Q2 2021 Agiliti Inc Earnings Call
Good afternoon, and welcome to agility second quarter 2021 earnings conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A at this time I would like to turn the conference over to Kate Kiser, Vice President of corporate Communications and Investor Relations.
That agility. Thank you you may begin.
Thank you operator, and Hello, everyone. Thank you for joining us on today's call as we provide an overview of agility as result.
Ending June 30th 2021.
Before I begin I'll remind you that during today's call, we'll be making statements that are forward looking and consequently are subject to risks and uncertainty.
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 and 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 a reconciliation of those measures to the nearest comparable GAAP measures and a description of why we use these measures in our press release and in the slide presentation, we will use to facilitate today's discussion.
He'd like to download a copy of the presentation. Please visit our website at agility helped dot com select the investors section at the top of the screen and then events and presentations finally select the presentation titled Agility, Q2, 2021 earnings slides with that I'll turn the call over to our CEO, Tom Leonard for his remarks on our second quarter.
Sure.
Thanks, Kate and good afternoon.
Thank you for taking time to join US as we review our results from the second quarter of 2021.
Joining me to discuss our performance is our CFO Jim Mckinney.
Our president Tom Fanning, who leads our commercial operations.
I'm pleased to share that our results for Q2 and.
For 2021 to date are slightly ahead of our initial expectations.
Turning directly to the highlights.
Total revenue for the quarter was 251 million, representing a 35% increase from Q2 of 2020.
Adjusted EBITDA was 78 million.
Also what 35% increase compared to Q2 of last year.
And our adjusted earnings per share for the second quarter was 23 cents.
There are two in adjusted EPS of <unk> 14 cents.
Prior year period.
Representing an increase of 64%.
In line with these results we have raised our guidance for full year 2021 to reflect expected revenue in the range of $965.980 million.
And adjusted EBITDA in the range of $280 million to $290 million.
Jim will provide more detail on our financial outlook and the principal drivers behind our Q2 performance.
First let me take a moment to highlight the stable and durable nature of our business in the context of the recent performance of our three service lines.
Over the course of Q2.
And as we previewed during our Q1 earnings call.
We saw a return to pre COVID-19 demand for our rental services.
Favorably offset by a return to more normalized demand for clinical engineering and onsite managed services.
Clinical engineering services revenue in Q2 totaled 101 million.
Representing a 51% increase year over year.
As a reminder.
Engineering is a business of medical device repair and maintenance.
Historically.
That's just growing business and it's in the largest market segments that we participate in.
Agility deploys trained technicians to repair and maintain virtually all of the medical equipment, you would expect to find in a hospital.
We perform this work both at our customers' facilities as well as in our local service network.
Model, which is unique to agility.
Onsite managed services revenue was 77 million for Q2.
Representing 74% growth year over year.
Well onsite solution.
Team's working hospital facilities, they worked shoulder to shoulder with clinicians, helping to manage and mobilize our customers medical devices.
We ensure clinicians never have to hunt for the devices they need to care for their patients.
They need our patient ready.
Delivered right to the bedside.
We deliver the service to a dedicated onsite team that performs these duties.
Our proprietary software platform, which we integrate into our customers' hospital information systems in use to manage our teams workflow.
Optimize our customers medical device utilization.
In Q2, our equipment solutions revenue totaled $72 million, representing a decline of 2% for the quarter.
Driven by the expected normalization of customer demand for equipment rental back to pre COVID-19 levels.
As a reminder, equipment solutions is the cornerstone of our comprehensive medical device management solution.
We provide our customers with access to medical devices.
To meet peak census needs.
<unk> access to our high cost low utilization device.
You wouldn't otherwise makes sense for our customers to own.
We enjoyed by far the largest medical device fleet in the country.
We need more than a quarter million capital medical devices and related accessories.
Importantly, we focus on device categories. When we can run a differentiated service around access to the device.
For example, <unk>.
Lasers, where we provide a laser technician to support the surgeon and the use of the device during the procedure.
With our specialty beds in clinical services.
There are on staff clinical team provides training and hands on support and the setup.
Use and maintenance of these devices.
Last year, we saw outsized demand for these services as the <unk>.
Writers augmented their owned equipment with agility medical device fleet.
Handle the surge in patient volumes at the onset of the pandemic.
And as we previewed last quarter.
In Q2, we saw a return to pre pandemic levels of customer utilization of our rental device fleets.
The year over year growth, we experienced during Q2 within critical engineering and onsite managed services reflects in parts.
Expected rebalancing I had mentioned on our last earnings call as customers transition back to pre pandemic operations and have the opportunity to take a longer term view of the medical device management needs.
The growth in these two service lines also came in part from our contracts with the department of Health and human services for management of the strategic National stockpile of medical devices.
As we previously shared last July agility entered into a new contract with the department of health and human services to manage the federal government's emergency medical device stockpile.
It's one year initial contract.
Awarded under the Cares Act and direct response to COVID-19.
It is an expansion of the federal government's preexisting medical device stockpile, which.
Which agility had already been managing.
We are currently operating under a 60 day extension to that initial contract while the government prepares for a new formal process and contract award.
This contract extension runs through September 27th of 2021.
We currently expect HHS to award new contracts prior to the end of September.
Which would also aligned with the starts of the government's new fiscal year.
The timing of the process and subsequent award of a new contract is entirely under the control of the federal government.
May occur earlier or later than our current expectation.
And of course agility fully intends to compete for this new contract award.
Our financial guidance for 2021 continues to include the assumption that agility is successful in securing a renewal of this government contracts.
Based on our long and successful history, serving the federal governments state and local agencies as well as our domestic military healthcare infrastructure.
We believe agility is uniquely capable of supporting the needs of these government agencies.
Please understand that we operate under a strict non disclosure agreement with HHS regarding the details of this sensitive contracts as such information. We can discuss today is limited to what the federal government disclosed this publicly.
And what we've provided here in our prepared remarks.
Let me now turn the call to Tom banning offer his perspective on the performance of our business during the second quarter.
Thanks, Tom and Hello, everyone. It's my pleasure to be joining you again today to offer a few brief highlights on our business you will recall that during our Q1 earnings call. We shared that we were seeing hospitals and health systems refocus on planned longer term investments as the industry began to emerge from the pandemic.
We benefit from this long term focus and a heightened awareness across the industry of the need to better manage critical medical device assets. This same trend continued throughout Q2.
Just the last several weeks, we started to see the impact of the Delta variant or COVID-19, and a number of geographic markets around the country in.
In these regions demand for access to our medical device fleet infusion pumps ventilators monitoring equipment specialty beds and surfaces as well as other critical care devices has increased we've begun to mobilize our teams and equipment to proactively respond to areas of greatest smooth.
But this time the aggregate demand of our medical device fleet remains relatively close to pre COVID-19 baseline levels and well below 2000, twenty's elevated utilization, we remain ready to support the needs of our nation's health system. However, the next few months unfold.
Now turning to the integration of Northfield Medical in March we closed the acquisition of this business combining the second and third largest independent service providers to expand our capabilities and surgical instrument repair and complete our nationwide footprint, we're now making significant progress in our planned integration.
Having fully merged our sales teams and they are already collaborating on opportunities in the field, we're now deep into operational and back office integration.
Surgical instrument repair is a logical extension of our broader clinical engineering offering and a number of our customers are already benefiting from the integrated service solution I'm excited to share future updates on our progress.
As a reminder, this acquisition also illustrates our strategic approach to M&A, which is the overlap and extend this means that we look to build on our existing capabilities and drive additional profitable volume through our at scale National service infrastructure, while always staying close to what we do best while historically the growth of.
Our business has been primarily organic we've completed more than a half a dozen transactions over the last several years.
We look to be disciplined acquirers routinely evaluating opportunistic tuck in M&A to enhance our solutions and augment our strong organic growth profile.
As we look forward to the balance of the year. The focus of our teams is on successful renewal of the H H S contract responding to the needs of our customers as they manage through the impact of the Delta variant complete.
Completing the integration of Northfield, and maintaining our momentum in the field.
Now I'll turn this over to Jim to provide detail on our Q2 financial performance.
Thank you Tom.
I will start with an overview of our Q2.2021 financials at a high level.
And then offer some reflection on our 2021 financial outlook.
For the second quarter total company revenue totaled $251 million.
Representing a 35% increase over the prior year.
Adjusted EBITDA totaled $78 million.
Also a 35% increase over Q2.2020.
This performance resulted in adjusted EBITDA margins of 31% for Q2.2021.
Well as for last year.
Our strong operating performance drove an adjusted earnings per share of 23 cents.
From 14th and.
In Q2 of last year.
Taking a closer look at our revenue for the second quarter of 2021.
We delivered strong Q2 revenue growth across both clinical engineering and onsite managed services as.
As well as an expected slight decline and equipment solutions revenue.
Equipment solutions revenue totaled $72 million.
Down 2% year over year.
We estimated that in Q2 of last year, the favorable impact from Covid was in the range of $8 million to $10 million.
In Q2.2021.
We estimate that the net favorable revenue impact from Covid was less than $3 million.
As I shared on our last call.
We anticipated that in Q2 of this year, we would lap last year's initial surge of Covid driven demand.
That has occurred generally as planned.
This reversion to pre COVID-19 levels aligns with our financial plan for 2021.
And is fully considered within our full year guidance, we have provided for total company revenue.
Moving to clinical engineering.
Q2 revenue was $101 million representing year over year growth of 51% for the quarter.
The growth in the quarter came from signing and Onboarding new business over the last year.
<unk> work directed by the federal government under our existing contract.
In addition, we reported revenue from the newly acquired Northfield medical business during the quarter.
Finally.
Onsite managed services revenue totaled $77 million rep.
Representing year over year growth of 74% for the quarter.
A majority of the growth in Q2 came from our expanded contract with the federal government for medical device stockpile management services.
Gross margin for Q2 totaled $99 million, an increase of $32 million or 47%.
And our gross margin rate was 40%.
Up over 300 basis points from the prior year.
This improvement in margin rate was driven primarily by strong total revenue growth.
It's all lines of business share a common infrastructure volume growth in any service line has a favorable impact on the utilization of our fixed cost infrastructure.
SG&A costs for Q2 totaled $81 million, an increase of $28 million or 54%.
This increase was primarily due to the buyout fee related to the termination of the THL Advisory service agreement of.
A $7 million.
Increases in costs and amortization expense tied to the north field acquisition.
And an increase in payroll related costs associated with the growth of our business overall.
Adjusted EBITDA for Q2 totaled $78 million, representing an increase of $20 million versus the prior year.
Our strong revenue growth and improved gross margins in the quarter combined to deliver a solid Q2 financial performance.
Resulting in adjusted EBITDA margins of 31%.
In our appendix towards slide deck, we also provide a reconciliation of our EBITDA to our adjusted EBITDA consistent with our past reporting.
We want to call your attention to two sizable adjustments in the quarter.
First as part of the IPO, we incurred a $7 million expense related to a buyout of the THL Advisory service agreement in place with our current majority private equity shareholder.
In addition, as part of the IPO, we incurred a $10 million loss on the extinguishment of our second lien debt obligation.
As I shared on our last earnings call. The retirement of this debt has resulted in a meaningful decline in our overall borrowing costs.
Finally, our adjusted earnings per share for Q2 totaled 23 per share.
Representing an increase of nine cents per share versus the prior year.
And representing 64% year over year growth.
This growth was a direct result of strong overall business performance.
Partially offset by the increase in our weighted average fully diluted shares outstanding for the quarter of 27 million shares related to the shares issued during our recent IPO.
Moving to our balance sheet, and our new capital structure.
We closed Q2 with net debt of $940 million, which includes 1.04 billion in debt less of $104 million of cash on hand on our balance sheet.
Our cash flow from operations for the first half of the year was over $100 million driven by strong operating results lower interest costs, resulting from the Paydown of our second lien debt facility as part of our IPO.
As well as the favorable timing of our accounts receivable collections.
Strong cash flow generation and adjusted EBITDA growth.
Resulted in a reduction of our leverage ratio to three two times at the end of Q2.
Looking forward, we expect to maintain our longer term leverage in the low to mid three times range.
We also anticipate using our strong balance sheet and cash flow generation to fund opportunistic tuck in M&A.
Aligned with our strategy to augment our organic growth profile and drive additional profitable volume through our at scale operating infrastructure.
Yeah.
Agility maintains a position of significant liquidity with $346 million available as of June 2021.
This includes our newly expanded $250 million revolving credit facility as well as cash on hand.
Recall that since completing the IPO and reducing our outstanding debt, we shared that our corporate rating increased from B to B plus with a positive outlook from S&P.
And from B to B, one with the stable outlook from Moody's.
Over time, we expect this should further reduce our costs to access the capital markets as required to augment our growth with targeted M&A.
Finally, I'll provide some additional color on our 2021 financial outlook.
As a reminder, we provide guidance for key performance metrics on a full year basis.
I'll start with a quantitative summary, and share a significant assumptions.
Based on current performance and expectations for the full year, we are raising guidance for two of our three financial metrics.
Specifically, we have increased our revenue guidance to a range of $965 million to $980 million, representing full year revenue growth of 25% to 27%.
And we have increased our adjusted EBITDA guidance to a range of 280 million to $290 million, representing full year growth of approximately 20% to 24%.
We are maintaining our net cash capex guidance in the range of $65 million to $70 million.
Capex as a percentage of revenue.
Irrelevant measure of a decreasing capital intensity of our business.
Is expected to be in the range of 6% to 7%.
Reflecting on the balance of the year.
We are planning under the assumption that COVID-19, including the Delta variant will not have a material impact on utilization of our medical device fleet for the balance of the year.
Recall that favorable net COVID-19 impact on our financial results was approximately $30 million to $40 million in 2020 revenue.
<unk>, primarily between Q2 and Q4.
And approximately $10 million to $12 million in revenue in Q1 of 2021.
The strong growth implied by your full year guidance takes into consideration that the prior year comps will be more challenging for the next three quarters until we have fully lapped the COVID-19 tailwind.
We also expect to continue signing and implementing new contracts for all of our solutions throughout the year in the ordinary course of our business as customers are able to turn their attention back to the strategic and financial initiatives, where our solutions play an important role.
And as Tom shared upfront our 2021 financial guidance includes the assumption that we will successfully renew the agreement with the department of health and human services.
These assumptions are embodied within our full year guidance.
As is evident in our consistent and positive 2020 financial performance.
Changes in the outlook with respect to COVID-19 made slightly alter our mix of revenue for the balance of the year.
But we would not expect it to significantly impact our consolidated results from our expectations.
Finally, our implied full year, EBITDA margins, which can be calculated from our revised 2021 guidance.
I expect it to be in the range of 28% to 30%.
This guidance reflects our expectation that the business will return to our pre COVID-19 margin profile.
Primary drivers that will impact margins for the balance of the year include the normalization of rental device volume for the balance of 2021.
Our internal assumptions on a renewal of the HHS contract.
And the impact of our recently completed acquisition of Northfield medical.
Which historically has had lower initial EBITDA margins compared to agility historical average.
With that I'll now turn the call over to our operator to provide instructions for Q&A.
Thank you if you would like to ask a question. Please press star one on your telephone keypad.
For me to tell will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow up question and then re queue for additional questions.
Our first question is from Amit Hassan with Goldman Sachs. Please proceed.
Oh, Thanks, and good afternoon folks thanks for taking the questions. The first question just a quick clarification is just a round or ganic growth. If you could just.
Excuse me give us that's.
Northfield contribution in the quarter and then also what you're expecting for the year that would be helpful.
Yeah. Thanks for the question Amit.
In terms of this year with the second quarter, we're not specifically, calling that out and the reason for that is as Tom mentioned in his comments right. After the acquisition we moved to integration.
So we're going through the integration and have done that through Q2.
One thing that you might find helpful. Though.
In our 10-Q, what we did disclose in our footnotes, whereas in Q2 of 2020.
The pro forma impact for our overall financial results reflected about $23.5 million of historical revenue for north field, so that should be able to help you.
Guide to guide the comps.
Okay.
On that offline too.
And then just moving to the second question to the to the government contract situation with the 10-Q just filed it it says that 18% of your first half revenue is coming from HHS contract just wanted to clarify that that would be a little it pretty high a little bit I don't I don't imagine that that can.
B Nathan linear across the quarters, so maybe a little bit of health and color on that and what is embedded in your guidance for the rest of the year related to that number would be would be really helpful too. Thanks.
Yeah, no worries and meet keep in mind that that 18% number reflects multiple contracts not just the contract that we referenced in the script are also important to keep in mind that in the prior year. We also had certain contracts.
Just in reach to the level of over 10% I E required disclosure.
So it wouldn't be fair for you to assume that that 18% reflected just the <unk> contract that we referenced in the script.
Yes.
But to your question.
So the makeup of that.
As Jim said there was.
There is pre existing revenue from other contracts.
And to the HHS contracts and as we've shared previously with regard to the HHS contract.
Simply we have to think about it as two parts, one part effectively being a fixed fee around the management the maintenance the readiness of these devices.
The other parts being variable being time and materials based revenue.
Related to such activities as the government may direct us to do.
And managing deploying recovering supporting those devices.
When we.
To your.
Question about what's embedded for the remainder of the year as we've shared previously our expectations for the balance of the year or that just removes were successful in securing a renewal on that renews at a level consistent with our XP.
The patients for what would be required to manage and maintain this on an ongoing basis.
Okay I'll jump back in queue. Thank you.
Our next question is from Matthew Borsch with BMO capital markets. Please proceed.
Hi, Thank you maybe just a question about.
Any regional geographic variation youre seeing in volumes.
And in the pace of normalization and I'm just wondering as to.
No.
Can you can you call out any differences there and is there anything that you think you are seeing at this stage that might relate to the surge of the Delta variant.
Again, perhaps that's geographically diverse and impact.
Yes, great question, Matt insightful questions.
I think if you wanted to reflect on where we might be seeing more activity I would refer you to a good source of truth, which should be the CDC and where theyre seeing infections rise.
What we shared in our scripts is a headset.
Last year 2020.
We're really seeing it.
Motivation that demand for our rental equipment.
Back closer to pre Covid levels.
Not at the elevated levels that we saw last year, so still very close to our expectations of utilization of our fleet.
Our historical levels.
But that's an aggregate across that country for our entire fleet.
Would you say, though I mean, we still obviously have COVID-19.
Continuing.
To some degree and that's that create some demand in some of the hospitals seem to be seeing above normal volume.
Elite, probably temporary but I'm wondering if.
It's what you're seeing in terms of the flow of <unk>.
Demand for your services would be consistent with that or where things really just reaching kind of pre COVID-19 baseline.
Yeah, again that might have been clear with my answers.
We see regional spikes in demand for our equipment.
Much as you've seen regional spikes and.
And COVID-19 around the country in terms of its aggregate impact.
The demand for.
The equipment, we are closer to that pre COVID-19 normalized levels.
Last year's outsized levels of utilization.
A question entire country, there was excess demand for the fleet.
Got it got it okay.
So I want to be.
Driver with respect to COVID-19 to be a material driver in our financials as Jim shared when he walks through the assumptions for the full year.
Yes, okay. Thank you.
Our next question is from Ralph.
Jia come with Citigroup. Please proceed.
Thanks, Good afternoon I.
I guess I wanted to go to the margin commentary and discussion Tim I think you said in the guidance certainly implies the 28% to 30% for the full year, but.
First half is coming in at closer to 34%.
I know one of the first quarter you guys had said don't run rate this margin because of the Covid contribution, but you did 31% margin this quarter without the Covid contribution so.
<unk> guidance in the back half looks like it implies about 25% margin, which is a couple of hundred basis points lower than even the second half of 2019. So just hoping you could flush out the margin expectation in contraction in planning guidance, if thats really all just north field or if there's anything else we need to consider thanks.
Yeah, No worries Ralph I appreciate the question.
Just to reiterate the script in terms of what I shared.
First think about.
The balance of the year has returned to pre pandemic volumes for our rental services and as we shared.
In Q1 that impact with topline.
At $10 million to $12 million in less than three in Q2.
And we've also shared that.
Just directionally that that has high flow through.
Number two what we've assumed for our guidance is the renewal of our D. As soon as the government contract at certain internal rates.
And then lastly in to your good point.
As the North field acquisition, which has been historically.
Significantly lower EBIT margins than what our overall business has been at its those three elements rail.
I would direct you to as we think about the balance of the year and our full year guidance.
Okay, Alright fair enough and then just for my follow up just wanted to clarify on the government contract.
60 day extension was there an RFP process prior to July 27th and this is sort of a redo or this is just a push out of the RFP process maybe to align it with.
Fiscal year and then.
With the new contract is there anything you can give us in terms of relative length of time and just to your recent comment it sounds like maybe your expectation, perhaps there's a little bit lower margin contribution if I caught that right. Thanks.
Sure Shneur has not been an RFP yet the government initially did and RFID, which is fairly standard practice in resi.
<unk> described its initial thoughts on scope.
On.
So for future contracts and invites industry two comments.
The government then takes that information or process to determine what if it wants to influence what will eventually be an RFP.
And then a contract reward award would follow that.
Effectively the government ran out of time on the calendar before they really get to an RFP process.
So while they are preparing to put together a formal process a extended our existing agreement for 60 days. So there has not been an RFP.
For a new contract award.
Yes, yes.
And again it was simply the clock on the calendar running out.
So we can expect we've been guided to expect now that process will take place and expect to see an award.
Now to the end of the current.
Fiscal year <unk>.
Sometime before the end of September.
In terms of.
The margin profile.
Probably.
While we.
We haven't provided any specific with regards to the margin profile nor are we in a position to now we haven't seen an RFP. So we don't know exactly what the scope of debate.
Items includes our expectations with regard to what a future removal will look like.
Why do we think it looks different.
This contract was awarded under the Cares Act also to greatly expand stand up.
We expanded our <unk>.
Dark pile on.
Roy can take such other actions as as department might stretch for us to deal with.
The follow on longer term contracts to be primarily focused around the ongoing management of maintenance.
Stockpile. So yeah, we would expect it to be of a smaller in different size and then all of those all of our expectations with regard to the future contracts are.
Embedded within the guidance that we provided.
Okay. That's helpful. I appreciate the detail.
As a reminder, this star one if he would like to ask a question. Our next question is from Kevin Fischbeck with Bank of America. Please proceed.
Hi, guys. This is actually quite do you find do say on for Kevin. Thanks for taking the question.
So I guess one thing first I just wanted to clarify Jim did you say that the quarter saw a lift from the extension in the 60 day extension.
Stockpile contract I don't know if I misheard that so I just wanted to clarify that first.
No I did not.
Okay, great. Thanks mm bye, so I just wanted to I wanted to ask.
How is the deal pipeline looking now are you guys are you still skewing towards surgical instrument type assets are you kind of looking for small tuck ins across all segments and I guess, just you know what kind of multiples are you seeing for these assets.
Thanks for the question.
We are looking.
Our ear to the ground starts first with the needs of our customers.
When we think about the places that we are.
And we try and intend to stay constant as areas that we know best.
Surround the management.
<unk> of our customers regulated medical devices.
So on repair and maintenance of those devices and it's around our ability to augment them.
When Paul.
For either <unk> or provide access to the high cost of utilization devices that would make sense for our customers to own a daily devices or we can wrap the differentiated service. So when you think about where we might find M&A targets would really be across that continuum.
Okay.
Suppose just like they do in the public market multiples very much reflect the underlying nature of the business how fast it's growing its scale its scarcity.
Well, what it is but its margin profile looks like.
We tend to be disciplined acquirers.
Given that we ended up walking away often far more than than we choose to pursue breath.
That's been our history I would expect that to be.
Our viewpoint going forward as well.
Okay, Great and then if I could just clarify so on the guidance was the raise more or less just driven by the Q2 strength in I guess more visibility into the trends you guys are seeing.
I would say that the grades was based on our results in Q2, what we have in terms of visibility for the balance of the year and again, our internal assumptions on the renewal of the HHS contracts.
Great. Thanks, guys.
Our next question is from drew Ranieri with Morgan Stanley. Please proceed.
Hi, Tom and Jim Thanks for taking the question just just a quick one on north field for me I understand that.
EBITDA margins for that business are under the corporate fleet for right now, but can you maybe just talk through the integration process a little more fully.
Is there anything structurally that inhibits you from getting that to the corporate or even above for EBITDA, just kind of wanting to get a little bit more of a road map there.
So let me start with the.
Great News about this company is that we enjoy a margin profile.
Living without peer.
In the areas that we serve.
Margin profile is built on the back of our unique in market infrastructure that all of our solutions sure.
A byproduct of that is when we look at acquisitions and by definition. They are going to have an inferior margin and that is true.
North field.
We'll generally be true of most anything that you would target.
Our goal as we look to find things that fit.
From a.
So Arthur.
The texture as well as staying within that in market footprint that we enjoy.
To be able to pick up those businesses and own them, but to drive topline growth and to drive <unk>.
<unk> expansion on the bottom line as we over time are able to successfully integrate them into that infrastructure.
So I don't know that it's practical to say that we've taken.
Get to a point that is greater than.
And our our historical average again this is best in class.
But our goal remains as we acquire these to integrate them into our commercial infrastructure and integrate them into our mesh question wide service footprint and over time bring them.
In line with our historical average.
Our next question is from Matthew Leeson with Keybanc. Please proceed.
Hey, guys. Thanks for taking the questions.
The first one is just your initial thoughts.
Draft guidance came out.
Late June.
On kind of re manufacturing versus maintaining medical devices.
Uh huh.
And I think that would have some impact on your business do you think that the long term net positive for you in terms of winning business because of the complexity or is it or is it a net negative potentially given the cost.
I do want to be clear, we manage and maintain devices, we do not.
Re manufacturer which has.
Special rules.
Especially those associated with it it's a special regulatory category.
And we are not a.
We manufacture rather we repair and simply return devices back to the original OEM spec.
Okay.
Okay.
And then on North field, I think you'd called out you said the pro forma <unk> was 23 million.
Oh from 2020, and <unk> 20.
Wouldn't that be a much lower number into Q 'twenty, then given given they're more tied towards the surgical side.
The hospital and that those were shut down for a number should be a little bit.
Higher.
And in 'twenty one.
Is that is a fair comment to Matthew for sure.
Okay.
Thank you.
You got it.
Our next question is from Anthony Petrone with Jefferies. Please proceed.
Anthony please that data.
Hey, guys, sorry about that it's a frankly now on for Anthony.
First congrats on another nice quarter.
Just two quick ones for me the first one.
On the government contract.
How do you do you have any expectations on the contract being more competitive now with this.
Proposal being pushed out maybe more visibility on it and then.
The second question just a little.
Bookkeeping.
The cadence of revenues, how should we think about that either absolute growth.
Going into <unk> and <unk>.
Off of the Q.
Thank you.
The rest of the year here.
So let me take the first part and I'll, let Jim handle the second part.
Regard to the HHS contract it is a sizable contracts as a sizeable contract.
No doubt will attract other bidders.
Mind, you of our history.
Key strategic national stockpile with medical devices.
Of course of more than six years that I've been here, we had managed to consolidate the previous stockpiles.
Some.
The Oems where they were originally managed.
And put them with them again, our unique infrastructure.
Not just facilities for storing them.
But also on logistics infrastructure, the ability to deploy in the fields maintain those devices.
Shneur this infrastructure.
Over the previous six years that I've been here, we've managed to consolidate the predecessors to that current expanded stockpile.
So as we could have known it was going to be expanded certainly it came as no surprise to us that it was directly awarded to us. So I have no doubts that other bidders will show up and put their best foot forward.
A decision of this tight it's not the lowest bid decision rather that criteria are generally along the lines of.
The governments.
And confidence in your ability to meet the requirements.
Your general overall contract in history with the federal government and the last criteria being price.
Given our very successful history with the stockpile of more broadly given our unique capabilities.
While we can't guarantee anything.
We feel very confident in our competitive position ASP.
Go into an RFP and eventual award.
Yep.
Frank just in terms of the balance of the year in terms of revenue.
We don't point to obviously guidance in the quarters, where what I would share with you though is.
As we move into Q3 and Q4.
We're gonna be comparing to the prior year Q3, and Q4, we had strong.
Impacts from Covid.
Keep that in mind as you think about the balance of the year.
Typically within equipment solutions.
Hope that helps a bit.
Thanks, guys I appreciate it.
You got it right.
And our final question is from Ralph <unk>.
Jacoby with Citi. Please proceed.
Great. Thanks for taking the follow up just one more for me they.
There were headlines maybe a month or two ago on Bidens executive order on right to repair just wondering if that has any implications for you or maybe what next steps are for that to have more teeth and potential timing and if this is even something significant or focus or relevant for you guys. Thanks.
Got it thanks, so that actually is.
Relevance to our business that's relevant that's relevant.
To our customers as well, who very often repair their own devices.
And.
Effectively the goal was to ensure.
For the benefit of customers that they retains the rights to either repair directly themselves or to find a third party like agility to repair and they couldnt be locked in in an uncompetitive way to only being able to be serviced by the OEM.
We think that is at least.
Neutral to favorable.
For us and our position.
It's not at all.
Factor directly.
And our guidance today, I don't know that it ever will be but it's certainly a.
On <unk>.
<unk> that is in favor of exactly the lines of business that we're in as it is.
Tenant service organization.
Organization, providing these types of repair services for healthcare providers across the country.
Okay. That's helpful. Thank you.
We have reached the end of our question and answer session and I would like to turn the conference back over to Tom Leonard for closing comments.
Great. So thank you for the questions. Thank you for your time today and closing I do want to reiterate our results from Q2, our outlook on the rest of the year reflects our confidence in agility is essential role supporting this nation's healthcare infrastructure and our team's ability.
To consistently execute on our strategy.
Look forward to updating you on our progress and we thank you for your continued interest in agility with.
I'll close today's call.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Yes.
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Yes.
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Okay.
Yeah.
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