Q4 2022 Uphealth Inc Earnings Call
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Speaker 2: A brief question and answer session will follow the formal presentation. If anyone should require an operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker 3: It is now my pleasure to introduce your host Shannon Divine. Thank you. You may begin. Thank you operator. During today's call, management will be making for the new statement. Please refer to the company's SEC filing, including the company's annual report to be filed on form 10K before the end of March for a summary of the four-
Speaker 3: and specifically to disclaim any obligation to update or revise these statements to reflect new circumstances or unanticipated events that occur except it's required by law.
Speaker 3: Throughout the call today we will refer to pro-former revenues, pro-former growth margins, and adjusted EBITDA. These metrics are not determined in accordance with GAPT and therefore are susceptible to varying calculations.
Speaker 3: 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 believe these non-GAAP measures of upheld financial results provide useful information regarding certain financial and business trends and the results of our operations.
Speaker 3: I will now turn the call over to Sam Mecky, a PELTS Chief Executive Officer. Sam? Thank you, Shannon, and good morning, everyone. Thank you all for joining us today. Much has occurred since I first joined the company in July of 2022. When I first addressed you, I was merely weeks into my tenure as a PELTS New Leader. I was optimistic about a PELTS mission.
Speaker 3: to enable high quality, affordable, and accessible healthcare for all. The good news is that eight months later, I am even more enthusiastic about our mission and remain optimistic about our company's ability to succeed in this space.
Speaker 3: During that first call, I committed to expanding upon my initial impressions of a pulse by the end of the year. Commenting on what I think the focus areas will be going forward, and after our four-year results, as said, we will talk through in more detail about our strategic vision and how they will drive results in 2023 and beyond. Today, I'd like to expand upon my initial impressions of a pulse. Comment on what occurred in the second half of 2022, particularly in the fourth quarter?
Speaker 3: and begin to comment on the start of 2023. We share 2023 guidance in today's earnings release and Martin will expand on this in his comments. Since we first met, I have spent a great deal of time that I've been deeply into our business. I have visited with our customers, our employees, our investors, our analysts, our partners, and the people whom we have beyond our disturbances. It was immediately apparent that there was work to be done to improve the state of the business.
Speaker 3: In the past eight months, I spent time immersing myself in all parts of Up Health in conducting an exhaustive review of the business and our leaders. As I reviewed the asset mix, we set a goal to ensure that we are getting the most out of our businesses.
Speaker 3: It was imperative to understand what was working well and what we needed to rationalize. My goal was to set the stage for upheld to deliver consistently against our commitments.
Speaker 3: repeatable revenue, which is growing appropriately, and converting earnings to positive free cash flow. In early 22, we focused on building a cohesive strategy and a plan to make up health vision a reality.
Speaker 3: We reinforced our thinking about virtual healthcare, integrated care, and international key areas of focus. We adopted a two-color approach to growth, investing in growing or existing capabilities, and integrating our capabilities to solve our clients' most complex problems. Our initial thesis in strategic pivot in early 2022 were good, or faced the significant challenges.
Speaker 3: Our growth ambitions required more capital than our budget allowed, leading to overly optimistic revenue targets further impacted by the evolving broader market environment. Market contracts, particularly in Europe and Africa, did not materialize.
Speaker 3: The technology integration was more complicated than expected, and finally, legal issues and shareholder activism consumed resources, further limiting our ability to execute on our strategy. Additionally, marketing conditions changed, inflation and recession fears slowed investments. Labor shortages continue across healthcare, post-pandemic, and our customers, particularly HLE peers and providers are struggling to drive performance in this increasingly changing macro-alchemical
Speaker 3: Many things are going well for up-tests. Our fourth quarter and four-year results are notable. Revenue for the fourth quarter of 2022 increased 19.5% to 40.5 million compared to revenues for the fourth quarter of 2021 of 33.9 million. Adjusting for the deconsolidation of global. Revenue for the fourth quarter of 2021 of 33.9 million.
Speaker 3: Fourth quarter, 2022 revenues increased, 32% to 40.5 million, compared to 40.7 million in the fourth quarter of 2021. Gross margin expanded from 2.45% from 18% in the fourth quarter of 2021. The Q4 2021 gross margin was extraordinary because it included the recognition of various expenses at integrated care management without the benefit of corresponding revenue recognition. The app revenue for the year ended December 31, 2022 was $158.8 million. A 20% increase compared to the year ended December 31, 2021.
Speaker 3: of $123.8 million, and a 7% increase compared to pro forma revenues for the year ended December 31, 2021 of $148.9 million. Gross margin for the year ended December 31, 2022 expanded to 44% compared to pro forma gross margin of 33% in a comparable year ago period. Additionally, several of our business admins have very good years. Our US telehealth business exceeded its revenue and margins also year and achieved record-minute growth.
Speaker 3: We had strong EBITDA margin growth in IGI, and our behavior health services business also outperform its targets, and we recently treated our 10,000 clients and continued to expand our work with veterans and first responders. We served our long-term customers in the state of California, delivering data integration and interoperability for two of the most significant counties in the state, and we stand committed to executing additional business and deepening our relationships to reach real growth.
Speaker 3: We achieved over $2 million of savings from G&A consolidation and over $1.5 million of savings from external spend reductions as part of our integration and transformation work. But the fact remains that despite all of the good things we accomplished, we must start targets. What all of this means for upheld is that we are in a different place today.
Because of this, we are recalibrating our business. We are focusing on fewer objectives. We acknowledge the macroeconomic realities of the market, and we are responding to them accordingly. We are reducing our cash burn rate, investing wisely, and improving our operating discipline. We will stabilize and accelerate the growth of our core performing businesses, and we will shut down any initiatives and businesses that are not working. Our objective is to move as quickly and as efficiently as possible, identifying the areas of the business that are not in line with our GoFord strategic vision of building a fully integrated platform to drive growth beyond 2023.
Earlier this week, we announced that we reached a definitive agreement to Debt Best Innovations Group and Corporate, our compounding pharmacy business to bell our pharmacy solutions. We considered the sale of IGI the jumping off point for our recalibration year. We are focused on right sizing the organization. We reduced headcount by over 6% since August . We have decreased contract expense and we will continue to reduce our SGNA further through the first quarter. We completed a thorough strategic business review of all appellate business lines and we narrowed our focus to those businesses that present the largest opportunity.
Telehealth, which is part of the virtual care infrastructure segment, behavioral health, which is part of the services segment and integrated care. We work extremely hard to determine our clear achievable plan to turn the company around. We created a three-year plan that focuses on recalibating the business in 2023 and building and scaling for growth in 2024. We will recalibrate the baseline of the business this year, and we seek to double the size of the business within three years. It is a pragmatic and practical approach that acknowledges the reality of the markets we compete in, and it leverages wisely at the capital on our balance sheet.
health, behavioral health and integrated care businesses.
This will require us to take a step back in sure we have the necessary foundation for a technology and technology enabled services business that can sustainably scale.
While we build our technology foundation in 2023, revenues will be moderate and we will be aggressively managing our cash with a goal of working towards delivering positive operational cash flow.
Builder Technology Foundation in 2023, Revenue Growth will be moderate, and we will be aggressively managing our cash with the goal of working towards delivering positive operational cash flow. Lastly.
While growth is in the foreseeable future, we want to temper our expectations and ensure the proper foundation is built to set us up for go forward success. Our breakout years will come in due time. Assisting and building the grab work and responsible for revenue, product and product marketing is a newly appointed chief growth officer Melissa Friswick, who brings a tremendous record of driving growth across the healthcare continuum, bringing more than 25 years of healthcare experience to up health. Additionally, we hired Timothy Wilde as our chief technology officer. He comes to us with 30 years of experience leaving business transformations and innovative approaches to technology. Finally, we hired Dr. Mahesh Inder, your senior lead up health international. Mahesh began his career as a practicing physician and comes to us with 25 years of experience as a visionary and expert leader in health management. Before I turn the call over to Martin, I want to thank you for continuing with us on this journey. I fully appreciate and acknowledge your support and continue to believe there is a bright and remarkable future for this company. As evident first in our announcement with IGI, the re-talibration year is well underway. And we look forward to continuing to deliver on our strategic plans and priorities, and most importantly,
to delivering for shareholders. I'll now turn the call over to Martin to discuss our financial results in detail before we open up to call for questions. Martin? Thanks very much, Sam. We appreciate everyone joining us today. Before I begin my review of our 2022 results, I want to first comment on the presentation in our earnings release as it pertains to the results in comparison periods. Recall that we completed the merger transactions on June 9, 2021. And so it was only from that day forward that we have consolidated results that we can report and compare to on a gap basis. 2022 is the first full year that uphills financial statements will include all the businesses combined in the June 9, 2021 transactions. In addition, we have deconfallinated our Indian telehealth subsidiary, GlowCal, from our financial reporting effective July 1, 2022. So Q1 and Q2 of 2022 include the financial results of the GlowCal business and the US telehealth business in our virtual care infrastructure group.
Quotus 3 and 4 of 2022 include only the U.S. style health business and our virtual care infrastructure segment. We completed 2022 with revenues of $158.8 million, representing year-of-year growth of 13% over our 2021 pro-former revenue numbers, excluding the Indian businesses in the second half of both years. Gross margin for 2022 was 44% in compared to 33% in pro-former 2021. In 2022, our health recorded adjusted EBITDA of $3.3 million compared to 2021's pro-former adjusted EBITDA of negative $4 million. The company's year-of-year growth in revenue, gross margin, and adjusted EBITDA represent strong progress towards our goals. But as Sam mentioned, we have additional work to do to reach our goal of achieving positive operating pre-cash flow.
Upheld's revenue for the fourth quarter of 2022 was $40.5 million, and did not include any revenue from GlowCal, deconsolidated Indian Telehealth subsidiary. This represents a 4.7% increase over Q3 2022, and a 32% increase over Q4 2021 revenue, excluding GlowCal. Gross margin for the fourth quarter was 45%, up slightly from Q3, and the adjusted EBITDA was $1.9 million, up from negative $1.2 million in the third quarter, and negative $13.8 million in the fourth quarter of 2021.
Looking at revenue breakdown by segment, services, which again includes our pharmacy and behavioral health businesses, was the largest contributed to the company's 2022 revenue, with $75.8 million or 48% of the total revenue. In the fourth quarter, services represented $19.1 million or 47% of total revenues.
Services revenue grew 17% from Proformer 2021 to 2022. IGI contributed approximately $32 million to our PELF's 2022 revenues, and we expect to recognize approximately 40% to 45% of that amount in 2023 assuming a late May closing of the sale transaction. Virtual Care Infrastructure, which for the third and fourth quarters, included only the US tell-outs business and not the end-aid.
from Proforma 2021 to 2022.
The company's revenue mix in 2022 continued to shift towards the higher margin U.S. telehealth business and we expect that trend to continue into 2023. Integrated care management or ICM had revenue of $18 million in 2022, which represented 11% of the company's total revenues.
When factoring out European sales in 2021, the receivables of which were written off in the third quarter of last year, ICM's 2022 revenue was up modestly from Proformer 2021 revenue. The company's gross margin for 2022 was 44% and was 45% in the fourth quarter.
2022 gross margins by segment were as follows. Virtual care infrastructure, 46%, services, 35%, integrated care management, 76%. Review gross margin as a key metric for our health and as being useful for industry comparison purposes. Accordingly, let me also provide some additional color on our gross margin from a trend perspective.
as well as framing them within the context of our overall financial model. Gross margins and virtual care infrastructure increased from 36% in Proforma 2021 to 46% in 2022, including both the Indian and US Telehealth businesses in Proforma 2021 and in the first two quarters of 2022. The US Telehealth business recorded fourth quarter gross margins of 51% up from 48% in Q3.
as we continue to see operating leverage contribute to improving gross margins in the US health business. Gross margins and the services segment increased from 31 percent in Proforma 2021 to 35 percent in 2022 as a result of strong performance in parts of our behavioral health and compounding pharmacy operations.
Gross margins increased from 35% into 3% 2022 to 36% in Q4, which included normal holiday season declines in our Florida behavioral health business and weakness in our medical group performance and Missouri that were more than offset by strong pharmacy volumes. We would expect gross margins and the services sector to increase slightly in 2023.
as we divest IGI and integrate BHS into our legacy TTC operations. Gross margin at Integrated Care Management was 76% for the full year 2022 and was 61% in Q4. The fourth quarter gross margin was in line with the more normalized 60% plus gross margin expectation for ICM that we've discussed in previous calls. Our PELF's fourth quarter adjusted EBITDA was $1.9 million, which was along the revenue in line with our expectations. Adjustments were made for certain non-recurring expenses, including legal and restructuring expenses.
We expect expenses for legal and restructuring costs to continue as we deal with various shareholder litigation matters, including with the former owners of our Indian subsidiary, and as we consolidate corporate operations to drive efficiencies and lower costs. As a reminder, Adjusted EBITDA is a non-GAP measure and we have included a reconciliation of GAP operating loss to Adjusted EBITDA in the press release. I want to spend a few minutes discussing the company's liquidity position. As of December 31, 2022, the company had an unrestricted cash balance of $13.5 million and $2 million of cash at IGI, which is included in assets held to sell on the balance sheet, but which will be swept to the corporate balance sheet as part of the transaction.
In addition, this does not include approximately $7 million held in an account in India that has been effectively frozen by the emergency arbitrator and our actions against the former Glowcow shareholders. 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. As it relates to the definitive agreement to divest IGI for $56 million in gross proceeds, which is subject to customary adjustments for items such as work and capital. In accordance with the terms of the adventure with our secured noteholders, the company will, following the close of the sale transaction, offer repurchase an amount of secured notes secaling 20% of the net proceeds of the IGI sale over $15 million.
The sale of IGI will result in significant cash being added to the company's balance sheet. Our current cash position, combined with the financial performance of the business, which is trending toward being operating cash flow positive in the next several months when adjusted for extraordinary expenses such as legal fees. And following the collection of the proceeds from the sale of IGI, we'll provide the company with sufficient liquidity to execute on our current growth plans. We expect 2023 revenues to be in the range of $127 to $135 million. This represents growth of 5-12% of a pro-former 2022 revenue of $121 million. The comparison purposes, both the 2023 estimated revenue and the 2022 pro-former revenue, include five months of operations for IGI and exclude the Indian operations.
In 2023, we expect growth margins to be in the range of 43 to 45 percent and adjusted EBITDA to be in the range of $70 to $10 million. That includes our prepared remarks. Operator, we're now ready to take questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove 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, while we poll for questions. Our first question is from the line of Mike Lademore with Nottlin Captain. Please go ahead. Right, great. Yeah, thanks. Good morning, everybody. Well, thanks for that comprehensive review, very helpful. And nice to see the positive eBeta and the fourth quarter there. I guess, Sam, I think you talked about a cost saving, incremental cost savings you're implementing currently. Just want to clarify that's right. And is that sort of the last cost reduction you expect? Good morning, Mike. And thank you for the question. I appreciate it.
So yes, we are working on what we've been working on cost reductions for the past several months as we've adjusted the focus of our build of our business. We're currently executing a series of initiatives that are lowering spend to get our cost structure in line with our revenues. And we'll continue to evaluate that as we see what the results are and how things come about the course of the year. But right now that's what we have one to say to you here for the for the first quarter of the year. Okay, okay. And then in terms of the guidance for the year, it includes five months of the idea.
Martin, anything you want to add? Yeah, hey, Mike, how are you? I think it's fair to say that we would expect the revenue to grind a little bit in the third quarter as we take IGI out. It's obviously not enough.
forecast results for Q3 or Q4, but then the bounce back in Q4. Okay, okay. And then he gave you obviously positive EBITDA guidance for the year. Are you thinking that each quarter should be positive EBITDA as well? Yes. Yes.
Thank you. Good luck this year. That concludes our question and answer session. I would like to turn the floor back over to the management for closing comments. So wrap up with us. We want to thank everybody for joining today. And we appreciate all of the interest in the business. We realize that we're on the journey right now and the company is trying to be as transparent and as open with as much information as we.