Q1 2021 Agiliti Inc Earnings Call

Okay.

Good afternoon, and welcome to true agility first quarter 2021 earnings conference call. Today's call is being recorded and we have of located one hour works of prepared remarks, and Q&A at the Sun I would like to turn the conference over to take Kaiser Vice President of corporate communication on Investor Relations at agility. Thank you you may.

Begin.

Thank you Laura and good afternoon, everyone. Thank you for joining us on today's call as we provide an overview of agility results for the quarter ending March 31st 2021.

Before we begin I'd like to remind you that during today's call, we'll be making statements that are forward looking and consequently are subject to risks and uncertainties.

Certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward looking statements.

Specific risk factors are detailed in our press release and our most recent SEC filings, which can be found in the investors section of our corporate website at agility helped dotcom.

We will also be referring to certain measures that are not calculated and presented in accordance with generally accepted accounting principles. During this call.

You can find the reconciliation of those measures to the nearest comparable GAAP measures and the description of why we use these measures in our press release and in the slide presentation will be used to facilitate today's discussion if.

If you'd like to download a copy of the presentation. Please visit our website at agility health Dot com select the investors section at the top of the screen and then events and presentations finally select the presentation titled Agility, Q1, 2021, earning slides.

Finally, an important to note on April 22nd 2021 agility as registration statement on form S. One related to our initial public offering was declared effective by the SEC and on April 23rd of 'twenty 'twenty. One are common stock began trading on the New York stock exchange under the symbol a G T I D.

The IPO closed on April 27th 2021.

The condensed consolidated financial statements as of March 31st 2021, which we will review today do not reflect the impact of our IPO.

With that I'll turn the call over to CEO, Tom Leonard for his remarks on our first quarter.

Thanks, Kate and good afternoon.

Thank you for taking the time to join US as we review our results from the first quarter of 2021.

As the newly public company, we're excited to continue sharing the agility story and the important work that we do the vital part of our nation's health care infrastructure.

I'd like to start today by taking a moment to recognize our extraordinary team.

Throughout our more than 80 year history, we've been driven by a belief.

Every interaction is the power of the change of life.

That has never been more true that over the past year.

COVID-19 affected our communities our health care system.

Each of us personally.

From the very beginning of the pandemic our teams work side by side with clinicians in hospitals and health systems across the country, ensuring access to the patient ready medical devices, they needed to care for their patients.

An honor to serve alongside more than 4400 passionate dedicated professionals.

It will work the truly makes the difference.

Joining me on today's call is our Chief Financial Officer, Jim The Carrick.

Our president Tom Fanning, who leads our commercial operations.

Okay, Kaiser or head of corporate communications and Investor Relations.

Following the recent close of our IPO on April 27th.

I'd like to begin today's call with a brief overview of our business.

Outlining the fundamentals of what we do.

And why do we believe the agility is well positioned to sustain our consistent above market growth for years to come.

To sum up of agility in the single phrase.

We're the leading experts in the management maintenance and mobilization.

Our regulated reusable medical devices.

The insured health care providers of the medical equipment they need.

The right to the patient's bedside.

And always with the confidence it is maintained to the highest industry standard.

Today, we serve more than 7000 U S based customers with one or more of our solutions.

Delivering an essential and the end service.

The all built on the Peerless set of capabilities.

We organized the work that we do for our customers into three distinct service lines.

The first is equipment solutions.

More commonly referred to as the medical device rental.

We provide access to medical devices to our customers.

To meet peak census needs.

We'll provide the access to our high cost low utilization device.

Which wouldn't otherwise it makes sense for our customers to own.

Agility enjoys by far the largest medical device fleet in the country owning more than a quarter million couple of the medical devices and related accessories.

We generally focus on device categories, we can wrap of differentiated service model around access to the device.

For example, surgical lasers, where we also provide at least the technician to support the surgeon and the use of the device during the procedure.

Next is clinical engineering.

This is a business of medical device repair and maintenance.

It's our fastest growing business.

It's in the largest market segment that we participate in.

We repair and maintained virtually all of the medical equipment you'd expect to find at the hospital.

We perform this work both at our customers' facilities.

As well as in our local service network.

Finally.

There's our on site managed services solution.

Our teams here work in hospital facilities working shoulder to shoulder with clinicians.

Managing our customers medical devices.

With our on site solution clinicians never have the hunt for the devices that they need to care for their patients.

We ensure those devices are patient ready until the rights to the patient's bedside.

We operate the service through a dedicated on site team to perform these duties.

And the proprietary software platform, which we integrate into our customers' hospital information systems.

He used to manage our teams worked well and.

And optimize our customers medical device utilization.

What makes the agility stand apart shall.

How we bring these three service lines together.

Our three service lines seamlessly connects to form of comprehensive end to end solution, it's based around our customers' workflow.

And it's designed to bridge the gaps the results and waste and inefficiency.

As seen through the eyes of our customers.

The jewelry will manage and mobilize the provider's own medical equipment on site within their facilities.

Well, then we processed repair and maintain these devices.

Doing that work both on premise.

As well as off site and our local service centers of model, which is unique to agility.

Finally, we close the loop to deliver the lowest total cost of accessing the devices they need it.

Abiding supplemental device rental to support their peak needs.

Would it provide access to specialized for low utilization devices.

This service framework delivers the hard dollar financial return.

Clinical benefits.

We improved equipment availability.

And on patient device utilization.

We reduce or eliminate unnecessary medical device rental.

And we lowered the cost of maintaining the health systems owned devices.

Importantly, we also free up the capital and the operating expense, it's too often tied up in the ownership of excess equipment.

The benefits, we deliver are both measurable and meaningful to our customers.

And the agility is the only company with the scale the breadth of capabilities to optimize medical equipment utilization in the end to end process.

Whether it's across departments within an individual facility.

We're scaling up to sort of the largest delivery networks in the country.

Now on a moment I'm going to invite Tom <unk> to share some color on what we're seeing in the market and among our customers.

But first let me share my perspective on a few recent milestones.

The first.

On March 19th we closed our acquisition of North field medical a nationwide provider of surgical equipment repair and maintenance services.

Integration of this business is already underway.

We're excited to add Northfield robust repair capabilities.

Logical extension of our rapidly growing clinical engineering business.

The Springer also illustrates our general approach to M&A.

Just the overlap and extend.

This being said, we look to build on our existing capabilities.

And to drive additional profitable volume to our at scale National service infrastructure.

While always staying close to what we know and do best.

Well the jewel of these growth has been primarily organic this team has completed a handful of small complementary acquisitions.

Looking ahead, we'll continue to evaluate opportunistic tuck in M&A.

To augment our strong organic growth profile.

Second.

As we described earlier agility completed in the initial public offering of its common stock on the New York Stock Exchange on April 23rd.

This represents an important milestone for this 82 year old company.

The knowledge in both the business we built.

And the meaningful growth opportunity ahead of us.

Following the close of our IPO.

We directed proceeds to retire certain outstanding debt related fees and expenses.

Under the company's credit facilities.

As Jim will review later on in the call our pro forma leverage ratio is now of three three times in line with the expectations, we shared the head of our IPO.

Turning to our first quarter financials I'm pleased to note that our results met the high end of the preliminary range, we disclosed in our S. One filing.

Total revenue for the quarter was $235 million.

Representing a 31% increase from Q1 of 2020.

Q1, adjusted EBITDA was $86 million of <unk>.

77% increase compared to Q1 of last year.

And our adjusted earnings per share for the first quarter was 30 cents.

Paired to an adjusted EPS of five cents for the prior year period.

Jim will share additional detail on our Q1 financial performance.

Well as our 2021 full year financial outlook.

Now, let me turn the call to our President Tom banning go.

The offer his perspective on our performance on the trends, we're seeing in the market.

Thanks, Tom and Hello, everyone. It's my pleasure to be joining you here today.

So as we near the halfway Mark on 2021, I can't help but reflect on this time last year. When COVID-19 was first impacting our communities.

Been proud to support our health care system through this time of unparalleled crisis and our highly visible role. During this period is increase the awareness of the unique.

He kind of essential nature of what we do.

COVID-19 drove the net financial tailwind for us.

In the short term we saw.

Our service teams.

The rental device fleet.

We're benefiting from the expansion of medical device stockpile management opportunities at the federal state and local levels as well as the heightened awareness amongst our customers of the need to better manage their critical medical device assets.

Durability of our business model is clearly visible on our performance during this challenging period.

It's important to highlight.

As Jody first transition to support our customers at the beginning of the pandemic.

As we move back toward normalized operations, you can observe our connection to every phase of our customers of medical device lifecycle.

The balance of our business.

Between the medical and procedural sides of of hospitals operations financially.

This is a natural internal hedge.

The macro.

ROE trends facing of our health care system as a whole force.

Specific situations or challenges affecting in the individual customer some part for parts of our end to end solution.

Demand.

Our stable financial performance evidence in our pre COVID-19 results and then again as we pivoted to meet the extraordinary demands on our health system over the last year.

As we support our customers' transition back to normal operations demonstrates the resilience of our business model.

The offer of a sense of our current commercial focus let me now share a few recent trends, we're observing amongst our customers.

First we're sharing a clear focus on ramping procedure volumes and improving overall financial health.

Background a year ago.

As COVID-19 first took hold we saw a significant drop in elective surgical procedures with the case volume at that time falling to the 30% to 40% of normal rates for some specialties.

<unk> had mostly recovered by the fall of 2020, but sporadic COVID-19 hotspots caused providers across the country to delay or cancel procedures with the data, we saw reflecting roughly 85% to 90% of aggregate normal case volumes.

Providers push to drive of elective case volumes back to normal levels, we expect the favorable impact on the procedure focus parts of our business.

Second we're now seeing hospitals and health systems in a position to take a longer term outlook on planned investments in strategic initiatives are.

Conversations with customers have moved past the short term urgent needs and returned to discussing opportunities to drive operating efficiencies and reduce unnecessary cost exam.

Examples include leveraging our on site management solutions to optimize across their enterprise and free up capital and operating expenses linked to excess medical device ownership.

There is ongoing interest in outsourcing non core operations like clinical engineering to companies like agility, where we can meaningfully reduce the cost of repair and maintenance on the hospitals owned devices by leveraging our local services teams.

Of note our timely recent edition of Northfield, Medical's surgical instrument repair capabilities further expand our capabilities in this category and provides us additional value we can deliver to our customers.

It's important to note that the primary commercial focus is serving hospitals and health systems.

The unique nature of our nationwide footprint local market service and med device logistics capability have made us the partner of choice for many medical device manufacturers as an extension of their organic capabilities increasingly government agents have also turned to agility to support large scale.

Localized medical device readiness needs, including emergency medical device stockpile management and deployment.

For the last six years, we have positioned our capabilities to establish agility is at the.

Facto partner for the management and local deployment of government owned medical device stockpiles.

As previously disclosed the agility entered into a new contract on July 21 of 2020 with the department of health and human services to manage the federal government's expanded emergency medical device stockpile.

This one year of initial contract awarded under the Cares Act as part of the expanded acquisition of authority in response to COVID-19 represented unexpected end of the federal government's medical device stockpile.

Is visible on the Federal Register and in our publicly disclosed statements. The agility had already consolidated oversight of the preexisting emergency ventilator stock buyers piles prior to this expansion under the cares Act.

Based on our successful history of serving the federal government stake in state and local agencies as well as our domestic military health care infrastructure. We believe agility is uniquely capable of supporting the needs of these agencies going forward.

Please understand that we operate under a strict non disclosure agreement with the department of health and human services regarding the details of this contract as such the information. We can share today is limited to what we provided here on our prepared remarks.

Now I'll turn things over to Jim to provide detail on our Q1 financial performance.

Thanks, Tom.

Start with an overview of our Q1 2021 financials at a high level.

Then provide some comments on our new capital structure, and finally share our 2021 financial outlook.

For the first quarter total company revenue totaled $235 million, representing a 31% increase over the prior year.

Adjusted EBITDA totaled $86 million, representing a 77% increase over the same period of 2020.

And adjusted EBITDA margin expansion of 900 basis points.

The level of strong operating performance drove an adjusted earnings per share of <unk> 30 per share.

Up 25 cents from Q1 of 2020.

Taking a closer look at of revenue for the first quarter of 2021.

Recall that we operate our business from a single shared infrastructure.

Supports each of our solutions.

And accordingly.

We reported financial results as one segment.

Within that single segment, we reported on a revenue by solution line for equipment solutions clinical engineering and onsite managed services respectively.

We delivered strong Q1 performance across all three of our service lines.

Benefiting in part by the impact of COVID-19 on the demand for our equipment rental services.

The equipment solutions revenue totaled $82 million representing growth of 21% for the quarter.

We estimate that the favorable impact from COVID-19 overall.

$10 million to $12 million.

Our current primarily within the equipment solutions and.

And reflecting increased demand for device rental services.

Looking ahead, we expect that in Q2 of this year, we will have the Wap. The initial surge of COVID-19 driven demand that occurred last year.

Currently our rental fleet utilization is trending below the same time last year and is gradually returning to normalized utilization levels.

This trend aligns with our financial plan for 2021 and.

And it's fully considered within the full year guidance, we have provided for total company revenue.

Yeah.

Moving to clinical engineering.

Q1 revenue was $75 million.

Representing year over year growth of 14% for the quarter.

Note that the recently completed acquisition of Northfield Medical on March 19 is the.

Accounted for within clinical engineering.

The north field medical contributed approximately $4 million in revenue for the first quarter.

Finally, our onsite managed services revenue totaled $78 million.

Representing year over year growth of 73% for the quarter.

A significant portion of the growth in Q1 came from our expanded contract with the federal government for medical device stockpile management.

Which was originally awarded in the third quarter of 2020.

Moving to our balance sheet, and our new capital structure.

We have reduced our leverage by 90 basis points from 4.2 times as of December 31, 2022.

Two of three three times on a pro forma basis as of March 2021.

After giving effect for the acquisition of the North field.

Well as the use of proceeds from our recently completed IPO.

Net proceeds of approximately $390 million from the all primary shares IPO were used to repay outstanding borrowings.

Primarily our second lien term loan debt, which was our highest cost debt.

Estimated annual cash interest savings from our new capital structure will exceed $20 million.

Included in the pro forma leverage calculation of three three times is approximately $18 million and adjusted EBITDA that was generated by north field medical in 2020.

Looking forward, we expect to maintain our longer term leverage in the load of mid three times range.

We also anticipate using our strong balance sheet and cash flow generation the fund opportunistic tuck in M&A.

Lined with their strategy to augment our organic growth profile and drive additional profitable volume through on at scale operating infrastructure.

The agility maintained significant liquidity with more than $324 million available on a pro forma basis as of March 2021.

This includes our newly expanded $250 million revolving credit facility.

Well as cash on hand.

The maturity date on the expanded credit facility was extended to align more closely with our remaining term loan.

Since completing the IPO and reducing our outstanding debt we.

We are pleased to share that the corporate rating was recently increased from B to B plus with a positive outlook from S&P and from be want to be too with the stable outlook from Moody's.

Overtime, we expect this should further reduce our cost to access the capital markets of the markets.

It was required to augment our growth with targeted M&A.

Finally, I'll provide some additional color on our 2021 financial outlook.

As a reminder, going forward, we will provide guidance for key performance metrics on a full year basis.

I'll start with the quantitative summary, and share of significant assumptions.

For the full year 2021 we expect total company revenue in the range of 950, the $975 million representing.

Representing growth of 23% to 26%.

We are targeting adjusted EBITDA.

In the range of 275 million to $285 million Rep.

Representing growth of approximately 17% to 22%.

And we expect to invest net cash capex in the range of $65 million to $70 million.

Capex as a percentage of revenue of relevant measure of the decreasing capital intensity of our business is.

It is expected to be in the range of 6% to 7%.

From a qualitative standpoint, our assumptions are as follows.

We expect the return to normalized pre pandemic utilization levels for our rental fleet by the.

End of Q2.

Recall, we shared that the net favorable impact of COVID-19 on 2020 revenue was estimated to be between 30 and $40 million.

This impact occurred primarily within equipment solutions and over the period from Q2 to Q4 of 2020.

In Q1 of 2021, we estimate that the net favorable COVID-19 impact on revenue is between 10 and $12 million.

Reflecting on the balance of the year, we are planning under the assumption the COVID-19 will continue to abate within the United States.

Accordingly, we expect generally lower utilization of our rental the rightfully.

Partially offset by new account growth as well as favorability in surgical rentals within our equipments. The solution service line between Q2 of this year and Q1 of next year.

We also expect the ramp new contracts for our clinical engineering and on site managed solutions throughout the year.

Customers turn their attention back to their longer term goals.

These assumptions are embodied within our full year guidance.

Our 2021 financial guidance.

Also includes the assumption that we will successfully renew the agreement with the department of health and human services.

As a reminder, we operate under a strict NDA with HHS and are not permitted to disclose details of this or other contracts beyond the publicly available details on the Federal Register.

Although final determinations with respect to the renewal and the size of any future contract are not yet determined.

We expect the size of the future contract will be appropriate for the anticipated level of services required to manage and maintain the stockpile post pandemic.

Finally, our implied EBITDA margins, which can be calculated from our 2021 guidance.

Range from 28% to 30%.

This margin range generally reflects the return to our pre COVID-19 margin profile.

Compared to our reported Q1, adjusted EBITDA margin of over 36%.

Primary drivers of contribute to the return to pre COVID-19 margins include the assumed normalization of rental device demand by the end of Q2.

Our internal assumptions on unexpected renewal of our stockpile of management contract with HHS.

And the impact of our recently completed acquisition of the North field medical.

Which have lower initial EBITDA margins compared to our historical average.

Before we open the call to your questions I want to Echo time, ensuring our gratitude to our team members for continuing to fulfill our critical role in health care.

Never been more proud to be part of team of agility.

I'll now turn the call over to the operator to provide instructions for our Q&A.

At this time, we'll be conducting a question and answer session. If you would like to ask the question claims plus star one on your telephone keypad.

Information from will indicate your line is on the question queue. You May Press Star two if you would like to I Love. Your question from the queue for vessels have been using speaker equipment and may be necessary for you to pick up your handset before pressing the star key please limit yourself to one question and one follow up on feel free to jump back in the queue afterwards.

And while we pull for questions.

Our first question comes from the line of Matthew Borsch with BMO capital markets. You May proceed with your question.

On a lot.

Thank you and congratulations on the quarter results and on your IPO as well.

Let me, let me ask if I could about your.

Youre dialogues the hospital I know you referred to debt during the call.

And I noticed the clinical engineering came in.

More and more ahead than I think than other areas that.

That reflected.

The recognizing of course, nor fields in that number.

But oh.

It is unfolding faster or slower than you would expect in terms of of the conversations you're having with hospitals and is there anything about the.

Post pandemic environment or approaching post pandemic environment that is making them more receptive to.

The value proposition, you're laying out to them.

Okay.

So first thank you for the question, Matt and good day connect again.

As you pointed out we did have what we have.

Actually strength across all three of our service lines in Q1.

And as you pointed out as well within clinical engineering.

I think it's the post pandemic period is playing out pretty much as we anticipated.

Of course, it within our guidance has been our expectation that by the time, we got to Q2 and certainly by the end of Q2.

Let's see.

Normalized utilization of our rental device fleet.

And the ramping of discussions with our customers on longer term initiatives, including Arounds clinical engineering.

So I see that.

Playing out of more or less as we anticipated.

See there is a small portion of the federal government contract the rig.

Weights to the support and maintenance of the devices that we deploy from the stockpile.

In the field.

Well those things that are kind of engineering focused we also of council within clinical engineering. So that is a small part of all of the performance in Q1 as well.

Can you just if I can ask one of the questions you can give the.

The tricky area here is on on the Central government contract and I heard everything you said.

And maybe is the is that is that.

Why youre not giving guidance on the individuals.

The categories.

Or is that not something you're going to do going forward.

So on a go forward basis, we're going to provide guidance on pull company revenue.

My guidance by the individual solutions.

Okay. Okay.

Our next question comes from the line of Matthew Michelle with Keybanc. You May proceed with your question.

Great. Good afternoon, and thank you for taking the questions and also congratulations on the IPO.

So.

Some of it looks like you guys came in at the at the high end of where you were expecting your your one two Rangers.

But I think the mid point of view of your revenue wages are down a little bit from from where the the the old model was.

Kind of just can you walk through maybe some of the moving pieces about what's what's changed into two Q3 Q versus what you thought.

A couple of months ago.

Okay.

Yeah, Matt what.

What I would share is.

And in general Nothing's changed we very much what we've shared previously with the and the model is.

System with what's transpired in the business kind of what we are.

The reflecting within our guidance more broadly met.

Okay.

Okay excellent.

And then just your initial thoughts on Nord field, and mobile and from the pair coming coming together.

How youre thinking about integration of those two businesses and the kind of overlapping footprint.

So one of the things, we particularly like about Northfield and again as background what brought.

Brought us capabilities in surgical instrument repair.

It was a great complement to a smaller business acquired on.

The year before.

The call mobile instrument.

First of all being the number two player by size in the in the.

The surgical treatment their space and a whole bunch of being at the time of the number three player by size.

And that change of instrument repair segment.

One of course being the stairs.

Well she bought these two businesses together most recently with the close of the Marshfield acquisition debt.

Closed at the end of March.

We really were excited about more fields.

Contract positions with G. P. O is the momentum that they have in the marketplace with some of their.

Extraordinary references, including with some very significant academic medical centers.

And there's actually very little overlap.

Between the <unk> the two companies mobile that we'd acquired again the year before and sports field, that's very little overlap in terms of existing customer base.

As well as the deals that were in on.

Each business's respective funnels.

So the the work we have going on today to integrate all of these two businesses.

It's proceeding actually very smoothly.

So little actual overlap of commercially it's not been disruptive at all on the backend as we've looked to integrate and first and foremost an integration that started with our commercial teams are making sure that we're driving that alignment in the field.

Eliminating or reducing any chance of a conflict with our customers on the customer communication.

Particularly with with new deals and then over time, all the work to.

Integrating the backend we'd like to think about our integration to borrow from the hypocritical. When you think about the integration, particularly on the back end, we like to say the first do no harm.

Should we do it thoughtfully carefully.

The risk breaking anything the.

The acquisition like all of that we've done really focused on accelerating topline growth on.

On expanding the available market.

Gives us the opportunity to just be thoughtful and how we integrate the backend.

Thank you very much.

Our next question comes from the line of Amit touched on with Goldman Sachs. You May proceed with your question.

Hi, This is Phil on for me can you guys hear me okay.

Gotcha.

Awesome, Yeah, maybe I can follow on to Matt's question on the north sales side of him and ask for some maybe some the quantitative around that I'm interested if you can provide sort of any financial synergy target that you guys have in mind in relation to the integration efforts of them also what the contribution.

<unk> from North field, that's contemplated.

In this year's financial guidance, so that we can.

Tried to work down towards organic numbers.

Yeah, I feel of where it will start you is on so we don't break out that level of detail, but a couple of reference points for you.

Disclose at North field delivered of $111 million of topline revenue in 2020.

On approximately $18 million of EBIT D. A.

How to think about that portion of the business coming into 2021.

Regarding why we don't separate organic versus inorganic consider that last year, we acquired the number three so in mobile instrument and then added north field of the number two in the space.

So it would be impractical to parts of the two because we're in the process of integrating both as well as with the overall business more broadly I'm obviously.

We're going to use that integration of sure R. One overall infrastructure. So given that we don't guide the sub parts of our individuals' solution lines, but keep in mind that north field is included within the C. E. S portion of the clinical engineering portion of our revenue.

In March and in going forward.

Alright. Thanks, that's helpful. Maybe another one could to help with the little bit of an apples to apples comparison.

I heard the commentary around <unk> unwinding, the the rental benefit from COVID-19.

It sounds like if we just put some rough numbers on it that that implies roughly of $15 million to $25 million headwind versus the three quarters of of impact from COVID-19 in <unk> from 2% to 20% of pork. The 20th is that just kind of ballpark the right way to be thinking about the net.

Headwind that's coming in 2021.

Within your financial guidance.

So let me just restate what I shared previously so which was the in 'twenty 'twenty. We estimated the impact was between 30 and $40 million of top line revenue from COVID-19 and that primarily occurred between Q2 in Q4 of <unk>.

'twenty and we've shared that in Q1 of the impact was $10 million to $12 million.

So you're you're thinking about it in the right range with the framework that I just shared are overall in my script volume.

Alright, thanks for the questions I appreciate it.

Yeah happy to help.

Our next question comes from the line of the Kevin Fischbeck with Bank of America. You May proceed with your question.

Oh, great. Thanks.

I guess you mentioned that the things are returning to normal from the hospital clients are better financial health and better able to kind of focus on.

Hum dealing agreements.

With you guys can you talk a little bit about where we are in that process.

How should we think about that is this is Q2 still a quarter of discussions that we should expect it to be more more on the back half of the year or is this something that you know.

You should expect to start to see into the numbers and in which.

Which parts of the business I mean, I guess, it's going to be quite a lot of generic outside but which one maybe more than the other is more levered to that.

So Kevin could speak again, thank you for the question.

I'll take the our expectations of this again ramping down of the.

The COVID-19 impact going into <unk>.

Q2.

Is the.

The holding pushed out within the our full year guidance.

Specific to the point of which are how each of the solutions impacted the primary net tailwind.

Has been within our Quebec solutions.

And within equip the solutions really describe it as a net tailwind because I would think about it.

This balance in our business between the medical and the procedural side.

Of the hospital or health system, and so what we saw what produced the net tailwind for us primarily and equipment solutions as those areas more focused on the medical like the rental of ventilators and the infusion pumps and to a degree of specialty beds and surfaces.

We saw a strong the tailwind high demand.

<unk> two of degree.

<unk> decreased demand on our surgical laser portion of our business, which is also calls within the.

Equipment solutions as we get to the at this point of the year as Tom bedding reflected the.

The customers conversations are changing both of taking longer term huge now again, because they don't have to worry about that the the challenge is right in front of their face.

The other focusing on improving their financial health, which means returning to a normalized level of procedures.

We will see debt.

Both within our surgical laser rental that that will pick up and you'll comp very well versus the last year when when procedures were off.

But on naturally the falloff on the medical side and of course of solutions the pick up on the surgical side that still produces.

A net headwind for us for the next four quarters within equipment solutions.

We expect the C as well when within clinical engineering and within our on site managed.

The conversations we've been having with customers once they've been able to hook up from the challenge right in front of them all of those conversations are turning into opportunities, which will turn into contracts and we're very comfortable of base.

Just on the deal flow, we're seeing today, Paul debt in that mix of of a very strong tailwind for us in Oh, congratulations as well as within clinical engineering.

But the good line of sight to the full year.

And to the guidance that we've provided for first full year of full year revenue on full year EBITDA.

Okay, that's helpful and I guess in the.

In the slide deck, you mentioned that you guys continue to look at smaller kind of opportunistic M&A to augment the growth.

Any commentary on the on the deal environment today, and how you guys think about leverage on your capacity to do the deal you know after.

Clothing, north of they'll just a couple of months ago.

Thank you Sue.

Do we think about capacity additional financial capacity and the management capacity to successfully.

After the after you've acquired it's the successfully integrated and deliver results for our shareholders.

Oh, well deepen the work today on north field, and we'd hope to be in a position if we can find the right opportunities.

To do more M&A, whether it's.

In this year or beginning of next year.

Our focus on.

On our approach is opportunistic.

So we're not chasing the.

We don't need to chase deals, we do maintain a healthy funnel of interesting opportunities all of it.

Mindful of valuations.

When we find the right opportunity if we've got all day.

Payable management capacity it is our view that Oh.

Some of them over the longer term maintain all of our leverage ratio in the low to mid threes, but.

But occasionally check into that available capacity.

Sure.

M&A opportunistic M&A.

With the goal of.

After acquiring something true synergies and through growth.

And our performance once you can drive down to that longer term general goal of low to mid threes on our leverage.

Yeah.

Alright, great. Thanks.

As a reminder, if you would like to ask the question. Please press star one on your telephone keypad.

Our next question comes from the line of South of Geo Koby with Citi. You May proceed with your question.

Great. Thanks.

Hum.

Yes.

Wondering if there was anything to call out on the type of hospitals, you see accelerating discussions is it true.

We're really early news of merger systems versus smaller systems those that are more challenged.

Financial position versus those on more sound footing.

Qualitatively in terms of.

On the reading the discussions at this point.

Yeah, I'll say simply.

Most if not all hospitals had financial challenges and some form of primarily true about the loss of the ability to do procedures at the.

Normalized rates.

She should nearly every customer that we speak to and it's but it's large for profit whose names you know a small cell on community hospitals and academic medical centers.

Really all of them are focused on a return to health.

If I were day.

We just think about it would be what when your house is on fire.

The time to think about upgrading your kitchen, even the upgrading your kitchen will make your home more valuable.

Part of you ought to put the fire out of.

Across the market.

A market by market the Silvia facility without regard for public not for profit.

The community large.

For the last year.

The customers were focused on the challenges at hand.

Talking to us to help us solve their most urgent challenges getting access to the devices they need to care for the patients.

And each of them are in turn the based on what's going on in their local markets able to lift their heads up the other way to think about what should the future look like.

And we're having those discussions really across our customer base on our customer base more than 7000 facilities, we serve across the country really are a cross section of.

On health care, the health care marketplace in the U S.

Yes.

And then just I guess the follow up you know a lot of lots of headlines around inflation out there.

Are you seeing anything at this point, maybe specific to supply the indoor labor.

Sort of Wow.

Yeah. Great question. Thank you. So today, we're not seeing any impact either with the labor market tightness or in <unk>.

Supplies, particularly with regard to parts, let's see I'm not sure you're on the parts side.

We generally have longer term arrangements with our suppliers.

Think we feel pretty comfortable in our position there.

With regards to the labor market I'd say a couple of things.

First of all of our standard contract does include.

Inflation adjustment provisions.

So there is an offset that we generally have.

I also say and this is important we're obviously not the immune from labor shortages or it was really the cost pressures.

But it's of course, not yet for our most important roles.

It really is for us a specialized and narrow health care only market.

Well, we're effectively competing with hospitals for the same types of talent for example, the biomedical technicians repair and maintain devices.

And we believe I think of history has shown we simply have more of the offer.

Folks.

And our customers do.

Further to the point of one of the things that we see as one of our customers are experiencing the same challenges and risks of whether it's the risk of labor market inflation or just simply the ability to get the current put the need to do this work it.

It actually adds to their interest.

In outsourcing these areas like clinical engineering set of companies like agility. So we're not seeing the effect today in our business.

I think we're in a good position when it comes to recruiting and retaining the high quality talent. The Miss narrow market and has generally serves as a tailwind for us when we think about it.

The protection for a customer to outsource versus during the script for themselves.

Uh huh.

<unk>.

Our next question comes from the line of Anthony Petrone with Jefferies. You May proceed with the question.

Thanks, and congratulations as well on the IPO and in the strong quarter.

Maybe Tom on a more sort of macro question coming out of pandemic, just sort of your views on where hospitals.

Are you know their heads are anxious as it relates to preparedness.

Out of the pandemic order of do you think there's a more of an extended tailwind here in.

In the event that they want to be you know sort of more prepared just from a capacity standpoint, and so do you think there's a the sort of accelerated discussions on.

More outsourcing of equipment and potentially bulking up rental.

And maybe even the onsite services.

And so how do you think that's trending in and what do you think that does to share of wallet at existing sites going forward and then all of one quick follow up.

Yeah got it and I really appreciate that question. It's important for one question I think there is a great longer term not quantifiable.

Wins that we get based on the pains debt our customers' experiences they went through the pandemic.

In the conversations that we have.

This needed to be ready this need to never find themselves.

Unable to deliver the kind of care that they expect to as part of the mission to their patients is something that's driving a lot of soul searching and in a lot of activity on their part.

I see.

The important part of our business the on site management business, where we will maintain manage mobilize hospitals owned equipment and not just the hospitals, but mobilize it across the health system, where that equipment is most needed then again augment with our rental.

That's that was historically for us something that we had to educate our customers on the inefficiencies that they have the waste that they had the excess equipment that they have while they're still renting.

What COVID-19 has done and their inability to.

To manage for themselves this environment, such that they had access to equipment that they need it.

The visibility to it to mobilize what they had first and then the wise about how they chose the rent that you should be in education channel for us.

Now, we're getting pulled into the C suite to help customers understand how the white this from happening to me again, how can I be ready just to more efficiently manage the desktops, but to make sure I never find myself unable to provide the care of that my patients expect and demand of our Boston So.

I think I sort of longer term, the very positive tailwind force, certainly impacting where we're able to engage with our customers and giving us access to the C suite at the level that we've never had before.

The telephone the quick follow up maybe for Jim would just be a little bit on on margin progression of adjusted EBITDA margins surprised to the upside in the quarter Theres. Some volume rolling off of COVID-19 next quarter. So just the spread between the 36% and the guide for the year.

How we should be thinking about the lumpiness or lack thereof of of adjusted margins. Thanks again.

Yeah happy to help there.

In my prepared remarks, just to restate the elements of why our EBITDA margins in Q1 of 2021.

Are going to normalize and come back to pre COVID-19 levels, it's really three drivers.

<unk> been cycling through of COVID-19 as we've shared previously the revenue impact from COVID-19.

Go ahead of very high flow through rates well.

While we don't describe what that impact is it certainly did exist. So that's point number one number two is the assumptions that we're making with the renewal of the government contract.

Finally key piece to keep in mind is the acquisition of the North field did.

We did have lower EBIT, EBITDA margins, which will take us a bit of time to integrate and execute and get back more in line with the overall trends in terms of our EBITDA margins. That's the way I would think about it.

Helpful. Thanks again.

Happy to help.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Tom on it for closing remarks.

Thank you operator, and I want to thank everyone for your time and for your questions today.

I think the close by sharing the.

We like to describe the agility as a company on the right side of health care.

What that means is it whether were in times of financial strain or at times of relative prosperity.

This need on the part of our customers to drive cost savings the operating efficiency and patient safety.

These needs are fundamentally essential.

We have demonstrated we are of critical part of our national health care infrastructure.

And I think as live events of 2020, now clearly highlight the services that we provide are always necessary and in high demand.

Look forward to updating you on our progress and we do want to thank you all for your interest and agility.

With that I'll go ahead and close today's call. Thank you.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation of enjoy the rest of your evening.

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