Q2 2022 Agiliti Inc Earnings Call
Our guidance range, but we now expect to finish at the low end of that range.
As we review our results today I want to emphasize that consistently strong underlying performance of our core business.
Later on the call <unk> will provide an update and some of the factors driving our confidence and our financial outlook.
And Jim will provide additional detail on our Q2 results.
And share our high level assumptions for the full year before we pause to take your questions.
I'll start by discussing the two transient factors that were a drag on our performance in the quarter and it caused the variance from our expectations.
First.
Youll recall that agility was previously awarded an extension of up to one year on our health and human services government agreement for medical device stockpile management.
For simplicity the HHS agreement.
This extension re scoped, our work to reflect normalized post COVID-19 managements of the medical device stockpile.
And consists of both a fixed fee and a time and materials based fee structure.
Our assumption accompanying our full year financial guidance was that revenue from the re scoped HHS agreement, which show a year over year decline of $40 to $50 million.
With the difference primarily recorded within our onsite business.
However in Q2, the government unexpectedly paused the time and materials work that we perform at their direction.
Consequently, we now expect the full year financial impact from the HHS agreements to be an incremental $10 million to $15 million reduction to revenue compared to last year.
Jim will provide additional detail during his remarks.
A final note related to the HHS agreements.
The department of Health and Human services recently published a request for proposal for its new multi year agreements for the management of the federal emergency stockpile of medical equipment.
On August 5th agility submitted its formal response.
And we are waiting next steps on what is expected to be a new five year contract Award.
The second factor driving variance from our expectations comes from a rental portion of our business.
We have previously described the net COVID-19 impact of higher medical device utilization in 2021.
As a $30 million to $40 million full year benefit to revenue.
We further defined this tailwind.
As the excess of Covid driven rental revenue in 2021.
Over the 2019 pre COVID-19 baseline utilization for our rental fleet.
Starting in Q2 this year rental device utilization appears to have re baselines at a level below that 2019 pre pandemic level.
Meaning utilization.
Utilization for these peak need devices.
Which primarily include infusion pumps ventilators and patient monitoring devices.
And which represent a subset of our overall rental fleet.
As recently stabilized at a level.
That would suggest $20 million to $30 million less revenue and corresponding margin in 2022 than implied by our initial guidance.
I want to note that our rental Rebase line assumption is simply a conceptual jumping off point for managing and growing the business from here.
This assumption may prove conservative.
And we may ultimately see some reversion towards historical utilization levels.
Both COVID-19 impacts and the HHS agreements have been the primary drivers of unexpected variability in our reported results both favorable and unfavorable during our first five reporting quarters as a public company.
Throughout this same period, our base underlying business has continued to perform in line with our expectations and our financial guidance.
While COVID-19 and the government contracted in topical issues in recent quarters. It is the strong and predictable performance of our base business.
Puts us in a position to largely overcome these short term unanticipated headwinds.
And reaffirm our full year guidance range.
Further.
We're particularly excited about the results coming from our 2021 acquisitions of size wise.
<unk> medical.
Both are performing well.
Some measures performing well above our initial expectations.
We're seeing strong momentum from the combination of these businesses into our solution offerings.
As we lap the next few quarters, which still include both Covid and HHS contracted impacted results, we expect to carry our organic growth momentum into 2023.
Let me now turn the call to Tom Fanning.
Offer his perspective on the business in the quarter.
Well, thanks, Tom and Hello, everyone.
I'll build on Tom's opening remarks today with some context on evolving macro trends and a few brief updates on our commercial progress.
First as Tom mentioned, we are seeing strong new business momentum within our selling organization.
Been a clear shift in our customer's mind share from our focus on short term Covid response to an increasing focus on longer term strategic initiatives.
Emphasizing cost control and quality of patient outcomes.
<unk> has only accelerated with the economic challenges our customers face today, and agility remains well positioned to help.
As a result within agility, we are seeing the expected return to balance demand across our solution portfolio. This mix shift away from the Covid driven reliance on our rental offering gives us confidence in the continued strength of our core business as we move forward.
Importantly, we've also broadened our solution portfolio over the last few years, leveraging our strong balance sheet and our disciplined approach to M&A.
The recent additions to our business are accelerating our success across the entirety of our solution portfolio. The.
The addition of surgical equipment repair capabilities. For example has elevated our customer call points and taken us more meaningfully into the procedural areas of the hospital in a local market capabilities combined with our market, leading geriatric patient beds mobility equipment.
Clinical services from our acquisition of size wise are enabling us to compete for opportunities that neither company was doing separately just one year ago.
Next I'll briefly touch on the general subjects of labor availability wage inflation and supply chain risks and their impact on agility.
Much as we've shared the last several quarters, we have not seen any meaningful impact from these macro issues within our business and they are not a material factor in our financial results.
In prior calls we've described our unique operations infrastructure local market scale, and our skilled labor stack provide us business levers, which we have used to effectively manage through potential challenges to date.
Our customers. However are feeling the impact of these macro forces and we remain well positioned continue helping the provider organizations navigate these challenges.
We've long described agility as a company on the right side of healthcare in today's climate of capital and labor constraints, our ability to deliver meaningful cost clinical and operational efficiencies to our customers is driving our accelerating momentum.
Reflecting on our acquisitions. We previously noted the completion of integration activities for our March 2021 acquisition of Northfield Medical.
While the Covid driven focus negatively impacted hospital procedure volumes and limited customers focus in this area over much of the last two years, we are seeing new contract wins accelerating for surgical equipment repair solutions.
And while we still have significant work ahead of us to complete the integration of size wise.
Our cost synergy achievement is already comfortably ahead of our expectations.
More importantly, our early commercial success with this newly combined offering is another key factor, giving us confidence in our financial outlook.
Reflecting more broadly agility remains in.
<unk> maintains an active pipeline of M&A opportunities and the financial flexibility to pursue them.
We continue to evaluate targets, where we believe agility can be better owner, meaning we seek opportunities where we can drive profitable volume through our at scale nationwide infrastructure extend the value we provide for our customers and enhance our competitiveness.
With that let me turn things over to Jim to review the details of our financial performance.
Thank you Tom.
I'll start with an overview of our Q2 financials and then offer some comments on our outlook for the year.
For the second quarter total company revenue totaled $274 million Rep.
Representing a 9% increase over the prior year.
Adjusted EBITDA totaled $70 million.
A 10% decrease compared to Q2 last year.
Adjusted EBITDA margins totaled 25% for Q2 of 2022.
As Tom described.
Adjusted EBITDA margins versus the prior year were negatively impacted by the HHS agreement.
As well as lower medical device rental utilization in the quarter.
Our solid overall operating performance drove our net income of $5 million for the quarter.
On a year to date basis, net income increased over $20 million compared to 2021.
Adjusted earnings per share of <unk> 19 in the quarter compares to <unk> 23 in the year ago period.
Driven by both a slight decline in adjusted net income.
And an increase of 8 million fully diluted shares outstanding.
Primarily associated with the Companys April 2021 IPO.
Taking a closer look at the second quarter across each of our service lines.
We delivered revenue growth across both equipment solutions and clinical engineering.
And an expected decline in onsite managed services revenue.
Equipment solutions revenue totaled $107 million up 48% year over year.
Our October 1st acquisition of size wise contributed approximately $38 million in revenue in Q2.
We neither expected nor saw any excess COVID-19 driven demand in Q2, However, as Tom described customer utilization of our medical equipment fleet in the quarter was somewhat below pre pandemic levels and below our.
<unk>.
A reminder, that when comparing Q2 year over year.
In the prior year period, we had estimated a favorable impact from Covid driven device demand.
Of approximately $3 million.
Moving to clinical engineering.
Q2 revenue was 104 million representing year over year growth of 3% for the quarter.
Revenue from our HHS agreement with lower year over year as.
As we move from the active deployment and in market support of the stockpiled devices.
To the longer term pricing levels associated with the ongoing maintenance of the stockpile.
Further and as described earlier.
A pause of time and materials work.
<unk> and lower than expected revenue under this contract in the quarter.
Finally.
Our onsite managed services revenue totaled $63 million.
Representing a year over year decline of 19% for the quarter.
This was primarily driven by the renewal pricing in our revised scope of our HHS agreement as expected.
Reflecting more broadly on our onsite services for the past two years customers, we're primarily focused on Covid response and related challenges.
As we reengage with our customers on their longer term more strategic cost and quality initiatives.
We continue to see new onsite managed services opportunities.
Assess fully moving through our sales funnel.
Continuing down the P&L.
Gross margin for Q2 totaled $98 million.
A decrease of $1 million year over year.
Our gross margin rate was 36% down 400 basis points from the prior year period.
The decline in margin rate was volume driven.
Primarily due to lower medical device placements and factors related to the HHS contract as described.
SG&A costs for Q2 totaled $82 million, an increase of $1 million year over year.
The increase was primarily due to SG&A costs from our 2021 acquisitions.
Net of achieved synergies.
SG&A expenses as a percentage of revenue totaled 30%.
Which was an improvement of over 200 basis points versus the prior year.
As we continue to integrate our recent acquisitions and organically grow our business.
We expect to see further SG&A leverage over time.
Moving to the balance sheet we.
We closed Q2 with net debt of $1 87 billion, which includes $1 9 billion in debt.
$17 million of cash on hand on our balance sheet.
Our cash flow from operations through June 2022 was $101 million driven by strong operating results and lower interest costs, resulting from the Paydown of our second lien debt facility as part of the IPO.
In addition, our cash flow from operations less cash flow from investing activities totaled over $60 million, which represents a conversion of two five times, our net income on a year to date basis.
Strong cash flow generation and last 12 months adjusted EBITDA growth.
<unk> in our reported leverage ratio of three three times in Q2.
In the quarter, we utilized our cash on hand to pay down over $50 million in debt obligations.
This principal reduction is expected to reduce our cash interest payments by roughly $3 million annually.
Looking forward, we will remain diligent in determining the optimal uses of our strong cash flow generation.
We continue to target leverage in the low to mid three <unk> range.
As we expect to use our strong balance sheet and cash flow generation to fund future opportunistic M&A.
Agility maintains a position of solid liquidity with $239 million available as of June 2022.
This includes a revolving credit facility as well as cash on hand.
Finally, our.
A reminder, in the terms of our debt given the macro view on near term interest rates.
In total of our one point over $7 billion of debt.
We maintain an interest rate swap agreement on $500 million of our debt.
Which is swapped floating rate terms for fixed rate terms.
This provides a partial hedge for any anticipated market rate increases over the next year.
Turning now to our 2022 outlook.
We are reaffirming our full year financial guidance and.
And now expect to come in at the low end of the range for revenue adjusted EBITDA and adjusted earnings per share.
Additionally, we are reducing our capex investment forecast range in line with our current revenue outlook.
I'd like to spend my last few minutes reviewing the key assumptions that inform our current outlook.
As we have shared in our prior earnings calls.
Throughout much of 2020 to our financial guidance assumed that our results would comp against that $30 million to $40 million in high margin Covid driven revenue tailwind from 2021.
While we saw some COVID-19 driven demand early in each one of this year.
Our 2022 plan assumed a return to pre COVID-19 equipment utilization levels for the balance of the year.
In Q2, we.
We saw our equipment utilization levels dropped below pre COVID-19 levels.
Accordingly.
With an assumption that our equipment placements have re baseline that the current level.
The negative impact on revenue and margin for the full year.
As expected to be in the range of $20 million to $30 million.
Turning to the HHS agreement.
We previously shared that our new HHS agreement had consolidated several prior agreements and it's narrowed scope reflects the ongoing management and maintenance of the device stockpile.
While we are not permitted to disclose financial and operational details of our contract beyond what the government discloses directly.
Implicit in our prior guidance with the expectation that agility would see a $40 million to $50 million revenue reduction in 2022.
As Tom shared in his opening remarks in Q2, we learned that certain time and materials work would be deferred until a new HHS contract is awarded.
We now expect the full year financial impact of the HHS agreement to be an incremental $10 million to $15 million reduction to revenue compared to last year.
With that incremental reduction impacting our clinical engineering business and.
And roughly split between Q2 and Q3 of this year.
Next consistent with the ordinary course of our business, we continue to sign and implement new contracts for our solutions as customers turn their attention back to their long term strategic and financial initiatives.
Our solutions play an important role.
Yes.
The impact of acquisitions.
Our current guidance.
<unk> underlying organic revenue growth in the high single digit to low double digit range.
Our full year adjusted EBITDA margins are expected to be in the range of 26% to 27%.
Finally.
A reminder, that our business historically experiences modest seasonality.
With the first and fourth quarters, representing our strongest quarters based in part on the timing of the annual flu.
Yes.
The assumption that we will begin to recognize time and materials revenue.
Under our HHS agreement starting in Q4 of this year.
Any new PNM revenue would be in addition to the normal effect of seasonality on our financials.
As I conclude I want to Echo Tom's opening comments by noting that we remain confident in our outlook on the year.
And expect to see continued momentum as we turn the corner to 2023.
I'll now turn the call over to our operator to provide instructions for our Q&A.
Thank you very much.
At this time, we'll be conducting a question and answer session.
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All participants to limit their questions to one question and one follow up.
One moment, please slide the call for questions.
Our first question comes from the line of.
Kevin Fischbeck with Bank of America. Please go ahead.
Great. Thanks.
I wanted to dig in a little bit to your commentary about the re basing of the core volumes to below 2019. It seems a little bit like you guys are thinking about this as kind of a temporary dynamic clearly.
A lot of provider saw during Q2, we'd love to hear how you're thinking about getting back to that 2019 baseline.
Are you seeing anything in the July or August placements that point to that happening sooner rather than later or is this going to be.
Longer term kind of normalization.
Okay.
Kevin This is Tom.
Thanks for the question.
Here's the way I'd have you think about this re baseline assumption I think of it.
As a as really a starting point for utilization for us.
Now on the overall medical device fleet.
And becoming our especially our jumping off point for managing the business going forward from here.
In that regard.
This assumption of a re baseline.
May likely prove to be conservative assumption.
As you know providers had.
We're canceling and heads lower procedure volumes.
Over the course of the last quarter.
That impacts some of the utilization.
We've also seen providers somewhat concerns about their financial outlook when they do that CFO .
<unk> tends to.
Look two tamped down expenses wherever they can one of the areas that they will typically push.
Is around things like.
Rental.
Rental medical devices in their facilities.
And it's easier to do that certainly in the summer months tend to be slower.
So while our assumption is one of effectively a rebase lining.
It is likely going to reverse in some form back to the mean.
What gives me some confidence in that.
If you look back as we look back over the last two years.
We had generally grown.
The number of rental contracts that we enjoy as a company.
Over the last few years and what we have seen it do is roughly offsets what has been the impact of additional medical device purchases that customers made during COVID-19.
This is logic that has held true during each COVID-19 wave so when the initial wave came.
Came and went when Delta came and went to an omicron came and went in each case.
Utilization subsequently resets to right about where it was in 2019.
So it came as a surprise to us.
When it's below that.
There are potentially more factors.
That are driving that we're simply calling it a re baseline for now just use it as a hopefully a conservative start point for how we grow the business from here.
Okay that makes sense and I guess the degree.
Thanks.
Think about it that way as the new baseline is it feels conservative the companies are not assuming that but I guess.
If we thought about that excuse me upside potential.
How do we.
Okay.
Is there a reason to think that it might not come back.
I guess some of the companies have talked about the shift to outpatient.
The thing that maybe accelerated during COVID-19 in particular seem to be pronounced in Q2.
I guess, how does that shift impact your business.
And is that something that may hold back that.
Our cost basis.
The baseline to be actually the right way to think about it longer term.
So for.
For planning purposes, we're assuming it's.
It's.
Factual it's real it persists again, it maybe in a conservative assumption, but thats, what we built into our.
Our update to our financial guidance for the balance of the year.
That turns out to be.
Overly conservative assumption I would say that there'll be bias to the upside.
As the shift to outpatient that drag to your business or pumps.
We serve more than.
We serve more than 9000 customers far more than just the hospitals are primary customers as we've shared before it can be both hospitals and health systems, including <unk>.
Non acute care facilities that they own.
What that means is we tend to be really everywhere. There is medical device intensity. So it doesn't matter to us if a procedure is performed at a hospital procedures performed in a surgical center, we are very likely there. So the shift to outpatient is something we follow as our customers follow it and has no impact.
On our results.
Great. Thank you.
Thank you.
Our next question comes from Matthew Mitchell.
With Keybanc. Please go ahead.
Good afternoon, and thank you for taking the questions.
First one on onsite managed services.
Now that we've rebased for.
Full quarter of the ventilator contract it seems like that the time and materials.
More in critical engineering.
Then onsite managed services is this the right baseline to begin from.
To look at that segment going forward and should we be thinking about that now sequentially growing as you've got as you win new contracts.
Yep.
Great question Matt.
We're thinking about it spot on.
It's exactly the right way to think about it.
Okay.
And then on size wise, it seems to be coming in.
Above our expectations, maybe bucking the trend on equipment utilization at the hospital.
How how is that acquisition being received by your customers and then <unk>.
As a follow up to that you've had that for about a year now any thoughts or.
Our updates on self manufacturing.
So.
In terms of customer acceptance I think it's clear from the results the combination of the capabilities. We picked up when we acquired size wise as we integrated them with both the capabilities that we have plus our local market.
So just takes and service infrastructure had been very powerful for us and the business continues to perform very well for us we're now nine months into our ownership.
Thrilled with the transaction thrilled with the teams that have come over.
And we expect this to continue to be a meaningful driver in our results going forward. It's one of the factors that helps us overcome those transient headwinds that we've described and gives us confidence in the full our full year guidance range.
Terms of the role of self manufacture within our portfolio.
We've traditionally sourced from.
From others.
Jamie yourself manufacturer was an important aspect of the size wise transaction.
We continue to manage through that integration.
It really without issue, but we're excited about the capabilities that we have and.
We wouldn't hesitate for the right opportunity to expand what we're doing in terms of self manufacture.
Products in our portfolio.
Excellent. Thank you very much.
Thank you our.
Our next question comes from the line of Zach lineup with Jefferies. Please go ahead.
Okay.
Hey, Thanks for taking the question just wanted to touch on procedure volumes in central backlog, though through Covid, obviously routine procedure volumes have been delayed.
And some folks talking about backlog is that should that impact utilization going forward and how should we think about that.
So when we think about where procedure volumes would impact us in the P&L. Let me start there the two places won't be within equipment solutions. So within rental that's one of the factors and lower than expected rental in the quarter as procedure volumes were off from our expectations.
So as those come back.
We expect to see that benefits within equipment solutions at the other place that it impacts us is surgical equipment repair.
As part of our.
Clinical engineering business, one of the drivers and higher repair volumes is more surgical cases, so that should be a a small a slight tailwind for us as cases come back as well within clinical engineering.
Got it thank you.
Thank you. Our next question comes from the line of Amit <unk> with <unk>.
Goldman Sachs. Please go ahead.
Hey, Thanks, good afternoon.
I wanted to come back to the <unk> solutions commentary and just trying to understand you.
Your own visibility into what's going on with your customers.
As I think about volumes for hospitals in the U S.
Really have never come back to 2019 levels I mean throughout the pandemic so being below in 2019 levels is not really a surprise to me I'm. Just wondering if this is a relative thing for you that you had expected some percent of normal that has not been achieved or.
Give us a sense of what I'm really curious about here is like the precision with which you guys can actually.
Be able to model the forward here.
Based on what you see so was this a relative thing where you were expecting some kind of a return to a percent of normal that didn't happen because in absolute terms.
It Didnt surprised you had much I'm just trying to figure out whats.
New and incremental here for you.
Hi.
So.
A really good set of questions and let me kind of unpack it.
Feel free to.
<unk>.
In either direction.
We go through this.
What we know over the last two years is that.
<unk> made more purchases of medical devices more than they would normally have access devices. So we knew that would be an impact on.
Rental demands broadly.
And as you said, we still have not seen ambitious.
Ambitious dentists returned to pre COVID-19 levels.
It remains for planning assumptions.
Headwinds as well.
Offsetting that for US has been the increase in new contracts that we've won over the last two years.
Hey.
Going in assumption on the year.
Was that these two things would roughly offsets the increase in our contract positions with roughly offset.
Where we would be.
From customers, making additional purchases and the current census environment.
We felt that was a solid.
Assumption to make because through each wave of COVID-19 that.
Subsequent reset.
<unk> back to that same place right around that 2019 baseline again with new contracts generally offsetting.
Winds of Sensus and.
Headwinds from customer excess purchases of devices. So when in early Q2 utilization starting to go below that for the first time.
That was that was new to us.
Hi.
So what we do is we started with something a re baseline assumption, let's just assume that where we are today.
Is the new normal and that would tie to the 20% to $30 million topline bottomline impact that we described.
And the implied then by our our revised guidance for the full year.
It may again be the case.
But that's too conservative of an assumption.
Well, because each and every wave we tended to end up back.
That 2019 baseline over the last two years. This is the first time that did not happen in.
And there are reasons with the summer with case volumes being off and others that are excess drivers and remember what what what cfos want to do is push costs out of the system.
When they see uncertainty and one of the short term costs that they often try to push it.
Rental devices.
Easier to do in periods of low utilization like this summer, which tend to be lower throughout the year for.
Sensus.
But ultimately care has to be delivered if they don't measure of devices efficiently. They will end up wanting more of that creeps back end. So there are a couple of things that I think represents.
Tailwind for us on that overall conservative assumption.
Planning purposes, just assume this is the new baseline.
It's 20 to 30 million top and bottom line impact for the balance of the year.
Our new start point.
In terms of our ability to.
We model it going forward.
I will say that the.
Clearly the Covid has really been the only driver in this business as a business we've been in for more than 80 years, there's a lot of data in this business.
Just in aggregate, but really by touches even by product line like ventilator, but even by.
Specific manufacturers, we have an extraordinary amount of data. This is a business that we have.
Historically, <unk> been able to model with a very high level of precision.
And Thats our goal with the re baseline.
This position assume this is the new start point.
And then begin to think about it in the way that we always have.
Cope with those.
That assumption proves to be conservative.
Yeah. That's that's great. That's really thorough just as a quick follow up to that I'm curious if you're able to comment on July and early August but the.
The true kind of second question is actually on onsite managed services and if we kind of take the government piece out of it and I think back to pre IPO and the IPO and subsequent this is one division that feels like it's not coming through as we had expected prior to the IPO and around the IPO. So I am curious if.
That's the case for you I know we heard we heard you guys. As you have said it before Covid has definitely caused your customers to focus elsewhere. So I get that but we also expected some improvement by this point as these customers come out of Covid, maybe thats, our fault for being a little bit too aggressive on that but just help us out here on why we should.
Continue to be confident that the kind of nongovernment osp's should grow high single digit low double or if thats the case.
Yes start with the first part of your question around do we see anything different in July or August to date.
Nothing meaningful, but we wouldn't expect to either summer again tends to be the low months August is typically the lowest.
Once.
Our utilization of the fleet.
We weren't expecting and have not seen any.
Any change.
And utilization of the medical device fleet.
In terms of.
On site managed.
We've described.
Impact year over year of the federal government contracts.
And.
We have to overcome to show growth in that just from a comp perspective.
We continue to sign new.
New business. These tend to be larger deals larger deals tend to have longer implementations and see ramp on the revenue ramp into the margin on those.
Taking longer certainly then.
Clinical engineering, which tends to be a lot faster and obviously rental.
<unk> when we dropped the equipment off.
We continue to be very comfortable with the progression.
Of that business and it's why we haven't provided guidance beyond this year.
What we have historically done.
Pointed folks to 2015 to 2019.
And the historical organic performance of that business as a as a good starting point for modeling that business.
And as we get.
Get through this transition out of Covid and into signing this business with our customers as they're turning their attention there and implementing it.
I think youll see it.
It comes along.
As we've described.
Thank you very much.
Thank you.
Our next question comes from the line of Matthew Borsch with BMO capital markets. Please go ahead.
Hi, Yes, if I could just continuing on the utilization.
Environment Alright topic.
What.
What are you hearing from your all of your clients Im sure. Its not the same thing, but generally is explaining the lower volumes. If there is any.
Just wanted to be interested in.
Our data pointing to.
Constraints on their availability of caregiver labor as a key factor or more just a lower level.
I suppose what you might call demand organic utilization coming through the system.
Hi, Matt.
Go ahead Tom.
No.
So we're seeing customers impacted by.
Availability of labor.
Seeing higher cancellations, including due to supply chain ability gets.
What they need to support key procedures.
We are seeing also concern and uncertainty about their financial performance, including driven by the higher cost of labor, especially temp labor like.
<unk>.
Staffing.
Companies that they have to turn to.
When they have the labor shortages so.
The macro drivers plus some cost of labor challenges with things like having to excess nurses are staffing companies.
Has created some uncertainty and they are seeing some level of <unk>.
Cancellations.
As <unk>.
Overall, not the same demands that certainly they were expecting and that we're expecting of them.
In this past quarter.
How long do you have anything else you wanted to add as color to that.
No I think you I think you said it will come.
Great and.
To the extent you can comment on.
The HHS.
Contract extension I'm, not looking for the financial terms per se.
Just understanding it's not clear to me.
What happened with the deferral or time and materials.
Or is that.
<unk>.
How did that how did that come through.
Just to government.
You were not necessarily expecting communicated to you I mean is there a y.
<unk>.
And how do you know that it's going to pick up in the fourth quarter with.
With the continued deferral towards the third quarter, if I'm understanding that right.
Yeah, Great Great question.
So through.
Through that through the better part of the first quarter, we were still under the <unk>.
As to the original agreement, we shared near the end of the first quarter. We received key up two one year extension, but we're booked.
While the current HHS agreements.
That contained provisions as we've described both for the.
The fixed cost portion, which is the vantage the stockpile and then assignment materials portion, which is to do such other duties as the government may directors to do from time to time.
Shortly after that award.
Because we only do that work with him at his work ethic over construction.
They informed us that.
Work that we would normally do under that type of materials part of the contract would be deferred until such time as there is a new five year contract award.
Which as we've described the RFP has been put on the street, we provided a response.
We would hope to see.
Something shortly in terms of a decision on an award.
But it is our current understanding that post that award.
No more work that needs to be completed.
On a time and materials basis would restart.
So sit in our guidance is at risk.
In Q4 of this year.
Okay Alright.
<unk>.
That's very helpful and maybe one last question if I could.
I know you've talked before and maybe you touched on this I apologize if I missed it but.
Are you still seeing that sort of heightening high single digit growth.
Excluding HHS senior onsite managed services segment I know Thats, what you were talked about last quarter I'm curious if that's still the case or has that been influenced somewhat by the lower than expected level of utilization.
So.
Fortunately at least on my phone.
<unk>.
Speakers seems to dropout microphone seem to drop out in the middle of his.
His remarks.
What she had shared.
Is.
When you take out the transit transient COVID-19 and HHS impacts, which we have described and quantified for you.
And then of course, you adjust for the annualized impact of acquisitions.
What our current guidance continues to imply.
Is <unk>.
Underlying organic revenue growth in the high single digit to low double digit range. Okay. Okay.
But specific to onsite managed services.
I am sorry, if this is for the business for.
For the business overall.
Okay, Okay no no.
That's very helpful. I appreciate.
I did actually catch that.
Jim what's coming in and out, but I guess I got that one part.
I was more sort of that question would be in that granular question that.
I understood you correct me, if I'm wrong I thought last quarter, you had said that if you strip out HHS that your organic growth specifically in onsite managed services was chugging along in a high single digit range and I just wondered if that had changed at all as a result of.
Perhaps.
Utilization, even though I know that most of the equipment solutions factor.
Hmm.
Or it Hasnt changed.
Jim can you comment on that.
Yes, it hasnt changed from Q1 to Q2 in terms of the prior guidance that we had shared Matthew.
Okay, Okay, great I am good thank you.
And I apologize if my line went in and out I did not realize that.
I always works around that we've got most of the important stuff.
Alright.
Get the rest of it later Matthew.
Chris.
Sure.
Thank you.
A reminder to all participants if you would like to ask a question. Please press star one on your telephone keypad.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Tom Leonard.
For closing remarks.
Thank you operator.
As we conclude our prepared remarks today I do want to reiterate the key messages.
Hope you heard during our call today.
First.
And our <unk> agreement have been the primary drivers of variance both favorable and unfavorable.
In our financial results since our IPO.
We do currently expect to lap the periods impacted by these transient factors over the next few quarters.
A second.
Our unique operations infrastructure has allowed us to continue to absorb macroeconomic headwinds, including labor availability inflation and supply chain impacts without material impact to our performance.
Third.
And it really remains a company on the right side of healthcare, we are well positioned to help our customers address these very same economic headwinds.
And as a result, the underlying base business of agility remains strong.
Fourth.
We have been successful at identifying and integrating acquisitions that enhance our overall value to our customers.
And that are now meaningfully contributing to our performance.
And finally, let.
But as we lap the transient headwinds impacting our reported results, we expect to bring demonstrable organic growth momentum into 2023.
With that I want to thank you for your interest in agility.
And this will conclude today's call.
Thank you.
Ladies and gentlemen.
Thank you for your time.
And thank you for your participation.