Q3 2021 Soc Telemed Inc Earnings Call
Okay.
Good morning, and welcome to FMC Telematics third quarter 2021 earnings conference call and webcast all participants will be in listen only mode.
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Please note this event is being recorded.
I would now like to turn the conference over to Steve Rubis, Vice President of Investor Relations.
Thank you good morning, and thank you for joining our conference call with me on the call today are Dr. Chris Gallagher, Chief Executive Officer, and David Fletcher Interim Chief Financial Officer.
On today's call, Chris and David will provide an update on FCC telematics business as well as a review of financial results for the third quarter of 2021.
The news release detailing these results are available on the company's website a replay of this call will also be archived on the company website.
During the conference call, we will be discussing certain non-GAAP financial measures that we believe are important in evaluating performance.
Details on the relationship between these non-GAAP measures to the most comparable GAAP measure and reconciliation thereof can be found in the press release that is posted on the Investor Relations page of the company's website.
Also please note that certain statements made during today's call will be forward looking statements as defined by the private Securities Litigation Reform Act of 1995, such forward looking statements are subject to risks uncertainties and other factors that could cause actual results for SSD telenet to differ materially from those expressed or imply.
In this call for additional information please refer to the cautionary statements in the press release and filings with the SEC all of which are available on the Investor Relations page of the company's website.
I will now turn the call over to Chris.
Thank you Steve.
Morning, and thank you to everyone joining our earnings call today I.
I am pleased to provide an update on our third quarter performance, David Fletcher, our interim CFO will provide greater detail on our financial and operating performance.
Before turning the call over to David I would like to provide an update on our go forward strategy, our restructuring efforts and an overview of our third quarter performance.
Our goal is to maintain and grow our position as the leading acute care telemedicine provider through our optimized technology enabled clinical services.
As we think about the company key objectives moving forward. We have identified four areas of focus first is integrating the legacy SSD and access physician clinical services.
Second is bringing focus to very specific areas of telemedia IQ development and standardizing all programs going forward on the access telemedicine carts.
Third is to broadly apply the most successful go to market processes across the newly integrated sales force.
Fourth is refocusing the customer service rep on.
On lead generation and cross sell opportunities.
We believe that continued focus and action.
These areas will drive opportunities for improvements in revenue growth.
Good gross margin and EBITDA over the coming quarters, our third quarter results illustrate resiliency and focus on three key areas as we achieved revenue growth bookings growth.
And improved our liquidity position.
Revenues totaled $26 $7 million growing 76% year over year, demonstrating a focus on execution.
Bookings totaled $9 million growing 247% year over year led by a strong cross sell activity driven by increased service line diversity console volumes grew 76% year over year.
Our third quarter performance allowed us to improve our liquidity position.
As we have drawn down an additional $12 $5 million from our credit agreement with SLR.
Group operating result enabled us to renegotiate the terms of the SLR credit agreement dated Fletcher will provide further details regarding the company's cash position.
The third quarter was the beginning of a companywide transformation, which remain in process now.
Now I'll just over 60 days into the role of CEO. This has been a period of in depth learning as that held nearly 30 feedback sessions listening to our clients our providers and our employees.
While working through a period of enormous change and disruption the company demonstrated resiliency and generated solid third quarter results.
During our introductory call with investors in September we identified two key areas of focus.
Driving greater efficiency across the organization and accelerating revenue growth.
The implementation of these plans is expected to result in a non clinical head count reduction of roughly 12%.
We expect cost savings between.
$7 million and $9 million on an annualized basis, starting in 2022 associated with these efforts.
Our corporate restructuring refocusing the organization as a technology enabled clinical service organization, such an organization approaches the market opportunity through a clinical labs with an intense focus on patient provider and a shared experience through technology, we now deliver 11 clinical service lines.
Both inpatient and emergency department setting via the Telematic IQ platform and our proprietary telemedicine carts.
Allows us to solve hospitals, most common challenges, including optimizing medical staff resources addressing physician shortages, eliminating the need to transfer high acuity in complex patients and keeping care local the restructuring process focused on two primary areas.
First we aim to improve operational performance to a flatter and more efficient management structure.
Second we identified the most successful strategies across each legacy organization to guide our future transformation around best practices.
These are the first steps to improving the operations of the company.
During the restructuring process, we conducted an enterprise wide analysis of legacy processes and systems.
The analysis identified the best practices across both legacy organizations access position strength included the sales process cart technology and revenue cycle management FSC strengths revolved around staffing and gross margin within the emergent neurology program and the Credentialing licensing and privileging process as well as.
Telenet IQ console management platform, we will spend the next several quarters diligently and thoughtfully integrating these systems and processes.
Objective of our restructuring process is building a plan to accelerate revenue and bookings growth at FSC tell them that.
An important driver is the repositioning of the company as a tech enabled clinical services organization.
Our clients see clinical challenges and provider shortages. In response, we are most successful when we lead with clinical solutions supported by our technology, we believe that establishing a clinically focused organizational culture is key to accelerating our growth.
Our go to market strategy is an important component of driving bookings and revenue growth as part of our restructuring efforts. We spent significant time as a management team evaluating the legacy sales organizations.
We have seven months of observational data regarding legacy sales performance as the two companies operated in parallel post acquisition with that data guiding our direction. We will begin implementing the best go to market processes.
There are a few details worth highlighting that illustrate the go to market changes between the two organizations.
The first difference is the flexibility afforded to the sales team and service proposals to meet client needs. While each hospital opportunity may look the same on paper each hospital represents a unique customer with very specific needs resources and culture.
Historically, the legacy access physician sales process exhibited an ability to be flexible and adaptable and clinical service operations tailoring workflows to align with client needs.
Legacy SFC was primarily focused on delivering emergent neurology and emergent psychiatry council within the emergency Department.
<unk> and a more rigid workflow.
Improving flexibility across the organization, especially in the neurology and Psychiatry service lines will make our technology enabled clinical services platform more attractive to a larger number of hospitals.
The second point of differentiation is the inclusion of clinical subject matter expert strategically throughout the sales process.
Hospital sales opportunities require a sophisticated approach to appropriately scope and design clinical services through technology.
Integrating clinical subject matter experts into all sales opportunities should improve sales outcomes over the long term.
Going forward the organization, we will endeavor to take every opportunity to convert not only new clients, but also existing clients to our proprietary cards. We believe that the cart represents one of the single most important touch points to drive cross sell and up sell through up hospitals.
Our analysis showed that proprietary cards provide greater client retention over a technology agnostic approach and offer another access point from which to build dialogue with our current and potential clients increasing the possibility of service line additions over time.
In the third quarter, we added several new clients and benefited from several cross selling opportunities. Our go to market strategy focuses on four areas new clients multi site expansions multi specialty expansion and enterprise program.
The bookings performance in the third quarter exhibited even waiting between cross sell and up sell.
Service clients exhibited strength in bookings during the quarter, including neurology Hospitalists critical care psychiatry and emergency medicine.
In September <unk>, and the Ob Hospitalist group.
We announced the collaboration combining <unk>, leading Ob hospitalist programs with SSC telematic maternal fetal medicine experts.
The combined Ob hospitalist, telling maternal fetal medicine service offering will expand to additional <unk> hospital sites nationwide.
Medical claims share data provides a unique lens to assess where we currently stand on the telemedicine adoption curve.
Current fair Health estimates showed telemedicine claims to be roughly 4% of all medical claims. We believe current telemedicine share illustrates mainstream adoption illustrates the multiyear growth opportunity ahead of us.
In closing I am encouraged by the execution and momentum the organization displayed in the third quarter in the midst of organizational change our new management team is in place with data in Mccool as our Chief operating officer, and David Fletcher as our interim Chief Financial Officer.
<unk> represents a resilient and agile organization beginning to better execute on the telemedicine opportunity.
Look forward to providing updates on our execution and future quarters I will now I will turn the call over to David.
Thank you, Chris I will discuss our third quarter results in more detail. Overall, we are pleased with the strength of our quarterly results I will start with an overview of our restructuring and then provide a detailed walk through of the financials.
We were pleased with our third quarter results as the organization executed well across revenue and bookings.
Another key achievement was the ability to improve our balance sheet liquidity.
Importantly, we were able to execute well despite undergoing at enterprise wide review and reorganization.
As Chris described in his prepared remarks, the company completed the enterprise wide review aimed at improving productivity and reducing complexity.
Implementation of our reorganization plan is expected to result in a non clinical head count reduction of roughly 12% or 44 positions. The identified workforce reductions are expected to be completed by the end of 2021.
We're also initiating activities to further reduce operating costs through non workforce cost reductions a majority of the non workforce cost reductions are expected to be completed by the end of 2021 and fully executed in 2022.
Additionally, our annualized cost savings associated with the restructuring are expected to generate between $7 million and $9 million in cost savings starting in 2022.
We expect to incur roughly $3 million in restructuring costs.
<unk> of approximately $2 million in severance and termination benefits and $1 million and site closure and other exit and disposal costs.
For the third quarter revenues were $26 7 million up 76% year over year, driven by new client implementations. The addition of access physicians the growth in core console volumes as the COVID-19 surge positively impacted pulmonary and critical care hospitalists.
Infectious disease and new clients in neurology.
While emergent neurology dropped on the latest Covid surge we are much more diverse company given our 11th service lines and the heavy focus on the inpatient care helped offset downside in the emergent side of our business.
Overall revenue performance came in ahead of our forecast.
Access physicians contributed $9 $7 million of revenue to the quarter bookings were $9 million up 247% year over year.
Our bookings performance benefited from strength in cross sell opportunities driven by a more extensive service line offering to the market.
Total system wide consults were approximately 140700 up 76% year over year, driven primarily by the access physician acquisition.
On a pro forma basis total system wide consults grew 32% year over year, driven primarily by better than expected volumes in our merchant psychiatry, and neurology as well as strength in pulmonary and critical care hospitals and infectious disease.
As a reminder, total system wide concepts include core consults at both Standalone Soc.
And access to physicians.
As well as consoles from the Telenet IQ managed services platform.
System wide core consults totaled approximately 75800.
136% year over year.
As a reminder, we define core consults as those consoles performed by our panel of physicians.
Strong core console volume growth can be primarily attributed to the acquisition and better than expected volumes across emergent psychiatry, and neurology as well as strength in pulmonary and critical care hospitalists and infectious disease.
Our Soc <unk> Standalone core consoles totaled approximately 37800 <unk>.
While access physicians contributed 38000 core consults in the quarter.
Coming out of the second quarter earnings call. Our forecast took a conservative approach assuming the console volumes would be flat to down from the end of the second quarter given prior COVID-19 wave impacts to the legacy Soc business.
In the third quarter console volumes improved throughout the quarter as the Covid related increases in inpatient service lines counterbalance the COVID-19 related drops and emergent neurology.
Unlike prior Covid waves, there was not a drop in the emergent psychiatry as we plan for next year management will review the key operating metrics and select those that best describe the operating business.
Our adjusted gross margin was 36% versus 44% in the third quarter of 2020 <unk>.
Adjusted gross margin was negatively impacted primarily by an increase in physician incentive payments related to the rapid increase in volatility we experienced in console volumes specifically increased volumes in several of the access physician service lines.
<unk> pulmonology infectious disease, and Hospitalists as well as Soc psychiatry.
Operating expenses were $21 2 million compared to $12 million a year ago. The.
The increase in operating expenses results from investments in our go to market functions stock based compensation added costs associated with being a public company.
And the acquisition of access physicians.
Adjusted EBITDA loss for the third quarter was $5 6 million versus a loss of $2 9 million a year ago.
We ended the quarter with $37 million in cash on the balance sheet in November we pulled down an additional $12 5 million from the SL our term debt facility to further bolster our liquidity and cash position due.
Due to our improved top line results, we were able to modify the terms of the SLR credit agreement to accelerate the take down of these funds.
Given the strength of our third quarter operating performance, we are taking the opportunity to raise our full year 2021 guidance.
Currently we expect full year 2021, GAAP revenue to be between $91 5 million and $93 5 billion with access physicians contributing roughly 30% of <unk>.
Full year 2021 revenue.
We expect to generate an adjusted EBITDA loss of between $21 5 million and $22 5 billion, while we do not provide specific guidance on bookings we remain positive on the access physicians acquisition and the longer term growth in the business.
Finally, we would like to provide some additional considerations around our guidance due to our enterprise wide integration efforts, we will need to dedicate significant time to focus on the sales team and clinical team optimization as well as the integration of the two businesses over the next year.
We will provide more detailed fiscal year 2022 financial guidance on the fourth quarter call.
We remain optimistic about our ability to execute on the significant growth opportunity in acute care telemedicine, which remains in the very early innings of acceptance and adoption as the scaled player in acute care telemedicine, we are well positioned to help our hospital clients solve friction points.
Around access to acute care.
Thank you and operator, please open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Ryan Daniels with William Blair.
Please go ahead.
Hey, guys mixed together.
Thanks for taking my question. The first one is is it going to be for Chris I was just wondering if you can expand on your overall vision of the company that you laid out.
In your prepared remarks, and I guess why are you excited about the opportunity going forward.
Hey, Ryan Good morning. Thanks for the question. So I think in terms of vision in the future of the company. We can we can look at the near term.
And in long term I think near term.
Most excited about is our strong same store sales growth at our large hospital systems. That's a key point of strength, which gives us considerable encouragement and excitement.
Long term, we're building the nation's largest acute care telemedicine.
Tech enabled clinical services organization.
And that.
That is incredible mission.
And to be a part of.
In today the care within those services is delivered within the four walls of the hospital. So we're carrying for the sickest most acutely ill patients, but over time, we are seeing an expansion in transition to those patients being cared for outside of the four walls of the hospital so not only building for the carrier.
For the very thick highly acutely ill patients today inside of the hospital, but knowing that we're transitioning in building outside outside of the four walls I think those are areas, where we're we're very excited.
Great. Thanks, and then I.
I guess with the recent rebound in volumes that we've been seeing in a lot of these acute chains reported year over year I'm just wondering what that's meant for you and your clients so far.
So as an organization, where a considerable amount of our work takes place in the emergency Department.
The uptake in emergency Department volumes is favorable to both our emergent neurology and emergent psychiatry business.
But also when we think about the inpatient side of the business with our other service lines. The emergency Department as a key source of admissions to the hospitals that we serve and so busy <unk> also lead to busy admission so being able to care for more patients help our hospitals keep that care local both in the.
Emergency care setting is good for our clients as well as our business that also translates into inpatient admissions as well.
Great. Thanks, and then I guess last one on the restructuring I'm just wondering how you balance the need to reduce cost and cash burn, but not impact growth or.
Leadership on the Tech front in development.
The entire focus of the reorganization Ryan was to really look at right sizing the cost structure, while we ensured the ability to execute on our growth opportunity and given that the cash burn rate there were significant opportunities to reduce spend without.
Negatively impacting the business. So we looked at that in great detail.
And confident about the future.
Great. Thanks, guys. That's it for me congrats on the quarter.
First quarter. Thanks, Ryan.
The next question comes from Joe <unk> Singh with Credit Suisse. Please go ahead.
Thank you and good morning, everyone I actually wanted to follow up on the last question in terms of restructuring planning, which includes that head count reduction of 12% on non clinical side can you be a little bit more specific on the areas, where these head count reductions are focused on I understand these decisions, but all of it.
But in an environment, where labor market is already very tight why do you think that this was the right move how would you make sure that overall productivity efficiency and guidance. Louis has not impacted any general thoughts on the tight labor market overall.
Yeah.
Yes, so as we went through.
The review to Indra.
We conducted meetings with our third party advisers clients clinicians as well as our employee base to really develop our plans to make sure that we were.
Identifying the right areas.
Of underperformance and also identifying areas, where we could appropriately right sized the organization and so it was a very diligent process with multiple different stakeholders reviewing to assure that we could remove areas of the of the expense structure.
Out doing any kind of harm to the business ability to grow and function going forward I think we do recognize that the law.
Labor market is tight and so to kind of answer your last question there.
We strongly believe we need to be flexible to our current employees and to our future employees and create the best work experience possible. So that we can remain competitive.
Okay, and then my follow up on the gross margins and thanks for the color there in terms of impact from Hyatt condition incentive payments and lack of liquidity.
The outflow.
<unk>.
This gross margin pressure would you say is temporary how much of like some structural change and how do you take any proactive steps in terms of <unk>.
Averaging technology powered by <unk> to offset some of the gross margin pressure even if these special point continue even in the near term.
So Julien I think there's two parts there in terms of gross margin.
Indian immediate surges in volume volatility that we saw.
Those are those are more short term, we do have two.
Different clinical models to which we are in the process of beginning to integrate and as we integrate those two clinical models into a unified clinical practice.
Specialty base.
That will give us further opportunity to adjust the business to operate the business and optimize gross margins going forward.
Enormous area of focus for us going forward is to.
Unify so that we can then.
Globally operate the business pulling levers to assure that we improved gross margin on the clinical services.
Great. Thanks, guys.
Thank you.
The next question comes from become I.
Christopher Butler with Baird. Please go ahead.
Yeah. Thanks for taking the question. My first one is on the restructuring I guess first the $7 million to $9 million of cost savings that you've identified should we expect that to flow through to EBIT dollars should we expect some reinvestment of that going forward and then I guess as a follow up to that I mean should we be thinking about the $7 million to $9 million of savings as an initial phase of our process.
<unk> could lead to more savings down the road or from your perspective is this is a pretty comprehensive list of all of the immediate actions you've identified.
Sure. Good morning from an EBITDA perspective, we expect that to translate into savings starting in the fourth quarter, but we'll realize the full benefit of those through fiscal year 2022.
The company did go through a very comprehensive enterprise wide review.
And looked at not only the workforce reduction, but non workforce reductions.
We feel very confident about about those those numbers of 7 million to $9 million in savings.
Obviously, we're going to be looking at.
We're going to continue to execute on a continuous improvement strategy and continue to.
Look at further improvement opportunities.
Okay, great. Thanks, and then my follow up is around obviously, we're still in an evolving backdrop here with respect to the pandemic and the impact that has on the different service lines that you offer could you just give us some more color on how you've contemplated utilization trends for the balance of the year in your guidance. Thanks.
Yes, vikram so.
Two there is two things at play that we have to take into account is one there is there has been at I think our historical cadence and seasonal variation in health care, that's very well established that clearly has been upturn by COVID-19 not only co.
Covid itself, but its ripple effects.
And influenza in the winter months. So in terms of how we're looking at the business going forward for utilization in terms of existing clients.
We're taking a very conservative approach.
Assuming assumptions in our models or a very light flu season.
And then also I think we have better insights into the impact of Covid waves on our business and so if we begin to see an uptick.
As a result of Covid in terms of cases.
We do have patterns that we can begin to model now having been through four waves as well so I think looking at the business overall contemplating.
Contemplating a lighter flu season seems to be.
The more conservative approach and and then as we'll watch CDC data in terms of Covid impacts going forward.
That's our existing business in terms of new business will continue to pursue that with vigor.
Great. Thank you.
The next question comes from Sean Dodge with RBC capital markets.
Please go ahead.
Yes. Thanks.
Good morning, maybe Christine on on utilization can you can you help kind of quantify maybe a little bit of the comments you just made there.
A few different ways, the pandemics affecting you something a little bit of a tailwind and some service line still proving to be a challenge and others.
I guess, if we take a step back and look at on a consolidated basis. How much do you think COVID-19 is still weighing on on your revenue how much lift do you think you can get over the coming quarters.
Just by kind of a normalization alone.
Yes.
Yes, I think as a broader more diversified company now able to offer 11 service lines that operate both within the emergency department in the inpatient settings. The impacts of Covid on our organization will mirror more the impact of Covid on on health care.
And so I think.
In terms of the impacts going forward.
In Q3, we saw that net net.
There was a more favorable impact with the Covid wave than expected, we were able to deal with more patients. So I think going forward.
Any disruption or change in the health care environment that leads to more volume will be more favorable to our organization given the diversity.
There is specific service lines that are negatively impacted by an environmental change within health care.
We are again more diversified so impact the overall performance of the organization lots going forward.
To put exact numbers on it.
I don't think we have enough data to accurately say that yet given how new the two organizations are coming together, but we will obviously learn and be able to gather more data over the coming quarters.
Okay. That's helpful and then.
You mentioned listening sessions.
You've been doing with clients.
Some of those I guess, how would you characterize the health of the two client bases have you experienced any churn as you work through the restructuring or has there been any.
Customer service issues that could potentially catalyze some some attrition in the months or quarters ahead.
We have not experienced any.
Undue churn as a result of the change in fact, it's actually been received is positive from our clients.
Unlocks new opportunities.
And in some doors that had been closed in the past have actually reopened as we refocus the organization on providing tech enabled clinical solutions. So those conversations have been great and we continue to see.
Expansion within our client base.
Okay.
Great Thanks, and congratulations on the progress in the quarter.
Thanks, Sean.
The next question comes from Bill Sutherland with Benchmark company.
Please go ahead.
Okay, Thanks, and good morning, everybody.
On the sales force can you give us a sense of its head count now.
Where it can perhaps a comp.
Justin.
Be able to see where it's come.
Yeah.
So bill just in terms of the size of our sales force. So that was as we looked at the entire organization we looked at performance.
And so we were able to reduce.
The overall sales force head count.
Several individuals.
And then I guess on the last second part of your question do you mind expanding on that it wasn't really clear on.
The app there.
Just just.
With the size of the.
Salesforce was I guess.
Last year prior to.
Accidents.
Yes.
Sure so.
I think we've seen a refocusing.
<unk> kind of.
Impactful and successful strategy Bill and so that's allowed us to considerably reduce the size and footprint of the sales force I don't have the exact numbers here handy with me in terms of.
The percent decrease.
But it's been it's been considerable bill.
Okay.
The.
You mentioned, Chris the proprietary card as some.
The focus of your.
Of your sales process going forward over using.
<unk>.
Existing <unk>.
Technology is the hospital may have how does that how does it focus helping your AUM.
The sales motion.
Well in terms of sales so the the cart itself I think is important in a couple of different.
Kind of viewpoints I think first and foremost is the ability for our providers and our clients to standardize on a unified experience, which we know is robust reliable and simplistic to use and facilitate a better experience for the patients.
So from that standpoint, it has resonated very well with our clients and led to very successful programs in terms of having reliable and counters high quality encounters that that do a great job of replicating and in person.
<unk> and so when that is that strategy is applied to the sales team.
The sales team.
An additional opportunity to build a relationship with the hospital in many of our engagements with facilities. They may have the clinical team that need assistance with the Knowhow and building a telemedicine program to include.
The tools, whether it be the application such as telematics.
<unk> IQ or the hardware and so it gives our sales team and an additional tool to add in their sales process to help.
Clients solve their problems.
So the value out of the of the technology.
It is off.
I guess the clients getting it.
The higher cost implementations worth it for the for the results down the.
In the ongoing operation.
Yes got it.
At the highest yeah, and it's not necessarily a higher cost.
There has to be an endpoint in the hospital.
To which the video and counter pace place two ish the death of scope can connect to so that we can do a physical exam and actually in most cases, our proprietary cards.
Our lower cost than much of the rest of the card.
Market, So, we're actually able but oftentimes come in at a better value.
And not only a better value when we consider price, but also a better value in terms of performance and standardization.
It sounds like a win win.
That's it from me thanks, guys.
Thanks Bill.
This concludes our question and answer session I would like to turn the conference back over to Chris Gallagher for any closing remarks.
Thank you to everyone, who joined our call today, we look forward to meeting with you again next quarter and to provide an update on our fourth quarter and full year results.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].