Earnings Transcript for IONM - Q4 Fiscal Year 2021

Operator: Greetings, and welcome to Assure Holdings' Fourth Quarter and Full Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference call is being recorded. I would now like to turn this conference over to your host Mr. Scott Kozak, Director of Investor Relations. Thank you. You may begin.

Scott Kozak: Hello, everyone. Thank you for participating in today's conference call to discuss Assure Holdings' financial results for the fourth quarter and full-year, ended December 31, 2021. On the call today are Executive Chairman and CEO, John Farlinger; and CFO, John Price. Before the market opened this morning, the company issued a press release announcing its results for the fourth quarter and full year 2021. The release and investor presentation are available on the Investors section of our website. Before we begin the prepared remarks, I would like to remind you that some of the statements made will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to Assure's recent filings with the SEC, including our report on Form 10-K for the fourth quarter and full year for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. Also on today's call, management will reference certain non-GAAP financial measures, which we believe provide useful information for investors. For reconciliation of these non-GAAP measures, please consult the most recently filed 8-K associated with the filing of the earnings release for the three months ended December 31, 2021, which is available on the SEC website. Finally, I would like to remind everyone who dialed into the call by telephone, you may want to join our webcast or download our fourth quarter 2021 earnings presentation on Assure's Investor Relations site found at ir.assureneuromonitoring.com in order to see the slides referenced today. This call will be recorded and made available for replay via a link on the company's website. Now, I would like to turn the call over to the Executive Chairman and CEO of Assure Holdings, John Farlinger. John?

John Farlinger: Thank you, Scott. Hello, everyone and thanks for joining us today. Today, we'll provide an update on our recent performance, the progress we've made against our strategic objectives and discuss our vision for sustained rapid growth over the next several years. I'm proud to report that Assure took a significant step forward in 2021. We successfully delivered against operational and financial performance metrics, met long-held company objectives and accelerated our leadership position, as the partner of choice for intraoperative neuromonitoring in hospitals, with surgeons and with patients. Select Assure highlights from 2021 include

John Price: Thanks John. Hello, everyone, and thank you for joining us today. I would like to begin on slide 13 with highlights from Assure's fiscal 2021 financial results. As we expected, Assure experienced strong revenue and positive adjusted EBITDA for the year primarily from the increase in our managed case volume. Our total managed cases increased 76% to more than 17,000 resulting in annual revenue of $29.2 million and adjusted EBITDA of $1.1 million. Internally, we anticipated to increase managed cases primarily from the acquisition of Sentry completed during the second quarter and launching of our remote neurology services. As a reminder, the company's 2020 revenue was negatively impacted by COVID-19 restrictions resulting in decreased elective surgeries primarily in March and April of 2020; as well as bad debt expense. Adjusted EBITDA for 2021 was a profit of approximately $1.1 million compared to a loss of $14.4 million in 2020. We achieved positive adjusted EBITDA results during the third and fourth quarter of 2021 from increased managed case volumes, launch of our remote neurology services and the positive impact of our investment and revenue cycle management had on our revenue accrual rates. Our operating expenses increased to $17 million compared to $11.8 million in the prior year. While we continue to tightly manage costs, our 2021 operating expenses included several non-recurring costs that supported our growth initiatives such as legal expenses for our NASDAQ listing, acquisition of Sentry and Elevation and debt financing costs as well as start-up costs associated with our remote neurology services, investments in IT to support data analytics initiatives and infrastructure costs to support anticipated growth. Moving on to slide 14, I will highlight financial results from our fourth quarter 2021. Assure experienced strong revenue resulting in positive adjusted EBITDA for the fourth quarter. Our total managed cases for the quarter increased 79% to 5,485 resulting in fourth quarter revenue of $9.7 million, adjusted EBITDA of $1.4 million and net loss of $0.3 million. Drivers included the previously mentioned increase in managed cases and the positive impact of seasonality. Additionally, our revenue accrual rate was unchanged from the third quarter to the fourth quarter testament to our in-house revenue cycle management team. Our RCM team continues to focus on improving our process with data and business intelligence to drive cash collections. We anticipate these efforts will provide further stability to the business. Adjusted EBITDA was a profit of $1.4 million compared to $0.8 million in the prior year period. The positive EBITDA result reflects

Operator: At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jim Sidoti with Sidoti & Company. Your may proceed with your question.

Jim Sidoti: Good morning. Can you hear me?

John Farlinger: Yes, sir.

Jim Sidoti: Good morning. So, first comment, I really appreciate the fact that you broke out the way revenue comes in. I think, it really paints a much clearer picture of what you're doing. And it really brings out to me the potential from this transition, from using third-party neurologists to bringing that in-house. So I think it's much more clearer now than it was with the previous reporting structure. But accounts receivable did go up in the quarter. Is that related this switch to professional -- to in-house neurologists? And where do you think that trends going forward?

John Farlinger: Yes. Great question, Jim. Why don't I let John Price maybe elaborate a bit more. There's clearly a relationship to the volume in neurology.

John Price: Yes. Jim as I mentioned, the primary driver here is -- there's a few factors. One is the significant increase in volume overall. The second aspect of this is, the pivot of the business into professional services. And so, by us administering those services in-house with our own managed neurologists, there's a credentialing process that we go through, which can take a few months. And so as we entered that business line in Q2 and continue to scale through the course of the year, we have an increase in volume. And then there's just a slight delay as we bring that business through the credentialing process. As we continue to add volume AR, I think is likely going to continue to expand a bit. But once the credentialing process catches up then I think we'll start to flatten out that curve.

John Farlinger: The other -- just last comment Jim was, we're happy to tell our shareholder base. They were not significant and material write-downs. And that was obvious, as well over the course of 2021. So it looks like we've got the business to almost a normalized rate where we're accruing and we're billing and we're collecting at rates that are fairly -- that have been normalized in 2021.

Jim Sidoti: And then quick question. The No Surprises Billing act, can you just talk a little bit about how that's going to help you grow your business in 2022?

John Farlinger: Yes. I'll just talk about it on a cursory and high level. I know Paul Webster, who's our resident expert is also listening. But quite frankly, it's going to really be an opportunity for us going forward in that the No Surprises Act will allow companies like ours to arbitrate cases, federal cases going forward. In the past, companies like ours are really hampered by the fact that you don't have economic leverage with the major insurance companies. So if they decide not to pay you, you're stuck with a couple of options. You either – historically you're stuck with a couple of options. You could either litigate or go to the respective insurance commissions. Going forward, in nearly every state -- in a number of states now, you're going to be able to arbitrate at a batch level for seeking payment on claims that are -- or procedures that are not paid for. We believe that is going to create a significant opportunity for us and it's an opportunity that we're moving on right now. And that will be a meaningful part of our RCM and managed care structure going forward. Ultimately where we think it will go is, it will lead to more in-network contracting in 2022. And that's our belief right now is that we will migrate, a more meaningful portion of our business into in-network contracts and ultimately speed up our cash flow and reduce our working capital needs by reducing accounts receivable going forward.

Jim Sidoti: And then the last one from me. It sounds like the impact from COVID wasn't as significant in the fourth quarter. Are you seeing that trend continue into Q1? And could there be some pent-up demand in 2022 from patients who deferred procedures or postponed procedures in 2021, as a result of COVID?

John Farlinger: Yes. Good question. I think we're pretty much back to normal right now from where we would expect to be. There were some lingering impacts in a couple of states where we have more exposure to COVID, but it's pretty much behind us. And we would hope and anticipate that would lead to some additional volume based upon those prior procedures being canceled. We don't have data, nor do we have insight as to what the quantum will be, but we would expect a lift here on the back of that in 2022.

Jim Sidoti: Got it. Thank you.

Operator: Our next question comes from the line of Bill Sutherland with The Benchmark Company. You may proceed with your question.

Bill Sutherland: Thank you. Hey, good morning, guys. Wanted just to ask a couple of things about the managed care outlook – I'm sorry, the managed case outlook that you put out there. Are there any assumptions about Premier, as far as additions in that model?

John Farlinger: There are, but they're modest numbers. Obviously, Bill – and thanks for joining us this morning, Bill. Obviously, they're modest. When you look at where we're exiting at the end of 2021, we're looking at growth primarily coming from continued organic growth and obviously from Premier. And we believe that we are going to be successful in the first half of 2022 in bringing on new business. So you're looking at a lift from 17,500 procedures, approximately to 25,000. The majority of that will be through organic growth. Will be a portion of it, a smaller portion from Premier, probably a few thousand procedures. And then there still is the opportunity for us to add to that with additional M&A in 2022. And to that end on the M&A front we're active right now, and we will continue to be active this year.

Bill Sutherland: Well, it strikes me that the opportunity at Premier is pretty open-ended. It's just a question of – yes.

John Farlinger: It's a huge opportunity. I can tell you right now we're busy. We're negotiating right now with not one but many hospitals and hospital groups. And we expect – we're hoping that we'll be able to announce success on some of these negotiations in the next month or two. So we're busy and it's open ended and it's tough to quantify because we're right in the learning curve of ramping that up right now.

Bill Sutherland: And are most of the new deals that you're getting include remote as part of it?

John Farlinger: Yes. Remote will be a key part of any of the new – particularly, the hospital contracts with Premier. That will be a very profitable portion of our business going forward.

Bill Sutherland: Yes. Because it looks like the rate of – it looks like you're adding a lot of remote monitoring this year which makes sense almost as many...

John Farlinger: And ideally in the facility side you're not sharing that revenue on the neurology revenue as we've typically done in the past in our MSA model.

Bill Sutherland: Okay. John Price, I'm curious what the DSO was and what you are looking at going forward.

John Price: Yes. Thanks, Bill. So as I mentioned, on the professional side, that's really what has driven the AR growth as we just go through these credentialing processes. So I anticipate that to continue a bit here through the first quarter of 2022. But generally speaking, we start to see payments on some of our historic relationships within say, four months or so. And there's – keep in mind, there's also multiple touch points, so we end up with multiple payments over the life of that receivable.

Bill Sutherland: So I'm just kind of curious if your growth here is going to be -- continue to be rapid. And do you think the demand on cash will be similar for the rest of the year, or are you going to get a little caught up?

John Price: Yes. I think there will continue to be use of working capital to fund our accounts receivable as we grow. But also I think the professional services see turnover and at a higher rate. And so overall within Q1, I think, accounts receivable is going to continue to expand probably into early part of Q2. But at that point, I think, you'll start to see it flatten out as we catch up on credentialing.

John Farlinger: I think the other thing, Bill, is on the remote neurology side, we see a faster turnover of cash at higher margin. So as John's pointing out in our model for this year our planning, we believe there will be a working capital need in Q1 and Q2. But as we start to scale and that remote neurology piece starts to kick over -- and kick into gear, the revenue and the cash tends to turn over faster. And I think we'll see our AR kind of max out John, I think, in Q2 and then kind of fall. And then if we can get -- and we can benefit from some additional in-network contracting we can see -- we're hoping that we reduce the AR over the course of 2022.

Bill Sutherland: That makes sense. And this impressive improvement in your gross margin is that going to continue? You were at almost 55% in the quarter.

John Farlinger: Well, as I mentioned, on the slides Q3 and Q4 have higher gross margins because of the deductibles being maximized the higher propensity to commercial cases. I think you'll see -- I want to be honest. We'll probably have a slight drop in margins in Q1, and then you'll see that margin rebuild over the balance of 2022. The one thing I do want to point out that we believe as we scale the remote neurology piece that we will improve on 50% margins for that portion of the business as we scale it. So I think there's meaningful upside to that portion of the business in 2022 and beyond.

Bill Sutherland: Yes. Okay. I get it. Sounds good. Thanks guys. Appreciate the color.

John Price: Thank you, Bill.

Operator: Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. John Farlinger for closing remarks.

John Farlinger: Thank you. On behalf of the Assure team, we'd like to thank everyone for listening to today's call. Before concluding, I'd like to add a few last comments. Assure's greatest opportunities going forward include

Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.