Q2 2022 Uphealth Inc Earnings Call
Greetings and welcome to the upheld second quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference.
As far as zero on your telephone keypad as a reminder, this conference is being recorded I would now like to turn the conference over to your host Shannon Devine Investor Relations. Please go head.
Thank you operator.
During today's call management will be making forward looking statements. Please refer to the company's SEC filings, including the company's annual report on Form 10-K, and quarterly report on Form 10-Q to be filed for summer hands before it looking statements and the risks uncertainties and other factors that could cause actual results to differ materially from those for it.
These statements.
Upheld cautions investors not to place undue reliance on any forward looking statements. The company does not undertake and specifically disclaims any obligation to update or revise these statements to reflect new circumstances or unanticipated events that occur except as required by law throughout the call today for afraid of pro forma revenues.
Pro forma gross margins and adjusted EBITDA. These metrics are not determined in accordance with GAAP and therefore are susceptible to varying calculation definitions calculations and reconciliations to the financial statements of these non-GAAP measures can be found in the tables included in our press release we.
We believe these non-GAAP measures are upheld financial results provide useful information regarding certain financial and business trends and the results of our operation.
I will now turn the call over to Sam Becky.
<unk> Chief Executive Officer Sam.
Thank you Shannon and good morning, everyone. Thank you for joining us.
I'm honored to have the opportunity to speak with you today. My first earnings call was upheld Chief Executive Officer, and this pivotal moment in our journey as an institution.
I'm happy to be here today and want to begin with why I'm here.
I was first Rhonda upheld because of its strong mission.
To overcome disparities in access to health care.
Empower providers, and those who pump health care and to enable high quality affordable health for all.
This mission combined with the company's values and the vision of our founding companies to enable the transformation of our culture inspires me.
I have successfully led large health care businesses, which are leading global institutions and have deep experience in integrating acquisitions and executing transformations.
Over my 20 year career in healthcare my track record as one of building businesses that deliver consistent revenue and earnings growth with a relentless focus on growing shareholder value.
I'm also proud bedroom and serving the broader community is deeply important to me personally.
From a business perspective, I recognize the challenges that apparel has gone through over the last year as it has attempted to integrate six companies into one.
The business has started a strategic transformation that will evolve every facet of the institution.
Cross product technology.
Commercial acceleration shared services and talent.
The road has been bumpy, but we are solidly on the path forward as we execute against our goals over the next 12 to 24 months and there was a break and remarkable future for our company.
Before getting into the details of our second quarter I'd like to take a moment to thank Dr. <unk> Balakrishnan.
As you know I assumed the role of Chief Executive Officer on July 11th.
<unk> I have had an incredibly smooth transition and I am so grateful for his partnership and collaboration over the last few months.
I look forward to working with her mesh and to his contributions in his new role as President and Chief strategy Officer.
<unk> revenue for the second quarter of 2022 was $44 million. This represents a 22% growth over Q1 of 2022.
The gross margin for the second quarter was 51%.
43% in Q1, and the adjusted EBITDA was $4 million up from negative $1 $3 million in the first quarter.
Our second quarter performance was driven by many major wins across upheld.
We executed a contract extension and expansion with the California Mental Health services authority to continue our work with L. A county department of mental health.
The contract expands our work for another 12 months and it increases our revenue by $7 $9 million on a run rate basis.
We finalized the first of its kind contract with a hospital system to provide an educational program for their staff about the importance of culturally and linguistically appropriate care for underserved populations.
We closed 46, new Marty contracts with over 90 implementations and health care facilities nationwide, which contributed the strong revenue growth and operating leverage for our U S Telehealth business.
And we refreshed the neutral scrip as brandy, including label design, and we launched products on Amazon to broaden our direct to consumer offerings.
With this performance in mind I've spent my first month since becoming upheld CEO meeting with our people our leadership team our customers and our investors.
There are a lot of very positive things to celebrate so far.
First there is much work being done to strengthen each of our business segments integrated care management virtual care infrastructure and services.
The potential growth opportunities for these businesses are remarkable and we are confident that we can optimize the strategy. We have developed so far to execute and grow these businesses.
Second there is a growing interest in the potential for central met our integrated technology platform and Hello.
Our core platform underlying our digital clinics and hospitals to scale and grow.
We have an incredible opportunity to deploy a new generation of health care infrastructure to help clinics and hospitals leverage digital capabilities to deliver care to communities with limited access to care.
The central Hello life, we can make the health care systems more accessible more affordable higher quality and better integrated.
Third it was great optimism around our ability to leverage Marty to become a leading language in telecom sole provider for health systems. We are very satisfied customers with an excellent NPS score of 54 that we can continue to build upon.
Finally, there's real potential for upheld to package and sell care management solutions and services to payers and governmental entities and to use our behavioral health and personalized medicine capabilities to become a leading player in U S value based care.
While we have many positive elements to build upon the headwinds that hampered our performance in our first year as a public company still need to be addressed namely volatility in our international business and challenges with delivering more predictable revenue.
Integrated care business.
The good news is that we are doing the hard work that will position us for consistent profitable growth in 2023 and beyond.
We continue expanding our leadership team.
Daniel Mendoza joined last quarter as executive Vice President for our services business.
We announced in our press release, Daniel is a seasoned executive with experience in mergers and operational excellence.
Continue to attract and inspire leaders globally to join us on this journey.
We stood up a transformation office to help us pivot quickly to execute upon the strategy, we built for the business at.
At present, we have already completed approximately 40% of the over 600 transformation milestones planned for 2022.
We plan to execute upon an additional 40% in the third quarter.
I want to recognize two of our board members, Dr. Luca <unk> and <unk>.
I misread you Rob for their outstanding support of our business and launching the critically important transformation initiatives.
In the coming weeks and months I will continue to deepen my understanding of our businesses visiting with our teams meeting with our leadership visiting with our customers and talking to our investors to get their feedback and to immerse myself in the business.
As a management team, we continue to evaluate all of our growth opportunities and ensure the efficient allocation of capital to initiatives that support the highest growth and return on invested capital.
We will continue to hire exceptional talent to grow our respective businesses.
We will review our mix of assets to ensure that we're getting the most out of our businesses.
We will also carefully manage our capital structure to ensure that we successfully execute upon our strategy.
Our goal is to set the stage for upheld to deliver consistent repeatable revenue, which is growing appropriately producing high quality predictable earnings that are growing faster than revenue and converting those earnings to free cash flow.
During our next earnings call I will expand upon my initial impressions of upheld and what the focus areas will be for the company at our full year results.
Well at the beginning of next year, we will talk through much more detail about our transformation plans and how they will drive results in 2023 and beyond.
That I will turn it over to Martin to go into our financials for the quarter Martin.
Thanks, very much Sam we appreciate everyone joining us today.
Before I begin my review of our second quarter results I want to first comment on the presentation as it pertains to the results and comparison periods.
Recall that we completed the merger transactions on June nine 2021.
And so it was only from that date forward that we have consolidated results that we can report on a GAAP basis.
This is the first full year that upheld financial statements will include all of the businesses combined in the June nine transactions.
<unk> revenue for the second quarter of 2022 was $44 million.
This represents a 22% increase over Q1 2022.
Gross margin for the second quarter was 51% up from 43% in Q1, and the adjusted EBITDA was $4 million up from negative $1 $3 million in the first quarter.
Looking at revenue breakdown by segment on a GAAP basis services, which again includes a pharmacy and behavioral health businesses was the largest contributor with $19 million or 44% of the second quarter as total revenues.
Virtual care infrastructure was next with $17 million of revenue or 39% of the total.
Integrated care management had GAAP revenue of $8 million or 18% of the second quarter total.
The company's revenue mix continues to shift toward our higher margin virtual care infrastructure and integrated care management segments, which increased from 48% of Q4 2021 total revenues and 51% of Q1 2022 revenues to 56% of second quarter revenues.
This increase is consistent with what we noted on our last call. When we said that we expected the revenue contribution from integrated care management and virtual care infrastructure to return to levels that we reported in Q2 and Q3 of 2021 as revenue and integrated care management ramps up over the course of 2020.
Two.
Together, we expect that those higher margin businesses will account for an increasing percentage of total revenues going forward.
On a geographic basis, approximately 92% of second quarter revenues came from the United States and 8% came from India.
The company's gross margin on a GAAP basis was 51% in the second quarter up from the first quarters gross margin of 43%.
Second quarter margins by segment, whereas follows integrated care management, 88%.
Actual care infrastructure, 49% and services, 38%.
Yeah.
We view gross margin is a key metric for our pals and as being useful for comparing our results to peers.
Accordingly, let me also provide some additional color on our gross margins from a trend perspective, as well as framing them within the context of our overall financial model.
Gross margins at integrated care management increased from 63% in Q1 to 88% in Q2 because of an increase in high margin licensing revenues.
We would expect gross margins in this business segment to return to the mid to high 60% range as the revenue mix returns to more historical norms.
Margins and virtual care infrastructure increased from 39% in Q4, 2021% to 47% in Q1, 2022% to 49% in Q2 2022.
This trend of increasing margins stems largely from operating leverage in the U S Telehealth business, which continues to post very strong growth.
Gross margins in the services segment increased from 35% in Q1, 2022% to 38% in Q2 2022, as a result of higher volumes and behavioral health businesses.
Okay.
Second quarter net income on a GAAP basis included a $2 million reduction in the fair value of the derivative liability associated with the convertible notes.
This revaluation is as a result of changes in the company's stock price during the second quarter.
The reduction in derivative liability was recorded as a gain on fair value of derivative liability component of other income in the company's consolidated statements of operations.
Upheld second quarter, adjusted EBITDA was $4 million, which was along with revenue in line with our expectations.
Adjustments were made for the previously mentioned change in the value of the derivative liability and for certain nonrecurring expenses, including consulting legal and restructuring expenses.
We expect expenses for consulting and legal cost to continue through the third quarter, and then to decline substantially, particularly as its shareholder litigation. So just been settled.
As a reminder.
<unk> EBITDA is a non-GAAP measure and we have included a reconciliation of GAAP operating loss to adjusted EBITDA in the press release.
I want to spend a few minutes discussing the companys liquidity position.
As of June 32022, the company had an unrestricted cash balance of $41 million.
The company's cash balance declined over the quarter largely as a result of interest payments and payments for various professional fees, including legal and consulting expenses, but our business segments continue to show good revenue and EBITDA growth.
The company used restricted cash to repay its forward purchase agreement. According to the terms of that contract on April nine 2022.
As of June 30, the company had $19 million of current portion of debt.
Just made up predominantly of notes to shareholders.
As we announced earlier this morning, the company entered into a $67 $5 million convertible debt transaction with <unk>.
Number of holders of our existing convertible debt securities to raise approximately $22 $5 million in new cash before transaction costs and to exchange $45 million of the old convertible notes the new convertible notes.
The new convertible notes will carry a higher coupon lower conversion price and a maturity date of December 15th 2025.
The proceeds of this offering will be used to repay substantially all of the outstanding sell a notes that mature on September 1st So the transaction does not increase the company's total leverage and provides us with more than three years until the maturity of any significant borrowings.
We are continuing to work on raising rupee denominated debt secured by our Indian PP&E to finance growth in that market and expect to complete that financing sometime next quarter.
The effort to collect accounts receivable from a European customer that were written off as bad debt expense is ongoing.
That customer is in the process of securing financing and there is an expectation for an update in Q3.
Our current cash position and the financial performance of the business, which we continue to expect to become operating cash flow positive. Later this year will provide us sufficient liquidity to execute on our current growth plans as.
As we've previously discussed we've made substantial progress on the integration of corporate functions across our business.
Now that we're well underway with our transformation work, we continue to identify and execute upon cost reduction opportunities in the business that will further enhance free cash flow over time.
That concludes our prepared remarks. Please note that <unk> balakrishnan is here with us for the Q&A section of the call operator, we're now ready to take questions.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
The press Star two.
To your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please poll for questions.
Our first question comes from Michael Latimore with Northland Capital markets. Please proceed with your question.
Great. Thank you.
Congratulations Sam on the neuro.
Thank you Mike.
So.
It sounds like.
Bookings were relatively healthy in the second quarter, but just wanted to concern.
Infirm that.
The overall bookings level in the second quarter was as expected here.
Alright. Thank you for the question and thank you for joining us today.
It's good to be here I. Appreciate you spending time with us so bookings were as expected in the second quarter and as we talked about there were several good opportunities that we were able to close a quarter in Q2. So we're very pleased with the progress we made last quarter.
Great and then when you talk about.
Completing 240 of the 600 <unk>.
<unk> formation initiatives does that basically is the outline of the Mackenzie report et cetera.
Yes, Mike So we.
Very hard to drive our strategy for our business that we're implementing here going forward in this.
Our transformational consumers.
The company worked with our consulting partners to help them.
Areas for us to drive our business forward.
Continuing to add.
Sure.
But we're going to work on the transformer.
But you are correct <unk> identified approximately 600.
Milestones that we plan for the rest of this year and we made great progress on that.
Those initiatives in Q2, and we continue to drive excellent execution in Q3 as well.
Great and then just last one.
Services actually grew fairly well year over year Whats your general view on the services business here.
The services business.
<unk> has been growing very well and we're pleased with that.
Progress that we've made.
Dan.
Joining the organization has come in and that was very.
Very very quickly.
Our services business.
Some great progress.
Our pharmacy business.
Been able to push through.
This increase that's going to start to take effect in Q3 should have some positive impact on our results in Q4.
When you look at our business we're seeing.
<unk> levels.
And nice progress there as well so we're very pleased with the performance of the services business through Q2.
And then with your fleet.
Alright, thank you.
Best of luck this year.
Thank you Mike.
Our next question comes from Frank <unk> with Lake Street Capital Markets. Please proceed with your question.
Yeah, absolutely. Thanks for taking my questions I wanted to just follow up on some of the gross margin commentary. It looks like they were obviously really solid in the quarter and maybe there were some items in there that skewed those to the high end of expectations, but Martin maybe could you just run through what went on with the greatest care management business a little bit more.
Directly just give us a little better feel for the long term margin profile, we should expect there and what happened in the quarter.
Yes.
Good morning, Frank.
Thanks for joining us as I mentioned in my remarks, we had a very very strong quarter from a gross margin perspective in the integrated care business that.
That business on a sort of a normalized basis.
We'll run in the mid to high 60%, maybe low 70% gross margin basis.
This quarter, we had a significant win in California.
That involved some upfront licensing payments that drove the margin up.
So we as I said would expect those margins on a more normalized basis to be in the mid to high 60% range going forward.
Other businesses.
You'll see.
Also demonstrated strong gross margin performance, we had an uptick in both virtual care infrastructure and the services segments and I would attribute those those increases a lot.
Largely to increased operating leverage in those businesses.
Okay. That's helpful. And then maybe one for Sam just a little bit more broad based in nature now that you have.
<unk> been on board for call it a month or so understanding you're there's probably much to learn about the business and still getting your feet under you, but maybe if you could just comment on the.
The integration potential of the businesses that you're seeing.
At this point since joining the company.
Sure. Thank you so much.
I really appreciate the question.
So the ambition.
Six companies into.
This has gone really really well.
I see tremendous opportunity for us for where we're trying to compete in the marketplace.
Okay, and when I look at the different business segments. When you think about integrated care infrastructure virtual care.
Infrastructure technology products, what we're leading with a high potential.
Multiple segments of the marketplace and our ability to Rockford enabled health care services around those technology products I think is quite good so I'm in domestic mobile.
We've done what we've put in place and as I looked at.
Wants to do.
<unk>.
Expand our footprint in the health system.
Population health as well.
Marty or when.
<unk>.
Introduce population health.
To provincial governments in India or.
When you look at our Adobe boutique Marty translation services and take that to managed care customers to deliver tell us like patients with our behavior commissions.
All of those I think.
Very strong inroads in the market segments that are growing quickly.
With with a high potential for us to create exceptional value for our clients.
So it's a big part of why I think there are things I really like the asset strategy.
The way that we're going after.
Growth in trading volume.
Great. That's helpful. And then maybe just last one for me any update you guys can provide on the redeployment of the hell of life's to India.
Sure.
Hello, West redeployment to India is ongoing.
A successful solo.
On the phone would you like to comment on that.
Sure.
Martin can add to it as well so Frank.
Good to be sticking with you.
We started the deployment of the Hello life.
Digital clinics.
They are being deployed as 10 bad <unk>.
Onyx, which actually allows us to do two things to add additional services that we wouldn't want to do or wouldn't do cost effectively in the hospital.
The standard lineup outpatient services and they act as a feeder to the hospital, that's well Ah patient.
<unk> deployments have just started that just underway and we've got Ah.
A target of.
Quarterly Rollouts of these these clinics.
Since you wanted to add anything to Yep Yep.
Yeah, absolutely Hey, Frank Yes.
We're referencing the.
The 260 digital dispensaries that we redeployed into India. The first three of those are opening this month in August and as Ramesh said, they all serve to generate cash flow on their own.
And their own in their own right and also will serve as the street as to the hospitals that we have and we're seeing increased utilization. There. So we're confident that the long term cash flow prospects of the redeployment of these assets in India will provide.
A superior outcome than would've been the case.
Sure.
How do we redeployed them or had we deployed them elsewhere.
Got it okay. That's helpful. Thanks for taking my questions I'll stop there.
Ladies and gentlemen, we have reached the end of the question and answer session and I would now like to turn the call back over to Sam for closing remarks.
Thank you operator, and I just wanted to thank everybody.
Call today.
We are excited I am to be here.
Yes.
We have in front of us and there is a lot of work to do but the team was fantastic.
After a great start.
Thank you again for your time today, and I look forward to continuing to ship.
Our next quarterly earnings.
Earnings call.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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