Q3 2021 Agiliti Inc Earnings Call
Good afternoon, and welcome to agility third quarter, 20th 21 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'd like to turn the call over to Kate Kaiser Vice President of corporate Communications and Investor Relations at agility. Thank you you may begin.
Thank you Debbie and Hello, everyone.
Thank you for joining us on today's call as we provide an overview of agility results for the quarter ending September 30th 2021.
Before I begin I'll remind you that during today's call will 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 the actual results to differ.
Materially from those expressed in these forward looking statements.
Specific risk factors are detailed in our press release.
And then our most recent S. A SEC filings, which can be found in the investors section of our corporate website.
At agility helped dot com.
You will also be referring to certain measures that are not calculated and presented in accordance with generally accepted accounting principles. During this call you.
You can find the reconciliation of those measures to the nearest comparable GAAP measures and a description of why we use these measures in our press release and then the slide presentation will be used to facilitate today's discussion.
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, Q3, 2021, earning slides with that I'll turn the call over to our C E O Tom Leonard.
Thanks for <unk> good afternoon.
Thanks for taking the time to join US as we review our results from the third quarter of 2021.
Joining me today to discuss your performance bizarre CFO she'd be Carrick and our president Tom burning <unk>, our commercial operations.
Ah results finished ahead of our expectations for two three after having previously increased our guidance for the full year 2021.
Today will walk through the factors that drove our performance in the third quarter <unk>.
Provide color on her updated guidance for the full year.
Starting with the highlights.
Total revenue for the quarter was 262 million.
Representing a 35% increase from two 320 20.
Adjusted EBITDA was 82.
46% increase compared to choose three of last year.
And our adjusted earnings per share for the third quarter was 23 cents.
Compared to an adjusted EPS of 13 cents for the prior year period.
Resenting an increase of 76%.
In line with our performance and adjusting for the October 1st clothes at the size Wise acquisition, you've raised our guidance for full year 2021.
Reflect expected revenue in the range of one point O one to one point O 2 billion.
And adjusted EBITDA in the range of 300 to 310 million.
Jim's gonna provide more detail on our financial outlook and the principal drivers behind are cute results later on in the call.
Start today with a few insights into our overall performance in our direction.
First.
And once again delivered commercial goals for the quarter.
I previously described the stable and highly unpredictable nature of the agility business.
Which is clearly evident in our consistent performance, including our most recent results.
Ah results also reflect the increased customer demand for a medical device rental equipment during August and September.
As providers continued to combat the impact of COVID-19, and it's very inch across the country.
This lake demand exceeded our initial expectations for the corner.
Additionally.
Well, we're good at the direction was a federal governments international stockpile management contract.
<unk> higher than anticipated time and materials based revenue in Q3.
<unk> previously expected a portion of this revenue too cute occurred in Q4 of this year. So.
So this reflects an acceleration and timing for my prior expectations.
I'll note that this difference in timing does not increase our view on the total financial contributions contract the balance of the year.
Remaining on the topic of our government stockpile agreement for a moment.
They offer a brief update on our contract status.
Jody continues to operate under series of short term extensions to our existing contract while we await the federal government's free issue of an R. F P three contract renewal.
We have no visibility into the timing of either the RFP worry contract award.
Until such time did you contract is awarded we expect that HHS will continue to ensure the continuity of our support for the maintenance storage and deployment of these critical resources.
I use a short term extensions.
I'll remind you that our financial guidance for 2021 continues to include the assumption that agility is successful in securing a renewal of this garment contract.
And it should be shared I'm previous calls we operate under a strict nondisclosure agreement with H H S. Regarding the details of this contract work you perform at their direction.
As such the information we can discuss today is limited to what the federal government disclosures publicly.
Will be provided here and are prepared remarks.
I'd like to spend some time today in another recent highlight.
Our acquisition of size wise.
That's September 14th we announced the digital media finalize an agreement to acquire size wise and manufacturer and distributor of standard, especially bed frames.
Or a pubic support services.
Patient mobility equipment.
And our announcements we noted that during the 12 months ended June 30 2021 the.
The size wise business generated revenue of $155 million in.
And adjusted EBITDA of 30 million.
Which was inclusive of an estimated benefit from COVID-19 of approximately $5 million and adjusted needed that.
Acquisition was finalized on October 1st.
And we will account for size wise future revenue contribution within our equipment solutions service line.
Where are the in our integration of size wise.
However, we see a clear path to achieving meaningful cost synergies as we integrate targeting.
Targeting 5 million and you're one EBITDA and grown to $15 million a year three.
But first and foremost this acquisitions about long term profitable growth.
Eyes wide bills on the job is unique at scale infrastructure.
Because we optimize our combined operations that work.
Facilities vehicles staff.
Alex and our business operating systems.
We will further improve our local market presence.
And our customer reach.
By July strengthens agility capabilities supply chain.
Forbidding greater input over R&D manufacturing and logistics for vital product category.
And enabling us to manufacture a differentiated product portfolio for our exclusive benefit.
Size wise expand agility value proposition with their exceptional Margaret vacation deep expertise.
To better address the clinical needs it very actually patients.
And there was a risk of skin and fall injury.
And it aligns with agility proven end to end service model.
My best in class high utilization medical equipment.
Delivered within a comprehensive service framework.
To provide some broad market context is compelling opportunity.
And 2020.
It was estimated there were 9.2 million hospital stays.
Which obesity was the principal or secondary diagnosis.
Accounting for approximately a quarter of all hospital stays.
Primary diagnosis was associated with various uric surgical procedures.
And a secondary diagnosis was associated with complicating medical conditions with the most common being orthopedics.
Cardiorespiratory.
Scandaroon related.
For behavioral health conditions.
An estimated 2 million or 22% so those discharge is.
Where for severely obese patients.
For treatment and patient handling.
And the U S severely obese patients account for approximately 30% of all staff injuries related to patient handling.
I'm, 16.5% of all U S health care expenditures are spent to treat obesity and obesity related diseases.
Representing approximately 168 billion in annual costs to our health care system.
And once these patients are discharged specialized Barry ettrick and patient handling equipment is almost always needed for their continued care.
Besides place acquisition merge as well with agility primary value proposition.
Insurance providers have access to the critical medical equipment they require.
Delivered to the point of care and augmented by are differentiated services.
And always with the confidence that they're maintained a high standard in the industry.
We're excited about the opportunity in front of us planned to share more in the coming quarters as we began to execute this combined company.
With that let me turn the call over to Tom burning software his perspective on our performance in Q3.
Thanks, Tom.
I'll begin with some additional color on our commercial performance and then sure can reflections on some recent macro trends and their effect on our business.
First we continue to see heightened customer demand for a rental equipment during the third quarter.
Changes in covered with leather demand are obviously difficult to predict but our peerless national network of medical device service and logistics capabilities Mmm, Here's that we remain responsive to the needs of our customers is getting out of a group the effects of the pandemic.
While supporting our customers in your current moods, we continue to engage with them on longer term strategic initiatives or investments.
Our ability to continue negotiating concerning longer term agreements throughout this period of short term destruction is evident in our consistent positive results and also provides is excellent forward visibility for the next several quarters.
I'd like to take a moment to touch on subjects of labor availability wage inflation and supply trigger interruptions.
We continue to closely monitor important inputs to our business.
Oh, the broader discussion happening across all industries.
To date, we seem to be less impacted than most when it comes to these macro issues first and you're like all companies today, but that doesn't mean, we're not managing to localize challenges across parts of our business.
Regarding labor availability, you one tend to be the subject to cross three broad categories are we attracting high quality time as the top of the funnel or were able to land. The right candidates. Once we can send in the recruiting process and finally can we routine good talent once they've joined the jewelry.
With that context in mind, what we're seeing today is that we're currently attracting somewhat fewer candidates at the top of our final and this is a long day to Mark time to fill positions were also seen wage pressures and some local markets and that can challenge our ability to land candidates once we've been doing some in the process.
Our overall employment retention rates. However have stayed pretty steady in fact, our turnover rates are flat to slightly down over the past three years, we credit this to a culture that prioritizes the needs of our team numbers, including throughout Covid, when we extended new targets benefits to insure two's financial and <unk>.
Personal wellbeing.
And while our position vacancies are currently taking slightly longer to fill we have successfully grown our headcount by more than 20 per cent you over your with most of those roles supporting our field based customer cursing operations and contributing to or above market growth.
To remain proactive in the battle to attract and retain talent.
He recently completed a comprehensive weight and position study to measure our competitiveness across all job categories levels with seniority and local labor markets, we have and will continue to proactively tuna or compensation models as appropriate.
Bigger picture.
Jewelry prides itself on our missing driven work.
We offer the opportunity to build a rewarding career to work that makes a difference and lots of patience and that supports our nation's health care system.
Further we ensure our team members have the opportunity to share in the success of the company to our financial instead of programs here and more recently the introduction of employee stock purchase plan letting them participate in the growth and the success of the company.
It's for all these reasons that we believe agility remains competitively position and are generally difficult flavor environment.
In terms of supply chain pressures are outlook is somewhat similar vagility generally operates under a longer term supply agreements with relatively fixed pricing are centralized purchasing and supply chain management processes, and here's a fishing acquisition and management of critical repair parts for the devices that we service.
Both of our old please and for the devices that we manage for our customers further with the recent edition of manufacturing capabilities through our acquisition of size Wise, We're building adequate safety stock to support the business through potential short term disruptions.
I'll conclude with an update on the integration of our recent acquisitions.
First the integration of Northfield medical remains on track and nearly complete our acquisition of the business in March of this year or.
Our teams have work to seamlessly combine our operations and build out are offering a surgical equipment repair services.
Immediately following the close of the transaction, we aligned our customer facing sales and ops teams and we've been collaborating on commercial opportunities.
Today, we go to market as a single surgical equipment repair team with a differentiated service offering carried by dedicated sales force backed up by our consolidated technology platforms and supported by a common back office infrastructure.
As we approached the final phases of our Northfield integration. We've also become the initial phase of our immigration plan for size wise.
Our integration philosophy has always been the first do no harm.
Meaning that we take time upfront to learn and we worked jointly toward a combination that elevates the best of both companies.
We plan to utilize the remainder of 2021 to assess talent and performer integration blueprinting ripped.
We plan to begin executing our formal integration plants and early 2022.
With that let me turn things over to Jim to offer more detail on the financial performance and two correct.
Thank you to.
I'll start with an overview of her Q3 2021 financial.
And then offer some reflections I'm a balance of the year.
For the third quarter total company revenue totaled $262 million, representing a 35 per cent increase over the prior year.
Adjusted EBITDA totaled $82 million, representing a 46% increase over Q3 2020.
This performance resulted in adjusted EBITDA margins, 31% for Q3 of 2021.
200 basis points from last year.
Are strong operating performance drove and adjusted earnings per share of 23 cents.
Up from 13 cents in Q3 of last year.
Taking a closer look at a revenue for the third quarter of cross our service for.
We delivered strong revenue growth.
Crosby critical engineering and onsite managed services.
And a slight improvement and equipment solutions revenue.
Equipment solutions revenue totaled $78 million up one per cent you're over a year.
We had previously estimated that in Q3 of last year.
Favorable impact from Covid was in the range of $11 million to $15 million, primarily occurring within equipment solutions on.
On her last earnings call, we shared our expectation that we would return to pre COVID-19 demand levels in Q3.
However, this year's late Q3 surge in Covid related hospitalizations.
Is halted internet favorable revenue impact that we estimate between seven and $10 million.
Additionally, during the quarter, we recorded $5 million in revenue related to a larger than normal liquidation of equipment from within our medical device sleep.
Moving the clinical engineering Q.
Q3 revenue was $112 million representing year over year growth of 78% for the quarter.
The growth in the quarter came from signing Onboarding new business over the last year.
And as you heard earlier from Tom We also delivered higher than expected revenue from work performed during the quarter under the direction of the federal government under stockpile management agreement.
In addition, we reported revenue contributions from Northfield medical within our clinical engineering solution during the quarter.
Finally, our onsite managed services revenue totaled $73 million.
Representing year over year growth of 32% for the quarter.
A majority of the growth in Q3 came from our expanded contract with the federal government for medical device stockpile management services.
Gross margin for Q3 total of $103 million, an increase of 29 million or 39% year over year.
Our gross margin rate was 39%.
Over 100 basis points from the year ago period.
This improvement margin rate was driven primarily by strong total revenue growth across all three solutions.
All lines of business leverage a common operations infrastructure.
William grow generally has a favourable impact on our margins.
SG&A cost for Q3 total $75 million, an increase of 3 million or 4.6%.
The increase was primarily due to cost increases for the Northfield acquisition.
Offset by the decrease in the Remeasurement of the tax receivable agreement of 9.4 million in 2020.
SG&A expenses as a percentage of revenue declined by over 800 basis points.
Partially due to the decline in the expense related to the Remeasurement of the tax receivable agreement.
Was also due to continued overall average of our fixed costs infrastructure.
It just it EBITDA for Q3, total 82 million referees any increase of 26 million versus the prior year.
A year over year revenue growth and improved gross margins in the quarter combine to deliver adjusted EBITDA margins of 31%.
And the Appendix tour slide deck, we provide a reconciliation of GAAP EBITDA to adjusted EBITDA consistent with our past reporting.
Finally, adjusted earnings per share for Q3, total 23 cents per share.
An increase of 10 cents per share from the prior year.
And representing 76% year over year growth.
This growth was a direct result of our strong overall business performance.
Hershey offset by the increase in the weighted average fully diluted chairs.
Approximately 35 million shares associated with the shares issued during our April 2021.
P O.
Moving to the balance sheet and our new capital structure we.
We closed Q3 with net debt of $921 million.
Which includes 1.04 billion in that last $124 million cash on hand on our balance sheet.
Our cash flow from operations for the first nine months of the year was over $130 million drill.
Driven by strong operating results and lower interest costs, resulting from the Paydown of our second lien debt facility as part of the I P O.
Strong cash flow generation and adjusted EBITDA growth resulted in a reduction of our leverage ratio to 2.9 times at the end of Q3.
Looking forward with the recently announced size wise acquisition are pro forma leverage will increase by approximately half a turn.
A reminder, that over the longer term, we expect to target our leverage in the low to mid three X range as we use our strong balance sheet and cash flow generation.
To find it opportunistic M&A.
Jody maintains a position of significant liquidity with 366 million available as of September 2021.
This includes our 250 million revolving credit facility as well as cash on hand.
Since completing the I P O and reducing or outstanding debt, we shared that our corporate rating increase from beat a b plus with a positive outlook from S&P and from B two to be one with a stable outlook for 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.
In this regard on October 1st 2021, with the closing of the Sidewise acquisition.
We successfully raised at 150 million add on term loan.
With terms and pricing consistent with our most cost efficient portion of our term loan debt.
Are pro forma liquidity after giving effect to the size wise acquisition and the recent that raise inclusion undrawn $250 million revolving credit facility as well as over $40 million of cash on hand.
Finally, I will provide some additional color on our 2021 financial outlook.
As a reminder, we provide guidance for keep performance metrics on a full year basis.
I'll start with a quantitative summary, and share a significant assumptions.
Based on current performance and fully considering the financial impact of the size wise acquisition.
We are raising our guidance for the full year 2021.
Specifically.
We are increasing our revenue guidance to a range of one point O 121 point O 2 billion.
Representing full year revenue growth of 31% to 32%.
We are also raising her adjusted EBITDA guidance to a new range of $300 million to $310 million, representing full year growth of approximately 28% to 31%.
Finally, we are slightly increasing our net cash capex guidance from the previous range of $65 million to $70 million to a revised range of $67 million to $72 million.
Capex as a percentage of revenue is expected to remain in the range of 6% to 7%.
Reflecting on the balance of the year, we're planning under the assumption that COVID-19 continues into Q4 before starting to taper.
They should favorably impact the utilization of our medical device fleet for the balance of the year.
Recall that last year, the favorable net COVID-19 impact on our financial results was approximately $30 million to $40 million for full year 2020 revenue.
Occurring primarily between Q2 and Q4.
The favorable net COVID-19 impact on our financial results has been approximately 19 or $24 million.
For the first nine months of 2021.
The strong growth implied by her full year guidance takes into consideration that the cops will become more challenging for the next several quarters until we are fully laughed the COVID-19 tailwind.
Additionally, and as time noted earlier.
We recognized higher than anticipated time and materials based revenue related to our medical device stockpile management contract with the federal government during Q3.
We had previously expected a portion of this revenue to occur in Q4 of this year. So this reflection acceleration and timing from our prior expectations.
This does not increase our view on the total financial contribution from this agreement for the balance of the year.
Continuing with our assumptions regarding the stockpile management contract.
Or 2021 financial guidance includes the assumption that we will successfully renew the agreement with the department of health and human services.
We also expect to continue shining and implementing new contracts for a solution throughout the year in the ordinary course of our business is customers continue to turn their attention back to the strategic and financial initiatives, where are solutions play an important role.
These assumptions are embodied within our full year guidance.
As is evident and are consistent and positive 2020, and 2021 financial performance.
Changes in the outlook with respect to COVID-19.
Slightly alter our mix of revenue for the balance of the year.
But we would not expect it to significantly impact are consolidated results from our expectations for the balance of the year.
Finally are implied full year, EBITDA margins, which can be calculated from a revised 2021 guidance are expected to be in the range of 28% to 30%.
This guidance reflects our expectation that the business will return to our creek Covid margin profile.
Primary drivers that will impact margins for the balance of the year include the normalization of rental divides volume as we exit 2021.
<unk> internal assumptions on a renewal of the HHS contract.
And the impact of our recently completed acquisitions of Northfield medical into what size wise.
Both of which have lower initial EBITDA margins when compared to agility historical average.
I will end my prepared remarks today with a final comment on the recently completed sidewise transaction.
For the next two quarters, we will plan to provide additional financial context for the revenue and adjusted EBITDA contribution coming from the acquired size wise business.
By the end of Q2 of next year, we expect that we will have sufficiently progressed with our integration such that it will not be practical to identify the size why specific contribution to our overall financial performance.
Similar to our experienced with the north field acquisition agility.
Agility rental business and operations infrastructure.
It fit from significant overlap with the acquired size wise business.
As we integrate all aspects of the product portfolio.
Operations infrastructure and related back office capabilities, we expect that the financial contribution associated with legacy size wise will quickly become indiscernible.
With that I will now turn the call over to our operator to provide instructions for Q&A.
We will now begin the Q&A obsession to ask a question you May Press Star then one on your telephone keypad. If you are using a speaker phone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then too at this time, we will pause momentarily to assemble our roster.
The first question comes from it has on with Goldman Sachs. Please go ahead.
Oh, Thank you and good afternoon, I I wanted to start with with a guidance question.
So size wise it looks like you know just kind of okay. If we kind of look at the revenues that you gave for their L. T M could contribute about 40 million or so this year, which looks like it's about the size of your increase in guidance just give us some clarifications around that maybe you were thinking about dissynergies or something like that but clearly the business.
Three Q benefited even without some of the call outs from three to four two on the government side. So just help us out to understand contribution of that size wise as it relates to the increased guidance and just overall confidence in the business as it relates to the increased guidance.
Yeah, No no worries. Thanks for the question I mean, what I would tell you in terms of the way to think about our updated guidance for the year.
About it in three elements. One is we continue to onboard new business as I've said and that's helped in Q3 and is certainly reflected in her updated guidance for the full year.
Secondly, with respect to your specific question with size wise.
As we've disclosed.
That business historically has been about $155 million in revenue and we've disclosed that there's been about 30 million of adjusted EBITDA keep in mind that within that $30 million was approximately 5 million of Covid benefit.
So that's the second element of the reason for increase and then the last one is COVID-19.
Recall that when we had our previous guidance. We had estimated that we would return to a pre COVID-19 level and age too.
What we saw happen was that did occur in July, but then as we moved into August with Delta.
Began to ramp up and as we disclose with respect to our Q3 benefit from Covid, we estimated that benefit from a topline perspective in the range of $7 million to $10 million. Those are the three elements to think about in terms of the the raise in the guidance.
<unk>.
Okay, Okay, and you know just taking forward a little bit you know where where.
Last with modeling 2022, despite uncertainties around COVID-19 or the government <unk>.
Contract D. So.
I'm wondering what kind of help you can give us in terms of just puts and takes to think about for both sales and margins next year and how you're thinking about modeling internally and you know what you can help us with the kind of just get our numbers as an estimate as accurate as possible with the information we have.
Yep I mean.
It will provide the specifics when we update our guidance for next year, but what I would say is that the elements that I shared just now around the rationale for our increase in guidance are really the three key elements to keep in mind as you update your.
Modeling for 2021 and 2022.
I don't know.
Their perspective, you wanted to share there or not.
Yeah, I guess, there's nothing I would add to amplify what you said Jim is yeah, obviously as part of the pre I P. O process. We spent time with you and outlines our initial views in that key drivers for initial views on what next year would look like.
That remains intact.
Plus the Annualization of the two acquisitions, we did in this year.
Northfield, which was completed late Q1 and.
On October 1st.
I think those are the right building blocks possible what we'd shared previously.
To get you in the right place to start.
And just one last one for me just high level. Obviously, we're we're kind of monitoring what's going on with with customers. Three years in terms of you know just labor shortages on their side I.
I I Wonder if you could just give us a sense of you know how that impacts your business, you know positive or negative in the different divisions. Thanks, so much.
No problem I I can take that one uhm is set in our prepared remarks.
Actually grown our head count 20% year over year and that's been in line with the steady growth of the business. However, we are keeping a close eye on what is happening in specific market. So we're being proactive and prepared to Pooh pivot is needed with market.
<unk> for your new challenges emerge so as it stands right now we don't see any of these macro trends inhibiting our growth.
And just that so far.
Follow up with a little bit more on that alright, just how it impacts our business you're Tom addressed that we don't see at this point impacting.
Right.
And our business was he in terms of the opportunity as we look forward we've previously shares.
The operate for our our highest talent pool of resources in the company isn't that great in a closed marketplace to that talent, that's and health care and many.
Many of those folks like medical technicians.
Which was for for a hospital or work for a company like agility.
Work for a hospital they asked to work in the basement and they were a cost center.
There are costs to the hospital if you work at agility here at the pointy end of the spear. What we do you have Pepsi benefit from our investments in training you have the ability to participate that just with you bonuses as we do well that's a share in equity ownership. So in that battle for talent we.
We tend to be pretty well positioned what does that mean in terms of our our business opportunity well. That's just one more pressure on customers when they're already dealing with you know the management names have their devices, which is a 949.
We tend to be pretty well positioned what does that mean in terms of our our business opportunity well. That's just one more pressure on customers when they're already dealing with you know the management names have their devices, which is a 949.
Nonclinical Department of their business you just one more pressure I think <unk> lens.
To the the answer to outsource that business to someone like agility, you can do a better.
With higher quality and lower overall costs and that congested I'm sauce.
So cost wise, it's it's been neutral so far and be able to manage it in terms of opportunity wise I think it gives just more.
Reason for our customers to outsource to some.
Thanks, so much.
Okay. It's a reminder, we will take one question and one follow up and if you have additional questions may return to the queue.
The next question comes from Matthew <unk> with B M L.
Please go ahead.
And you said you're pointing to arrange.
28, 30% for the full year.
Did I understand you correctly cause I I calculate that the numbers come up to like 29, and a half and 30 and a half I'm wondering if I'm just making some obvious error.
No Matt.
The range is 28 to 30.
No obvious here I'm sure I can take it offline with you just to make sure.
Okay. Okay.
Let me just see if I could ask.
Yeah second question here.
Should we think about clinical engineering and on site services as segments that would have done even better <unk>.
Absent the Kobe impact in three Q I'm, just curious how you would characterize that.
Yeah, no I wouldn't characterize it that way.
One thing that might be helpful. For you, though in terms of just understanding the clinical engineering revenue.
For the quarter.
Pointed this out in the script, but just embellish on it a little bit.
Growth is really due to a few factors obviously, the onboarding of new business.
And then the acquisition that we made of Northfield medical now we don't disclose the impact of Northfield medical for this quarter, but what I would tell you is what we've disclosed for Q3 of 2020.
Is that Northfield medical was around $29 million of revenue. So if you took last year's clinical engineering revenue and added $29 million. It would be a good way to do the comp of Okay grew up last year to Q3. This year, so hopefully that helps a bit man.
It does thank you.
The next question is from Ralph Jacoby with city.
Please go ahead.
Great. Thanks.
Is there is there any changes to the financials and the economics of the government contract under the short term extensions and and for three two just wanted to clarify.
It was more or was revenue driven by incrementally the variable component of the contract given the Delta surge is that what you meant by sort of the the pull through just wanted to kind of clarify that thanks.
Ralph on that first question.
What I would say is that the.
Math has been factored in when we think about our full year guidance with respect to government. So I wouldn't say that there is a change there with respect to her thinking and again as I pointed out my script, we've assume that we're.
Going to be successful in.
Onboarding that renewal of that contract in the second part of your question I want to make sure I understood. It could you ask that again Ralph.
Sure I'm just wondering if there was a revenue contribution I guess from the variable component. So that was fixed important variable components that the government contract. So it was the variable components sort of trigger because of the delta surge or am I misunderstanding cause you also had sort of the commentary around.
Benefits from the expanded contract. So I guess I was just a little unclear on on some of those comments.
Yeah, No worries there was certainly some work with respect to the government's request for us to do some work given what was going on with respect to Delta for sure.
And just to clarify that.
That work that PNM work.
Showed up within the clinical engineering revenue for the third quarter.
Where we talked about the movement from.
Previously, we had anticipated that work being done in queue for and it moved up to Q3, So yes sure thinking about it right from the perspective of request that the government made based upon what was going on with Delta.
Okay. That's helpful.
And then just lastly was opening gives us an update on conversations with hospitals at this point coming out of the pandemic. If there is greater appetite to expand relationships I think in your prepared remarks, you did talk about sort of long term strategic conversations or or some like longer term contract I was hoping you could flesh.
That out give some context around that as well thanks.
Yeah, Ralph So it's Tom I D.
<unk> the customers <unk>.
At a different level around things that they want to do with us that perhaps had been paused during the period of Covid. We're excited by that and what cover. It has done is raise awareness code what Tom had mentioned earlier on the what they're doing with their medical medical equipment is often not strategic.
But during the pandemic they realize the strategic importance of it and the differentiated value of that we can provide as a result of.
Your new couch working services that we can provide to them and so we have seen an uptick over the course of certainly the last.
Quarter, where customers are wanting to reengage, where they may have caused some of the broader conversations of various things that we could do together and and we're looking forward to continuing to to see that.
To grow and an opportunity as a consequence to begin to to come through as as we emerge from the pandemic.
Okay. That's helpful. Thank you.
The next question is from Kevin Fischbeck with Bank of America. Please go ahead.
Great. Thanks, I wanted to try and get a better sense of how you felt the core business actually performs here in Q3, because obviously the guidance raise was.
The beat versus Contentiousness was nice but.
I guess when you think about Ah COVID-19 contribution in the shifting from Q4 to Q3 of the government contract.
It's not really clear to me how much of that you know kind of outperformance is actually in that core business versus some of these other kind of timing unexpected issues.
Yep T. L. I don't know if you want to hit on it but I would just say from my lens.
Our view in terms of the core business as it continued to perform a consistent with what the guidance is that we've shared.
Previously.
Yeah, I mean, Jim nice the way I would characterize it as I say.
Math is entirely consistent absolutely on the guide on a full year basis, but we have a sense for what consensus looks like.
And I'd say effectively.
If you walk on the.
The beach, plus a quarter size wise.
Less effectively that the timing differential is we've got some Q4 into Q3 at the government section under that contract as we shared.
Get you very directly to what that.
Revised expectation would look like for the full year.
And in terms of where does that come from as we described it cables from the.
Day to day operations of our business.
And to a degree from the what can we do from the federal government again, including that that timing related portion of that.
Okay, I guess, maybe expand it to the to the guidance ways for the year again.
About the core versus.
Okay sounds like a government contract for the year didn't change, but you've got size wise, which is call at $8 million a quarter of your 30 million dollar number and then you said covered with seven to 11.
In Q3 with some additional contribution in queue for it I don't think you really had much covered in the back half of the your for your garden. So it kind of feels to me like a lot of the guidance raises COVID-19 and sidewise does that is that fair that the corpus is largely in line or if it's at the core business outperforming more than that.
Can fly.
Yeah, there's the three three elements is what I would tell.
Oh, yeah the.
The one is the piece with respect to size wise that you hit on that's now being reflected in Q4 with respect to Covid like we said in the script at seven to 10 is the math with respect to the revenue.
In Q3, and then the other piece would be the continuation of Onboarding new business. So there are elements of each.
And like I said at the outset of your question I feel like that are.
Core business is doing exactly what we've expected it to do.
And from from our prior guidance that we've provided.
Okay. You just want a quick question size wise seasonality anything to think of their should it looked like equipment solutions seasonality or is there anything.
And we kind of later that in the next year.
Yeah, I mean, the one thing I would.
Point out.
And have pointed out is when you think about the COVID-19 benefit for them. We've estimated that that's about 5 million of a favorable impact in terms of the adjusted EBITDA number that we had shared of $30 million.
So if you think about them like you think about us with respect to Q4, we expect COVID-19.
To come into the queue for and then too.
Over the course of the quarter come down and and more than a pre COVID-19 level, you should think about that as well.
Distantly with size wise.
Nothing much else as you go into a queue. One it's somewhat similar to our business and that typically in a pre COVID-19, where all do you have the benefits of the flu, but I would tell you that that's more on the fringes that that's not a sizable impact seven.
Okay, great. Thanks.
The next question is from Matthew Michelle with Keybanc. Please go ahead.
You and good afternoon guys.
Is there any way you guys could quantify your estimated for the fourth quarter for for size wise, you're going to end up quantifying what the actual rolls over the next couple of quarters I think it would just be helpful for for for folks to understand the estimate.
For size wise and plugged in the fourth quarter.
Yeah, I'm I'm happy to help with that Matt what I would do is I would use the historical number that we provided $155 million is a base and then you can just divide that number by four it's a decent proxy is the way I would think.
About it in terms of the EBITDA you could do the same but I would provide a little bit further discounting given that $5 million COVID-19 benefit that we previously outlined within the 30 million.
Okay, I think that makes total sense.
And thank you for for for a given that color.
[noise] well last question would be around the labor inflation, you were talking about it sounds like you've been able to routine. Your employees you know, but you are having a more difficult time, attracting the right candidate I think you're not alone and that is a four bedroom mostly everybody.
Do you think about.
The ability to attract the right candidate and your ability to kind of support growth into next year, especially with somebody onboarding that you're doing with the.
With business.
Yeah. Thanks.
[noise] okay.
Yeah, I think we're going to place.
Sending mentioned in the script.
Return ratio, we managed to garner headcount some 20% this year in alignment with our our gross so.
So while the but.
Had fewer folks filing in at the top of that funnel and we normally.
See or expect we have.
That is an issue being able to.
Meets our needs needs of the business.
As we look forward next year member as well as we come together with size wise, there's a synergy opportunity in there and some of those headcount needs will likely be matched.
With folks that are already currently employed by either agility, our size wise, providing further.
Well the four questions for us and making sure that we have to challenge on board that we need and the places that we need them.
We execute out next year.
And I will notes.
We have not changed our outlook.
At all for next year based on anything with shock with regard to either extra personnel costs personnel or any of the supply chain related issues that we feel like we've got them at this point all pretty well in hand.
Thank you very much.
The next question is from John Ransom with Raymond James. Please go ahead.
Hi, good evening, just to kind of telescope back for a minute and.
And talking to your customers and thinking about the landscape post COVID-19.
What do you think it's changed versus have changed and how do you see yourself adjusting to the market now versus safety.
That'd be you Wanna.
Yeah My pleasure. So thank you for a craft room.
Opportunities has continued to grow for us with your experience to surgical equipment repair over the course of the last 20 months and then the additional opportunities on the barrier Patrick space with the acquisition of size wise.
<unk> access for US has continued to grow not just simply because of the strategic importance of what we provide to customers, but the breadth of offerings that we have has allowed us to continue to raise the opportunities that we have with the.
Right Ottomans says, we're kind of our customers and because of that were is mentioned in the prepared remarks as we are having more strict with your conversations. Then then we've had certainly over the last 20 months. So it's been exciting to add those product lines and give us an opportunity.
To pull them all together into more complete offerings and really provide a much more impactful sweeter of cartoons and value <unk> as well as improving clinical outcomes as a result of the ads of those products and businesses.
Yeah, and then if I could go ahead and follow on.
Sure.
If I could briefly follow onto that what things we've talked about.
Is it <unk>.
Ah you that we provide to customers by being fairly unique that's off it meant there was an education component associated with our sale having to hi, thanks for customers there inefficiencies to waste I'll say that one of the things you just absolutely change as a result of Covid.
Well customers and you have tolerated that inefficiency before that waste before they clearly seen when they couldn't get access to the critical medical equipment they needed to provide care for their patients. They clearly saw that this has to be a higher priority than it was before so rather than pushing our way and educate.
Our way into the C suite, we find ourselves getting pulled out more into the <unk> with a question being posed to us how can you help us.
Just eliminate the waste a better mobilized used equipment. So we have what we need when we need each patient ready.
I'd say the the nature of the conversations were happened with customers is really a vault throughout this period of Covid.
The unique way you should be able to serve the nation's health care system.
Thank you for that as a follow on.
I mean, you would clearly done a couple of acquisitions that helped the story.
How many.
People that you have like scouring the landscape for deals.
Like you've done versus say two years ago and do you see.
More opportunities to add capabilities and are you getting more involved as you've gotten public and got more visible.
Sure I see for example.
Can't be strategic if it just shows you up at your doorstep in the form of a book the Beady process starts with me it starts with our business team and.
What do we need to do to continue to expand our solution to differentiate it to offer more value to customers who's out. There then that might be additive to our story and none of these things fall into our lap and so you're in the case of size Wise. For example, we were in discussions with them for the better part of three years getting to know them.
Assessing the feds, making sure they're they would be the right company for us.
Other vein.
A new C E O and I, followed the national team for the better part of the last five plus maybe six years.
She was in about a D. D V D team getting books and processing them. It's about this executive team, having a strategy for the business.
Looking for things that will continue to augment the value that we have now building those relationships vetting them and building a funnel cause will easily look at more than 20 opportunities before we bring one as far along as it gets physical or gets closed.
Alright, and we do have a good healthy formal as we sit here today and that's part of my job to help ensure that that remains the case.
But I feel kind of bad for somebody trying to sell something to you that that sounds stuff [laughter] [laughter], sorry that was that was a lame humor I'll I'll go back.
The next question is from Anthony patrolling with Jeffrey Please go ahead.
Hi, good afternoon.
Couple of one.
One question on contracting and then.
Follow up on labor.
To a question asked earlier in the in the call on on the longer term Department of health contract. Just just wondering what the the expectation there should be is it is it something that slips into 2022.
And if so just just why do you think even with delta sort of ongoing here.
Is that the department of health would would sort of.
Put that decision, making process for a longer term contract and hold him for a bit and then on labor shortages. We're hearing hospitals themselves again, having pressure as staffing is shifting nurse practitioners in particular and physician's assistants are leaving the industry and so when you.
Think of that pressure on hospitals from a staffing level, a kind of strikes us that actually provides a greater opportunity to outsource.
A number of initiatives internally at the hospital as an offset to higher cost pressures that they may be facing next year.
So do you actually think that actually staffing shortages could spark more conversations at the C suite for <unk> between hospitals. Thanks.
So thanks for that will have to make this last question because we are at the one hour mark.
In terms of the first question was guarding the federal got my contract I.
I wish the ways of the government could be fully known to me and that they would address their their contract strategy with us but they don't.
So yeah, we stand by waiting an RFP in a formal contract award and in the meantime, I will continue to keep these critical resources and a deplorable state of readiness under the short term contracts that they continued to extend to us.
With regard to the second point, you made about staffing difficulties for our customers for hospitals.
Absolutely does lend itself to a greater interest finishes need to outsource.
And we do expect that should be a modest tailwind to the business that we do have which is doing this work when it comes to medical devices, better and at lower cost and a higher quality and our customers can do for themselves and.
And with that we are at full time. So we'll go ahead and bring today's earnings.
<unk> call to a close.
Thank you everyone for your interest in agility.
This concludes question and answer session and also the conference. Thank you for attending today's presentation. You may now disconnect.