Akumin Inc.

Good morning. My name is Lara, and I will be your conference operator today. At this time, I would like to welcome everyone to Acumen Inc's 2023 Second Quadro Results Research Analyst Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two. Thank you. Mr. Zain, you may begin your conference.

Good morning, and thank you for joining us for today's presentation.

My name is Riyad Zain, and I'm the Chairman and CEO of Acumen. I'm joined today by David Kretschmer, our Chief Financial Officer. I want to thank all of you for taking the time to join us on this call. In today's call, I will provide an overview of Acumen's Q2 results and discuss some of the factors that impacted our results in the quarter. I will also review the steps we're taking to overcome the challenges we have experienced in both of our business segments. David will go over some of our key operating and financial metrics and discuss our revised guidance for 2023. I will then conclude the presentation, and then we will proceed to Q&A. There is a slide deck that is meant to accompany our presentation today. A copy of it is available for download from the investor relations section of our website at acumen.com and their event presentations. Before we begin, let me remind you that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements or information that are subject to risks or uncertainties relating to Acumen's future financial and business performance. Actual results could differ materially from those anticipated in these forward-looking statements. Please refer to the disclaimer slide, slide number two in our follow-up presentation, as well as the forward-looking statement section of our earnings presently. The risk factors that may affect the results in these forward-looking statements are detailed in Acumen's periodic results and public disclosure. These documents can be accessed under our public disclosure at sec.gov or sdar.com. We may also refer to certain non-GAAP measures during these conference calls, such as EBITDA and adjusted EBITDA and adjusted EBITDA margin. You can find information regarding these non-GAAP measures, including definitions, again on slide two of our presentation, as well as the non-GAAP measure section of our earnings release. Reconciliation of EBITDA and adjusted EBITDA to net loss, the most comparable GAAP measure, is included in the presentation as an appendix. We have not provided a reconciliation for any forward-looking non-GAAP measure referred to in this presentation, as we would not be able to produce such a reconciliation without unreasonable efforts. Turning to our Q1 results. On slide three, you can see the same store consolidated volume growth in our key radiology service lines and our patient starts in our oncology division versus our results in Q2 of last year. Specifically, our same store MRI volume were up 3.1%, which reflects ongoing strong demand for MRI procedures. Our same-store PET-CT volumes were up an impressive 16.5%, as strong demand, particularly from our hospital partners, continued for that modality. Total oncology patient starts were up 3.4%, as the market for oncology services remains robust. Q1 revenue of $184 million. 0.8 million was down 3.8% from 192.1 million in the second quarter of last year. Adjusted EBITDA of 26.5 million was down 11.7 from 38.2 million in the first quarter of last year. And I will elaborate on some of the causes of this decline in later slides. Adjusted EBITDA margins of 14.4% were down 5.5% from the second quarter of 2022 and down sequentially from 17.7% in Q1 2022. Our margins in Q2 were negatively impacted by a number of factors and given our high operating leverage resulted in a significant decline in margins in the quarter. On a consolidated basis, accounts receivable at quarter end were of $115.8 million versus 114.7 million at the end of Q1 2023. This equates to 57 days of sales outstanding near record low levels. Turning to slide four, we began to see same store volume growth in our radiology segment in Q1, which continued in Q2, although not to the extent we anticipated and remains below our growth target. As highlighted on this slide, we experienced some challenges in Q2 that resulted in our ideology revenues to be down 4.6 million from the same period last year. The ongoing closure of our Port Charlotte facility in Florida, which has been closed for necessary renovations after suffering significant hurricane related damage last year. While we are working diligently with the local building authorities to secure permits complete the necessary renovations, this process has proven to be more onerous and time consuming than originally anticipated. We also experienced some equipment delivery delays in the quarter, which negatively impacted our ability to bring new mobile customers online. We do anticipate that the situation will improve by year end, such that we can satisfy commitments from new customers. In addition to those items which resulted in our year-over-year revenue decline, we also experienced some persistent labor shortages, particularly among clinical staff, despite early signs of improvement on this front in Q1. The severity of this issue varies significantly across geographies, but in aggregate, our ability to perform additional procedures has been constrained. In addition to clinical staff, we have also experienced above average number of vacancies amongst our account executive team responsible for the relationships of the referring physicians, which has compressed volume growth in certain specific regions. Turning to oncology. While we saw growth in patient starts, this was more than offset by other factors that negatively impacted the segment resulting in year over year revenue decline of approximately 2.7 million. Recall that under new leadership, our oncology segment underwent a repositioning in 2022, which included a re-examination of several of our partnerships. The result has been the discontinuation of certain operations. Unfortunately, certain areas of contract discrepancies have led to a reduction in revenues received from a specific customer. This obviously impacted our Key2 results and may continue to do so pending resolution of this matter. We have also experienced some lengthy delays in the receipt of payments from one of our oncology customers, in part due to the financial challenges and liquidity constraints they're facing. We have several tools at our disposal to either mitigate the financial impact or resolve this matter. On the expense side, we were also impacted by higher costs in the quarter, which were in part related to the increased use and cost of specialty tracers, particularly in our PET-CT modality. Although some of these costs can be passed through to customers, these and other cost inflation we have experienced, including in medical supplies, has resulted in expenses being $3.9 million higher year over year. Given our high operating leverage, the net aggregate EBITDA impact decline year over year was over 11 million in the quarter. That said, we remain very focused on implementing measures to address the operating challenges we are facing. While we do expect these measures to benefit our results and performance over time, we do not foresee a material improvement prior to the end of 2023. which David will elaborate on in his discussion of our revised 2023 guidance. On slide five, we review our current outlook for the balance of 2023. As you can see, we expect the challenges we face in both our geology and geology segments to continue to a certain extent for the remainder of the year. We have also factored in some additional equipment delays in our budget and outlook. In our radiology segment, we are implementing measures to alleviate the impact of these challenges, including the ongoing digitizations of our business and the continued deployment of our remote clinical capabilities, as described later on. In oncology, we expect that based on business development initiatives we have underway and with the discontinuation of certain suboptimal oncology partnerships, The contribution from this core business segment should improve materially in 2024. Notwithstanding the challenges we face, we continue to see robust demand for our services and the fundamentals of our industry remain very strong, which is why we are focused on taking measures to remedy these challenges. As you know, we embarked on a significant organizational transformation in 2022 to align and streamline all areas of our business. These initiatives resulted in the realization of approximately 23 million synergies last year, although they were somewhat offset by inflationary pressures and other cost increases during the year. In 2023, we had planned to implement initiatives related to rationalizing business processes, consolidating systems, and optimizing our procurement by leveraging our enhanced scale, which would result in additional 25 million synergies on a run rate basis by the end of 2023. These initiatives have been delayed given the management focus on resolving our near-term challenges. As a result, we now do not anticipate any material financial benefit in 2023. However, we remain very confident that these synergies will be realized in 2024. As we have highlighted in the past, there is significant operating leverage in our business model. As such, we are very focused on increasing our capacity utilization and driving additional volumes through existing sites. On that front, we continue to focus on improving scans and treatments per labor hour and enhancing our scheduling and call center capabilities. Another key element of our strategy is to digitize the business to streamline operations in order to enhance the patient experience and capture significant efficiencies. We are also deploying remote technology capabilities to help alleviate the labor constraints that our industry is facing and the healthcare sector generally. On the business development front, recall that part of our strategic rationale for the Alliance acquisition in 2021 was to better position Acumen to service hospitals and health system partners in their ever-growing needs for outpatient service delivery and capacity. With the extensive suite of services and facilities we have in place today, including network density in multiple markets, we are an attractive outpatient partners for hospitals and health systems. In fact, we have received significant partnership interest from hospitals and health systems, and we are in the process of negotiating partnerships with these important customers. We have also generated meaningful partnership interest from hospitals for our oncology services, giving our unique capabilities in this business line. While formal relationships and partnerships will take time to finalize, we are confident that we will be able to capitalize on opportunities to leverage our capabilities for the mutual benefit of Acumen and its hospital partners in the near future. Each of these initiatives are an important focus of Acumen. And together, we expect that they will deliver significant benefits to our platform in 2024 and beyond. Turning to slide seven. As mentioned in our quarterly results press release, our board of directors has formed a special committee to explore strategic initiatives related to our capital structure. As you know, our current leverage is well above our management target levels. And given the operational challenges we have recently faced, the board felt it was prudent to evaluate our alternatives at this time. As a reminder, interest on our subordinated debt held by our partner and sponsor, Stone Peak, has been paid in kind and is expected to become cash pay on September 1st, 2023. The special committee is diligently evaluating alternatives but there can be no assurance that this process will result in any transaction or other alternatives. There is no set timetable for the completion of the strategic review process and the company does not intend to provide updates unless or until the board of directors approves a specific action or otherwise determines that disclosure is appropriate or necessary. I will now turn the presentation over to David who will walk you through some of our key operating and financial metrics.