Q2 2023 UpHealth Inc Earnings Call
Greetings and welcome to upheld second quarter 2023 earnings conference call.
At this time all participants are in a listen only mode.
The question and answer session will follow the presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being on a contract. It is now my pleasure to introduce your host Shannon Devine Investor Relations. Thank you Mr. Huang you may begin.
Thank you operator.
During today's call management will be making forward looking statements. Please.
Please refer to the company's SEC filings, including the company's annual report on Form 10-K.
The report on Form 10-Q to be filed for a summary of the forward looking statements. The risks uncertainties and other factors that could cause actual results to differ materially from those forward looking statements.
<unk> 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 the statements to reflect new circumstances.
Unanticipated events that occur except as required by law.
Throughout todays call well refer to pro forma revenue pro forma gross margin and adjusted EBITDA. These metrics are not determined in accordance with GAAP and therefore are susceptible to varying calculation.
Definitions and 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 financial results provide useful information regarding certain financial and business trends and the results of our operation.
And now I will turn the call over to Sam Ducky upheld Chief Executive Officer Sam.
Thank you Shannon.
Good afternoon, everyone I appreciate your time.
I'm very happy to report strong second quarter performance, which both are probably saw that we shared with you on that.
We continue to execute on their plans recalibrate.
Second quarter results demonstrate that our narrowed focus.
All right.
How do you resolve taking the company in a positive direction.
While maintaining a keen focus on the bottom line in the second quarter, we pivoted our business to grow and continuing to execute on our strategy.
Our team has performed well and as a result, we are increasing our previously stated outlook for the full year 2023 which I'll, let mark address in more detail.
As we got deeper into where we thought it is important to remember that our policy is not the same company. It was a year ago.
As a result of the various actions that we've taken to concentrate.
On the higher growth higher margin segments of our business.
Additionally.
Taking a comprehensive inventory of our data and our opportunity.
Serve our customers and enhance our business using new AI and data analytics based solutions.
Virtual care infrastructure.
He was on the U S telecom market and growing our offering and the 2900 health care facilities, we serve.
And our services.
We're focused on driving growth in our health care facility.
Living occupancy rate and driving geographic expansion.
As reported last quarter.
Our strategy solidified our balance sheet.
<unk> group incorporated.
Pardon me down our Missouri kick off.
Finally, we continue to focus on integrated care management, and expanding our professional services revenue.
Nothing customer base, while pursuing didn't actually correct.
We believe these three businesses provide the best opportunity Festival.
Businesses compete in areas with substantial addressable market.
Our technology solutions, and our technology enabled services dropped significantly customer problems and our solutions have been validated.
We continued to refine our value proposition and we believe the strong fundamental execution and delighting our customers are the key to achieving our mission of enabling high quality affordable and accessible health care.
This quarters financial results, while we show the impact of the deconsolidation of Bocom.
And the idea is and the wind down of the Hopkins.
Each of these actions.
Second milestone toward right sizing our business.
Demand in our core business segments.
I'd like to spend a few minutes sharing some of our business highlights this quarter.
And our personal care segment, our U S. Telehealth business signed contracts with 27, new clients will generate incremental revenues over the next 12 months.
Additionally, we had many utilization $15 6 million members.
Does that mean growth of 47% from the second quarter over the same period last year.
Hope you had the business for $16 $8 million.
Our services segment revenues.
Impacted by the strategic sale of Badger, coupled with the decision to wind down the behavioral health business in the first and second quarters of 'twenty to 'twenty two.
We continue to see strong weapon it below $11.1 billion not present services.
15% utilization growth over the same period last year.
Yeah.
We refined our go to market strategy and have seen an increase in our professional services.
Revenues of $5 5 million in the sport.
Main optimistic about the outlook for this thing.
What we've been doing.
Importantly, we are happy to report that all three segments were EBITDA positive on an adjusted basis this past quarter.
I'm also innovation launched in the first quarter is well underway and we are in the process of adult use cases with our strategic clients about it.
Mark.
She actually.
Well, it's been increasing beside philosophy and quality of opportunities.
We made significant progress on the spin.
Second quarter.
Okay fine.
For the first quarter.
The velocity of opportunities moving through the pipeline increase as we close out 20% of the total opportunities in the pipeline.
We've made investments in additional sales and business development.
Quarter to improve our sales have been in processes and to amplify our ability to add significant pipeline for us to pursue.
These resources are shifting from focusing on a smaller group of Pos system.
Okay.
There's also some opportunities to build upon our success in the provider.
We continue to focus on expenses I mean, our cost structure for Robyn.
For the first six months of 2023, we reduced as a percentage of revenue.
Total sales and marketing R&D and general and administrative expenses were.
44% in the first half of 2022.
41% in the first half 'twenty.
Turning to our second quarter results.
At a high level, our second quarter was.
Revenues in the second quarter of 2023 was $37 8 million compared to $43 7 million in the second quarter of last year.
Again, it is important to keep in mind that the second quarter of 'twenty five 'twenty results do not include the full quarter for walnuts from I G. I boil it behavioral health business.
So we wound down or any revenues.
Gross margins continued to expand to 53% from 48% from the second quarter of plants by June .
As a result of improvements across the business and favorable payer.
Adjusted EBITDA for the second quarter of 2020 improved by $1 3 million $5 3 million.
Adjusted EBITDA for the second quarter of 'twenty, two plus $4 million.
Year to date, all the indicators are very close and we're pleased with the results. Thus far we plan to continue executing on accident that's.
Revenue that is growing appropriately.
We are focused and said we're doing pretty good free cash flow.
Most importantly.
So it enabled us to focus on executing our plan.
Okay Olympics solutions for our customers to combine technology and services to improve access to care, creating a world in which everyone everyone can enjoy the desktop.
Before I turn the call over to Mark I want to thank our shareholders and all of our constituents for continuing the journey.
While much has been accomplished.
Half way through 2020, it's pretty weird he used without improvement in fundamental execution, there remains work to be done.
We have the right team in place to deliver on our strategic vision and I can confidently say and excited about what lies ahead.
I'll now turn the call over to Mark to discuss our financial results in detail before we open up the call for questions.
Yeah.
Thanks, very much Dan 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 the company do you consolidated its Indian business Glo Cal from the financial statements as of July 1st 2022, and so comparisons between Q2, 2022 and Q2 2023 and year to date.
Q2, 2023, and the virtual care infrastructure segment need to consider the impact of the deconsolidation of glaucoma.
<unk> revenue for the second quarter of 2023.
$37 $8 million. This represents a decline from Q1 2023 revenues as a result of the disposition of the <unk> business and the wind down of the Missouri behavioral health business during the second quarter.
Gross margin for the second quarter was 53% compared to 54% in Q1, 2023, and adjusted EBITDA was $5 3 million compared to $6 $6 million in this quarter.
Looking at revenue breakdown by segment virtual care infrastructure, which now includes only a U S. Telehealth business was the largest contributor was $16 $8 million of revenue of 45% of the total revenue.
So V C. Ais revenues were down slightly from Q1 2023 due to lower volumes on a sequential quarterly basis year over year gross in the U S. Telehealth business, excluding Glo Cal from the 2022 results for Q2 2023 was over 27% and year to date Q2, 2023.
He was out of a 34%.
Services, which for the quarter included the results from our Florida behavioral health business, a compounding pharmacy business before the sale transaction, which closed on may the 11th and the wind down about Missouri physician practice business was next with $15 $5 million or 41% of the second quarters total revenues.
Yeah, Jack pharmacy business contributing approximately $3 $7 million of revenue during the second quarter and the Missouri physician practice business contributed approximately $700000.
Integrated care management had revenues of $5 $5 million or 14% of the second quarters total.
The company's gross margin was 53% in the second quarter.
1% from the first quarters gross margin of 54%.
Second quarter margins by segment were as follows virtual care infrastructure, 50% integrated care management, 69% and services 50%.
We view gross margin is a key metric for our power and is being useful in comparing our results to pitch. Accordingly, let me also provide some additional color on our gross margins from a trend perspective, as well as finding them within the context of among overall financial model.
Gross margin in virtual care infrastructure increased from 51% in Q4, 'twenty 'twenty, 2% to 58% in the first quarter of 2023 and normalized back to 50% in Q2 2023.
The increased margins in Q1, largely from mix and timing issues and we would expect the U S. Telehealth business to continue to post gross margin of approximately 50%.
Gross margins at integrated care management increased from 67% in Q1 2023, 69% in Q2 2023.
We expect gross margins in this business segment to decline somewhat.
Sessional services makes up an increasing percentage of the revenue mix over the last half of the year.
Gross margins in the services segment increased from 48% in Q1, 2023% to 50% in Q2 as a result of higher volumes in our Florida behavioral health business and the reduced contribution of the lower gross margin Agi, Missouri behavioral health assets.
Second quarter net income on a GAAP basis included $8 $2 million of asset impairments associated with the wind down of the Missouri services business and various leases and losses recognized upon the sale of Agi.
Second quarter, adjusted EBITDA was $5 $3 million.
Adjustments were made for the previously mentioned changes in the carrying values of the Missouri services, and Agi businesses, and certain nonrecurring expenses, including consulting legal and restructuring expenses.
We expect legal expenses for existing that is to continue through the third quarter and then should decline significantly thereafter.
As a reminder, adjusted EBITDA is a non-GAAP measure and we have included a reconciliation of GAAP operating loss to adjusted EBITDA in the press release.
I'd like to spend a few minutes discussing the company's liquidity position as.
As of June 30th 2023, the company had an unrestricted cash balance above our $46 million.
The company's cash balance increased over the quarter largely as a result of the net proceeds from the sale of <unk>, which exceeded $54 million and was offset by a $10 3 million redemption of the Companys 2025 senior secured notes in accordance with that indenture.
Our current cash position and the financial performance of the business, which we continue to expect them to become operating cash flow positive. Later this year will provide us sufficient liquidity to execute on our current growth plans.
As a result of our strong financial and operating results for the first half of the year and based upon our expectations for the second half, we expect that our full year revenue and gross margins will be at the top end of the ranges.
$127 million to $135 million and 43 to 45.
Respectively.
And that adjusted EBITDA for 2023 will exceed $15 million well above our original guidance of $7 million to $10 million.
That concludes 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.
Formation tone will indicate your line is in the question queue give my best start to if you would like to move to questions 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.
The first question comes from the line of Bill Sutherland.
With the benchmark company. Please go ahead.
Thank you.
Hey, guys very nice quarter.
Sam I noticed that in virtual care.
Been three quarters, roughly around $17 million in volume.
But you've talked about you know a lot of client growth in part you know and expansion. So just trying to.
Square those two.
Thanks Bill.
Yes.
Oh, I'm, sorry, I cut you off so there's no that's all right.
I was fading away [laughter], yeah, basically, but I appreciate the questions and feedback on the quarter.
So a couple of things, we haven't seen a bit of a mix in the ER and the utilization of <unk>.
Voice versus a video so that's impacting the numbers a little bit.
We're also going through the implementation of getting the new customers up and running so it takes a little bit a while for that for the business to that Oh for that business to go out and then just the mix of not only the video mix versus voice, but also the different language utilization that we see but is it impacting that so so we.
We are confident as we're adding more business into the mix that we're implementing that will continue into <unk>.
Trend up but those are the major factors that are impacting the growth trajectory of that business.
I'm curious, saying what would cause.
Voice and.
And Hello to.
You know.
Move around.
I think it's just the cameras.
So these are and how they're using our products some of it is a little bit of seasonality.
Seasonality, we had a couple a little bit of a change in our customer mix.
Two in terms of there just how they're utilizing the system, so but there so what.
Alarm in terms that we're looking at right now bill.
They were just continuing to.
Drive utilization through our existing customers and onboard new customers that we've added so far this year.
Okay.
Hi, Martin what did you say about the services margin gross margin too.
Oh, it's went up to 50% to Q.
As far as looking forward.
I'm, sorry, Bill was that for me.
Yeah, Yeah, I'm curious about gross margin.
Yeah, Yeah, so that the margin in the services segment increased because we had less contribution from the Agi pharmacy business and the DHS.
Physician practice management business.
We will have no contribution from those businesses.
In the third quarter so.
The the the gross margin on.
The behavioral health business that remains.
It's somewhat driven is it's driven by mix, but we would expect it to.
<unk> and the <unk>, 45% to 50% sort of range.
I mean, there's a utilization factor as I understand it right for you.
Most of them.
Yeah, It's it's a combination as you might expect of mix and utilization.
Okay.
That's it for me thank you.
Thanks Bill.
Thank you next question comes from the line of Ben Hayner.
Alliance Global partners. Please go ahead.
Good afternoon, gentlemen, thanks for taking my questions.
Just was wondering if you could share a little bit more on the pipeline I think if I heard you right. It expanded about 6% and you called out 20% of the opportunities.
And maybe provide some clarification on what you mean by it.
Closed out or is that.
Delineated one way or the other like you figured out that they're not going to buy or are going to buy or how does that ah.
Terminology work with Oh.
Sure. Thanks, Dan I appreciate the question good that's good to hear from you.
So a couple of things as we've been talking about one of our major.
Focuses is on our pivot to growth and.
We have been working very hard.
To focus on growing our pipeline understanding our pipeline.
And really pushing that as a key sort of a leading indicator for growth. So as we talked about last time, we set a pretty ambitious goal for growing our pipeline for the business I always think of you you can never have enough pipeline, you're always looking for more sales opportunities. There are three things that we constantly look at.
The absolute value of the pipeline the quality of the opportunities in the pipeline and the velocity with which they're moving through the pipeline.
And we've learned a lot.
And as a business in Q2. The first one you mentioned the 20% that opportunities that we want both of our opportunities, but we obviously closed out we lost some opportunities.
Second quarter as well, but that we had bid on them and so that those were important lessons for us as well.
What we're seeing is that we definitely have better higher quality opportunities that are quite fine, though we've had in the past.
And I actually think this velocity.
A good thing for us because we're getting to a yes, no answer much more quickly than.
In the past, we would notice that we had some opportunities the state of the pipeline for a fairly long period of time and we've been trying to drive those two lots of completion. So so that is really feeding into some of the things that we talked about.
But we need more.
More people in our commercial organization more boots on the ground focused on getting out into the market and selling our products, but we need to focus on putting.
New high quality opportunities into the pipeline moving them through quickly and then when we do this this is of course can you help us have better data so that we can forecast as well.
More appropriately so I'm actually really happy with the progress that we've made in the first half of the year in terms of how we're thinking about pipeline and we just we didn't have that maturity as an organization.
Yeah at this point last year, so I'm really pleased with the progress that we're making there.
Okay. That's definitely helpful color and then digging in a little bit on the you mentioned the higher quality.
Pipeline I mean does that.
Yes, strictly numerical is that.
Si so just.
Just sheer size.
Logos that are better or what's the right way to think about that and then on the boots on the ground.
Side of things that you had.
Sales and marketing ticked down pretty dramatically sequentially, where you know where do you see that tracking.
From here.
Yeah.
So let me let me take the first part of your question are there first I think.
It's kind of an answer of all of you about so of course, we want.
New logos with large deals.
But we're still relatively small company, that's well arena and we have to prove ourselves.
In the marketplace. So I would say we are we've been winning.
Good opportunities when I talk about the quality of the opportunity. It's are we bidding on business that we've worked with a customer that.
Yeah.
<unk> understands that they.
Have a problem that needs to be solved or that we understand favorable problem. We can solve them with our solutions. They understand it's a problem and also that we're talking to somebody at the right level of the organization that can make a decision on on top of that we've done after some pretty big deals in the past quarter and a couple of other things that we have.
We've got some work to do on building relationships at higher levels within the organization, particularly in the C suite of the organization when you start adding in data analytics and AI into those solutions. The traditional buyer that may have historically purchased.
You know a language line for example might not necessarily be the right point of contact to buy a more advanced solution that includes data AI and language capabilities. Just as one example, so those are those are some of the things that we've been working on to try and understand sort of course trying to you know always punched.
A little bit about her weight, we've got work to do we're figuring that out he's learned a lot of good things over the past over the past quarter and won't continue to drag there.
So.
And I'm, sorry, I didn't get all of it.
Right.
Interrupt you sorry.
Oh, I just was going to say it I'm sorry, I didn't finish my notes, but can you just repeat the second part of your question I apologize.
Oh did you sure the.
More boots on the ground. It you had a pretty.
Pretty significant declines sequentially, where does the track from here.
Yes.
Yeah. So this comes down to as we're looking at basically how we are managing the expenses within our business and so we are as you know laser focused on cost management and making sure that our costs are online.
We've been critical for us to invest in our commercial organization and to me. That's additional salespeople. It's additional product people traditional marketing people, but we know we cannot keep layering costs into the organization. So we're focused on how we align resources.
Two initiatives that are going to drive higher utilization of <unk>.
<unk> of our capital so that we can drive a higher return, but also that we're making investments in areas and some parts of the business that are growing and that can return.
Cash quickly so hiring salespeople you want to make sure that they're being hired in the right parts of our organization.
The ground very very quickly, adding to the pipeline and selling what we wanted to sell through the organization. So I do think as we go further into the year.
You're going to see us continue to add in.
Some additional resource into the sales and marketing budget, which will more than likely be offset by reductions in other areas of our G&A expenses.
Okay. That's helpful and then.
Most likely the last one for me on the enhancements you've mentioned previously and you know kind of I suppose that goes hand in hand.
Some of the AI stuff.
Data.
Side of things.
Mel Payne.
Yeah, well you know.
Anything more that you can kind of talk about there that you're excited about.
Just any color as always appreciate it.
Of course, so we did a lot of work in the in the second quarter around our understanding and assessing our data.
Assets and are working on finding.
Partners that we should work with for some.
So our business basically.
And where we're currently designing and some additional capabilities that we think are going to be able to help our customers, but also help our business as well. So just two quick examples.
Looking at our data assets we have.
We've got some interesting tools that help with things like the next best actions for case managers are awesome, AI, driven clinical capabilities that will allow our provider clients to deal or to help them address the shortfall or the difficulties that there had been hiring people right now for some.
Some of the processes that they might use, especially focusing on a limited English proficiency population. So.
We're testing a couple of these capabilities out within our own.
Delivery business right now so that that work is going well and we're happy.
Conversations with our key strategic clients.
About how we can work with them to solve some of those problems that they're seeing as well. So so yeah. Early on we've got a lot of really good hypotheses that we're testing in the market and I think you're going to see some more coming out from us on that throughout the course of the year.
Okay.
The pumps already kind of Prime then that you're already talking with them.
Customers on Holly's Thanksgiving implemented and how they work within there there are athletes.
Absolutely.
The key is gonna be fine find even a couple of customers that it goes back to what I mentioned earlier, we've got a clearly articulate what the problem. We're trying to solve is they have to understand it's a problem.
And we've got a great part of the organization. So so so those are some of the key lessons that we've learned sort of in the second quarter as we've gotten out and start talking to our clients about this.
Okay. Good deal a very helpful. Thanks for taking the questions gentlemen.
You bet. Thanks Pat.
Thanks Brent.
Thank you next question comes from the line of Mike Latimore with Northland Capital. Please go ahead.
Hi, This is <unk> on behalf of Mike Lattimore.
Could you give some color on the labor shortage is that any tailwind, though with that are you seeing more demand for your telehealth states due to the labor shortage.
Sure I think we're seeing this this is.
A pretty common topic Ah.
Cross.
The provider industry in particular are you.
We're seeing a bit of a nursing shortage youre seeing a bit of a provider shortage organizations are having a hard time recruiting and hiring for for.
For those rules and so.
This really starts to affect areas and this is part of the reason why we've seen so much Brooklyn or telehealth business is.
Board when they're looking for resources, not only that can kill the nursing function, but.
Basically.
Bilingual multilingual.
And gear with limited English proficiency populations.
That's an area, where we're seeing the or those customers are the ones, where we're seeing.
None of them uptick in and the utilization of those services. So we also have a theory that we can start to fold in some additional capabilities to help address that.
We're testing some of those things that are just doing business to refined it and figure out how that works and where we're talking to some of our customers about how we can take on some additional work for them, where they're seeing that but just in general when you look across the industry turns.
And so it's pretty well documented phenomenon.
Health care industry, right now, but we expect.
You know the country to be several hundred hundreds of thousands of nurses short here by 2025 for the demand that they're seeing so we think it's an area that is.
It was ripe for innovation and great for some solutions that can help the providers address those needs.
Alright.
How much better your legal expenses in this quarter.
Martin you take that one.
Sure Hey, now we so we we Havent announced.
And now we have right now.
Legal expenses, what we have added back to to the calculation of adjusted EBITDA.
Yes.
North of $3 6 million for the quarter.
In that room that related almost exclusively to the.
Glo, Cal arbitration and litigation matters.
Alright, and can you just repeat me what was the sequential and year over year growth for continuing operations.
I'm, sorry, one more time.
What else do you have a sequential growth for the continuing operations, excluding local auto dealer group.
Excluding glo Cal for the quarter.
Yeah.
Yeah, so and.
In the and ICM.
That number was about 34% year to date.
Okay.
Alright.
Alright, thank you.
Thank you.
Thank you.
No further questions at this time I would like to turn the floor back over to Sam Mckee for closing comments.
Thank you operator, and I want to thank everybody again for joining us today and also for all of the very very thoughtful questions. We really appreciate.
Appreciate the discussion on we really appreciate.
The ability to speak to you.
As I mentioned I'm very pleased with the work that we've done in the first half of 2023 and I look forward to speaking with you again in November to discuss our third quarter results Martin and I are excited to share.
We're progressing with you we're working very hard to finish our recalibration gear strongly.
And she transitioned to building and scaling for growth for our costs in 2024.
We're very confident in our team's ability to execute on our strategy and we're really grateful for your continued interest and upheld thanks again for joining us and I Hope you have a wonderful evening.
Thank you.
This concludes today's teleconference. You may disconnect your lines at this time thank.
Thank you for your participation.
Hum.
Hum.
Okay.
Mhm.
[music].
Hum.
[music].
Mhm.
[music].
Uh huh.
Oh.
Hum.
[music].
Hum.
Hum.
Yeah.
Hum.
Yeah.
Yeah.
Hum.