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Cano Health CEO Resigns Amid Board Drama – C-Suite Transitions

  • June 22, 2023

Welcome to edition 46 of C-Suite Transitions, a weekly series on InsideArbitrage that tracks appointments and departures at publicly traded companies during the prior week. We highlight five appointments and departures each week by picking the largest companies from the full list of management changes.

Sudden Departures

  1. VNCE: On June 16, 2023, Vince Holding Chief Financial Officer Amy “Levy” Trooskin, notified the company’s Board of Directors of her decision to resign from her position to pursue another opportunity, effective June 30, 2023.
  2. AVAH: On June 9, 2023, Aveanna Healthcare Chief Financial Officer David Afshar notified the company of his decision to resign from his position effective July 7, 2023.
  3. ABVC: On June 15, 2023, ABVC BioPharma Chief Scientific Officer Dr. Richard King notified the company of his resignation, effective June 13, 2023.
  4. LOGI: On June 13, 2023, Logitech International President and Chief Executive Officer Bracken Darrell resigned from his position effective immediately, to pursue another opportunity.
  5. AKBA: On June 9, 2023, Akebia Therapeutics Senior Vice President, Chief Financial Officer David A. Spellman, notified the company of his intent to resign effective June 23, 2023
  6. CANO: On June 16, 2023, Cano Health announced Chief Executive Officer Dr. Marlow Hernandez will resign immediately.
  7. DIS: On June 15, 2023, The Walt Disney (DIS) Senior Executive Vice President and Chief Financial Officer Christine M. McCarthy steps down from her role and takes a family medical leave of absence effective July 1, 2023. Ms. McCarthy will continue as a strategic advisor to the company during her leave and assist with identifying and onboarding a long-term successor.
  8. HHS: On June 20, 2023, Harte-Hanks announced a transition in the position of Chief Executive Officer, with Brian Linscott departing the company as of June 16, 2023. In connection with Mr. Linscott’s separation from the company, Harte-Hanks expects to negotiate a separation agreement honoring the terms of Mr. Linscott’s employment agreement. Mr. Linscott’s separation from the company constitutes an involuntary termination by the Company “without cause”.

Cano Health (CANO): $1.41

Founded in 2009, Cano Health offers primary care medical services to its senior members across Puerto Rico and the United States. The company also runs pharmacies and offers dental care at its medical facilities.

Cano Health went public by merging with Barry Sternlicht-backed SPAC JAWS Acquisition in July 2021 in a $1.49 billion deal. This included around $690 million in cash from Jaws’ trust account and $800 million from private placement investors, Barry Sternlicht, Fidelity Management & Research Company, and funds managed by BlackRock, Third Point, and Maverick Capital.

Last October, Bloomberg reported that CVS is in talks to buy Cano Health. However, a subsequent report from Barron’s indicated that CVS had ultimately chosen not to proceed with the deal involving Cano Health.

Third Point, managed by Daniel Loeb, sold its remaining stake in Cano Health last December. The decision to divest came amid growing concerns surrounding the healthcare provider’s liquidity.

Barry Sternlicht, the billionaire chairman and CEO of Starwood Capital Group, had pressured Cano Health to shake up leadership and call for competitive board member elections.

On June 16, 2023, Cano Health announced that Dr. Marlow Hernandez has agreed to step down immediately as Chief Executive Officer and remain on the Board of Directors.

Cano has named Chief Strategy Officer Mark Kent as interim CEO, starting immediately, while it searches for a permanent replacement.

I had looked at Cano multiple times in the past including after the rumors of a deal last year and following insider buying in 2021 but could not get comfortable with the investment. I wrote the following in one of our Insider Weekends articles in September 2021, when the stock was trading around $13.49:

The stock has rebounded off its lows in mid-August and insiders have been buying actively in the second half of August. An area of concern that came up with researching the company this weekend was their low rating on Yelp from patients and on Indeed from employees. Explosive growth can be difficult to manage and can translate to a less than optimum experience for patients and employees. Growing pains are not unusual and it would be good to see if the company can address these concerns and focus on quality as it continues to grow.

Board Trio Resigns

According to the SEC, three former board members established an affiliated ownership group that holds a 36% stake in Cano Health, forming the largest single shareholder group. On March 30, 2023, Elliot Cooperstone, Lewis Gold, and Barry Sternlicht resigned from the Board, effective immediately.

The resignation letters of the Directors conveyed their disagreements with Cano Health regarding the company’s operations, policies, and practices. The letters specifically highlighted disagreements concerning management leadership, strategic direction, board practices, and corporate governance policies.

Barry Sternlicht issued the following statement announcing his resignation,

I have communicated my concerns to the Board and to Marlow Hernandez directly on numerous occasions, but they have largely been ignored. To be crystal clear, I do not believe Marlow should remain the Chairman & CEO of the Company. I believe that his continued tenure is harmful to the interests of stockholders and to Cano employees.

I remain extremely troubled by the poor operating decisions and performance, by what I consider the opacity and obfuscation of information furnished to the Board, and by the inability to forecast the Company’s financial performance over which Marlow and his management team have presided. These factors have caused the Company’s stock price to be decimated, dropping over 90% from its debut, and the Company is now saddled with a crippling debt burden.

In an effort to influence the outcome of the annual meeting, they submitted proxy materials to the SEC and engaged proxy firms to gather “withhold” votes against the re-election of two board members, Dr. Alan Muney and Kim Rivera. They also submitted a notice to nominate two independent candidates for election to the board.

The group put forth a proposal, referred to as the “Removal Proposal,” to allow shareholders to vote on the removal of Dr. Marlow Hernandez, the Chief Executive Officer of the company, from the Board for cause during the upcoming annual meeting. They also mentioned that Cano Health has experienced poor financial performance, ineffective capital allocation decisions, multiple strategic missteps, and ongoing conflicts of interest and related-party transactions under the current management.

During the Shareholder meeting, shareholders voted against the proposed move and the board’s proposition for a reverse stock split, indicating a rejection of both initiatives. Dr. Alan Muney and Kim Rivera, Cano Health’s two director nominees, were re-elected to the board of directors.

Following the CEO’s resignation on Friday, the trio issued a response to the announcement:

“While we are pleased our campaign for leadership change at Cano brought about the long-overdue resignation of Dr. Marlow Hernandez as CEO, it is only the first step towards unlocking significant value for all stakeholders. We have viewed Mark Kent, who is a high-integrity leader with relevant healthcare experience, as an ideal replacement for Dr. Hernandez since he joined the company earlier this year. But Mr. Kent and his management team need a credible, confidence-inspiring Board behind them to initiate a lasting turnaround at Cano. The current Board, half of which is composed of two WITHHOLD directors and the beleaguered ex-CEO, is simply not equipped to effectively oversee Cano at this critical juncture.”

Dr. Marlow Hernandez – Founder, CEO

Dr. Marlow HernandezHernandez founded the company in 2009 and served as CEO and was on its Board of Directors.

In April, Cano Health announced that it has separated the roles of Chairman and Chief Executive Officer and appointed Solomon Trujillo, lead independent director, as the non-executive chairman of the company’s Board of Directors, effective immediately. Dr. Marlow Hernandez was to remain CEO and Board Member.

Mark Kent – Interim CEO

Mark Kent - Interim CEOIn April this year Cano Health named Mark Kent as Chief Strategy Officer.

Before joining Cano Health, Mr. Kent founded three healthcare startup companies –  Care Management Resources, Total Health Medical Centers, and Your Partners in Health. Additionally, Mr. Kent has held various senior executive positions, including CEO of Women’s Health Care Hospital in Evansville, Indiana, and CEO & Regional President of Humana-owned primary care practices in Florida, now recognized as Conviva Care Centers.

 

At the end of May, Cano Health appointed Frederick S. Green as Interim Chief Legal Officer, assuming the role immediately. Mr. Green will collaborate closely with the company’s Board and management team to identify a suitable permanent successor for the position.

Liquidity and Capital Management

As of March 31, 2023, Cano Health reported total liquidity of $152 million. This includes $32 million of unrestricted cash on its balance sheet and the full capacity of its $120 million revolver that was undrawn at such date.

Strategic Update

Cano Health is actively pursuing the divestiture of select non-core assets as part of its strategic efforts to enhance the company’s focus on Medicare Advantage.

First Quarter 2023 Financial Results

  • Reported a net loss of $60.6 million, compared to a net loss of $0.1 million in the prior year
  • Total revenue of $866.9 million, compared to $704.3 million the prior year
  • Adjusted EBITDA of $5.0 million, compared to $29.2 million in the prior year
  • Total membership of 388,667 including 207,420 Medicare members, an increase of 44% and 29% year-over-year

2023 Guidance

  • Total revenue in the range of $3.25 billion to $3.35 billion, an increase from the prior range of $3.15 billion to $3.25 billion
  • Adjusted EBITDA of approximately $75 million to $85 million is unchanged from prior guidance
  • Membership by year-end in the range of 390,000 to 400,000

Conclusion

After its SPAC combination in 2021, Cano Health’s stock has experienced a significant decline, as is often the case with companies that go public the SPAC route. The stock is down 70% over the last year.

The future of Cano Health hinges on the new CEO’s ability to turn around the company. While the presence of Dr. Hernandez on the board introduces uncertainty regarding its impact on decision-making, Cano Health also announced that it partners with Russell Reynolds’ Board Advisory Group to refresh its board by adding independent directors in the coming months.

Turnaround situations are usually difficult and they rarely turn around. While Cano Health seems to have access to liquidity, it also carries nearly a billion dollars of net debt on its balance sheet. The only silver lining I see in this situation is that former board members have gone activist and the continue has managed to continue growing revenue despite the internal turmoil.

Appointments

1. Visa (V): $227.25

On June 20, 2023, Visa (V) announced the appointment of Chris Suh as Chief Financial Officer. Mr. Suh will serve as CFO Designate from July 10 until August 1, when he will assume full responsibility for the role.

MarketCap: $465.67BAvg. Daily Volume (30 days): 8,557,822Revenue (TTM): $30.98B
Net Income Margin (TTM): 50.95%ROE (TTM): 42.35Net Debt: $5.91B
P/E: 30.37Forward P/E: 22.83EV/EBIDTA (TTM): 21.77
P/S (TTM): 15.42P/B (TTM): 12.3052 Week Range: $173.13 – $249.60

2. Carlyle Group (CG): $30.87

On June 20, 2023, The Carlyle Group announced that John C. Redett, Head of Global Financial Services, has been appointed as Chief Financial Officer and Head of Corporate Strategy, effective October 1, 2023.

MarketCap: $11.18BAvg. Daily Volume (30 days): 2,588,842Revenue (TTM): $3.72B
Net Income Margin (TTM): 20.29%ROE (TTM): 12.38%Net Cash: $7.51B
P/E: 14.93Forward P/E: 10.86EV/EBIDTA (TTM): 12.28
P/S (TTM): 4.04P/B (TTM): 1.8452 Week Range: $23.69 – $37.62

3. American International Group (AIG): $56.46

On June 20, 2023, American International Group (AIG) announced that Sabra Purtill, who has served as Interim Chief Financial Officer since January 2023, has been named to the role on a permanent basis, effective immediately.

MarketCap: $40.86BAvg. Daily Volume (30 days): 4,562,366Revenue (TTM): $52.38B
Net Income Margin (TTM): 11.71%ROE (TTM): 12.70%Net Debt: $7.5B
P/E: 7.09Forward P/E: 8.96EV/EBIDTA (TTM): 4.48
P/S (TTM): 0.82P/B (TTM): 0.9452 Week Range: $45.37 – $64.03

4. Catalent (CTLT): $43.49

On June 20, 2023, Catalent (CTLT) announced that Matti Masanovich has been named Senior Vice President & Chief Financial Officer, effective July 5, 2023.

MarketCap: $7.84BAvg. Daily Volume (30 days): 4,184,540Revenue (TTM): $4.50B
Net Income Margin (TTM): 0.49%ROE (TTM): 0.47%Net Debt: $4.84B
P/E: 370.70Forward P/E: 31.15EV/EBIDTA (TTM): 14.64
P/S (TTM): 1.76P/B (TTM): 1.7052 Week Range: $31.45 – $115.34

5. Home Depot (HD): $300.70

On June 20, 2023, The Home Depot (HD) announced the appointment of Kimberly R. Scardino as Senior Vice President – Finance, Chief Accounting Officer, and Controller.

MarketCap: $303.32BAvg. Daily Volume (30 days): 5,344,965Revenue (TTM): $155.75B
Net Income Margin (TTM): 10.75%ROE (TTM): N/ANet Debt: $48.17B
P/E: 18.31Forward P/E: 20.08EV/EBIDTA (TTM): 13.13
P/S (TTM): 1.97P/B (TTM): N/A52 Week Range: $257.48 – $342.29

Departures

1.  Carlyle Group (CG): $30.87

On June 20, 2023, The Carlyle Group announced that Curtis L. Buser, Chief Financial Officer, will retire from the company, effective December 31, 2023.

MarketCap: $11.18BAvg. Daily Volume (30 days): 2,588,842Revenue (TTM): $3.72B
Net Income Margin (TTM): 20.29%ROE (TTM): 12.38%Net Cash: $7.51B
P/E: 14.93Forward P/E: 10.86EV/EBIDTA (TTM): 12.28
P/S (TTM): 4.04P/B (TTM): 1.8452 Week Range: $23.69 – $37.62

2. American International Group (AIG): $56.46

On June 20, 2023, American International Group (AIG) announced that Chief Financial Officer Shane Fitzsimons will step down from his position following a medical leave of absence.

MarketCap: $40.86BAvg. Daily Volume (30 days): 4,562,366Revenue (TTM): $52.38B
Net Income Margin (TTM): 11.71%ROE (TTM): 12.70%Net Debt: $7.5B
P/E: 7.09Forward P/E: 8.96EV/EBIDTA (TTM): 4.48
P/S (TTM): 0.82P/B (TTM): 0.9452 Week Range: $45.37 – $64.03

3. Home Depot (HD): $300.70

On June 20, 2023, The Home Depot (HD) announced Stephen L. Gibbs, who served as the company’s Vice President, Chief Accounting Officer, and Corporate Controller steps down effective June 20, 2023.

MarketCap: $303.32BAvg. Daily Volume (30 days): 5,344,965Revenue (TTM): $155.75B
Net Income Margin (TTM): 10.75%ROE (TTM): N/ANet Debt: $48.17B
P/E: 18.31Forward P/E: 20.08EV/EBIDTA (TTM): 13.13
P/S (TTM): 1.97P/B (TTM): N/A52 Week Range: $257.48 – $342.29

4. Coterra Energy (CTRA): $24.42

On June 15, 2023, Coterra Energy announced that Scott C. Schroeder, Executive Vice President and Chief Financial Officer, will be retiring effective September 30, 2023.

MarketCap: $18.50BAvg. Daily Volume (30 days): 8,280,793Revenue (TTM): $9.09B
Net Income Margin (TTM): 45.50%ROE (TTM): 33.86%Net Debt: $1.60B
P/E: 4.65Forward P/E: 10.24EV/EBIDTA (TTM): 2.88
P/S (TTM): 2.10P/B (TTM): 1.4652 Week Range: $22.08 – $31.14

5. Logitech International S.A.  (LOGI): $54.54

On June 13, 2023, Bracken Darrell resigned from his position as the President and Chief Executive Officer of Logitech International effective immediately, to pursue another opportunity.

MarketCap: $8.62BAvg. Daily Volume (30 days): 746,626Revenue (TTM): $4.54B
Net Income Margin (TTM): 8.03ROE (TTM): 15.66%Net Cash: $1.15B
P/E: 24.36Forward P/E: 19.38EV/EBIDTA (TTM): 12.55
P/S (TTM): 2.02P/B (TTM): 3.9452 Week Range: $41.81 – $68.17

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