasehold improvements	—		431
Employee Stock Purchase Plan issuance	—		1,143
Warrants issued	—		45,698

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

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

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” or the "Seller"), provides value-based medical care for its members. The Company focuses on providing high-touch population health and wellness services to Medicare Advantage, Accountable Care Organization Realizing Equity, Access, and Community Health ("ACO REACH"), Medicare patients under ACO and Medicaid capitated members, particularly in underserved communities by leveraging our 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 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, and the Seller (each as defined in the Business Combination Agreement). 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 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 0.7 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 0.2 million Class B ordinary shares owned by Jaws Sponsor, LLC (the "Sponsor"). In connection with the Business Combination, the Company issued 3.1 million shares of the Company’s Class B common stock to existing stockholders of PCIH. The Company also issued 0.8 million shares of the Company’s Class A common stock in a private placement for $800.0 million (the "PIPE Investors"). Share amounts have been restated to reflect the 1-for-100 Reverse Stock Split that the Company completed on November 3, 2023, discussed below.

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 dividends depends 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 87.9% controlling ownership as of the Closing Date and as of March 31, 2024, respectively. Certain members of PCIH who retained their common unit interests in PCIH held the remaining 64.9% and 12.1% non-controlling ownership interests as of the Closing Date and as of March 31, 2024, respectively. These members hold an economic interest in PCIH through PCIH Common Units and a corresponding number of non-economic Class B common stock, which entitles 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 (as defined in the Business Combination Agreement). 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) 3.07 million shares of Class B common stock valued at $3,068.4 million based on a reference stock price of $1,000 per share.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

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, while the Seller, as the sole Class B stockholder, owned indirect economic interests in PCIH shown as non-controlling interests in Cano Health's unaudited condensed consolidated financial statements. The Seller holds these indirect economic interests in the form of PCIH Common Units that are redeemable for shares of Cano Health Class A common stock, together with the cancellation of an equal number of shares of Cano Health Class B common stock. The non-controlling interests will decrease over time as shares of Class B common stock and PCIH Common Units are exchanged for shares of Cano Health's Class A common stock.

Reverse Stock Split

As previously-disclosed in the Company’s Current Report on Form 8-K filed with the SEC on November 2, 2023, the Company effected the previously-announced 1-for-100 reverse stock split of the Company’s Class A and Class B common stock (the “Reverse Stock Split”) pursuant to which each 100 shares of the Company’s Class A and Class B common stock issued and outstanding immediately prior to filing the Certificate of Amendment to the Company’s Certificate of Incorporation on November 2, 2023 were automatically combined into one share of Class A Common Stock and Class B Common Stock, respectively, subject to the elimination of fractional shares. All references to outstanding share and per share amounts for all periods reflect the Reverse Stock Split. The par value per share of each share of Class A and Class B common stock was proportionately multiplied by 100, and the number and exercise price of all Public Warrants, PCIH Common Units, stock options, restricted stock awards and restricted stock unit awards were each proportionately adjusted by the ratio used to complete the Reverse Stock Split.

In connection with consummating the Reverse Stock Split, the total number of Class A common stock and Class B common stock authorized for issuance under the Company’s amended Certificate of Incorporation was reduced from 6,000,000,000 to 60,000,000 shares of its Class A common stock and from 1,000,000,000 to 10,000,000 shares of its Class B common stock, each with an adjusted par value of $0.01 per share. The Reverse Stock Split did not change the number of shares of the Company’s authorized preferred stock, which will remain at 10,000,000 shares. The Reverse Stock Split reduced the Company’s issued and outstanding shares of common stock from approximately 288,760,727 shares of Class A Common Stock and 251,893,556 shares of Class B Common Stock issued and outstanding as of October 30, 2023 to approximately 2,887,607 and 2,518,936 issued and outstanding shares of Class A Common Stock and Class B Common Stock, respectively, after the effectiveness of the Reverse Stock Split.

Current Bankruptcy Proceedings

The Chapter 11 Cases, the Restructuring Support Agreement, the DIP Credit Agreement and the Tax Receivable Agreement

As previously disclosed in Current Reports on Form 8-K filed by the Company on February 5, 2024 and February 7, 2024 with the SEC, on February 4, 2024 (the "Petition Date"), the Company and certain of its direct and indirect subsidiaries (such subsidiaries, together with the Company, the “Debtors”) entered into the RSA with lenders holding approximately (x) 86% of its secured revolving and term loan debt and (y) 92% of its senior unsecured notes (collectively, the “Consenting Creditors”), which, among other things, sets forth the principal terms of a proposed financial restructuring (the “Restructuring”) of the existing capital structure of the Company in voluntary cases (the “Chapter 11 Cases”) commenced by the Debtors beginning on the Petition Date in the U.S. Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) under chapter 11 of title 11 of the U.S. Code (the “Bankruptcy Code”). The remaining subsidiaries of the Company that did not file for bankruptcy are immaterial to the disclosure of the Company’s financial statements as compared the condensed combined financial information of the debtor entities.

The Chapter 11 Cases are being jointly administered under Case No. 24-10164. The Debtors continue to operate their business and manage their properties as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. The Debtors have filed and received Bankruptcy Court approval of various “first day” motions requesting customary relief that enable the Company to transition into Chapter 11 protection without material disruption to its ordinary course operations. Capitalized terms used but not defined in this discussion of the RSA have the meanings ascribed to them in the RSA or the DIP Credit Agreement, as applicable.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The filing of the Chapter 11 Cases constitutes an event of default that permits acceleration of the Company’s obligations under the following debt instruments (the “Debt Instruments”):

•Indenture, dated as of September 30, 2021, by and among Cano Health, LLC as issuer, the guarantors party thereto and U.S. Bank National Association, as trustee, relating to the 6.250% Senior Notes due 2028;

•Credit Agreement, dated November 23, 2020 (as amended and restated, supplemented, waived or otherwise modified from time to time), by and among Cano Health, LLC, Primary Care (ITC) Intermediate Holdings, LLC, Credit Suisse AG, Cayman Islands Branch, as administrative agent and the lenders party thereto from time to time; and

•Credit Agreement, dated as of February 24, 2023 (as amended and restated, supplemented, waived or otherwise modified from time to time), by and among Cano Health, LLC, Primary Care (ITC) Intermediate Holdings, LLC, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent.

In addition, the filing of the Chapter 11 Cases, have resulted in the acceleration of the Company’s obligations under the Tax Receivable Agreement.

Any efforts to enforce payment obligations under the Debt Instruments and the Tax Receivable Agreement are automatically stayed as a result of the filing of the Chapter 11 Cases and the rights of enforcement in respect of the Debt Instruments and the Tax Receivable Agreement are subject to the applicable provisions of the Bankruptcy Code.

The RSA contemplates, among other things, that:

•The Restructuring will be consummated either pursuant to (i) an acceptable plan of reorganization premised on the restructuring transactions described in the RSA (the “Stand-Alone Restructuring Plan”) in the event that a WholeCo Sale Transaction Election (defined below) is not made or (ii) a sale transaction for all or substantially all of the Debtors’ assets (a “WholeCo Sale Transaction”), either of which may be coupled with the sale of one or more certain discrete businesses and assets (each, a “Discrete Asset Sale”).

•Following the Petition Date, the Debtors would conduct a marketing process with a scope acceptable to the Required DIP Lenders and the Requisite Consenting Creditors for a WholeCo Sale Transaction, and would continue to pursue Discrete Asset Sales.

•The Required DIP Lenders and the Requisite Consenting Creditors shall have the right to elect, at any time during the period commencing on the Initial IOI Deadline and ending on the Voting Deadline, to pursue a WholeCo Sale Transaction (such election, the “WholeCo Sale Transaction Election”) in parallel to the Stand-Alone Restructuring Plan, and the Debtors, the Required DIP Lenders, and Requisite Consenting Creditors shall reasonably agree as promptly as possible, but in no event more than 5 Business Days after the date of the WholeCo Sale Transaction Election, on the form and timing of reasonable milestones (the “Sale Milestones”) that shall govern the pursuit of a WholeCo Sale Transaction (the “Sale Process”), which shall be pursued by the Debtor.

•If the Required DIP Lenders and the Requisite Consenting Creditors make a WholeCo Sale Transaction Election and the Debtors fail to agree on Sale Milestones or decline to pursue the WholeCo Sale Transaction, then such event shall be an Event of Default under the DIP Credit Agreement; provided that the exercise of remedies on account of such Event of Default shall be subject to a remedies notice period that is the greater of 2 Business Days and any applicable period provided in the DIP Order.

•If, during the Sale Process, the Debtors receive a binding bid that the Debtors, the Required DIP Lenders, and the Requisite Consenting Creditors mutually agree (each in their reasonable discretion) represents a binding and superior transaction to the Stand-Alone Restructuring, the Debtors, with the consent of the Required DIP Lenders and Requisite Consenting Creditors, shall pursue the WholeCo Sale Transaction and not the Stand-Alone Restructuring.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

•In connection with the Stand-Alone Restructuring Plan, the Debtors and the Requisite Consenting Creditors will be permitted to pursue and negotiate with any third party the terms of a strategic plan sponsorship investment to acquire Reorganized Equity in accordance with the terms of the RSA (a “Plan Sponsorship Investment”).

•The Debtors shall use commercially reasonable efforts to subordinate the TRA Claims (which subordination may be sought pursuant to a motion or an Acceptable Plan).

•The RSA contemplates, in the event the Debtors pursue the Stand-Alone Restructuring Plan:

◦(i) A dollar-for-dollar conversion of the Allowed DIP Claims (including all accrued and unpaid interest, fees, premiums, and other obligations on account of the DIP Loans (other than, for the avoidance of doubt, the Participation Fee)), less the Exit Paydown Amount into Exit Facility Loans under the Exit Facility, (ii) the Participation Fee for Allowed DIP Claims paid in Reorganized Equity and (iii) a cash payment equal to the Exit Paydown Amount;

◦The pro rata distribution to holders of First Lien Claims of (i) the 1L Distribution Exit Facility Loans, (ii) 100% of the Reorganized Equity issued on the Effective Date, subject to dilution on account of the Participation Fee, any Plan Sponsor Equity Share, a post-emergence management incentive plan (“MIP”) and the GUC Warrants (defined below) and (iii) the Net Proceeds of any Plan Sponsorship Investment or Discrete Asset Sale; and

◦The pro rata distribution to holders of General Unsecured Claims of (i) warrants to purchase, after giving effect to the Restructuring, 5% of the total outstanding Reorganized Equity (subject to dilution by the Participation Fee, any Plan Sponsor Equity Share, and the MIP), exercisable for a 5-year period commencing on the Effective Date which will be struck at par value plus the accrued value of the First Lien Claims and they will have no Black-Scholes protection (the “GUC Warrants”), (ii) either, (x) the net cash proceeds or (y) distribution, of the MSP Recovery Class A Stock outstanding as of the Petition Date, and (iii) the recovery, if any, on account of the Litigation Trust Causes of Action assigned or otherwise transferred to the Post-Confirmation Litigation Trust.

•In the event the Debtors pursue a WholeCo Sale Transaction, all Allowed DIP Claims (including all accrued and unpaid interest, fees, premiums, and other obligations on account of the DIP Loans, including, for the avoidance of doubt, the Participation Fee) will be repaid in full and in cash; provided, that, in the event the net proceeds of the WholeCo Sale Transaction are sufficient to repay in full in cash all Allowed DIP Claims (without taking into account the Participation Fee), the Participation Fee shall be waived. Each holder of an Allowed First Lien Claim will receive its pro rata share of the Net Proceeds of the WholeCo Sale Transaction after the amount paid to satisfy in full all Allowed DIP Claims. Holders of General Unsecured Claims would then receive their pro rata share of (i) the Net Proceeds of the WholeCo Sale Transaction, if any, after the satisfaction of all allowed priority claims, (ii) either, (x) the net cash proceeds or (y) distribution, of the MSP Recovery Class A Stock outstanding as of the Petition Date, and (iii) the recovery, if any, on account of the Litigation Trust Causes of Action assigned or otherwise transferred to the Post-Confirmation Litigation Trust.

•In the event the Debtors, with the consent of the Requisite Consenting Creditors (such consent not to be unreasonably withheld), close a Discrete Asset Sale during the Chapter 11 Cases, (i) the Net Proceeds of such sale would be applied by the Debtors to reduce, on a dollar-for-dollar basis, the DIP Loans and (ii) the Debtors may retain a portion of the net proceeds released in connection with such Discrete Asset Sale to be used for general corporate purposes and to fund the Debtors’ operations during the Chapter 11 Cases, in each case subject to the consent of the Required DIP Lenders.

The RSA also contemplates the following milestones with respect to the Chapter 11 Cases:

•No later than 1 day after the Petition Date, the Company shall have filed with the Bankruptcy Court the RSA, Lease Rejection Motion and DIP Motion;

•No later than 3 days after the Petition Date, the Bankruptcy Court shall have entered the Interim DIP Order;

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

•No later than 35 days after the Petition Date, the Bankruptcy Court shall have entered the Final DIP Order;

•No later than 45 days after the Petition Date, the Company shall obtain a credit rating for DIP Facility; provided, that the Debtors will use commercially reasonable efforts to meet this Milestone, which may be extended in event of delay of applicable ratings agency;

•No later than 90 days after the Petition Date, the Company shall have commenced a hearing on the Disclosure Statement;

•No later than 90 days after the Petition Date, the Bankruptcy Court shall have entered an order approving the Disclosure Statement;

•No later than 125 days after the Petition Date, the Company shall have commenced the Confirmation Hearing; and

•No later than 140 days after the Petition Date the Effective Date shall have occurred; provided, that such date shall be automatically extended by up to 45 days if the Effective Date has not occurred solely due to any healthcare-related regulatory approvals, antitrust approval, or any foreign investment regulatory approval (the “Regulatory Extension”).

The foregoing description of the RSA and the transactions and documents contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the RSA.

In connection with the Chapter 11 Cases and pursuant to the terms of the RSA, upon the entry of the Interim DIP Order, on February 7, 2024 Cano Health, LLC and Primary Care (ITC) Intermediate Holdings, LLC entered into a Senior Secured Superpriority Debtor-in-Possession Credit Agreement (the “DIP Credit Agreement”), with Wilmington Savings Fund Society, FSB, as administrative agent (the “Administrative Agent”), and the lenders from time to time party thereto (collectively, the “DIP Lenders”).

The DIP Lenders have provided new financing commitments to Cano Health, LLC under a new money delayed draw term loan facility (the “DIP Facility”) in an aggregate principal amount of $150 million. Under the DIP Facility, (i) $50 million was funded to the Company on February 7, 2024 following Bankruptcy Court approval of the DIP Facility on an interim basis (the “Interim DIP Order”), and (ii) $100 million was made available to be drawn following Bankruptcy Court approval of the DIP Facility on a final basis (the “Final DIP Order”) on March 6, 2024. On March 18, 2024, $22 million was funded to the Company and $78 million of which is presented as restricted cash is available to be drawn as of March 31, 2024.

Borrowings under the DIP Facility bear interest at the rate of, at the election of Cano Health, LLC, (i) SOFR plus 11.00% or (ii) alternate base rate plus 10.00%. Pursuant to the Final DIP Order, the DIP Lenders received participation fees in an amount equal to 15% of DIP Facility payable solely in shares of the new common shares of the ultimate parent of the entities acquiring substantially all of the then-existing assets of the Debtors (the "Reorganized Equity") in an aggregate amount equal to the Participation Fee (expressed in dollars) divided by 75.0% of the Acceptable Plan value, that were fully earned upon entry of the Final DIP Order and will be allocated to the DIP Lenders upon emergence; provided that, to the extent that a Wholeco Sale Transaction is consummated, the Participation Fee shall be payable in cash on such date, rather than in Reorganized Equity of the Company; provided further, that, in the event the net proceeds of the WholeCo Sale Transaction are sufficient to repay in full in cash all Allowed DIP Claims (without taking into account the Participation Fee), the Participation Fee shall be waived. The Consenting Creditors will receive backstop fees in an amount equal to 7.5% of the aggregate commitments under the DIP Facility payable in kind by adding such fees to the aggregate principal amount of the DIP Facility.

The DIP Credit Agreement (as modified by the Final DIP Order) includes milestones, representations and warranties, covenants, and events of default applicable to the Debtors. As part of the consensual resolution with the Creditors’ Committee of matters relating to the Final DIP Order, the Final DIP Order reflects the Debtors’ and DIP Lenders’ agreement to extend certain of the milestones set forth in the DIP Credit Agreement. Specifically, the Final DIP Order sets forth the following key milestones: (i) entry by the Bankruptcy Court of an order approving the Disclosure Statement no later than 96 days following the Petition Date (i.e., May 10, 2024); (ii) a hearing to approve the Reorganization Transaction no later than 148 days after the Petition Date; and (iii) the effective date of the Reorganization Transaction no later than 162 days after the Petition Date, subject to an

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

automatic extension of up to 45 days if the effective date has not occurred solely due to any pending healthcare-related regulatory approvals or any pending approval under the Hart-Scott-Rodino Act. If an event of default under the DIP Credit Agreement occurs, the Administrative Agent may, among other things, permanently cancel any remaining commitments under the DIP Credit Agreement and declare the outstanding obligations under the DIP Credit Agreement to be immediately due and payable.

The DIP Credit Agreement has a scheduled maturity date that is 8 months from the closing date thereof. The DIP Credit Agreement will also terminate on the date that is the earliest of the following: (i) the scheduled maturity date; (ii) the date on which all amounts owed thereunder become due and payable and the commitments are terminated; (iii) the date on which the Bankruptcy Court orders a conversion of the Chapter 11 Cases to a chapter 7 liquidation or the dismissal of the Chapter 11 Case of any Debtor; (iv) the closing of any sale of assets pursuant to Section 363 of the Bankruptcy Code, which, when taken together with all other sales of assets since the closing of the DIP Credit Agreement, constitutes a sale of all or substantially all of the assets of the Debtors; and (v) the effective date of a plan in the Chapter 11 Cases.

The foregoing description of the DIP Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the DIP Credit Agreement.

As previously disclosed, on February 5, 2024, the staff of NYSE Regulation notified the Company that NYSE Regulation (a) had determined to commence proceedings to delist the Company’s Class A Common Stock from the New York Stock Exchange (the "NYSE") and (b) immediately suspended trading on the NYSE in the Company’s Class A Common Stock pursuant to Section 802.01D of the NYSE Listed Company Manual after the Company commenced the Chapter 11 Cases on February 4, 2024. The NYSE filed a Form 25 with the SEC on February 6, 2024 to initiate such delisting from the NYSE, which delisting became effective on February 16, 2024. Also, as previously disclosed, on November 13, 2023, the NYSE filed a Form 25 with the SEC to initiate delisting the Public Warrants from the NYSE, which delisting became effective on November 23, 2023.

The Company has applied Accounting Standards Codification (“ASC”) 852, Reorganizations, for the period subsequent to the bankruptcy filing. ASC 852 requires that the Company's consolidated financial statements distinguish between transactions and events that are directly associated with the Restructuring from the Company's ongoing operation of its business. Accordingly, certain expenses, gains and losses that are realized or incurred in connection with the Chapter 11 Cases are recorded as reorganization items on the Company's unaudited condensed consolidated statement of operations. In addition, pre-petition Debtor obligations that may be impacted by the Chapter 11 Cases have been classified on the Company's unaudited condensed consolidated balance sheet at March 31, 2024 as "Liabilities subject to compromise.' These liabilities are reported at the amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts. See below for more information regarding these Reorganization items.

Debtor-in-Possession

The Debtors are currently operating as debtors-in-possession in accordance with the applicable provisions of the Bankruptcy Code. The Bankruptcy Court has approved motions filed by the Debtors that were designed primarily to mitigate the impact of the Chapter 11 Cases on the Company's ability to continue to operate its ongoing business. As a result, the Company is able to conduct normal business activities and pay all associated obligations for the period following its filing of the Chapter 11 Cases in the ordinary course of business. Additionally, the Company is authorized to pay and has paid certain pre-petition obligations pursuant to the First Day Motions. During the pendency of the Chapter 11 Cases, all transactions outside the ordinary course of business require the Bankruptcy Court's prior approval.

Automatic Stay

Subject to certain specific exceptions under the Bankruptcy Code, the Bankruptcy Petitions automatically stayed most judicial or administrative actions against the Debtors and efforts by creditors to collect on or otherwise exercise rights or remedies with respect to pre-petition claims. Absent an order from the Bankruptcy Court, substantially all the Debtors’ pre-petition liabilities are subject to settlement under the Bankruptcy Code.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Executory Contracts

Subject to certain exceptions, under the Bankruptcy Code, the Debtors may assume, assign or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. Generally, the rejection of an executory contract or unexpired lease is treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors from performing their future obligations under such executory contract or unexpired lease, but entitles the contract counterparty or lessor to a pre-petition general unsecured claim for damages caused by such deemed breach. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Debtors in this document, including, where applicable, a quantification of the Company’s obligations under any such executory contract or unexpired lease of the Debtors, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code. On March 29, 2024, the Debtors filed a motion seeking authority to reject 7 executory contracts (Docket No. 533), which the Bankruptcy Court approved by order dated April 12, 2024 (Docket No. 640).

Potential Claims

The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of each of the Debtors, subject to the assumptions filed in connection therewith. These schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims that are not governmental units were required to file proofs of claim by the deadline for general claims, which was on April 22, 2024 at 5:00 p.m. ET (the “Bar Date”). On April 4, 2024, the Bankruptcy Court entered an order extending the bar date for the Debtors' former officers, directors or employees to file proofs of claims to May 9, 2024 at 5:00 p.m. ET (Docket No. 615).

As of April 9, 2024, the Debtors have received approximately 363 proofs of claim asserted for a total of approximately $350.1 million. In addition, the Debtors scheduled approximately 5,400 claims for approximately $35.5 billion. The scheduled total includes amounts identified as secured debt guarantees at each applicable debtor guarantor. Such amount includes duplicate claims across multiple debtor legal entities. These claims will be reconciled to amounts recorded in the Company's accounting records. Differences in amounts recorded and claims filed by creditors will be investigated and resolved, including through the filing of objections with the Bankruptcy Court, where appropriate. The Bankruptcy Code does not allow for claims that have been acknowledged as duplicates. In addition, the Company may ask the Bankruptcy Court to disallow claims that the Company believes have been later amended or superseded, are without merit, are overstated or should be disallowed for other reasons. In addition, as a result of this process, the Company may identify additional liabilities that will need to be recorded or reclassified to "Liabilities subject to compromise." In light of the substantial number of claims filed, and expected to be filed, the claims resolution process may take considerable time to complete and likely will continue after the Debtors emerge from bankruptcy.

Reorganization Items, Net

The Debtors have incurred and will continue to incur significant costs associated with the Restructuring, including the write-off of original issue discount and deferred long-term debt fees on debt subject to compromise, costs of debtor-in-possession refinancing, legal and professional fees, amongst others. The amount of these charges, which since the Petition Date are being expensed as incurred, are expected to significantly affect the Company’s results of operations. In accordance with applicable guidance, costs associated with the Chapter 11 Cases have been recorded as 'Reorganization items, net" within the Company’s accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2024. See Note 11, "Reorganizations Items, Net".

Financial Statement Classification of Liabilities Subject to Compromise

The accompanying unaudited condensed consolidated balance sheet as of March 31, 2024 includes amounts classified as "Liabilities subject to compromise," which represent liabilities the Company anticipates will be allowed as claims in the Chapter 11 Cases. These amounts represent the Debtors’ current estimate of known or potential obligations to be resolved in connection with the Chapter 11 Cases, and may differ from actual future settlement amounts paid. Differences between liabilities estimated and claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. The

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Company will continue to evaluate these liabilities throughout the Chapter 11 Cases and adjust amounts as necessary. Such adjustments may be material. See Note 10, "Liabilities Subject to Compromise."

Significant Bankruptcy Court Actions

Following the commencement of the Chapter 11 Cases, the Bankruptcy Court entered certain interim and final orders facilitating the Debtors’ operational transition into Chapter 11. These orders authorized the Debtors to, among other things, pay certain pre-petition employee expenses and benefits, use their existing cash management system, maintain and administer customer programs, pay certain critical vendors, honor insurance-related obligations, and pay certain pre-petition taxes and related fees on a final basis, and approved the DIP Financing on a final basis (which DIP Financing provided to the Debtors up to $150 million in new senior, super priority debtor-in-possession term loans). Additionally, on March 7, 2024, the Bankruptcy Court entered an order authorizing the Debtors to sell certain Class A common stock shares the Debtors held in MSP Recovery, Inc., subject to the terms set forth therein (Docket No. 328).

On February 21, 2024, the Creditors’ Committee was appointed by the Office of the U.S. Trustee for the District of Delaware to represent the interests of unsecured creditors in the Chapter 11 cases (Docket No. 154).

The Debtors have continued to review their portfolio and have closed or are in the process of closing approximately 72 under-performing locations that are not core to their go forward business since September 2023. The Debtors rejected the leases associated with such locations as part of the Chapter 11 Cases. By order dated March 8, 2024 (Docket No. 448), the Bankruptcy Court approved such rejections. On March 29, 2024, the Debtors filed a motion seeking authority to reject 7 executory contracts and 4 additional leases (Docket No. 533), which the Bankruptcy Court approved by order dated April 12, 2024 (Docket No. 640). The Debtors continue to evaluate their existing lease portfolio and additional rejection motions may be filed during the Chapter 11 Cases.

Plan of Reorganization

On March 22, 2024, the Debtors, filed (i) the Joint Chapter 11 Plan of Reorganization of Cano Health, Inc. and Its Affiliated Debtors (Docket No. 498) (as thereafter amended on April 22, 2024 (Docket No. 671) and May 6, 2024 (Docket No.

773) and as may be further amended, supplemented, or otherwise modified, the “Proposed Plan”); (ii) the proposed Disclosure Statement for the Joint Chapter 11 Plan of Reorganization of Cano Health, Inc. and Its Affiliated Debtors, (Docket No. 499) (as thereafter amended on April 22, 2024 (Docket No. 672) and May 6, 2024 (Docket No. 774) as may be further amended, supplemented, or otherwise modified, the “Proposed Disclosure Statement”); and (iii) the Motion of Debtors for Entry of Order (I) Approving Proposed Disclosure Statement and Form and Manner of Notice of Disclosure Statement Hearing, (II) Establishing Solicitation and Voting Procedures, (III) Scheduling Confirmation Hearing, (IV) Establishing Notice and Objection Procedures for Confirmation of Proposed Plan, and (V) Granting Related Relief (Docket No. 501). On April 22, 2024 and May 6, 2024, the Debtors filed amended versions of the Proposed Plan and Proposed Disclosure Statement. The April 22, 2024 amendment to the Proposed Disclosure Statement revised the document to include a liquidation analysis, a valuation analysis of the reorganized Debtors and financial projections, as previously disclosed in our Current Report on Form 8-K filed with the SEC on April 22, 2024. A hearing to consider, among other things, the adequacy of the Proposed Disclosure Statement and approval of the Debtors’ proposed procedures relating to the solicitation and tabulation of votes to accept or reject the Proposed Plan is scheduled to be heard before the Bankruptcy Court on May 9, 2024.

Principles of Consolidation

The Company's 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 Company's consolidated results are

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Cano Health Texas, PLLC, Cano Health Nevada, PLLC, Cano Health California, PC, CHC Provider Network, 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

For additional information on the Company’s risk factors, please see Item 1A, "Risk Factors,” included in the Company’s 2023 Form 10-K.

Reclassifications

Certain prior year amounts have also been reclassified for consistency with the current year presentation. Such reclassifications impacted the classification of: repayments of equipment loans, repayment of finance lease obligations and employee stock purchase plan contributions within the statement of cash flows. Additionally, there were reclassifications related to revenue and direct patient expense within variable interest entities. 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, “Summary of Significant Accounting Policies,” included in the audited consolidated financial statements for the year ended December 31, 2023 included in its 2023 Form 10-K. During the three months ended March 31, 2024, there were no significant changes to those accounting policies.

Stock-Based Compensation

The operation of the Employee Stock Purchase Plan ("ESPP") was suspended in December 2023 and there were no new stock-based compensation grants issued during the quarter ended March 31, 2024, therefore additional disclosures related to stock-based compensation have been excluded from this Q1 2024 Form 10-Q as there have been no significant changes since the last reporting period. The total stock-based compensation expense related to all the stock-based awards is reported in the Company's unaudited condensed consolidated statement of operations as compensation expense within the selling, general and administrative expense caption.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents are highly liquid investments purchased with original maturities of three months or less. Restricted cash balances include letters of credit, cash held as collateral, restricted cash from sales of equity securities at fair value and DIP refinancing held in the escrow account. As of March 31, 2024 and December 31, 2023, our restricted cash balance consisted of $140.3 million and $33.3 million, respectively.

Recent Accounting Pronouncements

New Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures". This standard requires the Company to disclose significant segment expenses that are regularly provided to the CODM and are included within each reported measure of segment operating results. The standard also requires the Company to disclose the total amount of any other items included in segment operating results which were not deemed to be significant expenses for separate disclosure, along with a qualitative description of the composition of these other items. In addition, the standard also requires disclosure of the CODM’s title and position, as well as detail on how the CODM uses the reported measure of segment operating results to evaluate segment performance and allocate resources. The standard also aligns interim segment reporting disclosure requirements with annual segment reporting disclosure requirements. The Company plans to adopt the standard in 2024 for the related fiscal year reporting and the standard will be effective for interim reporting periods in fiscal years beginning after December 15, 2024, with early adoption permitted. The standard requires retrospective application to

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

all prior periods presented. We are currently evaluating the impact of the new guidance on our consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The standard requires the Company to provide further disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, as well as additional information about federal, state/local and foreign income taxes. The standard also requires the Company to annually disclose its income taxes paid (net of refunds received), disaggregated by jurisdiction. The standard is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied on a prospective basis, although optional retrospective application is permitted. While the standard will require additional disclosures related to the Company’s income taxes, the standard is not expected to have any impact on the Company’s consolidated operating results, financial condition or cash flows.

3. GOING CONCERN

The Company's accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. However, as a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. Our liquidity requirements, and the availability to the Company of adequate capital resources, are difficult to predict at this time. The Company’s ability to continue as a going concern is contingent upon its ability to successfully implement a plan of reorganization in the Chapter 11 Cases, among other factors, and the realization of assets and the satisfaction of liabilities are subject to uncertainty. Further, any plan of reorganization could materially change the amounts of assets and liabilities reported in the Company's accompanying unaudited condensed consolidated financial statements. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases.

The Company currently believes that there is not sufficient liquidity to cover the Company’s operating, investing and financing cash uses for the next 12 months. As a result of the Company's financial condition, defaults under certain debt agreements, as disclosed in Note 12, "Debt," of the unaudited condensed consolidated financial statements, and the risks and uncertainties surrounding the Chapter 11 Cases, substantial doubt exists that the Company will be able to continue as a going concern for one year from the issuance date of the financial statements.

The Company is pursuing several initiatives to improve its liquidity and net cash, such as reducing operating expenses. The Company’s efforts to reduce operating expenses include reducing permanent staff, lowering its third-party medical costs through negotiations with payors, consolidating underperforming medical centers, delaying renovations and other capital projects and significantly reducing nonessential spending. Other Company efforts to improve its liquidity include a strategic review of its Medicaid business in Florida, pharmacy assets and other specialty practices.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

4. REVENUE AND ACCOUNTS RECEIVABLE

The Company’s revenue streams for the three months ended March 31, 2024 and 2023, respectively, were as follows:


	Three Months Ended March 31,
	2024				2023
(in thousands)	Revenue $		Revenue %		Revenue $		Revenue %
Capitated revenue
Medicare	$	637,153	93.1	%	$	793,628	91.5	%
Other capitated revenue	31,922		4.7	%	47,446		5.5	%
Total capitated revenue	669,075		97.8	%	841,074		97.0	%
Fee-for-service and other revenue
Fee-for-service	3,138		0.5	%	11,693		1.3	%
Pharmacy	10,979		1.6	%	12,106		1.4	%
Other	1,234		0.2	%	2,036		0.3	%
Total fee-for-service and other revenue	15,351		2.2	%	25,835		3.0	%
Total revenue	$	684,426	100.0	%	$	866,909	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, 2024 and December 31, 2023, subject to the applicable provisions of the Bankruptcy Code.


	As of
(in thousands)	March 31, 2024		December 31, 2023
Accounts receivable	$	303,909	$	316,391
Medicare risk adjustment	26,530		17,091
Unpaid service provider costs	(276,221)		(257,681)
Accounts receivable, net	$	54,218	$	75,801

Concentration of Risk

Three payors represented greater than 10% of our total revenue for the three months ended March 31, 2024 and 2023, respectively:


	Three Months Ended March 31,
	2024	2023
Revenues	72.0%	67.7%

Those same three payors, in aggregate, represented the following percentages of accounts receivable as of March 31, 2024 and December 31, 2023, respectively.

As of

March 31, 2024

December 31, 2023

Accounts receivable, net

70.0%

75.9%

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following as of March 31, 2024 and December 31, 2023, respectively:


(in thousands)	March 31, 2024		December 31, 2023
Prepaid insurance	$	7,683	$	1,363

Other	13,787		11,736
Prepaid expenses and other current assets	$	21,470	$	13,099

As of March 31, 2024 and December 31, 2023, unamortized prepaid insurance comprised of $7.7 million and $1.4 million respectively. Other assets include prepaid bonus incentives, pharmacy inventory, tax prepaid assets and miscellaneous receivables.

6. UNPAID SERVICE PROVIDER COSTS

Activity in unpaid service provider costs for the three months ended March 31, 2024 and 2023, respectively, is summarized below:


(in thousands)	2024		2023
Balance as of January 1,	$	368,346	$	318,554

Incurred related to:
Current year	568,890		603,672
Prior years	897		6,778
	569,787		610,450
Paid related to:
Current year	231,274		257,668
Prior years	309,987		279,110
	541,261		536,778
Balance as of March 31,	$	396,872	$	392,226

The foregoing reconciliation reflects an increase in our estimate of unpaid service provider costs during the three months ended March 31, 2024 and March 31, 2023 of $0.9 million and $6.8 million respectively, driven by higher than expected utilization for prior years that were incurred in the current year. The service fund liability within the captions "Other current liabilities" and "Liabilities Subject to Compromise" in the Company's unaudited condensed consolidated balance sheet, as of March 31, 2024 included $76.9 million of accounts receivable, net. As of March 31, 2023, the service fund liability within the caption "Other current liabilities" in the Company's unaudited condensed consolidated balance sheet included $11.9 million of accounts receivable, net. The service fund liability accounts for plans where the accounts receivables, offset by unpaid service provider cost liabilities of $120.7 million and $14.8 million, respectively, resulted in a net deficit position as of March 31, 2024 and 2023.

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. As of both March 31, 2024 and March 31, 2023, the Company's excess loss insurance deductible was $0.2 million with maximum coverage of $2.0 million per member per calendar year. The Company recorded excess loss insurance premiums of $3.8 million and reimbursements of $1.8 million for the three months ended March 31, 2024. For the three months ended March 31, 2023, the Company recorded excess loss insurance premiums of $1.0 million and reimbursements of $0.6 million. The Company recorded these amounts on a net basis in the caption "Third-party medical costs" in the Company's accompanying unaudited condensed consolidated statements of operations.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

7. PAYOR RELATIONSHIPS AND OTHER INTANGIBLES, NET

As of March 31, 2024, the Company’s total intangibles, net, consisted of the following:


(in thousands)	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangibles:
Trade names	9.0 years	$	1,409	$	(1,144)	$	265
Brand names	16.2 years	181,580		(59,245)		122,335
Non-compete agreements	4.9 years	79,121		(46,280)		32,841
Customer relationships	18.2 years	880		(294)		586
Payor relationships	20.0 years	619,742		(101,984)		517,758
Provider relationships	4.6 years	15,942		(11,056)		4,886
Total intangibles, net		$	898,674	$	(220,003)	$	678,671

As of December 31, 2023, the Company’s total intangibles, net consisted of the following:


(in thousands)	Weighted Average Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangibles:
Trade names	9.0 years	$	1,409	$	(1,104)	$	305
Brand names	16.2 years	181,585		(57,335)		124,250
Non-compete agreements	4.9 years	79,134		(42,569)		36,565
Customer relationships	18.2 years	880		(282)		598
Payor relationships	20.0 years	619,742		(94,231)		525,511
Provider relationships	4.6 years	15,942		(10,206)		5,736
Total intangibles, net		$	898,692	$	(205,728)	$	692,964

The Company recorded amortization expense of $14.3 million and $21.1 million for the three months ended March 31, 2024, and 2023, respectively.

Long-lived assets are reviewed periodically for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. In the quarter ended March 31, 2024, the Company performed a recoverability test and concluded no impairment charge was necessary.

Expected amortization expense for the Company’s existing amortizable intangibles for the next 5 years, and thereafter, as of March 31, 2024 is as follows:


(in thousands)	Amount
2024 - remaining	$	41,886
2025	54,438
2026	46,209
2027	39,476
2028	38,866
Thereafter	457,796
Total	$	678,671

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Changes or consolidation of the use of any of our brand names or termination of provider relationships, could result in a reduction in their remaining estimated economic lives, which could lead to increased amortization expense.

8. 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 9 years. The Company elected the practical expedient, which allows the Company to exclude leases with a lease term less than 12 months from being recorded on the balance sheet. The Company adopted the practical expedient related to the combining of lease and non-lease components, which allows us to account for the lease and non-lease components as a single lease component.

Future minimum lease payments under operating and finance leases as of March 31, 2024 were as follows:


(in thousands)	Operating		Finance		Total
2024 - remaining	$	18,628	$	2,780	$	21,408
2025	19,884		3,609		23,493
2026	17,695		3,053		20,748
2027	15,375		956		16,331
2028	12,997		—		12,997
2029	10,205		—		10,205
Thereafter	18,103		—		18,103
Total minimum lease payments	112,887		10,398		123,285
Less: amount representing interest	(35,214)		(1,834)		(37,048)
Lease liabilities	$	77,673	$	8,564	$	86,237

Of the $77.7 million and $8.6 million of operating lease liabilities and finance lease liabilities respectively, $2.3 million of operating lease liabilities and $0.01 million of finance lease obligations, have been reclassified to “Liabilities Subject to Compromise” in the unaudited condensed consolidated balance sheets as of March 31, 2024.

The Company recorded rent expense of $8.6 million and $9.7 million for the three months ended March 31, 2024, and 2023 respectively.

On February 5, 2024, the debtors filed a motion with the Bankruptcy Court to reject the leases of 72 unexpired leases of nonresidential real property. The Debtors rejected the leases associated with such locations as part of the Chapter 11 Cases. By order dated March 8, 2024 (Docket No. 448), the Bankruptcy Court approved such rejections. On March 29, 2024, the Debtors filed a motion seeking authority to reject 7 executory contracts and 4 additional leases (Docket No. 533), which the Bankruptcy Court approved by order dated April 12, 2024 (Docket No. 640). As a result of the order dated March 8, 2024, the Company derecognized $53.4 million and $0.2 million of operating lease liabilities and operating lease right-of-use assets, respectively, and recognized a gain of $53.2 million which is included in the caption, “Reorganization items, net” in the Company's unaudited condensed consolidated financial statement of operations, as further disclosed in Note 11, "Reorganization items, net." The majority of these rejected leases were abandoned and their related right of use asset were written off in December 2023. Any unrejected lease obligations that were incurred prior to the petition date and remained unpaid as of the balance sheet date are included in the caption, “Liabilities Subject to Compromise” in the unaudited condensed consolidated balance sheets.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

9. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following as of March 31, 2024 and December 31, 2023, respectively:


(in thousands)	March 31, 2024		December 31, 2023

Service fund liability1	$	6,745	$	72,003
Other	—		3,591
Other current liabilities	$	6,745	$	75,594

10. LIABILITIES SUBJECT TO COMPROMISE

As discussed in Note 1, "Nature of Business and Operations", since the Petition Date, the Company has been operating as debtor in possession under the jurisdiction of the Bankruptcy Court and in accordance with provisions of the Bankruptcy Code. On the Company's accompanying unaudited condensed consolidated balance sheets, the caption “Liabilities subject to compromise” reflects the expected allowed amount of the pre-petition claims that have at least a possibility of not being repaid at the full claim amount. Liabilities subject to compromise at March 31, 2024 consisted of the following:


(in thousands)	March 31, 2024
Accounts payable, accrued expenses, other liabilities and deferred taxes	$	78,778
Service Fund Liability	70,119
Due to Seller	48,240
Debt subject to compromise	1,233,159
Accrued interest on debt subject to compromise	28,778
Tax receivable agreement liability	261,114
Total	$	1,720,188

Determination of the value at which liabilities will ultimately be settled cannot be made until the Bankruptcy Court approves the Plan of Reorganization. The Company will continue to evaluate the amount and classification of its pre-petition liabilities. Any additional liabilities that are subject to compromise will be recognized accordingly, and the aggregate amount of liabilities subject to compromise may change.

11. REORGANIZATION ITEMS, NET

Reorganization items incurred as a result of the Chapter 11 Cases are presented separately in the accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2024 and are summarized below:


(in thousands)	March 31, 2024
Write-off of debt issuance cost related to debt subject to compromise	$	75,776
Debtor-in-possession refinancing costs	37,909
Professional fees and other bankruptcy related costs	20,197
Write-off of lease liabilities	(52,834)
Tax receivable agreement liability	261,114
Interest income on surplus cash invested	(251)
Reorganization items, net	$	341,911

1 The balance reflected in service fund liability relates to service funds in a deficit position and reflects the net amount of medical services incurred but not reported ("IBNR") and accounts receivable. $70.1 million of Service fund liability is classified as Liability subject to compromise. Refer to Note 10, "Liabilities Subject to Compromise."

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Professional fees included in Reorganization items, net represent fees for post-petition expenses related to the Chapter 11 Cases. Payments of $4.6 million related to professional fees and $4.2 million related to Debtor-in-possession refinancing costs have been presented as cash outflows from operating activities and financing activities, respectively in the Company's unaudited condensed consolidated statements of cash flows for the three months ended March 31, 2024.

As of March 31, 2024, $15.6 million of professional fees included in Reorganization items, net were unpaid and accrued in Accounts Payable and Accrued Expenses in the Company's accompanying unaudited condensed consolidated balance sheet.

12. DEBT

At March 31, 2024 and December 31, 2023, the Company's current notes payable were as follows:


	As of
(in thousands)	March 31, 2024		December 31, 2023
Term loans and revolving line of credit 2	$	933,159	$	933,159
Senior Notes	300,000		300,000
DIP Facility	183,750		—
Less: Debt issuance costs	—		(75,840)
Total debt prior to reclassification to liabilities subject to compromise	$	1,416,909	$	1,157,318
Less: Current portion	183,750		1,157,318
Less: Amounts reclassified to liabilities subject to compromise	1,233,159		—
Long-term debt	$	—	$	—

Since the filing of the Chapter 11 Cases on the Petition Date, the Company ceased accruing interest on all debt, except for the DIP Facility. As a result, the Company did not record $22.1 million of contractual interest expense related to the CS Term Loan, CS Revolving Line of Credit, 2023 Term Loan, and Senior Notes as of March 31, 2024. In connection with the Company’s voluntary petition for reorganization, $1.2 billion outstanding under our term loans, revolving line of credit, and senior notes has been classified to “Liabilities Subject to Compromise” in the unaudited condensed balance sheets as of March 31, 2024 and the entire corresponding unamortized debt issuance costs of $75.8 million were expensed during the first quarter of 2024 to “Reorganization items, net" in the unaudited condensed consolidated statement of operations for the quarter ended March 31, 2024.

2 As of December 31, 2023, this balance included $20.6 million of Paid-in-Kind ("PIK") interest and an additional principal premium of $3.4 million that was incurred under the 2023 Term Loan.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(i) entry by the Bankruptcy Court of an order approving the Disclosure Statement no later than 96 days following the Petition Date (i.e., May 10, 2024); (ii) a hearing to approve the Reorganization Transaction no later than 148 days after the Petition Date; and (iii) the effective date of the Reorganization Transaction no later than 162 days after the Petition Date, subject to an automatic extension of up to 45 days if the effective date has not occurred solely due to any pending healthcare-related regulatory approvals or any pending approval under the Hart-Scott-Rodino Act. If an event of default under the DIP Credit Agreement occurs, the Administrative Agent may, among other things, permanently cancel any remaining commitments under the DIP Credit Agreement and declare the outstanding obligations under the DIP Credit Agreement to be immediately due and payable.

The foregoing description of the DIP Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the DIP Credit Agreement.

Credit Suisse Credit Agreement

Pursuant to the Credit Suisse Credit Agreement, the Company, through its wholly owned operating subsidiary, Cano Health, LLC (the “Borrower”), has a senior secured term loan (as amended, the “CS Term Loan”) and a revolving credit facility (as amended, the “CS Revolving Line of Credit”). The Obligations under the Credit Suisse Credit Agreement are secured by substantially all of the Borrower’s assets. The aggregate outstanding principal balances as of March 31, 2024 under the CS Term Loan was $631.5 million and under the CS Revolving Line of Credit was $120.0 million.

On January 14, 2022, the Company entered into an amendment to the Credit Suisse Credit Agreement, pursuant to which the outstanding principal amount of the CS Term Loan was replaced with an equivalent amount of new term loan having substantially similar terms, except with a lower interest rate margin applicable to the new term loan. The amendment of the Credit Suisse Credit Agreement implemented a forward-looking term rate based on the secured overnight financing rate (“SOFR”) as the replacement for LIBOR as the benchmark interest rate for borrowings under the CS Term Loan and CS Revolving Line of Credit, and certain other provisions. The new interest rate applicable to the CS Term Loan and borrowings under the CS Revolving Line of Credit was revised to 4.00%, plus the greater of SOFR and the applicable credit spread adjustment or 0.50%. This amendment represented a partial extinguishment and resulted in a write-off of deferred issuance costs of $1.4 million, which was recorded as a loss on extinguishment of debt for the nine months ended September 30, 2022. During the year ended December 31, 2023, the SOFR exceeded the credit spread adjustment of 0.50%, resulting in monthly variable interest rates for such period. As of March 31, 2024, the effective interest rate of the CS Term Loan was 9.46%. See “The Chapter 11 Cases, the Restructuring Support Agreement and the DIP Credit Agreement” in Note 1 "Nature of Business and Operation," regarding the impact of the automatic stay as a result of the Chapter 11 Cases.

2023 Term Loan Agreement

On February 24, 2023 (the “2023 Term Loan Closing Date”), the Company, through the Borrower and Primary Care (ITC) Intermediate Holdings, LLC (“Holdings”), entered into a Credit Agreement (the “Side-Car Credit Agreement”) with certain lenders and JP Morgan Chase Bank, N.A., as administrative agent (the “2023 Term Loan Administrative Agent”), pursuant to which the lenders provided a senior secured term loan (the “2023 Term Loan”) to the Borrower in the aggregate principal amount of $150 million, the full amount of which was funded on the 2023 Term Loan Closing Date. The aggregate outstanding principal balance as of March 31, 2024 under the 2023 Term Loan was $181.6 million.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Car Amendment, the interest rate for the 2023 Term Loan was increased to 16% during the payment-in-kind period ending on February 24, 2025); and (ii) thereafter, 13% per annum, payable quarterly in cash. The Borrower has elected to satisfy interest due on the 2023 Term Loan through the second anniversary in kind. The 2023 Term Loan is scheduled to mature on November 23, 2027. The 2023 Term Loan will not amortize. The Side-Car Amendment was accounted for as a modification of debt due to the difference between the present value of the cash flows under the terms of Side-Car Amendment and the present value of the cash flows under terms of the Side-Car Credit Agreement was less than 10% on a lender-by-lender basis. As of December 31, 2023, the balance of debt issuance costs totaled $75.8 million related to pre-petition debt, which were fully expensed as of March 31, 2024 as a result of Chapter 11 Cases. The write-off of debt issuance costs has been recorded as "Reorganization items, net".

In connection with and as consideration for entering into the Side-Car Credit Agreement, on February 24, 2023, the Company granted the lenders warrants to purchase, in the aggregate, up to 3.0 million shares of the Company’s Class A Common Stock at an exercise price of $0.10 per share, of which 0.2 million warrants were exercised on March 8, 2023 and the remaining 0.1 million warrants were exercised on April 24, 2023. Share amounts reflect the 1-for-100 Reverse Stock Split that the Company completed on November 3, 2023, as discussed in Note 1, "Nature of Business and Operations".

Additionally, the Side-Car Credit Agreement contains a financial maintenance covenant, requiring the Borrower to maintain a First Lien Net Leverage Ratio (i.e., total first lien senior secured net debt to Consolidated Adjusted EBITDA) not to exceed 5.80:1.00 on the last day of any four consecutive fiscal quarter period. With a First Lien Leverage Ratio of approximately 12.00:1.00 at June 30, 2023, the Borrower was not in compliance with this financial maintenance covenant as of such date and, accordingly, on August 10, 2023, the Borrower obtained a waiver of such noncompliance and entered into an amendment of the Side-Car Credit Agreement (the “2023 Side-Car Amendment”) under which the Company will not be required to test compliance with the Side-Car Credit Agreement’s financial maintenance covenant until the fiscal quarter ending September 30, 2024. The 2023 Side-Car Amendment provides, among other modifications to the Side-Car Credit Agreement, that: (i) the Company will formally launch, announce and pursue a comprehensive process in an effort to yield one or more offers for a sale of all or substantially all of the assets or businesses of, or direct or indirect equity interests in, the Borrower and its subsidiaries with a purchase price that includes cash proceeds sufficient to pay the obligations under the Side-Car Credit Agreement, and will use its commercially reasonable efforts to promptly close such a transaction; (ii) the interest rate for the 2023 Term Loan was increased to 16% during the payment-in-kind period ending on February 24, 2025; (iii) a premium payment of 5% of the outstanding principal amount of the 2023 Term Loan will be paid in kind by capitalizing such payment to the principal amount of the 2023 Term Loan; (iv) the applicable prepayment premium will be required in connection with any voluntary or mandatory prepayment or repayment of the 2023 Term Loan; (v) the lenders will have participation rights in certain new debt financings incurred by the Borrower or any of its subsidiaries and (vi) the Company shall pay to the Administrative Agent, for distribution to the Lenders of the Term Loans outstanding, a premium equal to 2.00% of the outstanding principal amount of the Term Loans as of such date (a “Specified Relief Premium”). The Specified Relief Premium shall be payable in kind and shall be automatically capitalized to the principal amount of the Loans on each Specified Relief Condition Testing Date, unless the Company shall have delivered an officer’s certificate (in a manner satisfactory to the Administrative Agent) certifying that the Specified Relief Condition is satisfied as of such date, and such capitalized Specified Relief Premium shall constitute principal on such Loans for all purposes under the Side-Car Credit Agreement and the other Loan Documents and shall accrue interest at the Applicable Rate. In the event that the Specified Relief Condition has not been satisfied on any Specified Relief Condition Testing Date ((a) the date that is 90 days after the First Amendment Effective Date, (b) the date that is 180 days after the First Amendment Effective Date, (c) the date that is 270 days after the First Amendment Effective and (d) 360 days after the First Amendment Effective Date (August 4, 2024)), all interests accrued thereon shall become immediately due and payable and shall be automatically capitalized to the principal amount of the Loans. Absent such waiver, the 2023 Term Loan Administrative Agent, acting at the direction of the lead lender, and at the requisite lenders request, could have immediately terminated all commitments under the 2023 Term Loan and accelerated the maturity of all principal, interest and other amounts due thereon.

During the year ended December 31, 2023, the Company paid customary fees and expenses to the 2023 Term Loan Administrative Agent and the lenders in connection with the Side-Car Credit Agreement as amended, including expenses incurred in consummating the 2023 Side-Car Amendment in August 2023.

See “The Chapter 11 Cases, the Restructuring Support Agreement and the DIP Credit Agreement” in Note 1 "Nature of Business and Operation," regarding the impact of the automatic stay on the aforementioned debt instruments as a result of the Chapter 11 Cases.

CANO HEALTH, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Senior Notes

On September 30, 2021, the Company issued senior unsecured notes for a principal amount of $300 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, which interest commenced on April 1, 2022. As of March 31, 2024, the effective interest rate of the Senior Notes was 6.25%. Principal on the Senior Notes is scheduled to become due in full on October 1, 2028. The Senior Notes are not subject to any amortization payments.

Prior to October 1, 2024, the Company has the right to 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 has the right to 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 has the right to 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 Loans and Senior Notes

The following table sets forth the Company’s future principal payments as of March 31, 2024, assuming acceleration of principal and capitalized PIK interest related to the 2023 Term Loan into calendar year 2024:


(in thousands)
Year ending December 31,	Amount
2024	$	1,416,909
Thereafter	—
Total	$	1,416,909

During the quarter ended March 31, 2024, the Company expensed $4.2 million of debt issuance costs related to its DIP Financing and has been recorded within "Reorganization items, net". As of December 31, 2023, the balance of debt issuance costs totaled $75.8 million related to pre-petition debt, which were fully expensed as of March 31, 2024 as a result of Chapter 11 Cases. The write-off of debt issuance costs has been recorded as "Reorganization items, net".

The Company recognized interest expense of $14.9 million (including $2.8 million of PIK interest under the 2023 Term Loan) and $23.5 million (including $2.1 million of PIK interest under the 2023 Term Loan) for the three months ended March 31, 2024 and 2023, respectively. From the interest expense, approximately $0.5 million and $1.1 million were recognized relating to the amortization expense of previously capitalized debt issuance costs for the three months ended March 31, 2024 and 2023, respectively.

13. 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 3 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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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; and

•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 (i.e., 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.

The fair value measurement level of the assets or liabilities 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, short-term borrowings and equity investments 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 $449.5 million and $483.9 million as of March 31, 2024 and December 31, 2023, respectively.

Publicly traded equity securities: All publicly traded equity securities are reported at fair value as of each reporting date. The measurement of the asset is based on quoted prices for identical assets on active market exchanges. Gains and losses from changes in the fair value of these securities are recorded within other income (expense), net, on the Company's unaudited condensed consolidated statement of operations. As of December 31, 2023, 8.0 million total shares of MSP common stock had an estimated fair value of $18.2 million under the caption "Equity securities at fair value" in the consolidated balance sheets. On March 3, 2024, the Bankruptcy Court entered an order at Docket No. 328 (the “MSP Recovery Shares Order”) authorizing the Company to continue to sell its shares of Class A common stock. As of March 31, 2024, the Company held 2.0 million units of MSP shares.

During the quarter ended March 31, 2024, the Company disposed of 6.0 million shares of MSP, receiving aggregate net proceeds in the amount of approximately $6.7 million. As of March 31, 2024, the Company held 2.0 million shares of MSP Class A common stock with an estimated value of $1.4 million under the caption "Equity securities at fair value" in the condensed consolidated balance sheets. Subsequent to March 31, 2024, the Company disposed of its remaining 2.0 million shares in MSP, receiving aggregate net proceeds in the amount of approximately $2.0 million. Net sales proceeds transacted between February 4, 2024 and March 31, 2024 of approximately $3.2 million are being held in a segregated account in accordance with the MSP Recovery Shares Order which are recorded as restricted cash under the caption "cash, cash equivalents and restricted cash" in the accompanying unaudited condensed consolidated balance sheets.

Share amounts below reflect the 1-for-100 Reverse Stock Split that the Company completed on November 3, 2023, as discussed in Note 1.

Due to seller: On August 11, 2021, the Company issued 27,210 shares of its 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's Class A common stock during the 20 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 100% in accordance with the purchase agreement and subtracting any forfeited indemnity shares. The fair value of this contingent consideration is determined using a Monte-Carlo simulation model. These inputs are used to calculate the pay-off amount per the agreement which is then discounted to present value using the risk-free rate and the Company’s cost of debt. As of September, 30, 2023 the seller had met the performance metrics to earn a 100% payout and the liability is classified in current portion due to sellers on the consolidated balance sheet. Due to the Chapter 11 Cases, it appears that the counterparty's interest in the remaining payments under this purchase agreement will be treated as an unsecured creditor claim.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

On December 9, 2022, the Company entered into an asset acquisition agreement (a copy of which has been included as an exhibit hereto) requiring future payments in shares of the Company's Class A common stock. The seller under such agreement included Mark Kent who became the Company’s Interim CEO in June 2023 and permanent CEO and director in August 2023. See Note 15, “Related Party Transactions.” As of March 31, 2024, $17.1 million of the liability was classified as current due to sellers in the unaudited condensed consolidated balance sheet. The liability will continue to be fair valued until paid, as the applicable purchase agreement provided that it would be settled in a variable amount of shares of the Company's Class A Common Stock. The Company issued 97,000 shares of Class A Common Stock to the sellers on January 31, 2023 to settle a portion of the purchase price. As of the date of filing of this Q1 2024 Form 10-Q, the Company has not delivered the remaining shares. Due to the Chapter 11 Cases, it appears that the counterparty's interest in the remaining payments under this purchase agreement will be treated as an unsecured creditor claim.

The preceding methods described may produce fair value calculations that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value on a recurring basis as of March 31, 2024:


(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)
Assets measured at fair value on a recurring basis:
Equity securities with readily determinable fair value	$	1,400	$	1,400	$	—	$	—
Total assets measured at fair value	$	1,400	$	1,400	$	—	$	—

The following table sets forth by level, within the fair value hierarchy, the Company’s assets measured at fair value on a recurring basis as of December 31, 2023:


(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)
Assets measured at fair value on a recurring basis:
Equity securities with readily determinable fair value	$	18,160	$	18,160	$	—	$	—
Total assets measured at fair value	$	18,160	$	18,160	$	—	$	—

The following table includes a rollforward of the amounts for the three months ended March 31, 2024 and 2023, respectively, and for assets measured at fair value:

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(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Fair Value Measurements for the Three Months Ended
(in thousands)	2024		2023
Balance as of January 1,	$	18,160	$	—
Change in fair value of equity securities with readily determinable fair value	(8,186)		—
Fair value from disposal of shares	(8,574)		—
Balance as of March 31,	$	1,400	$	—

The following table sets forth by level, within the fair value hierarchy, the Company’s liabilities measured at fair value on a recurring basis as of March 31, 2024:


(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 and assets measured at fair value on a recurring basis:
Due to sellers liabilities3	$	17,130	$	17,130	—		—
Total liabilities measured at fair value	$	17,130	$	17,130	$	—	$	—

The following table sets forth by level, within the fair value hierarchy, the Company’s liabilities measured at fair value on a recurring basis as of December 31, 2023:


(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 and assets measured at fair value on a recurring basis:
Due to sellers liabilities	$	17,130	$	17,130		—	—
Total liabilities and assets measured at fair value	$	17,130	$	17,130	$	—	—

There have been no changes in additional issuances or settlements during the three months ended March 31, 2024.

14. VARIABLE INTEREST ENTITIES

The Physicians Groups were established to employ healthcare providers to contract with managed care payors, and to deliver healthcare services to patients in the markets that the Company served. The Company evaluated whether it has a variable interest in the Physicians Groups, whether the Physicians Groups are VIEs, and whether the Company has a controlling financial interest in the Physicians Groups. The Company concluded that it has variable interests in the Physicians Groups on the basis of each respective Master Service Agreement (“MSA”), which provides office space, consulting services, managerial and

3 Amounts due to sellers are classified within Liabilities subject to comprise. See Note 10. "Liabilities subject to compromise"

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(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

administrative services, billing and collection, personnel services, financial management, licensing, permitting, credentialing, and claims processing in exchange for a service fee and performance bonuses payable to the Company. Each respective MSA transfers substantially all the residual risks and rewards of ownership to the Company. The Physicians Groups’ equity at risk, as defined by GAAP, is insufficient to finance its activities without additional support, and therefore, the Physicians Groups are considered VIEs, and are not affiliates of the Company.

In order to determine whether the Company has a controlling financial interest in the Physicians Groups, and thus, whether the Company is the primary beneficiary, the Company considered whether it has (i) the power to direct the activities that most significantly impact the Physicians Groups’ economic performance and (ii) the obligation to absorb losses of the entities that could potentially be significant to it or the right to receive benefits from the Physicians Groups that could potentially be significant to it. The Company concluded that it may unilaterally remove the physician owners of the Physicians Groups at its discretion and is therefore considered to hold substantive kick-out rights over the decision maker of the Physicians Groups. Under each MSA, the Company is entitled to a management fee and a performance bonus that entitle the Company to substantially all of the residual returns or losses and is exposed to economics that could be significant to it. As a result, the Company concluded that it is the primary beneficiary of the Physicians Groups and, therefore, consolidates the balance sheets, results of operations and cash flows of these entities. The Company performs a qualitative assessment on an ongoing basis to determine if it continues to be the primary beneficiary.

The table below illustrates the aggregated VIE assets and liabilities and performance for the Physicians Groups:


(in thousands)	March 31, 2024		December 31, 2023
Total Assets	$	5,478	$	8,201
Total Liabilities	$	558	$	519


	Three Months Ended March 31,
(in thousands)	2024		2023
Total revenue	$	140	$	27,661
Operating expenses:
Third-party medical costs	404		18,252
Direct patient expense	—		7,387
Total operating expenses	404		25,639
Net income	$	(264)	$	2,022

There are no restrictions on the Physicians Groups' assets or on the settlement of their liabilities. The assets of the Physicians Groups can be used to settle the Company's obligations. The Physicians Groups are included in the Company’s creditor group; thus, the Company's creditors have recourse to the assets owned by the Physicians Groups. There are no liabilities for which creditors of the Physicians Groups do not have recourse to the Company's general credit. There are no restrictions placed on the Physicians Groups' retained earnings or net income with respect to potential future distributions.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

15. RELATED PARTY TRANSACTIONS

Share amounts below have been restated to reflect the 1-for-100 Reverse Stock Split that the Company completed on November 3, 2023, as discussed in Note 1.

Significant Shareholder Relationship

On March 8, 2023, the Company issued an aggregate of 0.2 million shares of Class A common stock to funds affiliated with Diameter Capital Partners LP (collectively, “Diameter”) and on April 24, 2023 the Company issued an additional 0.1 million shares of Class A common stock to Rubicon Credit Holdings LLC ("Rubicon") upon the exercise of the warrants that were issued in connection with the consummation of the 2023 Term Loan to Diameter and Rubicon pursuant to the Warrant Agreement, dated as of February 24, 2023 and amended on August 10, 2023, by and between the Company and Continental Stock Transfer & Trust Company, as warrant agent and transfer agent. See Note 12, “Debt,” for important information on the 2023 Term Loan, which bears interest at a rate equal to (i) on or prior to August 10, 2023, 14% per annum, payable quarterly either (at the Company’s election) in cash or in kind by adding such amount to the principal balance of the term loan and (ii) on or prior to February 24, 2025 but after August 10, 2023, 16% per annum, payable quarterly either (at the Company's election) in cash or in kind by adding such amount to the principal balance of the term loan; (iii) thereafter, 13% per annum, payable quarterly in cash. During the three months ended March 31, 2024, the Company incurred $2.8 million of PIK interest expense, which was accrued within Accounts payable and accrued expenses.

MedCloud Depot, LLC Relationship

On August 1, 2022, the Company appointed Bob Camerlinck as Chief Operating Officer (the "COO"). The COO owns 20% of MedCloud Depot, LLC ("MedCloud"), a Florida-based software development firm that specializes in health information technology and data warehousing. The Company has a license agreement with MedCloud pursuant to which MedCloud has granted the Company a non-exclusive, non-transferable license to use their software. The Company recorded payments to MedCloud that amounted to approximately $0.2 million and $1.0 million for three months ended March 31, 2024 and 2023, respectively, which were recorded within the caption selling, general and administrative expenses in the unaudited condensed consolidated financial statements. As of March 31, 2024 the Company owed $1.4 million to MedCloud. However, with the filing of the Chapter 11 Cases, the Company’s obligations to fulfill such payment obligation are subject to the automatic stay under the Bankruptcy Code. On March 19, 2024, MedCloud filed a motion in the Chapter 11 Cases (Docket No. 481) (the “Administrative Expense Motion”) seeking, among other things, payment of certain amounts under the license agreement as administrative expenses or, in the alternative, relief from the automatic stay to terminate the license agreement and assert related claims against the Debtors. MedCloud also sought certain discovery from the Debtors in the Chapter 11 Cases in connection with the Administrative Expense Motion, which the Debtors opposed. On April 11, 2024, the Debtors and MedCloud entered into an agreement and stipulation Docket No. 639), which was approved by an order of the Bankruptcy Code (Docket No. 641), resolving the Administrative Expense Motion as well as their related discovery disputes and set a deadline of May 15, 2024 for the Debtors to file a motion in the Chapter 11 Cases to assume or reject the MedCloud license.

Dental Excellence and Onsite Dental Relationships

On April 13, 2022, CD Support, LLC (a wholly owned subsidiary of "Onsite Dental") acquired Dental Excellence Partners, LLC ("DEP"), a company who at the time of the acquisition was owned by the spouse of Dr. Marlow Hernandez, the Company's former Chief Executive Officer and a former member of the Company’s Board of Directors ("Dr. Hernandez"), and Onsite Dental entered into a dental services agreement (the “DSA”) with the Company. Dr. Hernandez’ spouse became a minority shareholder of Onsite Dental upon closing of the acquisition and she serves or served as a Board observer at Onsite Dental's board meetings. On information and belief, Dr. Hernandez’ brother and mother are or were employed as dentists at either or both of DEP and Onsite Dental. As previously disclosed, Dr. Hernandez ceased service as the Company’s Chief Executive Officer in June 2023 and ceased service as a member of the Board of Directors in August 2023.

The Company had various sublease agreements with Onsite Dental. For such space, the Company recognized sublease income of approximately $0.2 million during the three months ended March 31, 2023, which was recorded within the caption "Other Income (Expense)" in the accompanying unaudited condensed consolidated statements of operations. As of March 31,

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(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

2024, no sublease income was recognized from Onsite Dental. On August 30, 2023 the Company provided written notice to Onsite Dental accepting their August 9, 2023 Notice of Termination of the DSA and the Company provided notice to Onsite Dental that the Company had terminated all subleases with Onsite Dental. As of March 31, 2024, $0.6 million was due to the Company in relation to these agreements and recorded in the caption accounts receivable.

On October 9, 2020, the Company entered into a dental services agreement with DEP pursuant to which DEP agreed to provide dental services for managed care members of the Company, which agreement was terminated upon the acquisition of DEP by Onsite Dental on April 13, 2022. As of March 31, 2024, no balance was due to DEP. On August 30, 2023 the Company provided written notice to Onsite Dental accepting their August 9, 2023 Notice of Termination of the DSA and the Company provided notice to Onsite Dental that the Company had terminated all subleases with Onsite Dental. During the three months ended March 31, 2024 and 2023, in respect of the dental services provided to Cano Health's members by Onsite Dental and CD Support, LLC, the Company paid such entities approximately zero and $4.1 million, respectively. As of March 31, 2024, the Company was billed $5.6 million by Onsite Dental.

On August 4, 2023, CD Support filed a complaint against the Company in Miami-Dade Circuit Court, styled as CD Support, LLC v. Cano Health, LLC, claiming, among other things, that it was due certain disputed amounts and on August 9, 2023, CD Support provided the Company with notice that it was terminating the dental services administration agreement effective November 22, 2023. The Company disputes that it owes any amount to Onsite Dental and CD Support and believes that it has meritorious defenses to such action and intends to vigorously defend against the claimant’s allegations. Management believes that the resolution of this matter will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

On March 28, 2024, DEP filed a motion in the Chapter 11 Cases (Docket No. 529) seeking relief from the automatic stay to retrieve and repossess certain equipment in the possession of the Debtors that DEP asserts it owns. On April 12, 2024, the Debtors and DEP filed a stipulation (Docket No. 642) granting DEP relief from the stay to retrieve the equipment from the Debtors’ various locations in accordance with the terms of the stipulation.

Operating Leases

The Company indirectly leased a medical space from the Company's COO. The Company paid approximately $0.2 million and $0.2 million for the three months ended March 31, 2024 and 2023 to Humana, a managed care organization with whom the Company has entered into multi-year agreements, and in turn, Humana paid the Company's COO $0.1 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. The Company's COO leased several other properties directly to the Company and was paid $0.1 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively.

General Contractor Agreements

The Company had entered into various general contractor agreements with Cano Builders, USA, Inc. ("Cano Builders"), a company that is controlled by Jose Hernandez, the father of Dr. Hernandez, pursuant to which Cano Builders performs leasehold improvements at various Company locations, as well as performing various repairs and related maintenance. Payments made to Cano Builders pursuant to these general contractor agreements, as well as amounts paid for repairs and maintenance, totaled approximately $0.4 million for the three months ended March 31, 2023. As of March 31, 2024, the Company did not have any outstanding liabilities payable to Cano Builders.

Total Health Acquisition

As such transaction was previously disclosed in the Company’s 2023 Form 10-K, pursuant to the terms of a certain Asset Purchase Agreement, dated December 9, 2022 (the “Total Health Purchase Agreement”), by and among Your Partners in Health, LLC, Your Partners in Health I, LLC, Care Management Resources, LLC, Care Management Resources I, LLC ProCare Medical Management, LLC, Total Health Medical Centers, LLC (collectively, the "Total Health Sellers”), Mark Kent, as the owner of the Total Health Sellers and who was appointed as the Company’s Interim CEO in June 2023 and permanent CEO and a member of the Board of Directors in August 2023, and Cano Health, LLC, Cano Health, Inc., as purchasers, the Company

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

acquired certain assets from the Total Health Sellers (the “Total Health Acquisition”) for a purchase price of $32.5 million (the “Total Health Consideration”), which was paid in part in shares of Class A common stock on January 31, 2023 (the “First Payment Date”), a portion in cash on April 1, 2023 and with additional deferred payments as described below.

The initial equity payment was made subject to certain adjustments, including, without limitation, those based on changes in the per share price of the Company’s Class A Common Stock between the First Payment Date and the first anniversary of the First Payment Date (which is the date on which the second portion of the equity-based purchase price becomes due and payable, depending on the relative per share price of the Company’s Class A Common Stock on such date, as compared to the Initial Per Share Price (as defined below).

Pursuant to the terms of the Total Health Purchase Agreement, the Total Health Consideration was payable in cash or shares of the Company’s Class A Common Stock, at the Company’s election upon the first such installment, so long as at least $1,335,000 was paid in cash (which minimum cash payment the Company paid to the Total Health Sellers on April 1, 2023, and with the portion of the Total Health Consideration paid in shares of Class A Common Stock to the Total Health Sellers on the First Payment Date and the remaining amount payable in shares of Class A Common Stock on the first anniversary of the First Payment Date in January 2024, collectively, the “Total Health Equity Consideration”). In addition, within 90 days of January 31, 2024, the Total Health Sellers could receive from the Company an additional $14 million in cash, depending upon certain revenue performance of the businesses sold to the Company in the Total Health Acquisition, in each case so long as Mr. Kent remains an employee of the Company in good standing, subject to certain exceptions and certain other conditions. The Company has accrued this amount as of March 31, 2024. Also, as of March 31, 2024, the Company has a related receivable from Total Health Sellers in the amount of $0.5 million. However, with the filing of the Chapter 11 Cases, the Company’s rights and obligations to receive or fulfill such payments are subject to the automatic stay under the Bankruptcy Code. Due to the Chapter 11 Cases, it appears that the counterparty’s interest in the remaining payments under this purchase agreement will be treated as an unsecured creditor claim.

As previously disclosed, on the First Payment Date, the Company issued 96,713 shares of Class A Common Stock (the “Initial Issuance”) to the Total Health Sellers as partial consideration for the Total Health Acquisition, which amount was calculated on the basis of $141.00 per share, representing the trailing 5-day volume weighted average share price of the Company’s Class A Common Stock as of the close of business on January 20, 2023 (the “Initial Per Share Price”). The Initial Issuance represented 44% of the value of the Total Health Equity Consideration, determined on the basis of the Initial Per Share Price. As the trailing 5-day volume weighted average share price of the Class A Common Stock as of the close of business on January 20, 2024 (the “Anniversary Per Share Price”) was less than the Initial Per Share Price, for 30% of the total shares payable to the Total Health Sellers still held by the Total Health Sellers at such time (the “Retained Shares”), the Company has agreed to issue to the Total Health Sellers an additional number of shares equal to the sum of (1) (a) the total number of Retained Shares multiplied by the Initial Per Share Price, divided by (b) the Anniversary Per Share Price, minus (2) the number of Retained Shares (such shares, the “Gross-Up Shares”) on January 31, 2024. As of the date of filing of this Q1 2024 Form 10-Q, the Company has not delivered the remaining shares. However, with the filing of the Chapter 11 Cases, the Company’s obligations to fulfill such payment obligation are subject to the automatic stay under the Bankruptcy Code. Due to the Chapter 11 Cases, it appears that the counterparty’s interest in the remaining payments under this purchase agreement will be treated as an unsecured creditor claim.

Pursuant to the terms of the Total Health Purchase Agreement, with assuming the Anniversary Per Share Price being remains less than the Initial Per Share Price, the Company was obligated to issue to the Total Health Sellers, on or before January 31, 2024, a number of shares of Class A Common Stock as would be needed to pay the remaining 56% of the Total Health Equity Consideration owed to the Total Health Sellers, as well as the Gross-Up Shares. As of the date of filing of this Q1 2024 Form 10-Q, the Company has not delivered the remaining shares. However, with the filing of the Chapter 11 Cases, the Company’s obligations to fulfill such payment obligation are subject to the automatic stay under the Bankruptcy Code. Due to the Chapter 11 Cases, it appears that the counterparty’s interest in the remaining payments under this purchase agreement will be treated as an unsecured creditor claim.

Other

Dr. Hernandez' sister-in-law is employed at the Company as its director of payroll and her annualized cash compensation is approximately $185,000.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

16. COMMITMENTS AND CONTINGENCIES

Vendor Agreements

The Company, through its subsidiaries Comfort Pharmacy, LLC, Comfort Pharmacy 2, LLC, and Belen Pharmacy Group, LLC, entered into a multi-year Prime Vendor Agreement ("PVA") with a pharmaceutical wholesaler, effective November 1, 2020, that continued through October 31, 2023. The pharmaceutical wholesaler serves as the Company’s primary wholesale supplier for branded and generic pharmaceuticals. The agreement contains a provision that requires average monthly net purchases of $0.8 million, and if the minimum is not met, the vendor may adjust the pricing of goods. A Joinder Agreement was entered into on December 1, 2020, which amended the PVA to include IFB Pharmacy, LLC, a fully consolidated subsidiary, under the agreement as of this date.

On November 1, 2023, the Company through its subsidiaries University Health Care Pharmacy LLC, Comfort Pharmacy 2, LLC, IFB Pharmacy LLC, and Cano Pharmacy LLC, entered into a new multi-year agreement with the same pharmaceutical wholesaler effective November 1, 2023 that continues through November 25, 2025. This agreement extends on a month-to-month basis thereafter until either party gives 90 days' written notice to terminate. The pharmaceutical wholesaler will continue to serve as the Company’s primary wholesale supplier for branded and generic pharmaceuticals. The agreement contains a provision that requires average monthly net purchases of $2.0 million, and if the minimum is not met, the vendor may adjust the pricing of goods.

As a result of our acquisition of University Health Care and its affiliates (“University”) in June 2021, the Company assumed the vendor agreement in 2021 that University, through its subsidiary University Health Care Pharmacy, Inc., had with a second pharmaceutical vendor. The agreement, effective through December 2023, contains a provision that requires average monthly net purchases of $0.6 million, and if the minimum is not met, the vendor may adjust the pricing of goods. This agreement was terminated on October 31, 2023.

Management believes it has satisfied the minimum requirements of these agreements for the three months ended March 31, 2024 and 2023.

Legal Matters

Please see “The Chapter 11 Cases, the Restructuring Support Agreement and the DIP Credit Agreement,” as described in Note 1, “Nature of Business and Operations.”

On March 18, 2022, a purported stockholder of the Company filed a putative class action lawsuit in the U.S. District Court for the Southern District of Florida against the Company and certain of its former officers, captioned Alberto Gonzalez v. Cano Health, Inc. f/k/a Jaws Acquisition Corp., et al. (No. 1:22-cv-20827). An amended complaint was filed on February 21, 2023. On October 25, 2023, Plaintiff filed a motion for leave to amend the complaint, which the Court granted on January 3, 2024. Plaintiff filed his second amended complaint on January 5, 2024. The second amended complaint alleges violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 against all defendants in connection with allegedly false and misleading statements made by the Company regarding compliance with GAAP, the timing of its revenue recognition from Medicare Advantage contracts in 2021, and its processes for recognizing Medicare risk-adjusted revenue. The lawsuit seeks, among other things, certification of a class action and unspecified compensatory damages for purchasers of the Company’s Class A Common Stock between May 7, 2021 and August 10, 2023, as well as attorneys’ fees and costs. Plaintiff voluntarily dismissed the Company from this lawsuit, without prejudice, on February 16, 2024, following the Company’s filing of the Chapter 11 Cases.

On January 18, 2024, the Company filed a complaint seeking injunctive relief and damages against defendants Dr. Marlow Hernandez (the Company’s former chief executive officer), Mr. Jason Conger (the Company’s former chief growth officer), and Dr. Richard Aguilar (the Company’s chief medical officer) and the defendants’ new company, Soran Health, LLC. The case was filed in the Complex Business Division of the Circuit Court for the Eleventh Circuit in Miami-Dade County and is captioned as Cano Health, Inc. v. Marlow B. Hernandez, et al., Case No. 2024-001079-CA-01. In the lawsuit, the Company asserts that Hernandez, Conger, and Aguilar breached their noncompetition, confidentiality, and nonsolicitation obligations in

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

their contracts with the Company, and that Soran Health tortiously interfered with those contracts and with the Company’s business relationships with patients and other business partners. The Company filed a motion for expedited discovery and expedited proceedings on January 22, 2024. On January 31, 2024, the Company filed an emergency motion for a temporary injunction asking the Court to enjoin defendants Hernandez, Conger, and Aguilar from (i) disclosing or using any confidential or proprietary information acquired during their employment with the Company, (ii) soliciting, interfering, inducing, or attempting to cause any employee of the Company to leave their employment; (iii) soliciting, interfering, inducing or attempting to cause any client, customer, and/or patient of Cano Health to terminate or reduce its business relationship with the Company; and (iv) operating Soran Health as a business in competition with the Company. The motion also requested that the Court require defendants to (i) return all Company confidential information and property, and (ii) submit their computers, devices, and email accounts for a forensic inspection. On February 13, 2024, the defendants filed their opposition to the emergency motion, and also filed their answer and asserted 3 counterclaims alleging that the Company breached its separation agreements with the former executives by failing to pay their full severance. The Court held a 2-day evidentiary hearing on the Company’s emergency motion for temporary injunction on February 28 and 29, 2024. On February 29, 2024, the Court granted the Company’s motion and the Company expects that a detailed written injunction order is forthcoming. After such motion was granted, following a 2-day evidentiary hearing, the defendants removed the case to the Florida federal bankruptcy court and are seeking to have the case transferred to the Bankruptcy Court in which the Chapter 11 Cases are pending. Plaintiffs are seeking to have the case remanded back to the Florida state court, i.e., the Complex Business Division of the Circuit Court for the Eleventh Circuit in Miami-Dade County. The Company intends to continue pursuing its claims for permanent injunctive relief and damages against the defendants.

The Company is exposed to various other asserted and unasserted potential claims encountered in the normal course of business, such as the action described under CD Support, LLC v. Cano Health, LLC in Note 15, “Related Party Transactions.” Management believes that the resolution of these matters will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In December 2023, the Company received a subpoena from the SEC Division of Enforcement requesting information regarding certain of the matters related to its former CEO that were the subject of the litigation commenced in April 2023 by its former directors, Messrs. Cooperstone, Gold and Sternlicht, in the Delaware Chancery Court. The Company prevailed after a hearing at the Delaware Court or Chancery in opposing an effort by the 3 dissident directors to prevent the Company from holding its 2023 annual stockholders' meeting in June 2023 and to enjoin enforcement of the Company’s advance notice by-law provisions. The Company is cooperating with the SEC in its inquiry and cannot predict its outcome or duration.

In late 2023, the Company received a Civil Investigative Demand ("CID") from the U.S. Department of Justice ("DOJ") regarding a possible violation of the federal anti-kickback statute by possibly paying third-parties based on the volume or value of referrals. The Company is cooperating with the DOJ in its inquiry and cannot predict its outcome or duration and if it will ultimately result in an asserted claim.

In addition, the Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows. However, in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period.

As previously mentioned, on February 4, 2024, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of such bankruptcy filings, substantially all proceedings pending against the Debtors have been stayed.

17. INCOME TAXES

The Company generated a $0.04 million tax expense for the three months ended March 31, 2024, resulting in an effective tax rate of (0.01)% as compared to an effective tax rate of 0.0% for the three months ended March 31, 2023. The effective tax rate for the periods presented differs from the statutory U.S. tax rate primarily as a result of the valuation allowance

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

recorded against the Company’s deferred tax assets. The Company evaluates the realizability of its deferred tax assets on a quarterly basis and adjusts the valuation allowance when it is more-likely-than-not that all or a portion of the deferred tax assets may not be realized.

The Company does not have any uncertain tax positions ("UTPs") as of March 31, 2024. While the Company currently does not have any UTPs, it is foreseeable that the calculation of the Company’s tax liabilities may involve dealing with uncertainties in the application of complex tax laws and regulations in multiple jurisdictions across the Company’s operations.

The Company files income tax returns in the U.S. with Federal, State and local agencies, and in Puerto Rico. The Company, and its subsidiaries are subject to U.S. Federal, state and local tax examinations for tax years starting in 2019. In addition, the Puerto Rico subsidiary group is subject to U.S. Federal, state and foreign tax examinations for tax years starting in 2018. The Internal Revenue Service ("IRS") commenced an examination of PCIH’s income tax return for the year ended December 31, 2020 in the first quarter of 2023. The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to the tax examination and that any settlement related thereto will not have a material adverse effect on the Company’s consolidated financial statements; however, there can be no assurances as to the ultimate outcome until the examination is completed. The Company has analyzed filing positions in the Federal, State, local and foreign jurisdictions where it is required to file income tax returns for all open tax years and does not believe any tax uncertainties exist.

Tax Receivable Agreement

Upon the completion of the Business Combination, Cano Health, Inc. became a party to the Tax Receivable Agreement. Under the terms of that agreement, Cano Health, Inc. generally will be required to pay to the Seller and to each other person from time to time that becomes a “TRA Party” under the Tax Receivable Agreement, 85% of the tax savings, if any, that Cano Health, Inc. is deemed to realize in certain circumstances as a result of certain tax attributes that exist following the Business Combination and that are created thereafter, including as a result of payments made under the Tax Receivable Agreement. To the extent payments are made pursuant to the Tax Receivable Agreement, Cano Health, Inc. generally will be required to pay to the Sponsor and to each other person from time to time that becomes a “Sponsor Party” under the Tax Receivable Agreement such Sponsor Party’s proportionate share of, an amount equal to such payments multiplied by a fraction with the numerator 0.15 and the denominator 0.85. As a result of the payments to the TRA Party and Sponsor Party, we generally will be required to pay an amount equal to, but not in excess of, the tax benefit realized from the tax attributes subject to the Tax Receivable Agreement. The term of the Tax Receivable Agreement will continue until all such tax benefits have been utilized or expired unless Cano Health, Inc. exercises its right to terminate the Tax Receivable Agreement for an amount representing the present value of anticipated future tax benefits under the Tax Receivable Agreement or certain other acceleration events occur.

The filing of the Chapter 11 Cases constitutes an early termination event of the Tax Receivable Agreement. Any efforts to enforce payment obligations under the Tax Receivable Agreement are automatically stayed as a result of the filing of the Chapter 11 Cases and the TRA Party and Sponsor Party's rights of enforcement in respect of the Tax Receivable Agreement are subject to the applicable provisions of the Bankruptcy Code.

The Tax Receivable Agreement liability is determined and recorded under ASC 450, “Contingencies,” as a contingent liability; therefore, we are required to evaluate whether the liability is both probable and the amount can be estimated. The Tax Receivable Agreement liability is payable upon cash tax savings or upon an early termination event. The Company has recorded a Tax Receivable Agreement liability as of March 31, 2024 as the Company determined that an early termination event occurred in conjunction with the filing of the Chapter 11 Cases during the quarter ended March 31, 2024 which accelerated the Company’s obligations under the Tax Receivable Agreement. The Tax Receivable Agreement contemplates, in the event of an acceleration, that the Company pay an Early Termination Payment (as defined in the Tax Receivable Agreement). The Company recorded a liability during the quarter ending March 31, 2024, of $261.1 million in respect of such Early Termination Payment, subject to the applicable provisions of the Bankruptcy Code. The liability has been recorded within “Reorganization items, net” in the Company’s unaudited condensed consolidated financial statement of operations. In accordance with the RSA, the Proposed Plan currently provides, among other things, that on the Effective Date, (i) the Tax Receivable Agreement shall be rejected and (ii) any claims arising under or relating to the Tax Receivable Agreement, including any resulting rejection damage claims, shall be subordinated pursuant to Section 510 of the Bankruptcy Code or otherwise. The Company will continue to evaluate this contingent liability on a quarterly basis, which may result in additional adjustments in the future.

CANO HEALTH, INC.

(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

18. NET INCOME (LOSS) PER SHARE

The following table sets forth the net income (loss) and the computation of basic and diluted net income (loss) per common stock for the periods indicated. Share and per-share amounts below have been restated to reflect the 1-for-100 Reverse Stock Split that the Company completed on November 3, 2023, as discussed in Note 1, "Nature of Business and Operations".


	Three Months Ended March 31,
(in thousands, except shares and per share data)	2024		2023
Numerator:
Net income (loss)	$	(478,205)	$	(60,585)
Less: net income (loss) attributable to non-controlling interests	(62,499)		(32,435)
Net income (loss) attributable to Class A Common Stockholders	(415,706)		(28,150)

Dilutive effect of Class B Common Stockholders	(62,499)		(32,435)
Net income (loss) attributable to Class A Common Stockholders - Diluted	$	(478,205)	$	(60,585)
Basic and Diluted Loss Per Share denominator:
Weighted average Common Stock outstanding - basic	4,595,364		2,398,021
Net income (loss) per share - basic	$	(90.46)	$	(11.74)
Diluted Loss Per Share:

Dilutive effect of Class B Common Stock on weighted average Common Stock outstanding	653,643		2,636,381
Weighted average Common Stock outstanding - diluted	5,249,007		5,034,402
Net income (loss) per share - diluted	$	(91.10)	$	(12.03)

The outstanding Company’s Class B Common Stock does not represent economic interests in the Company, and as such, is not included in the denominator of the basic net loss per share calculation.

On August 11, 2021, the Company issued 27,210 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's Class A Common Stock during the 20 consecutive trading days preceding the transaction's closing date. The dilutive effects of these shares were excluded from the diluted earnings per share calculation for the three months ended March 31, 2024 because they were anti-dilutive.

The Company’s dilutive securities are derived from the Company’s Class B Common Stock using the if-converted method which includes adding back to the numerator any related income or loss allocations to non-controlling interest. The Class B Common Stock was included in the period ended March 31, 2024 diluted loss per share calculations. Public Warrants, Private Warrants, RSUs, stock options, and contingent shares were excluded from the diluted loss per share calculation as they had an anti-dilutive effect for the periods presented. The table below presents the Company’s potentially dilutive securities:


	As of March 31, 2024

Public Warrants	$	229,999
Private Placement Warrants	105,333

Restricted Stock Units	125,990
Stock Options	74,489
Contingent Shares Issued in Connection with Acquisitions	27,210

Potential Common Stock Equivalents	$	563,021

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(DEBTOR-IN-POSSESSION)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

19. SEGMENT INFORMATION

The Company organizes its operations into one reportable segment. The Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), reviews financial information and makes decisions about resource allocation based on the Company’s responsibility to deliver high-quality primary medical care services to the Company’s patient population. For the periods presented, all of the Company’s revenues were earned in the U.S., including Puerto Rico, and all of the Company’s long-lived assets were located in the U.S.

20. SUBSEQUENT EVENTS

Operation and Implications of the Chapter 11 Cases

The Company's accompanying unaudited condensed consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon the Debtors ability to comply with the financial and other covenants contained in the DIP Credit Agreement, the development of, and the Bankruptcy Court’s approval of, a Chapter 11 plan and the Debtors ability to successfully implement a restructuring plan and obtain new financing, among other factors. Such conditions raise substantial doubt as to the Company’s ability to continue as a going concern.

As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities, including lease obligations, are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Credit Agreement and applicable orders of the Bankruptcy Court), for amounts other than those reflected in the Company's accompanying unaudited condensed consolidated financial statements. Further, any restructuring plan may impact the amounts and classifications of assets and liabilities reported in the Company's accompanying unaudited condensed consolidated financial statements.

On April 22, 2024 and May 6, 2024 the Debtors filed amended versions of the Proposed Plan and Proposed Disclosure Statement. The April 22, 2024 amendment to the Proposed Disclosure Statement revised the document to include a liquidation analysis, a valuation analysis of the reorganized Debtors and financial projections, as previously disclosed in our Current Report on Form 8-K filed with the SEC on April 22, 2024. See Note 1 “Nature of Business and Operations” for additional information on the Proposed Plan and Proposed Disclosure Statement. A hearing to consider, among other things, the adequacy of the Proposed Disclosure Statement and approval of the Debtors’ proposed procedures relating to the solicitation and tabulation of votes to accept or reject the Proposed Plan is scheduled to be heard before the Bankruptcy Court on May 9, 2024.

Significant Bankruptcy Court Actions

The Debtors have continued to review their portfolio and have closed or are in the process of closing approximately 72 under-performing locations that are not core to their go forward business since September 2023. The Debtors rejected the leases associated with such locations as part of the Chapter 11 Cases. By order dated March 8, 2024 (Docket No. 448), the Bankruptcy Court approved such rejections. On March 29, 2024, the debtors filed a motion (Docket No. 640) to reject 7 executory contracts and 4 additional leases for under-performing locations that are not core to their go forward business. On April 12, 2024, the Bankruptcy Court approved such rejections. The Debtors continue to evaluate their existing lease portfolio and additional rejection motions may be filed during the Chapter 11 Cases.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless otherwise indicated or the context otherwise requires, references in this section to the “Company,” “Cano Health,” “we,” “us,” “our,” and other similar terms refer, for periods prior to the completion of the Business Combination, to PCIH and its subsidiaries, and for periods upon or after the completion of the Business Combination, to the consolidated operations of Cano Health, Inc. and its subsidiaries, including PCIH and its subsidiaries. The following discussion and analysis is

intended to help the reader understand our business, results of operations, financial condition, liquidity and capital resources. This discussion should be read in conjunction with the Company's unaudited condensed consolidated financial statements and related notes presented here in Part I, Item 1 included elsewhere in this Quarterly Report on Form 10-Q (the “Q1 2024 Form 10-Q”), as well as the audited financial statements and the accompanying notes, as well as the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Cano Health” included in our Form 10-K for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2024.

The discussion contains forward-looking statements that are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Q1 2024 Form 10-Q, particularly in the sections entitled “Forward-Looking Statements,” as well as Part I, Item 1A, “Risk Factors” in our 2023 Form 10-K.

Executive Overview

During the three months ended March 31, 2024, our operating results have continued to perform below historical levels, with the majority of the decline arising from increases in third-party medical costs, including supplemental benefits.

Our strategy focuses on executing our Transformation Plan that is designed to: (i) improve our MCR; (ii) reduce our DPE and SG&A expenses; (iii) improve our gross profit and Adjusted EBITDA; and (iv) maximize our productivity, cash flow and liquidity. The Transformation Plan primarily includes the following measures:

•Driving medical cost management initiatives to improve our MCR;

•Lowering third party medical costs through negotiations with payors, including restructuring contractual arrangements with payors and specialty network;

•Expanding initiatives to optimize our DPE and SG&A expenses

▪reducing operating expenses, including reduction of permanent staff; and

▪significantly reducing all other non-essential spending;

•Prioritizing the Company’s Medicare Advantage and ACO Reach lines of business through improving patient engagement and access;

•Divesting and consolidating certain assets and operations, inclusive of exiting certain markets

▪exiting our Puerto Rico operations, which we completed at the beginning of 2024;

▪conducting a strategic review of our Medicaid business in Florida, pharmacy assets and other specialty practices; and

▪consolidating underperforming owned medical centers and delaying renovations and other capital projects;

•Evaluating the performance of our affiliate provider relationships

▪terminating underperforming affiliate partnerships; and

•Pursuing a comprehensive process to identify and evaluate interest in a sale of the Company, or all or substantially all of our assets, including having engaged advisors to assist in the process.

As a result of accelerating these initiatives, the Transformation Plan is now targeted to achieve approximately $290 million of cost reductions by the end of 2024, including approximately $111 million in initiatives currently in process or already implemented. The Company expects to recognize approximately $20 million in pre-tax charges to implement these plans during 2024, consisting principally of lease exit costs and employee termination benefits. The Company expects that substantially all of these charges will be paid in cash over 2024 and 2025.

As previously-disclosed, as part of the Company’s effort to generate additional liquidity, on September 25, 2023, the Company sold to Primary Care Holdings II, LLC (“CenterWell”), a wholly owned subsidiary of Humana Inc. (“Humana”), substantially all of the assets associated with the operation of Cano Health’s senior-focused primary care centers in Texas and Nevada (the “Sale Transaction”) for a total transaction value to the Company of a total transaction value to the Company of approximately $66.7 million, consisting of approximately $35.4 million in cash paid at closing (of which approximately $1.9 million was withheld for satisfaction of potential indemnification claims), plus the release of certain liabilities owed by Cano Health or its affiliates primarily for centers built under commercial agreements entered into with affiliates of Humana. The net cash proceeds from the Sale Transaction enabled the Company to repay a portion of its outstanding commitment under its revolving credit facility, for which Credit Suisse AG, Cayman Islands Branch is the administrative agent.

Consistent with the terms and conditions of the 2023 Side-Car Amendment, discussed below, the Company has formally launched, announced and continues to pursue a comprehensive process to identify and evaluate interest in a sale of the Company, or all or substantially all of its assets, including having engaged advisors to assist in the process. While these efforts have yet to yield a sale transaction, the Company’s process remains ongoing. There is no assurance that this process will result in any transaction.

We believe that these strategic and operational steps are critical to our efforts to improve our financial performance, including improved profitability, liquidity, cash flow and net cash, as well as generating greater efficiency and improving health outcomes for our members.

As previously disclosed in Current Reports on Form 8-K filed by the Company on February 5, 2024 and February 7, 2024 with the SEC, on February 4, 2024, the Debtors entered into the RSA with the Consenting Creditors, which, among other things, sets forth the principal terms of a proposed Restructuring of the existing capital structure of the Company in the Chapter 11 Cases commenced by the Debtors on February 4, 2024 in the Bankruptcy Court under chapter 11 of the Bankruptcy Code.

On March 22, 2024, the Debtors filed (i) the Proposed Plan; (ii) the Proposed Disclosure Statement; and (iii) the Motion of Debtors for Entry of Order (I) Approving Proposed Disclosure Statement and Form and Manner of Notice of Disclosure Statement Hearing, (II) Establishing Solicitation and Voting Procedures, (III) Scheduling Confirmation Hearing, (IV) Establishing Notice and Objection Procedures for Confirmation of Proposed Plan, and (V) Granting Related Relief (Docket No. 501). On April 22, 2024 and May 6, 2024, the Debtors filed amended versions of the Proposed Plan and Proposed Disclosure Statement. The April 22 2024 amendment to the Proposed Disclosure Statement was revised to include a liquidation analysis, a valuation analysis of the reorganized Debtors and financial projections, as previously disclosed in our Current Report on Form 8-K filed with the SEC on April 22, 2024. A hearing to consider, among other things, the adequacy of the Proposed Disclosure Statement and approval of the Debtors’ proposed procedures relating to the solicitation and tabulation of votes to accept or reject the Proposed Plan is scheduled to be heard before the Bankruptcy Court on May 9, 2024.

Key Performance Metrics

In addition to our GAAP and non-GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.


	March 31, 2024	December 31, 2023	March 31, 2023
Membership	220,199	267,917	388,667
Medical centers	95	100	170

Members

Members represent those Medicare, Medicaid, ACA, and until the second quarter of 2023, commercially insured patients, for whom we receive a fixed PMPM fee under capitation arrangements as of the end of a particular period.

Owned Medical Centers

We define our medical centers as those primary care medical centers open for business and attending to members at the end of a particular period in which we own the medical operations and the physicians are our employees.

Key Components of Results of Operations

Revenue

Capitated revenue. Our capitated revenue is derived from medical services provided at our medical centers or affiliated practices under capitation arrangements made directly with various health plans or CMS. Capitated revenue consists of a PMPM amount paid for the delivery of healthcare services, and our rates are determined as a percent of the premium that the health plans receive from the CMS for our at-risk members. Those premiums are based upon the cost of care in a local market and the average utilization of services by the members enrolled. Medicare pays capitation using a “risk adjustment model,” which compensates providers based on the health status (acuity) of each individual patient. Groups with higher acuity patients receive more, and those with lower acuity patients receive less. Under the risk adjustment model, capitated premium is paid based on the acuity of members enrolled for the preceding year and subsequently adjusted once current year data is compiled. The amount of capitated revenue may be affected by certain factors outlined in the agreements with the health plans, such as administrative fees paid to the health plans and risk adjustments to premiums.

Generally, we enter into 3 types of capitation arrangements: non-risk arrangements, limited risk arrangements, and full risk arrangements. Under our non-risk arrangements, we receive monthly capitated payments without regard to the actual amount of services provided. Under our limited risk arrangements, we assume partial financial risk for covered members. Under our full risk arrangements, we assume full financial risk for covered members.

Fee-for-service and other revenue. We generate fee-for-service revenue from providing primary care services to patients in our medical centers and affiliates when we bill the member or their insurance plan on a fee-for-service basis as medical services are rendered. While substantially all of our patients are members, we occasionally also provide care to non-members. Fee-for-service amounts are recorded based on agreed-upon fee schedules determined within each contract.

Other revenue includes pharmacy and ancillary fees earned under contracts with certain care organizations for the provision of care coordination and other services. With respect to our pharmacies, we contract with an administrative services organization to collect and remit payments on our behalf from the sale of prescriptions and medications. We have pharmacies at some of our medical centers, where patients may fill prescriptions and retrieve their medications. Patients also have the option to fill their prescriptions with a third-party pharmacy of their choice. Other revenue also includes fixed amounts due from a third-party healthcare claims reimbursement recovery service provider for claims which have been assigned to them related to these ancillary services. We also may receive and recognize a percentage of these claims recovered in excess of certain thresholds. These variable payments are recognized at the time of settlement. No such payment has been received to date.

Operating Expenses

Third-party medical costs. Third-party medical costs primarily consist of medical expenses incurred by the health plans or CMS (contractually on behalf of the Company), including costs for inpatient and hospital care, specialists, and certain pharmacy purchases, net of rebates and other recoveries. Provider costs are accrued based on the date of service to members, based in part on estimates, including an accrual for medical services incurred but not reported (“IBNR”). Liabilities for IBNR are estimated and adjusted for current experience. These estimates are continually reviewed and updated, and we retain the services of an independent actuary to review IBNR on a quarterly basis. We expect our third-party medical costs to increase given the healthcare spending trends within the Medicare population, which is also consistent with funding rates we receive under our payor contracts. Third-party medical costs also include fixed amounts due from a third-party healthcare claims reimbursement

recovery service provider for claims which have been assigned to them related to third-party medical costs. We also may receive and recognize a percentage of these claims recovered in excess of certain thresholds. These variable payments are recognized at the time of settlement. No such variable consideration has been received to date.

Direct patient expense. Direct patient expense primarily consists of costs incurred in the treatment of our patients, at our medical centers and affiliated practices, including the compensation related to medical service providers and clinical support staff, medical supplies, purchased medical services, drug costs for pharmacy sales, and payments to affiliated providers.

Selling, general, and administrative expenses. SG&A expenses include employee-related expenses, including salaries and benefits, technology infrastructure, operations, clinical and quality support, finance, legal, human resources, and corporate development departments. In addition, SG&A expenses include all corporate technology and occupancy costs. For purposes of determining center-level economics, we allocate a portion of our SG&A expenses to our medical centers and affiliated practices. The relative allocation of these expenses to each center depends upon the number of centers open during a given period of time, and, if determinable, the center where the expense was incurred. In the third quarter of 2023, the Company implemented a plan designed to further restructure its operations to streamline and simplify the organization to improve efficiency and reduce costs. In connection with its Transformation Plan, in the quarter ended March 31, 2024, the Company reduced staffing by approximately 134 employees, or 5% of its workforce. These actions are expected to yield approximately $11.4 million of annualized cost reductions beginning in the first quarter of 2024.

Depreciation and amortization expense. Depreciation and amortization expenses are primarily attributable to our capital investment and consist of fixed asset depreciation and amortization of intangibles considered to have finite lives.

Transaction costs. Transaction costs primarily consist of deal costs (including deferred acquisition costs, due diligence, integration, legal, internal staff, and other professional fees, incurred in connection with acquisition activity).

Change in fair value of contingent consideration. Change in fair value of contingent consideration consists of adjustments in contingent consideration due to acquisitions.

Credit losses on other assets. On August 2, 2023, MSP announced that the SEC initiated an investigation of MSP on August 11, 2022. In addition, MSP announced that it received a subpoena on March 10, 2023 from the U.S. Attorney's Office in the U.S. District Court for the Southern District of Florida. As a result of (i) these recent disclosures by MSP; and (ii) MSP's not being in compliance with the NASDAQ listing requirements, the Company decided to utilize a third-party valuation specialist to provide a market value analysis of the shares of Class A common stock that MSP issued to the Company on July 7, 2023. During the quarter ended June 30, 2023, the Company recorded an allowance for credit losses of $62.0 million. As of September 30, 2023 the Company has concluded that the securities do not have a readily determinable fair value. As of December 31, 2023, the Company valued the MSP shares based on the market value at the time and recorded the impact within Other Income (Expense) section. As of December 31, 2023, 8.0 million total shares of MSP common stock had an estimated fair value of $18.2 million under the caption "Equity securities at fair value" in the consolidated balance sheets. On March 3, 2024, the Bankruptcy Court entered an order at Docket No. 328 (the “MSP Recovery Shares Order”) authorizing the Company to continue to sell its shares of Class A common stock. As of March 31, 2024, the Company held 2.0 million units of MSP shares.

During the quarter ended March 31, 2024, the Company disposed of 6.0 million shares of MSP, receiving aggregate net proceeds in the amount of approximately $6.7 million. Subsequent to March 31, 2024, the Company disposed of its remaining 2.0 million shares in MSP, receiving aggregate net proceeds in the amount of approximately $2.0 million. Net sales proceeds transacted between February 4, 2024 and March 31, 2024 of approximately $3.2 million are being held in a segregated account in accordance with the MSP Recovery Shares Order which are recorded as restricted cash under the caption "cash, cash equivalents and restricted cash" in the accompanying unaudited condensed consolidated balance sheets.

Other Income (Expense)

Interest expense. Interest expense primarily consists of interest incurred on our outstanding borrowings under our Credit Suisse Credit Agreement, Senior Notes, and 2023 Term Loan, including Paid-in-Kind interest ("PIK"). See “Liquidity and Capital Resources.” Costs incurred to obtain debt financing are amortized and shown as a component of interest expense. As described in Note 12. “Debt”, since the filing of the Chapter 11 Cases on the Petition Date, the Company ceased accruing interest on all debt, except for the DIP Facility. As a result, the Company did not record $22.1 million of contractual interest expense related to the CS Term Loan, CS Revolving Line of Credit, 2023 Term Loan, and Senior Notes as of March 31, 2024.

Interest income. Interest income primarily consists of interest earned through a loan agreement with an affiliated company. Interest income on surplus cash invested from DIP financing has been recorded within “Reorganization items, net” within the Company’s accompanying unaudited condensed statement of operations for the three months ended March 31, 2024.

Loss on extinguishment of debt. Loss on extinguishment of debt primarily consists of unamortized debt issuance costs related to our Credit Suisse Credit Agreement in connection with our financing arrangements.

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities consists primarily of changes to the public warrants and private placement warrants assumed upon the consummation of the Business Combination. The liabilities are revalued at each reporting period.

Other income (expense). Other income (expense) primarily relates to sublease income and the gain on the Sale Transaction.

Reorganization items, net. Reorganization items, net relates to amounts incurred after the petition date as a direct result of the bankruptcy. This includes costs associated with Restructuring, including write-off of original issue discount and deferred long-term debt fees on debt subject to compromise, costs of debtor-in-possession refinancing, legal and professional fees, amongst others.

Results of Operations

The following table sets forth our unaudited condensed consolidated statements of operations data for the periods indicated:


	Three Months Ended March 31,
(in thousands)	2024		2023
Revenue:
Capitated revenue	$	669,075	$	841,074
Fee-for-service and other revenue	15,351		25,835
Total revenue	684,426		866,909
Operating expenses:
Third-party medical costs	640,991		708,331
Direct patient expense	45,865		68,427
Selling, general, and administrative expense	89,109		96,473
Depreciation and amortization expense	18,371		27,221
Transaction costs	1,200		10,086
Change in fair value of contingent consideration	—		(4,100)


Total operating expenses	795,536		906,438
Loss from operations	(111,110)		(39,529)
Other income and expense:
Interest expense (excludes contractual interest of $22,093 for the three months ended March 31, 2024)	(14,930)		(23,505)
Interest income	497		9

Change in fair value of warrant liabilities	—		2,008
Other income (expense)	(10,715)		432
Total other income (expense)	(25,148)		(21,056)
Reorganization items, net	(341,911)		—
Net income (loss) before income tax expense	(478,169)		(60,585)
Income tax (expense) benefit	(36)		—
Net income (loss)	(478,205)		(60,585)
Net income (loss) attributable to non-controlling interests	(62,499)		(32,435)
Net income (loss) attributable to Class A common stockholders	$	(415,706)	$	(28,150)

The following table sets forth our unaudited condensed consolidated statements of operations data expressed as a percentage of total revenues for the periods indicated:


	Three Months Ended March 31,
(% of revenue)	2024		2023
Revenue:
Capitated revenue	97.8	%	97.0	%
Fee-for-service and other revenue	2.2	%	3.0	%
Total revenue	100.0	%	100.0	%
Operating expenses:
Third-party medical costs	93.7	%	81.7	%
Direct patient expense	6.7	%	7.9	%
Selling, general, and administrative expense	13.0	%	11.1	%
Depreciation and amortization expense	2.7	%	3.1	%
Transaction costs	0.2	%	1.2	%
Change in fair value of contingent consideration	0.0	%	(0.5)	%


Total operating expenses	116.2	%	104.6	%
Loss from operations	(16.2)	%	(4.6)	%
Other income and expense:
Interest expense	(2.2)	%	(2.7)	%
Interest income	0.1	%	0.0	%

Change in fair value of warrant liabilities	0.0	%	0.2	%
Other income (loss)	(1.6)	%	0.0	%
Total other income (loss)	(3.7)	%	(2.5)	%
Reorganization items, net	(50.0)	%	0.0	%
Net income (loss) before income tax expense	(69.9)	%	(7.0)	%
Income tax (expense) benefit	0.0	%	0.0	%
Net income (loss)	(69.9)	%	(7.0)	%
Net income (loss) attributable to non-controlling interests	(9.1)	%	(3.7)	%
Net income (loss) attributable to Class A common stockholders	(60.7)	%	(3.3)	%

The following table sets forth the Company’s disaggregated revenue for the periods indicated:


	Three Months Ended March 31,
	2024				2023
(in thousands)	Revenue $		Revenue %		Revenue $		Revenue %
Capitated revenue
Medicare	$	637,153	93.1	%	$	793,628	91.5	%
Other capitated revenue	31,922		4.7	%	47,446		5.5	%
Total capitated revenue	669,075		97.8	%	841,074		97.0	%
Fee-for-service and other revenue
Fee-for-service	3,138		0.5	%	11,693		1.3	%
Pharmacy	10,979		1.6	%	12,106		1.4	%
Other	1,234		0.2	%	2,036		0.3	%
Total fee-for-service and other revenue	15,351		2.2	%	25,835		3.0	%

Total revenue	$	684,426	100.0	%	$	866,909	100.0	%

The following table sets forth the Company’s member and member month figures for the periods indicated:


	Three Months Ended March 31,
	2024		2023		% Change
Members:
Medicare Advantage	93,093		140,366		(33.7)	%
Medicare ACO REACH	64,915		67,054		(3.2)	%
Total Medicare	158,008		207,420		(23.8)	%
Medicaid	45,176		81,509		(44.6)	%
ACA	17,015		99,738		(82.9)	%
Total members	220,199		388,667		(43.3)	%

Member months:
Medicare Advantage	288,373		416,776		(30.8)	%
Medicare ACO REACH	196,437		202,683		(3.1)	%
Total Medicare	484,810		619,459		(21.7)	%
Medicaid	138,926		242,649		(42.7)	%
ACA	51,402		283,961		(81.9)	%
Total member months	675,138		1,146,069		(41.1)	%

Per Member Per Month ("PMPM"):
Medicare Advantage	$	1,214	$	1,180	2.9	%
Medicare ACO REACH	1,461		1,489		(1.9)	%
Total Medicare	$	1,314	$	1,281	2.6	%
Medicaid	222		183		21.3	%
ACA	20		11		81.8	%
Total PMPM	$	991	$	734	35.0	%

Medical centers	95		170

Comparison of the Three Months Ended March 31, 2024 and 2023

Revenue


	Three Months Ended March 31,
(in thousands)	2024		2023		$ Change		% Change
Revenue:
Capitated revenue	$	669,075	$	841,074	$	(171,999)	-20.4	%
Fee-for-service and other revenue	15,351		25,835		(10,484)		-40.6	%
Total revenue	$	684,426	$	866,909	$	(182,483)

Capitated revenue. Capitated revenue was $669.1 million for the three months ended March 31, 2024, a decrease of $172.0 million, or 20.4%, compared to $841.1 million for the three months ended March 31, 2023. The decrease was primarily driven by (i) a reduction in membership driven by the termination of contracts and the closure of facilities outside of the core Florida market resulting in a decrease of $182.3 million, (ii) $10.4 million related to membership mix primarily in our Medicare and Medicaid products, (iii) partially offset by a $20.7 million increase in total capitated revenue PMPM primarily in our Medicare Advantage and Medicaid products. The change in capitated revenue PMPM included a decrease of approximately $10.2 million in Medicare Risk Adjustments.

Fee-for-service and other revenue. Fee-for-service and other revenue was $15.4 million for the three months ended March 31, 2024, a decrease of $10.5 million, or 40.6%, compared to $25.8 million for the three months ended March 31, 2023, primarily due to a decrease in volume of services provided.

Operating Expenses


	Three Months Ended March 31,
(in thousands)	2024		2023		$ Change		% Change
Operating expenses:
Third-party medical costs	$	640,991	$	708,331	$	(67,340)	-9.5	%
Direct patient expense	45,865		68,427		(22,562)		-33.0	%
Selling, general, and administrative expenses	89,109		96,473		(7,364)		-7.6	%
Depreciation and amortization expense	18,371		27,221		(8,850)		-32.5	%
Transaction costs	1,200		10,086		(8,886)		-88.1	%
Change in fair value of contingent consideration	—		(4,100)		4,100		-100.0	%


Total operating expenses	$	795,536	$	906,438	$	(110,902)

Third-party medical costs. Third-party medical costs were $641.0 million for the three months ended March 31, 2024, a decrease of $67.3 million, or 9.5%, compared to $708.3 million for the three months ended March 31, 2023. The decrease was driven by a $144.9 million decrease related to members volume mainly in our Medicare products from the termination of contracts and closures of facilities outside of the core Florida market, a $41.9 million decrease related to membership mix, partially offset by a $119.5 million increase related to higher third-party medical costs PMPM mainly in our Medicare and Medicaid products.

Direct patient expense. Direct patient expense was $45.9 million for the three months ended March 31, 2024, a decrease of $22.6 million, or 33.0%, compared to $68.4 million for the three months ended March 31, 2023. The decrease was primarily driven by decreases in affiliate provider payments of $3.9 million, payroll and benefits of $12.3 million, drug costs for pharmacy sales of $0.9 million, medical supplies of $1.3 million, and purchase services of $4.1 million.

Selling, general, and administrative expenses. Selling, general, and administrative expenses were $89.1 million for the three months ended March 31, 2024, a decrease of $7.4 million, or 7.6%, compared to $96.5 million for the three months ended March 31, 2023. The decrease was primarily driven by decreases in (i) payroll and benefit of $13.1 million driven by the reduction of full-time employees; (ii) marketing expenses of $1.7 million; (iii) transportation costs of $1.4 million; (iv) lease

expenses of $1.4 million and (v) other operating costs of $4.4 million. These decreases were offset by an increase in professional fees of $14.6 million related to restructuring and related charges prior to filing Chapter 11.

Depreciation and amortization expense. Depreciation and amortization expense was $18.4 million for the three months ended March 31, 2024, a decrease of $8.9 million, or 32.5%, compared to $27.2 million for the three months ended March 31, 2023. The decrease was primarily driven by lease abandonments recorded in the fourth quarter of 2023 leading to accelerated depreciation and amortization for property, equipment and right-of-use assets, and the acceleration of the University brand asset in 2023.

Transaction costs. Transaction costs were $1.2 million for the three months ended March 31, 2024, a decrease of $8.9 million, or 88.1%, compared to $10.1 million for the three months ended March 31, 2023. The decrease primarily relates to the lower volume of transaction activity compared to the previous year.

Change in fair value of contingent consideration. Contingent consideration generated a gain of $4.1 million for the three months ended March 31, 2023 due to the performance of certain acquired plans and related contingent payments which were completed in 2022. There were no changes in the fair value of contingent consideration for the quarter ended March 31, 2024.

Other Income (Expense)


	Three Months Ended March 31,
(in thousands)	2024		2023		$ Change		% Change
Other income and expense:
Interest expense	$	(14,930)	$	(23,505)	$	8,575	-36.5	%
Interest income	497		9		488		5422.2	%

Change in fair value of warrant liabilities	—		2,008		(2,008)		-100.0	%
Other income (expense)	(10,715)		432		(11,147)		-2580.3	%
Total other income (expense)	$	(25,148)	$	(21,056)	$	(4,092)

Interest expense. Interest expense was $14.9 million for the three months ended March 31, 2024, a decrease of $8.6 million, or 36.5%, compared to $23.5 million for the three months ended March 31, 2023. The decrease was primarily driven by a $10.4 million reduction in interest accrual days and $0.7 million in amortized issuance costs due to decrease in the amortization period. Since the filing of the Chapter 11 Cases on the Petition Date, the Company ceased accruing interest on all debt, except for the DIP Facility. The decreases were offset by $2.6 million of interest recorded during the three months ended March 31, 2024 related to the DIP financing.

Change in fair value of warrant liabilities. Change in fair value of warrant liabilities was $2.0 million for the three months ended March 31, 2023. Due to the delisting of the Public Warrants on November 13, 2023, the Company determined the fair value of the Public Warrants and Private Placement Warrants to be equal to zero.

Other income (expense). Includes a $8.2 million loss during the quarter ended March 31, 2024 for changes in the fair value of the 8.0 million shares of MSP securities that the Company held during the quarter ended March 31, 2024. During the quarter ended March 31, 2024, the Company disposed of 6.0 million shares of MSP, receiving aggregate net proceeds in the amount of approximately $6.7 million. Subsequent to March 31, 2024, the Company disposed of its remaining 2.0 million shares in MSP, receiving aggregate net proceeds in the amount of approximately $2.0 million. Net sales proceeds transacted between February 4, 2024 and March 31, 2024 of approximately $3.2 million are being held in a segregated account in accordance with the MSP Recovery Shares Order which are recorded as restricted cash under the caption "cash, cash equivalents and restricted cash" in the accompanying unaudited condensed consolidated balance sheets.

Liquidity and Capital Resources

General

We have financed our operations principally through the Business Combination, debt securities and borrowings. As of March 31, 2024 and December 31, 2023, we had cash, cash equivalents and restricted cash of $178.0 million and $75.8 million, respectively. As of March 31, 2024, our restricted cash balance of $140.3 million comprised of $39.8 million of cash held as collateral related to the ACO REACH program, $7.6 million related to letters of credit on other insurance programs, $3.2 million held as restricted cash from sales of equity securities at fair value, $12.0 million of funding for professional fees held in escrow for purposes of our Chapter 11 cases, and $77.7 million related to DIP Refinancing held in escrow. As of December 31, 2023, our restricted cash balance of $33.3 million comprised of $27.6 million of cash held as collateral primarily related to the ACO REACH program and $5.7 million related to letters of credit on other insurance programs.

As of March 31, 2024, the $120 million CS Revolving Line of Credit was fully drawn. Since our inception, we have generated significant operating losses from our operations, as reflected in our accumulated deficit of $1.3 billion as of March 31, 2024 and negative cash flows from operations.

Prior to taking into account the Chapter 11 Cases, in 2024, we expected to incur approximately $80.6 million in cash interest payments and approximately $4.8 million in capital expenditures.

We believe that our existing cash, cash equivalents and restricted cash along with our expected cash generation through operations and the DIP Facility will not be sufficient to fund our operating and capital needs for at least the next 12 months from the date of issuance of the unaudited condensed consolidated financial statements included in this Q1 2024 Form 10-Q.

As previously disclosed, on February 5, 2024, the NYSE Regulation notified the Company that the NYSE (a) had determined to commence proceedings to delist the Company’s Class A Common Stock and (b) immediately suspended trading on the NYSE in the Company’s Class A Common Stock pursuant to Section 802.01D of the NYSE Listed Company Manual after the Company commenced the Chapter 11 Cases on February 4, 2024. The NYSE filed a Form 25 with the SEC on February 6, 2024 to initiate such delisting from the NYSE, which delisting became effective on February 16, 2024. Also, as previously disclosed, on November 13, 2023, the NYSE filed a Form 25 with the SEC to initiate delisting the Public Warrants from the NYSE, which delisting became effective on November 23, 2023.

As discussed in Note 3, “Going Concern,” the Company is pursuing several initiatives to improve its profitability, liquidity, cash flow and net cash, such as controlling and reducing operating expenses, limiting capital expenditures, selling assets and operations and exiting certain markets. The Company’s efforts to reduce operating expenses include reducing permanent staff, lowering its third party medical costs through negotiations with payors, exiting and consolidating underperforming medical centers, delaying renovations and other capital projects and significantly reducing nonessential spending.

In the third quarter of 2023, the Company implemented a plan designed to further restructure its operations to streamline and simplify the organization to improve efficiency and reduce costs. These actions include workforce reductions that are expected to reduce our SG&A costs in future periods. The Company then announced in late December 2023 that it was pursuing implementation of its new Transformation Plan that is designed to: (i) improve the Company’s MCR; (ii) reduce its DPE and SG&A expenses; (iii) improve the Company’s gross profit and Adjusted EBITDA; and (iv) maximize the Company’s productivity, cash flow and liquidity. Among other actions, the Transformation Plan includes expanding initiatives to optimize its DPE and SG&A expenses including reducing operating expenses. In the quarter ended March 31, 2024, the Company reduced staffing by approximately 134 employees, or 5% of its workforce. These actions are expected to yield approximately $11.4 million of annualized cost reductions beginning in the first quarter of 2024.

As previously-disclosed, as part of the Company’s effort to generate additional liquidity, on September 25, 2023, the Company consummated the Sale Transaction, selling substantially all of the assets associated with the operation of Cano Health’s senior-focused primary care centers in Texas and Nevada to CenterWell for a total transaction value to the Company of approximately $66.7 million, consisting of approximately $35.4 million in cash paid at closing (of which approximately $1.9 million was withheld for satisfaction of potential indemnification claims), plus the release of certain liabilities owed by Cano Health or its affiliates primarily for centers built under commercial agreements entered into with affiliates of Humana. The net

cash proceeds from the Sale Transaction enabled the Company to repay a portion of its outstanding balance under the CS Revolving Line of Credit. In the fourth quarter, the Company divested certain specialty practices in Florida and divested certain assets located in the states of California and Illinois for a total transaction value to the Company of approximately $19.9 million, the net cash proceeds from these divestitures were used as working capital.

As part its plan to improve cash flow and liquidity, the Company also closed operations within its medical centers in California and New Mexico in the end of the third quarter of 2023, Illinois and Puerto Rico in the fourth quarter of 2023.

Other ongoing initiatives to generate additional liquidity include the Company’s continued pursuit of its strategic review, which may result in the sale of all or substantially all of the Company’s business and/or the sale of certain lines of business, such as the Company’s Medicaid business in Florida, pharmacy assets and other specialty practices.

Consistent with the terms and conditions of the 2023 Side-Car Amendment, discussed below, the Company has formally launched, announced and continues to pursue a comprehensive process to identify and evaluate interest in a sale of the Company, or all or substantially all of its assets, including having engaged advisors to assist in the process. While these efforts have yet to yield a sale transaction, the Company’s process remains ongoing during the Chapter 11 Cases. There is no assurance that this process will result in any transaction.

2023 Term Loan Agreement

On February 24, 2023 (the “2023 Term Loan Closing Date”), the Company, through its wholly owned operating subsidiary, Cano Health, LLC (the “Borrower”), and Primary Care (ITC) Intermediate Holdings, LLC (“Holdings”), entered into a Credit Agreement (the “Side-Car Credit Agreement”) with certain lenders and JP Morgan Chase Bank, N.A., as administrative agent (the “2023 Term Loan Administrative Agent”), pursuant to which the lenders provided a senior secured term loan (the “2023 Term Loan”) to the Borrower in the aggregate principal amount of $150 million, the full amount of which was funded on the 2023 Term Loan Closing Date.

Pursuant to the Side-Car Credit Agreement, the 2023 Term Loan bears interest at a rate equal to: (i) on or prior to the date that is the second anniversary of the closing date, 14% per annum, payable quarterly either (at the Borrower’s election) in cash or in kind by adding such amount to the principal balance of the 2023 Term Loan (provided that pursuant to the 2023 Side Car Amendment, the interest rate for the 2023 Term Loan will be increased to 16% during the payment-in-kind period ending on February 24, 2025); and (ii) thereafter, 13% per annum, payable quarterly in cash. The Borrower has elected to satisfy interest due on the 2023 Term Loan through the second anniversary in kind. The 2023 Term Loan is scheduled to mature on November 23, 2027. The 2023 Term Loan will not amortize. Any efforts to enforce payment obligations under the Debt Instruments are automatically stayed as a result of the filing of the Chapter 11 Cases and the rights of enforcement in respect of the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code.

Credit Suisse Credit Agreement

Pursuant to the Credit Suisse Credit Agreement, the Company, through the Borrower, has a senior secured term loan (as amended, the “CS Term Loan”) and a revolving credit facility (as amended, the “CS Revolving Line of Credit”). The Obligations under the Credit Suisse Credit Agreement are secured by substantially all of the Borrower’s assets.

The CS 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 CS Term Loan is scheduled to become due on the maturity date of November 23, 2027. Any efforts to enforce payment obligations under the Debt Instruments are automatically stayed as a result of the filing of the Chapter 11 Cases and the rights of enforcement in respect of the Debt Instruments are subject to the applicable provisions of the Bankruptcy Code.

(“SOFR”) as the replacement for LIBOR as the benchmark interest rate for borrowings under the CS Term Loan and CS Revolving Line of Credit, and certain other provisions. The new interest rate applicable to the CS Term Loan and borrowings under the CS 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 Borrower 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 remained in effect, a margin of 3.75% would be applicable. The Borrower has not reached these applicable corporate ratings. The amendment represented a partial extinguishment and resulted in a write-off of deferred issuance costs of $1.4 million, which was recorded as a loss on extinguishment of debt for the nine months ended September 30, 2022. During the three months ended March 31, 2024, the SOFR exceeded the credit spread adjustment of 0.50%, resulting in monthly variable interest rates for the quarter. As of March 31, 2024, the effective interest rate of the CS Term Loan and the CS Revolving Line of Credit was 9.46%. However, since the filing of the Chapter 11 cases on the Petition Date, the Company ceased accruing interest on all pre-petition debt.

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, which interest commenced on April 1, 2022. As of March 31, 2024, the effective interest rate of the Senior Notes was 6.25%. Principal on the Senior Notes is scheduled to become due in full on October 1, 2028. The Senior Notes are not subject to any amortization payments. See "Going Concern" in Note 3 and "Credit Agreements General" discussed in Note 12.

LIFW Sales Summary

As of December 31, 2023, 8.0 million total shares of MSP common stock had an estimated fair value of $18.2 million under the caption "Equity securities at fair value" in the consolidated balance sheets. On March 3, 2024, the Bankruptcy Court entered an order at Docket No. 328 (the “MSP Recovery Shares Order”) authorizing the Company to continue to sell its shares of Class A common stock. As of March 31, 2024, the Company held 2.0 million units of MSP shares.

Cash Flows

The following table presents a summary of our unaudited condensed consolidated cash flows from operating, investing and financing activities for the periods indicated.


	Three Months Ended March 31,
(in thousands)	2024		2023
Net cash (used in) provided by operating activities	$	(48,828)	$	(29,470)
Net cash (used in) provided by investing activities	3,874		(9,459)
Net cash (used in) provided by financing activities	147,184		56,488
Net Increase (decrease) in cash, cash equivalents and restricted cash	102,230		17,559
Cash, cash equivalents and restricted cash at beginning of year	75,763		27,329
Cash, cash equivalents and restricted cash at end of period	$	177,993	$	44,888

Operating Activities

For the three months ended March 31, 2024, net cash used in operating activities was $48.8 million, an increase of $19.4 million in cash outflows, compared to net cash used in operating activities of $29.5 million for the three months ended March 31, 2023. Significant changes impacting net cash used in operating activities were as follows:

A decrease in cash of $78.6 million related to net loss and non-cash charges and credits, primarily related to the following:

•Increase in net losses of $417.6 million;

•Decrease in depreciation and amortization expense of $8.9 million; and

•Decrease in share-based compensation of $5.4 million

Offset by the following non-cash items:

•Increase in non-cash reorganization items of $337.3 million;

•Increase in the change in fair value of equity securities of $10.3 million;

•Increase in the change in fair value of contingent considerations of $4.1 million; and

•Increase in the change in fair value of warrant liabilities of $2.0 million

An increase in cash of $59.3 million related to operating assets and liabilities primarily resulting from:

•Changes in accounts receivable due to the timing of collections and the growth in membership;

•Changes in liability for unpaid claims due to the growth in membership; and

•Changes in accounts payable and accrued expenses due to the timing of payments.

Investing Activities

For the three months ended March 31, 2024, net cash provided by investing activities was $3.9 million, an increase of $13.3 million in cash inflows, compared to net cash used in investing activities of $9.5 million for the three months ended March 31, 2023, primarily due to a $6.4 million increase in cash provided by the sale of equity securities and a decrease of $4.3 million from purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $147.2 million during the three months ended March 31, 2024, an increase of $90.7 million, compared to net cash used in financing activities of $56.5 million during the three months ended March 31, 2023, primarily due to a decrease in net repayments of the CS Revolving Line of Credit and an increase due to proceeds from the DIP Credit Facility.

Non-GAAP Financial Metrics

The following discussion includes references to EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, which are reconciled below to net income/net loss, their most directly comparable GAAP measure. A non-GAAP financial measure is a performance metric that departs from GAAP because it excludes earnings components that are required under GAAP. Other companies may define non-GAAP financial measures differently and, as a result, our non-GAAP financial measures may not be directly comparable to those of other companies. These non-GAAP financial metrics should be used as a supplement to, and not as an alternative to, the Company's GAAP financial results.

By definition, EBITDA consists of net income (loss) before interest, income taxes, depreciation and amortization. Adjusted EBITDA is EBITDA adjusted to add back the effect of certain expenses, such as stock-based compensation expense, transaction costs (consisting of transaction costs and corporate development payroll costs), restructuring and other charges, realized and unrealized losses from equity securities, fair value adjustments in contingent consideration, changes in fair value of warrant liabilities and reorganization items, net. Adjusted EBITDA is a key measure used by our management to assess the operating and financial performance of our Company.

The presentation of non-GAAP financial measures also provides additional information to investors regarding our results of operations and is useful for trending, analyzing and benchmarking the performance and value of our business. By excluding certain expenses and other items that may not be indicative of our underlying core business operating results, these non-GAAP financial measures:

•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 certain financial covenants.

Our use of EBITDA and Adjusted EBITDA have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our financial results as reported under GAAP. Some of these limitations are as follows:

•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) the change in the fair value of our warrant liabilities; (4) the change in the fair value of contingent consideration; or (5) 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.

Because of these and other limitations, you should consider Adjusted EBITDA along with our other GAAP-based financial performance measures, including net loss, cash flow metrics and our GAAP financial results.

The following table provides a reconciliation of EBITDA and Adjusted EBITDA to net loss, the most directly comparable GAAP measure to these non-GAAP measures:


	Three Months Ended March 31,
(in thousands)	2024		2023
Net loss	$	(478,205)	$	(60,585)
Interest income	(497)		(9)
Interest expense	14,930		23,505
Income tax (expense) benefit	(36)		—
Depreciation and amortization expense	18,371		27,221
EBITDA	(445,437)		(9,868)
Stock-based compensation	4,000		9,351

Transaction costs 1	1,376		10,572
Restructuring and other2	11,385		1,032
Realized and unrealized losses from equity securities	9,993		—
Change in fair value of contingent consideration	—		(4,100)
Change in fair value of warrant liabilities	—		(2,008)
Reorganization items, net	341,911		—
Adjusted EBITDA	$	(76,772)	$	4,979

1 Transaction costs included $0.2 million and $0.5 million of corporate development payroll costs for the three months ended March 31, 2024 and 2023, respectively. Corporate development payroll costs include those expenses directly related to the additional staff needed to support our transaction activity.

2 Restructuring and other primarily includes professional fees related to supporting restructuring activities for the quarter ended March 31, 2024 prior to the petition date.

Critical Accounting Policies and Estimates

Our unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. We believe we have made reasonable estimates and assumptions in preparing these financial statements. Actual results may differ from these estimates. To the extent that there are material differences between these estimates and our actual results, our future financial statements will be affected.

For a description of our policies regarding our critical accounting policies, see “Critical Accounting Policies” in our 2023 Form 10-K. There have been no significant changes in our critical accounting estimate policies or methodologies to our unaudited condensed consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our quantitative and qualitative disclosures about market risk that we disclosed in our 2023 Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As required by Rule 13a-15(b) under the Exchange Act, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Q1 2024 Form 10-Q. In light of the material weaknesses described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 under “Item 9A. Controls and Procedures” the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2024, the Company's disclosure controls and procedures were not effective. Notwithstanding the identified material weaknesses, as of the date of this filing, management, including the Chief Executive Officer and Chief Financial Officer, believes that the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the fiscal years presented in conformity with GAAP.

While the Company believes that progress toward remediating the underlying causes of the material weaknesses have been made, there can be no assurance as to when the remediation plan will be fully implemented, or that the plan, as currently designed, will adequately remediate the material weaknesses. The material weaknesses will not be considered fully addressed until the remediation plan has been in operation for a sufficient period of time for our management to conclude that the material weaknesses have been fully remediated. We will continue to work on implementing and testing the enhanced documentation policies and procedures in order to make this final determination.

Changes in Internal Control over Financial Reporting

Other than as set forth above, there was no other significant changes in internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in litigation incidental to the conduct of our business that arise in the ordinary course of business.

For a description of our legal proceedings, please see the description set forth in the “Legal Matters” section in Note 16, "Commitments and Contingencies," in the notes to the unaudited condensed consolidated financial statements of this Q1 2024 Form 10-Q.

Item 1A. Risk Factors

Refer to the risk factors set forth in Part 1, Item 1A of our 2023 Form 10-K.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Recent Sales of Unregistered Securities

None

Recent Repurchases of Equity Securities

None.

Equity Compensation Plans

Information regarding securities authorized for issuance under equity compensation plans is included in the section entitled Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in Part III, Item 12 of our 2023 Form 10-K.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Rule 10b5-1 Trading Plans

During the quarter ended March 31, 2024, no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements.

Item 6. Exhibits


						Exhibit Index
Exhibit Number						Description


3.1						Certificate of Incorporation of Cano Health, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 9, 2021).


3.2						By-laws of Cano Health, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 9, 2021).
3.3						Second Amended and Restated Limited Liability Company Agreement of Primary Care (ITC) Intermediate Holdings, LLC, dated as of June 3, 2021 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on June 9, 2021).
3.4						Certificate of Amendment to the Certificate of Incorporation dated November 2, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 2, 2023).
4.1^						Warrant Agreement, dated February 24, 2023, by and between the Company and Continental Stock Transfer & Trust Company, as warrant agent and transfer agent (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on February 27, 2023).
10.1+						Restructuring Support Agreement, dated as of February 4, 2024 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 5, 2024).
10.2+						DIP Credit Agreement, dated as of February 7, 2024 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 7, 2024).
10.3+						Form of Executive Retention Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 5, 2024).
10.4+						Amended and Restated Employment Agreement, dated as of January 31, 2024, by and between the Company, Cano Health, LLC and Mark Kent (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on February 5, 2024).
10.5+						Amended and Restated Employment Agreement, dated as of January 31, 2024, by and between the Company, Cano Health, LLC and Eladio Gil (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on February 5, 2024).
10.6+						Amended and Restated Employment Agreement, dated as of January 31, 2024, by and between the Company, Cano Health, LLC and Robert Camerlinck (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on February 5, 2024).
10.7+						Amended and Restated Employment Agreement, dated as of January 31, 2024, by and between the Company, Cano Health, LLC and David Armstrong (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed with the SEC on February 5, 2024).
10.8+						Amendment to Employment Agreement, dated as of March 28, 2024, by and among Cano Health, Inc., Cano Health, LLC and Mr. Eladio Gil.
31.1*						Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


101.INS*						Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*						Inline XBRL Taxonomy Extension Schema Document

101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document


101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*						Cover Page Interactive Data File (formatted as inline XBRL with applicable taxonomy extension information contained in Exhibits 101.)


*			Filed herewith.
**			The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to be furnished with this Annual Report and will not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
+			Indicates a management contract or any compensatory plan, contract or arrangement.
^			Schedules and exhibits to this Exhibit have been omitted in accordance with Item 601 of Regulation S-K. The Company agrees to furnish supplementally a copy of all omitted schedules and exhibits to the U.S. Securities and Exchange Commission or its staff upon request.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CANO HEALTH, INC.

Date

Signature

Title

May 10, 2024

By:

/s/ Mark Kent

Chief Executive Officer

Mark Kent

(Principal Executive Officer)

May 10, 2024

By:

/s/ Eladio Gil

Chief Financial Officer

Eladio Gil

(Principal Financial Officer)

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Cano Health (CANOQ) 10-Q2024 Q1 Quarterly report

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