Skylight Health Group Inc.

Thank you everyone for standing by. This is the conference operator. We would like to welcome you to the Skylight Health fourth quarter and full year 2021 financial results conference call. The results are for the period ending December 31st, 2021. As a reminder, all participants are in listen only mode. After today's speakers conclude the presentation portion of the call, should time permit, they'll move on to a question and answer period. If you wish to ask a question, you may queue at any time by pressing star then 1 on your telephone keypad. You will hear a tone acknowledging your request. To withdraw your question, please press star then 2. Should you need assistance during a conference call, you may signal an operator by pressing star and 0. As always, I would like to remind you that listeners are cautioned that today's call and the responses to any questions may contain forward-looking statements. including certain statements which concern long-term earnings objectives. These should be considered in conjunction with the company's cautionary statements contained in the Skylight Health earnings release and in the company's MD&A and other filings. Forward-looking statements are subject to risks and uncertainties and assumptions. Accordingly, actual performance could differ materially, and undue reliance should not be placed on such statements. Skylight Health does not undertake to update any forward-looking statements except as required. All currencies discussed on this call will be in Canadian dollars unless otherwise stated. This conference call is being recorded today, Thursday, March 31st, 2022 at 8 a.m. and will be posted to the Skylight Health's website within 24 hours after the conclusion of the call. I would now like to turn the meeting over to Skylight Health's Chief Executive Officer, Mr. Pradyum Shaker. Please go ahead.

Thank you, Ariel. And a good morning to everyone and thank you for joining us for our fourth quarter and full year conference call for the period ending December 31st, 2021. With me this morning is our Chief Financial Officer, Andrew Olinsky, who will provide you with a more detailed overview of our financial performance in a moment. Skylight Health is a primary care focused organization that is committed to changing how healthcare works in the US. We operate a multi-state primary healthcare network comprised of practices providing a range of services from primary care, subspecialty, allied health, and laboratory diagnostic testing. Our business model is focused on solving two major issues in U.S. healthcare. First, providing a white knight solution to small and independent primary care practices looking to consolidate within a highly fragmented market and where providers and practices are eagerly looking for qualified and supportive buyers. Through a national platform, we aim to bring scale, efficiency, and improved revenues to these practices. Second, we aim to realign the reimbursement model with these practices to outcome-based care, or more commonly known as value-based care contracting. Our focus with specific patient populations today, such as Medicare, is to shift from a traditional fee-for-service only model that typically generates on average between $100 to $200 per visit or $200 to $400 per year to a value-based care model where some full-risk total cost of care programs can remunerate the provider group over $10,000 by year paid by the payers, not the patients. This enables the practice to receive the full healthcare dollar, putting the patient first and allocating expenses accordingly. Value-based care models are designed to manage the growing cost of care while improving on patient health outcomes. 2021 was definitely a busy year for us. Some things we're definitely really happy about and some things that we're definitely cognizant about moving into 2022. But the things that we're pleased and the things that we're able to bring to the organization was a turnaround in the Skylight Health group, positioning ourselves as a player within the primary care market in the US healthcare. We're happy about the progress we were able to bring between 2019 to 2020 to 2021. We made significant acquisitions during the course of this time that allowed us to recognize strong and rapid growth, the ability to recognize leaders within these organizations that have been able to come onto Skylight Health, and we have been able to leverage from their knowledge and expertise and will be instrumental in allowing us to scale as we move forward. It's allowed us to expand into new markets, markets where we believe we have density of growth, density of acquisitions, and density of the ability to bring value-based care to patients. We also saw a shift into two major exchanges, allowing Skylight to really mature into an organization, but also have access to investors and an investment community that can benefit Skylight Health plan into the value-based care space. we saw strong leaders join the organization. From the board, with the appointment of Grace Mellis and Patrick McNamee, and within the organization, from leadership, down to management level, down to staff, we're really happy and pleased about the growth that we've been able to bring, allowing us to now have the infrastructure to benefit from scale and growth. Some of the things that we are cognizant about, as we as an organization look at 2021, we're cognizant about the cost and time that it takes to make change and turnaround happen. While change takes time and does have an expense to it, we are aware that these are necessary investments that are required to build the infrastructure to manage such rapid growth. Furthermore, to lay the infrastructure for the future we're looking to build. And I'll be coming back to talk about these initiatives in a few moments. So with that, I'll turn the call over to Andrew Olinsky, who will go over our financial results in more detail.

Thank you, Brad.

Thank you everyone for joining us today as usual. We appreciate it. It's a busy time of year. As Brad mentioned, we're, you know, we're very pleased with the company's achievements that we made in the year. 21 was, you know, as we always talk about, it was transformed, but it truly was. And the full year and fourth quarter financial results reflected the impact of the strong and rapid growth that Brad just highlighted. This resulted in us, you know, making a number of acquisitions in the last 18 months. And as a result, We reported record quarterly revenue, quarter over quarter, in addition to the gross profits. This is over top of the investments and costs that we expended in the year and in the quarter that we are making business development as we continue with our plan of growth by acquisitions, optimization, and expansion of our book of business. Before I dive into numbers, I'm going to get into a couple of points I'd like to highlight, and please bear with me. It's made our financial results a bit tough to follow, but I feel it's worth giving a bit of background on both. Firstly, with the sale of our legacy business in mid-December, our financials were recognized to reflect this sale. When you dispose of a business line such as this, reporting requirements results in you reporting this as discontinued operations or disc ops, as some folks like to call it. And instead of seeing all the assets, liabilities, revenues, and costs for this line of business in the usual spot in our financials, You carve them out, you calculate any gain and loss on the sale of those net assets versus the sale price, and report them as net income from discontinued operations in our income statement. You can see this number near the bottom of our income statement coming in at a gain of $5.6 million. Apologies for being such an accountant, but I feel it bears explaining. As it would appear, our revenues were flat for the fourth quarter, that first look of our income statement, when they were actually at record levels. Record for us, of course. In addition, you will have noticed that we use a term called realized revenues in our financials as well as our press release. This is just an additional non-GAAP measure which combines the revenues of both the continued and discontinued operations to show how revenue performed overall when we owned the two businesses at the same time. The second item I wanted to take some time to explain was the refilings over prior quarters in 2021, as we discussed in our press release. This related to us restating our revenues during the year after we changed our methodology for accounting for net revenue. And I'll do my best to make this the last dive into kind of accounting speak. So please bear with me again. Net revenues are what we report in our financials. And in basic terms for medical revenues, particularly fee for service, there are what is called gross charges that our medical providers charge to an insurance plan and to patients. And these gross charges are paid in varying percentages. This means that we need to calculate a discount to these charges in order to estimate the revenues that we think we can collect. This estimated collectible amount is what we call net revenues. That is what we disclose in our financial statements. Now, when we were looking at acquiring a metal group, one of our main areas of focus of due diligence is the quality of revenue. And we take a look at everything. We look at the mix of their charges, the procedure codes they use and bill, and then how much they provide as a reduction against gross revenue. With the acquisitions we made in early 2021, we were working with the local teams to better understand these and eventually refining this work. And what we found during this process is that two of our clinics primarily were not using a high enough percentage And effectively, writing off this balance, the additional write-off of this balance, after it ended up in accounts receivable in the balance sheet, 12 to 18 months later. So what we did was increase this discount percentage, which reduced our revenue for the year by $2.1 million throughout the year, and had an equal and offsetting reduction in accounts receivable. I don't want to sound indifferent about this. I'm certainly not. No one ever likes refilings. But we felt with this adjustment being of this size, and affecting the top line, getting them refiled was the cleanest way to show this adjustment and will make our reporting smoother in 2022 as opposed to if we cram this adjustment in just the fourth quarter statements alone and for the next four quarters talked about adjusting the numbers for the comparatives. Also, just pointing out as well, this does not impact cash. This is essentially a swap between revenue discount and bad debt provision on our AR balances. It doesn't change our estimated collections. With those two points out of the way, I'll make sure everybody's still with me. My CEO's still nodding, so that means I haven't lost him. I'll jump into reviewing the full year financials. Please note my comparisons will be with the prior quarter of 2021 or quarters. Considering the continuing business did not have material revenues in 2020 and were primarily composed of corporate overhead related to running the entity when they owned just the discontinued operations in the legacy business. Revenue for just the continuing business came came in at just over $27 million, and as mentioned elsewhere, realized revenues came in just under $38 million. Our gross profit came in at just over $15 million for the continuing business, with another increase in Q4, which came in at just over $5 million for the three-month period. In addition to the increase in the revenue and gross profit, our profit margin increased to 56.6% for the quarter, and the full year averaged a margin of 55.6%, as we saw this percentage increase slightly but consistently over the year, which started at 55.2 in Q1. This upward trend was the result of increases in urgent care visits, including COVID testing, as well as having a full quarter of our Aspire Clinic, which we acquired in late Q3, both of which offset the expected year-end seasonal decrease in December. Our operating expenses also increased as a result of addition of the Aspire Clinic, but we also saw an increase in non-cash expenses in the quarter, which primarily consisted of asset impairments and a slight increase in our share-based compensations. As a result of this overall increase in expenses exceeding the increase in gross profit, we reported an increase in our loss from operations in the fourth quarter of approximately $2.3 million when compared to the prior quarter. Moving to the outlook for 2022, we are expecting full-year revenues to be in the range of $35 to $37 million from our existing business, and it is our intention to continue to improve our gross margin to over 60% by increasing our provider utilization rates. We also anticipate our operating costs decrease for the full year in 2022, considering the completion of the building of our internal infrastructure across all of our clinics and corporate offices. This consisted of a new ERP, standardized payroll system, and a new HR system. This started in the middle of 2021, ramped up in Q4, and which we have just completed in recent days. In addition, with the sale of the legacy business completed in December, this allowed us to streamline the business further And as a result, we should see a reduction in salaries and wages starting in Q2 2022. We also anticipate that our professional fees should be lower in this year as 2021 was one heck of a busy year, including our listing on the NASDAQ exchange, multiple financings, and a significant number of acquisitions. With these increase in revenue and gross profits, in addition to the decrease in SG&A expenses, we should see an improvement in our cash burn and the bottom line and make a strong push to profitability in 2022. With that, I'll turn it back to Prat.

Thanks, Andrew. So with that, I'd like to spend a little bit of time talking about our initiatives that we did last year. I think it's relevant for everyone to be aware of what we've been spending our time doing over the past six plus months. As mentioned earlier before handing it over to Andrew, while we're pleased with the growth that we've been able to have, we're also cognizant of what it takes to build this, including the costs and the time that it takes. As we recognize, most of these costs that are required are not going to necessarily be required moving forward. And so as part of 2021 was really on building the infrastructure, the goal for us in 2022 is now realizing the return on that investment and a focus on our pathway to profitability this year. And that is very much what our focus is internally within the organization. Looking at some of the practices that we've acquired over the course of the last 18 months, traditionally in what is common amongst these organizations and why historically past roll-ups have not worked in this space, is recognizing the challenge in managing these disparate offices. Now, while successful in their own right, most of these organizations operate on different systems. They operate under different payment models. They operate under different cultures. They operate in different plans. As an organization that's looking to consolidate independent primary care practices, we have to be aware of the fact that most of this is what it took to build this practice into success. And so you want to retain the best while still trying to benefit from economies of scale. And so over the last six plus months, while not the most exciting piece of business updates, it is very important that we spend the time to make sure that we stitch these organizations together. And so as Andrew mentioned, some of the initiatives that were launched were really primarily focused around bringing these organizations together under one roof from a management perspective so that we can now start to impact, measure, and affect change. Within these changes and with these infrastructure growth included, as Andrew mentioned, ADP and a payroll system. Managing staff across multiple payroll times, managing staff across multiple contracts is an important aspect of retention, but also an important aspect of understanding how to grow and develop your workforce. Culture is probably one of the most important aspects for us here at Skylight, and making sure that we have the appropriate systems in place for human resources to consolidate and provide the support to our local practices was our number one priority from the beginning. Secondly was the corporate restructuring for most of these groups. And so operating under entities within the organization under each state, Again, it might sound complicated, but the easier way to think about this is a clean structure allows for you to have a more equitable negotiation with healthcare payers when it comes to payer contracting. As we've talked about in the past, density is important for the ability to generate better contracts. Bringing all these organizations under a single entity and a clean structure allows for us to now negotiate better contracts with payers and allows for the payers to have better visibility into the performance of our providers and our organizations from quality and cost outcomes. We also can benefit from improved liability insurance costs and other costs affiliated with consolidating our corporate structures. Hiring and recruitment is also a very important piece, as I mentioned, about culture. And so launching HR systems that allow for us to minimize the need to have to duplicate on HR workforce while using technology to improve on our recruitment tactics so that we are always able to ensure that we have the adequate number of staff and providers, although that has always been challenging during the pandemic, but definitely systems in place that we believe will help the organization moving forward. And last but not least is the electronic health record system. This I have to spend a little bit of time on just to explain sort of the nuances and the detail behind the system. So within every organization, switching from a paper to an electronic health record system, you have a plethora of EHRs effectively across all these practices. If you truly want to understand patient volume, you want to understand how to drive growth, you want to understand your patients, the cost of care, and lay the groundwork towards value-based care, it begins and ends in a large part with the EHR system. We decided to pick an EHR called Athena, which was one of the industry-leading systems within the U.S. market that we identified through a rigorous process. Athena is a program that is robust, however, does take time to implement. I'm excited and proud to say that Athena has now been launched across all of our practices within the U.S. markets, now allowing us to have a centralized EHR system that gives us access into the most finite details of our business performance. It allows us, and not just us, but the practices, the providers, and the patients to have better interaction, better access to data, and more importantly, the ability to now understand where growth can come from. Laying this infrastructure takes time and cost. Now it's about talking about how we generate the return on investment from this infrastructure. So moving forward, we're most excited about some of the initiatives that we're going to begin to lay the groundwork on. Part of recognizing these practices and operating them independently is imperative to the success of these businesses. We recognize that while these businesses consolidate under Skylight Health entity, healthcare is local. We need to keep healthcare local. That we believe is one of the biggest differentiators between Skylight Health and many of our other consolidator competitors. In keeping practices local, we've established a plan whereby through dyad relationships with our lead providers and practice managers, we're able to have a more dynamic rollout execution model where we can still think global, but act local in the way that we execute. It allows for us to be able to remain more competitive against practices. It allows for us to be able to take into account the demographic of our patients, unique to each market, and allows for us to benefit from the type of population of patients we have when it comes to healthcare negotiations and health plan negotiations. And that is a model that we believe now instituting will generate success for us within our existing practices, but also be an attractive model for new practices as we look to grow the Skylight Health Network. We're also going to look to consolidate certain aspects of business performance, including and starting with our contact center. We recognize that many phone calls to a medical practice, as many of you might have experienced, often go unanswered. And one of the most and one of the biggest frustrations is the ability to reach your doctor's office. Now, when you're working in a volume-based environment, your ability to pick up the phone translates directly in your ability to make appointments, which then translates in your ability to make revenue. Centralizing a contact center allows for us to remove a lot of the pressures placed on the front desk within a medical practice and bring it back to an organization that is able to support every patient phone call. This means that our goal at the end of the day with the contact center is to ensure that patients first and foremost have the ability to connect with us, ask questions, and be reached regarding whatever their concerns might be. The contact center allows for tremendous growth opportunities across multiple areas, but we're excited about launching this contact center here into Q2. We're also going to be looking to centralize our revenue cycle management, which is our billing function. Through billing through multiple healthcare payers, this has become one of the most administrative burdens for independent practices. Centralizing revenue cycle management will allow us as an organization to have better access into the coding behaviors, into the coding practices, ensure compliance, and be able to maximize our ability to generate the right type of patient visits for the right type of patient encounters and ensure the right diagnosis matches that patient. The appropriate diagnosis to a patient translates directly into the revenue you earn from a healthcare payer. And this again is imperative in our ability to be able to maximize earnings from our medical practices. Being able to utilize our practices and providers is another important aspect of where we'll be focused moving forward here in Q2. Having access to Athena and data on our practices truly allows us to understand staffing ratios and staffing models to best optimize our patient needs, whether it's days, weeks, or hours of availability. This allows for us to truly hone in on access and ensure that we have the appropriate capabilities of staff, providers, and systems to be able to make ourselves available to our patients. By launching this model, we expect to start to see both improvements to the top line in terms of increased availability to our patients, but also improved utilization of our staffing ratios and cost of sales. We're also looking at launching several marketing initiatives. Now having the infrastructure of all these systems in place, it allows for us to drive patients into a single channel and thereby lead appointment bookings directly onto the electronic health record system. While most clinics and most practices have generated marketing through word of mouth over the years, what we have seen is that typical investment in marketing has not been focused in areas like digital to a large extent. Launching several digital campaigns through Q1, we've already started to see a good return and a calculation of our cost-to-patient acquisition, and are now looking to ramp that up across all of our markets, ensuring that our practices benefit from a consistent supply of new patients looking for providers and looking for primary care providers that can provide quality care. We're excited about the initiatives that we're going to be launching forward, moving forward, plus the ability for us to recognize the multiple cost synergies now that our infrastructure and investments are in place. And hence our pathway to profitability this year, we are fully confident that we're going to be able to drive to this achievement. And while the investment cost in 2021 reflects that cost of investment, we're excited again about the profitability that we look to bring and that we will drive towards this year. Speaking a little bit about the divestiture, focusing on why the divestiture occurred was largely to put the focus back on primary care and our focus is Skylight Health. The question of how we plan to backfill the divestiture and the revenues from the divestiture we've spoken about previously in the confidence we've had in our pipeline of acquisitions. While external factors have largely slowed our trajectory of acquisitions, we still feel highly confident and highly bullish about our ability to grow this year through acquisitions. And in fact, we have several deals today that we are in diligence with that we believe are material and that will add value both from the ability to grow our company, but also expand our experience in the value-based care space. In order to finance these acquisitions, we continue conversations with investors. Mindful of the market today, these investors are having conversations regarding other forms, specifically non-diluted forms of capital that we can use to affect against these acquisitions. And we'll certainly keep shareholders up to date as we move down that path. In terms of value-based care, we already have started expanding into value-based care this year. In fact, to some extent, we have expanded into contracts where right now we're starting to see the benefits of our participation in these plans. However, we do look for further growth and we do feel confident that this year we will have some new plans in place, specifically in areas like Medicare and Medicare Advantage. We continue to progress our discussions with our payer partner. Things have taken a little bit longer than we've anticipated in the timeline that we've given, but I do want to give the confidence that these conversations have been progressing well. And when you're dealing with a Fortune 50 partner, things might take a little bit longer than even we expect, but that's okay. We feel confident and the conversations are going well. And we're hoping to have this across the finish line so we're able to communicate to our shareholders the benefit that this relationship with our payer partner is going to bring in the long term for Skylight Health, both from a contracting perspective, but also access to market and pipeline of opportunities. While transparency is going to be key moving forward, we certainly want to recognize that as we come close to the end of Q1, to provide a little insight into how the trends we're seeing moving into Q1 are going. Some of the things that we're noticing is a return back to primary care. The last six months have been busy, especially as we see a massive surge in the pandemic as a result of the Omicron variant. We're starting to see a slowdown and shift of urgent care visits largely attuned to COVID-19 visits, and that's industry-wide. As that starts to happen, what we're noticing is the shift of those patients are moving back to primary care. We're seeing an increase in the number of annual wellness visits that we're seeing. We're seeing an increase in the number of new patients looking for primary care. This is, again, why we believe we're so well positioned to be able to meet this trend. While we see a reduction in volume in COVID-19 patients, the change in volume to primary care means that we are seeing higher acuity and higher acuity leads to higher earnings per patient visit. And so we expect this offset will be met with higher value visits overall within our practices. Furthermore, the switch to Athena requires a little slowdown as we acquire a new system and as our providers learn a new system. Now, while these trends might reflect in Q1 numbers, we do start to see a return back to our original volume. as we move back into Q2 and forward. Again, based on these trends above, we're very excited about the future that we see ahead for Skylight. We recognize that the time it's taken to build the infrastructure has led to a period of time where our growth trajectory may not have been as quick as it was before, but we want to provide confidence that we as an organization are recognizing not only what it takes to grow quickly, but how to maintain and maintain an infrastructure that's going to be sustainable in the long term. We think we're well positioned for de novo growth, We feel bullish about our acquisition pipeline. We feel confident about the conversations we're having with value-based care and value-based care partners to be able to bring higher value contracts to our existing practices. And we're focused on our existing practices, our culture, our team, and our patients. We'll continue to keep shareholders up to date as we continue to move forward. And we look forward to a successful and strong 2022. So with that, Ariel, I'll turn it back to you for any questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. We will pause for a moment as callers join the queue. Our first question comes from Frank Takanan of Lake Street Capital Markets. Please go ahead.

Hey, Brad. Hey, Andrew. Thanks for taking my questions. I wanted to start with a follow-up to your comments around the infrastructure investments and payroll HR and EHR system. Can you just extend the thought process a little bit on how this is going to be important for transitioning to value-based care as well as folding in new acquisitions into the organization?

Hey, Frank, thanks for that. I'll start here and then pass it back to Andrew if he wants to add anything to that. So the concept exists largely from a two-facet approach. One is management of multiple practice models. And when you're de novo, you're building a practice from the ground up. You have one system in place as you're building out. When you're acquiring these practices, each of them operate under a different structure, but they also operate using different technologies and systems. And so key to scale is the ability for us to benefit from a corporate perspective and from a local perspective and being able to have everybody under the single system. We can benefit from improved costs, but we can also benefit from improved oversight. And so part of the facet is putting everybody under a single system of operation. That's first and foremost, just from our perspective, basic management. The second aspect in laying the groundwork for what we talk about in value-based care is just basically growth within these organizations. is the ability to understand the data. And so what we have seen over the last 12 months plus before switching into a single system is we spend an awful lot of time trying to source data from different disparate organization systems that may or may not be robust enough. And so when you're looking at the intelligence on the actual practice, the volume, the utilization rates, the billing system, Knowing all that information is imperative for us to know where we can drive more growth, where patient panel growth is important, where we can benefit from further education with our teams and providers, where we understand the cost of care of our patients. So this is important, not just from a value-based care perspective, but clearly in value-based care, the ability to measure the cost and outcome of your patient is critical to your success under these plans. part of it management and part of it laying the groundwork for improved data collection and analysis, which then allows us to be a stronger player overall within the value-based care segment. Andrew, I don't know if you want to add any more to that.

No, I mean, I think you've covered it all, Brad, there. Frank, did I get your answer?

Yep, that's helpful. And then just my second question, you spoke to it a little bit on the seasonality expectation from Q4 to Q1. Maybe also extend that thought process a little bit further into 2022, maybe thinking about first half versus second half contribution and how the transition back to primary care from urgent is going to impact the margin profile as we turn through the year.

Yeah, thanks, Frank. Yeah, it's a good point about the seasonality. I mean, seasonality expectations have changed in primary care with COVID. It used to be, you know, pre-COVID was, wintertime was a very busy time with flu season. Obviously, with flu season being drastically reduced with COVID, the timing is much different. And so what you get now is December and January are quite, you know, quite lower from a seasonality perspective with people on holidays and doing what they're doing, as well as, you know, possibly getting over COVID. And so, you know, we did see reduced volumes results in December and January. And what we expect kind of for the rest of the year is, You know, the front half to be lighter than the second half, but, you know, kind of increasing quarter over quarter. So we do anticipate Q1 being the lowest of the four quarters, but, you know, increasing starting in Q2 and onwards. And in terms of the margin, you know, that's also part of, you know, what I was referring to, getting, you know, targeting getting over 60% by the end of the year. You know, we do anticipate that we should see an increase with that shift, you know, basically, you know, again, from quarter to quarter.

Perfect. I'll stop there. Thanks for all color. Appreciate the update.

Thanks, Frank.

Our next question comes from Carl Burns of Northland Capital Markets. Please go ahead.

Thanks for the question. Looking at the fourth quarter, and this is relating to the reduction against gross revenue, which was 2.2, excuse me, 2.12 for the entire restate period. If we look at the fourth quarter, And we adjust for the reduction in revenue, which looks like for that quarter would be around $650,000. And then there was also $1.4 million in change impairment. That's note six in terms of the footnotes. It looks like adjusted on a normalized basis, then going forward, net income for the quarter would have been a loss of $6.1 million. Does that sound correct to you?

Carl, so your number is correct. The adjustment in Q4 was just under 650. And yes, if you back out that adjustment, we would be closer. We would be under seven, like you said there. Yeah, and about 6.2, 6.1. Got it.

Cool. And then just another follow-up. If we look at the fourth quarter top line, you had a sequential growth of 8% from the third quarter. If we back out the contribution from Aspire, which I believe closed on about the 16th of September in the third quarter and would have added a little more than 100,000 in that period, and then adjust, obviously having the differential for having it being in the full fourth quarter, it would imply that the organic growth in the fourth quarter, and again, there's some seasonality, of course, here, would be around 2%. So if we annualize that, that would be 8% plus. Does that sound correct?

Yeah, I think it's just a little bit lower, but yes, that is the ballpark. Part of that growth in that quarter. Again, you've got the mix of the seasonality taking it down, and then you have the COVID component, which took it up in October primarily, September, October. Brad's motioning here. I think he wants to jump in with his comment. I'll mute myself.

Yeah, thanks, Andrew. And Carl, I think one of the ways to think about this would be that organic growth that you're calculating, again, would be before execution of any of the organic opportunities that I earlier spoke about, largely, again, ensuring that we had all the systems in place before we were able to start measuring and tracking this. So I anticipate moving forward that what you see there has been sort of consistent seasonality ahead of initiatives planned.

Thanks. Great. Our next question comes from Rob Gough of Echelon.

Please go ahead.

Good morning and thank you for taking my questions. Prad, you had mentioned with respect to acquisitions that you felt you would be in a position to fund these in a non-dilutive way. Perhaps could you talk to the perspective of lenders with the divestiture of the legacy business and where lenders are with respect to value-based care versus primary? What are they looking for? And the perspective access to credit specific to acquisitions, if you could.

Thanks, Rob. It's Andrew. You're highlighting what we would consider to be our preferred methodology. Whether we execute on that, that is up to us to fully do and perform. But what you're talking about is exactly our preferred strategy. The acquisitions that we are looking to mature with, shall we say, we're looking at some different types of acquisitions next stage compared to what we did in 2021. really looking for ways to access quicker ways into value-based care. And so what we would prefer to do is have those acquisitions underwritten with some non-dilutive measures. Maybe we mix that with equity, depending on the acquisitions. We're always going to do whatever we can. But our preferred methodology would be, of course, to finance that with debt wherever possible. And to your point of the divestiture of the legacy business, you know, that certainly makes that strategy a little bit more feasible for me. You know, when I'm talking to folks, you know, to say, hey, you know, this is the background of the company. I don't have to get over that hurdle of discussing the legacy business in the U.S.

Thank you. And thank you for putting out the baseline $35 to $37 million. Can you talk to the organic growth considered within there? Might there be opportunities for outperformance given some of the new initiatives?

Yeah, hey Rob. Again, I think the answer to that from our perspective is that is what we're expecting. Again, many of the initiatives we're launching were initiatives that are net new to many of the organizations that have joined Skylight Health Network. These are initiatives both driven by what we've seen as demand, plus what we see as sort of opportunities to maximize and capitalize on areas where we think we can grow market share from a digital campaign perspective. And we started to see these results already trickle into Q1 as we started to launch them. I think we'll continue to see further opportunities going forward. I think the organic growth not just is in the initiatives from launching marketing campaigns and creating The centralized area for patient access that will continue to come from our ability to negotiate contracts with pairs and those are things that are ongoing that we feel confident will be able to develop further this year. Not just from our progressing conversations with our with our future partner, but also with regards to other payment models that will exist within the States. And and certainly our goal will be to continue to look to perform those numbers.

Thank you. And one more, if I may. When you look at the best practices within your portfolio of clinics, could you talk to the margin profiles of your top performing clinics in terms of gross profit or EBITDA?

Happy to, Rob.

So, you know, top clinics... What we've seen in terms of gross profit is obviously the numbers that hold are 55% up or 56% up that we saw in the fourth quarter. Our top earning clinic – I'm not going to give everybody their names either, so I don't want it to go to their heads necessarily, Rob. I wouldn't want – Brad to kick me under the table there. Uh, but in terms of gross profit, uh, you know, in 2021, uh, you know, what we, what we saw from that, uh, what we saw from that clinic was actually over 70% and EBITDA margin of, uh, of 25%. Uh, and then moving to, you know, second highest performer, uh, you know, it was gross profit margin of, uh, you know, over, over 63%, uh, and an EBITDA margin of 35%. So, uh, What we have seen with these clinics is if you can get them to be running very efficiently and get them maximized, potential always exists there to get your operations to levels such as that, but not every clinic is the same. Different practices, different activities, different markets. I'm sure Pratt will have some other context that he'll want to throw in and caveats, but you know, that is, you know, that is the potential. They're the folks that, you know, do carry the numbers.

Yeah, I mean, Rob, the answer to talk about margins, again, is based on services rendered, right, and typically what we've seen over the last six to eight months, and this is, again, not us, but industry-wide, and you've seen this as more and more of these practices come to market and become really an area for PE is the urgent care space in high volumes, especially these areas, dry high margins because of the utilization numbers, but In a more typical environment, utilization is typically better, margins are typically better in a primary care space when patients are generally more long-term, they come in with more higher acuity services, they will typically have higher levels of care, and all that translates into your ability to benefit from higher coding with payers and the ability to earn in that space, especially as you move towards more of a capitated value-based care model. And I think that the nature of these practices in a fee-for-service model is what we see on post-acquisition. But as we transition and as we move into growth, those margins continue to shift. And that's, again, why it's so important for us to have a single system of operation because we want to be able to track this. And we find providers are also curious and interested in wanting to see the success of these businesses as well.

Thank you.

Our next question comes from Rahul Sargasar of Raymond James.

Please go ahead.

Hi, Brad. Hi, Andrew. This is Mike Freeman on for Rahul today. Thanks for taking our questions, and congratulations on the year of building and integration that you've just undertaken. We recognize the challenge in it. So my first question is, what sort of news might we expect to see sort of as Skylight shifts into the value-based care further into its value-based care practice, and in particular, carrying out this program with its Fortune 50 partner. I guess, estimated timelines and what sort of news flow we might be able to see around that.

Yeah, that's a good question, Michael. Thank you. When we look at our participation in the space, we've always communicated this. The transition to value, it's a transition. It's not a switch that you flip overnight for any organization looking to get into value. So you're going from organizations that take no risk to where you want to take all the risk in the total cost of care. The relationship that we're developing with the partner that we're working with, the payer partner group, and again, we're We're all eagerly excited to be able to communicate. But again, keep in mind, these things just take time from a paperwork standpoint. But the relationship effectively translates into the ability for us to leverage several different experiences from the payer side. One is their knowledge and risk. And so we can fast track our participation at the level of contracts we take from healthcare payers because we have the experience behind Skylight through the relationship with our partners. Secondly, will be access to plans and the ability to benefit from the plans that they have in these markets. So as we look to this relationship, it's about looking at patient populations that we have within our practices today, looking at the density of those populations, looking at the type of health plans that are in those markets and the health plans that are looking to get into offering risks to providers in those markets and having discussions and conversations with health plans to effectively win a part of their business. And that comes down to the services you offer, that comes down to the experience that you have. And so as we have now started to get into value care, I mean, that translates into receiving small capitated amounts or care coordination, all the way to looking at generating percentage of savings that we can benefit from at the end of the year to receiving a capitated amount through the course of the year. Those are all the conversations that we will have independently, but also through this future relationship with this partner. And this is an ongoing conversation as you look to build more relationships with more healthcare plans in the markets and start to benefit from the recruitment of those patients and then overall the growth of these visits. And as we've seen very successfully within our peer group, the ability to maximize on these contracts comes from both internal experience as well as time and experience with these healthcare payers. So we're still very much on track and we still very much are focused on our strategy to run these practices effectively well, initially, you've got to have the foundation. And then while doing that, starting to position them both from a infrastructure perspective, which is what we've now built, to now engaging in those conversations with health plans, which is what we're now doing, to then benefiting from the experience to execute against that, which is where we look to accelerate that through the relationship with our future partner.

Okay, thanks, Brad. That's helpful. Next question for me is a Looking at continuing operations only and looking at the loss from operations over the last couple quarters, noticing that the loss from operations is scaling a little bit faster than revenue has been. Wondering how we should think about loss from operations moving forward and how we might see this trend mitigating in future quarters.

Yeah, perfect. Thanks, Mike. I'll maybe start off here and then I'll turn it back to Andrew. The way we should be looking at this is that, you know, the expenses, as I mentioned earlier, largely in part one due to cost of consolidation, cost of duplication and cost of infrastructure development. And that is what you see in last year's numbers. And also there's a whole bunch of costs in there that are all affiliated with just being a growing company and moving to exchanges and raising capital and making acquisitions and having a whole bunch of fees that are not affiliated directly with the operation. That aside, moving forward, you'll see continued expenses into Q1 because as both Andrew and I have mentioned, most of the initiatives have effectively now, I believe, gone live and all gone live as of yesterday. So moving into Q2 is where we really start to see a major drop off. I think what you should expect and what everyone should expect to see is Skylight moving towards that profitability for this year. And that'll move into the coming quarters as we start to wind down these investments now that they're in place, but also benefit from the cost synergies that they create. We're also cognizant of being able to remain competitive in the market and making sure that we have the optimal schedules and optimal utilization rates. And that's going to be a focus for us as well to make sure that, you know, we are meeting current market trends and putting our focus where the market is going. And with revenue growing opportunities that should further enable us to build further into, you know, beyond breakeven to profitability and moving forward to stronger health plans, et cetera, will help. So, I definitely would say that the trends that we saw last year are not indicative of the trends that we should see this year and shouldn't be seen as a run rate for the following year. It's definitely what you see in terms of building the infrastructure. And like I said, now this is the year to realize profitability. But I'll turn it over to Andrew.

Yeah, I don't know. I don't know much else to add except to dive into numbers. Like, you know, similar to what Brad said there is, you know, what we're going to see is, Your salaries and wages, so your office and admin should be consistent. Marketing business development might see a slight increase. Professional fees, I'm hoping, should taper off. Q4 is always a very busy time, but Q1 is also busy, but Q2 and Q3 should be your lighter times. Rent's going to be consistent. Share-based compensation, that should be lower. The fourth quarter had some issuance to directors in lieu of cash fees, which is why that increased over the quarter. depreciation amortization should be consistent and impairment loss, you know, that's a year-end evaluation as required to do your annual work, you know, and barring any change with any clinics, you wouldn't anticipate any triggering events. So, you know, impairment losses should be reduced in Q1, if not zero. And then as Prad said, those salaries and wages and your other professional fees and office and admin, what you should see is start decreasing in Q2. So that's what I would expect to see kind of going forward. And then obviously as we continue with our efforts to reduce them. Those are the areas that should be reducing over the full year.

All right. Thank you. Thank you very much. And if you will indulge just one more question, talking about the revenue guidance that you gave us just now, recognizing that this is basically your run rate from continuing operations today, but recognizing, you know, so the, the puts from, or the, the benefits from things like COVID testing that you guys recognized in the last couple of quarters, and seasonality that we should expect in the future quarters. I'm wondering how we should think about potential M&A as it relates to your issued guidance or top line guidance for the year.

Thanks. Michael, the M&A is excluded from our guidance. We don't typically We've moved away from announcing LOIs. We've moved away from making sure that we're not including future M&A in the guidance. So you're right, it's reflective of the run rate. And then I think previously to Rob's question, it's not reflective of the initiatives that we have planned for this year. Yeah, and certainly not reflective of the M&A that we have both in the pipeline and we have currently under diligence.

Perfect.

Thanks very much. I'll jump back in the queue.

Thanks, Michael.

Our next question comes from Gabriel Leung of Beacon Securities.

Please go ahead.

Good morning, and thanks for taking my questions. Prad, I just had a quick one for you first. Just in terms of the delay in finalizing the relationship with the DCE, I'm curious if that has an impact on the timelines of what you had originally planned in terms of your ability to participate in with traditional Medicare patients, and whether this impacts at all your ability to participate this year, or does that sort of get pushed down to 23?

Thanks, Gabe, for the question. So I think as most have seen, when we transitioned over to the DCE last year, we started hearing rumblings about what happened with the DCE this year, and lo and behold, CMS has basically pulled the DCE now and has repositioned it into a new program called the ACR REACH. I think the conversation with the payer partner, you know, it certainly doesn't impact our ability to participate and keep in mind the DC or ACO, whatever acronym CMS decides to come up with next is from an innovation standpoint, it's going to be largely just for the traditional Medicare lines. It doesn't impact our ability to participate in Medicare Advantage or in any other commercial risk programs that fall outside of those relationships. And they will all be governed and watched under the call it relationship that we'll have together with our partner. And so we're not necessarily worried about the effect and change on those things. And certainly from this year's perspective, if we're not in the DCE, we'll be within the next plan the following year. So there is that delay in terms of traditional Medicare lines. We weren't talking about a lot of lives to begin with. So, you know, from a contribution perspective, I think it was more the ability to say that we have launched it versus saying that, you know, we are in it. So, yeah, we're still remaining committed to it. We'd rather be into the program that's going to be the program that's moving forward. It sounds like the new ACO reach seems to be in the direction it's going. But either way, that'll be communicated as we move forward. In the meantime, though, like I said, we've already engaged in other value-based care models where we're starting to benefit from some increased reimbursements on cost and care coordination. And as we continue to build on our marketing programs, we're certainly keeping a focus on sort of areas where we believe we'll attribute stronger growth, mainly in Medicare and certain commercial life segments, so that when we do enter that model next year, it will be with significantly greater number of patients, which will reflect in a higher return in terms of our ability to participate plus experience this year will allow us to be able to take on more risk at that point as well. So we're still very much on track, and this change is really just kind of an opportunity for us to kind of reset which model we're going to be participating in.

Gotcha. Thanks for that. And then just on the cost side of the equation, are you able to quantify – some of the expected costs, which as you talked about, are expected to drop off meaningfully, sort of that Q2, Q3 timeframe. Are you able to provide sort of a quantitative number around that?

Yeah, Gabe, it's Andrew here. In terms of fees and kind of additional salaries for the projects that we add, I would anticipate at least a million dollars a quarter, if not closer to two. The professional fees, you know, overall, obviously, is just a continued effort and reflective of kind of our current activities and what we're doing with regards to, you know, transactions. So, you know, the fact, though, that we are looking at, you know, more transformative transactions as opposed to building critical mass and, you know, building a collection, you know, by default, you know, should be more concentrated in, you know, times, you know, periods as opposed to being consistently dead by a thousand cuts throughout the year.

um so you know i would anticipate you know we should see anywhere from you know one and a half to two million savings uh you know in q2 onwards gotcha um and so if i look at your what your q4 ebitda burn was i think it was about five million bucks it might sort of chop off two million from there so three um you know get your burn down to three i i'm still just trying to reconcile you know, how you sort of get to that break-even, the even of profitability based on the current revenue guidance you provided for this year of 35 to 37. You know, what are some of the puts and takes that I might be missing in terms of how you're going to get back to that break-even mark later this calendar year? And if you could as well, do you have a guess to admit on what your low watermark might be on the cash side of things as you hit that break-even mark again? Of course, this is all prior to any M&A activity.

Yeah, Gabe, I mean, the other side of this is, you know, really, you know, our margin at the sites and ensuring that that gross margin increases to go with it, right? So we have, you know, increase in revenues, an increase in gross profit, and then, you know, seeing the decrease in costs kind of going forward. Low watermark, you know, it'll be pretty low with current cash, that's the way it goes. But, you know, we don't have any intention at the moment We'll look to source that through lines of credit or other small interests, but it would be very small in my mind in terms of the next few months. I anticipate that we would be able to offset that with an increase at the sites and profitability at the sites themselves, as well as a corporate expense reduction.

Yeah, Gabe, just to add to that a little bit, I mean, most of these investments that were made, you know, not just from a systems perspective and an implementation and professional fees perspective, but they come from duplication. You've got duplication of systems, you've got duplication of personnel, you've got duplication of interest. And so, you know, the reality is through the course of sort of consolidation of costs, you're looking at where these are in line. And so while Andrew mentioned sort of some targets towards Whether, you know, the kind of key areas will be from a gross profit perspective, utilization rates will make a difference. Economies of scale from supplies will make a difference. Certainly, you know, there'll be some impact to personnel and headcount as we start to look at some of these changes. And that's just indicative of now looking at duplication across the board. There'll be reductions in terms of professional fees and subscriptions as we don't need to carry some of these duplications. um and this does not you know come back to where the revenues will be on the top line so again this is this is not a model that you know we we believe is is something that we're just kind of high and dry hoping we're sure going to get this is something that again while it might have taken a little bit longer to launch some of these systems and you know these costs we've always recognized are one time in nature because they're investment in nature um but to move back to profitability has always been our goal and it's always been our commitment as a company we've been there historically in the past and so recognizing you know what we need to do to build now we need to to be able to show that it generates the return and that way new acquisitions as we continue to grow, we'll be able to benefit from the same scale and experience that we've developed here. So, you know, I think more to that as we continue to execute, but as Andrew mentioned, you know, while we recognize cash balances will be low and it'll be tight, you know, it's not our intention to just, you know, shore up the balance sheet just to have cash on the bank. We want to be able to demonstrate that, you know, we do have fiscal responsibility and we can bring those costs down and be able to leverage if we need to, some small non-diluted securities to be able to carry it, but it is very much our intention to get to that positive profitability this year.

Got you. I appreciate all the feedback. Thank you.

Our next question comes from Yu Ma of Research Capital Corp.

Please go ahead.

Hey, morning, Brad and Andrew. Thanks for taking my questions. I have three here. First, on the revenue guidance of 35 to 37, it looks like the number was a little bit below the combined historical revenues of all those acquisitions.

Why is that? Sorry, we're just discussing who's going to answer that. Toby, I'll let Brad jump in quick.

I think that's what he's giving me hand signals for here.

Yeah, okay. Thanks, Andrew. Toby, I think part of this is reflective of looking at what the numbers were with the divestiture and looking at kind of what the real outcome was with the numbers once they're gone in terms of cost and revenue implementation. I think part of it is also looking at, from the atomic standards, how the restatement and refound of some of these revenues are recognized and being able to measure that we're looking at this consistently in the same way that we've been asked to look at this. So internally, you know, we feel strong that we're going to be able to move forward and continue to be positive. But at the same time, we want to just be, from a reporting standpoint, ensuring that we're sort of setting the stage here in terms of what we think we're seeing today and then give us an opportunity to continue to execute against our plan.

Okay. Okay. I think the only thing I'd add, Toby, is, you know, again, with, you know, the earlier question about, you know, opportunities for, you know, outperformance, you know, we're leaving ourselves a space to be talking about that. Getting to those areas of performance in the second half, as we mentioned, just may mean that it's not always a straight line, and we're just leaving ourselves the ability to execute on that and deliver in the third and fourth quarter.

Okay, appreciate that. Second question on the new ACO model, which is called ACO Rich, and that is to replace direct contracting. I was wondering how confident the company is that the original DCE partner would apply for this new ACO REACH program and receive approval?

Yeah, I mean, look, this has less to do with the DCE partner and welcome to the world of CMNY, the Center for Medicare and Medicaid Innovation. Look, I think as they continue to find new ways to do it, Our partner has been operating within these models for the last 10 plus years, and they've been outperforming their metrics each time. So, you know, it's not that they don't have other models that we'll be able to participate in. And I know that, you know, from the question, it sounds like all the focus relies on one program being sort of the ultimate determinant factor with its partner. I want to expand that and be able to articulate that the partner we're working with has multiple avenues for where we will work together to on strengthening our value-based care initiatives and whether it's, like I said, any version of the acronyms today that is used to define traditional Medicare programs, it is by no means restricted to just one. So, again, I think, you know, it's certainly going to be helpful to point to one and say, yes, we're in this program, but, you know, value-based care is not a singular path. There's parallel plans, parallel programs, and it's it has an opportunity for us as an organization to benefit from all of those. It's about setting ourselves up to be able to access those and succeed under those plans.

Okay. Just one last question. I was wondering if Skylight ever received any interest from larger players that would be interesting acquiring this company? And what are management's thoughts on this front?

We're head down, Toby. We're not interested at this time. We have a ton of potential in the company and we've done everything we've done in the past year not to walk away from it today. There's a reason why we invested what we did and built what we built and have a pathway forward is what we have. We're, you know, management's excited. You know, I could speak for myself and my other co-founder, Cash. We continue to support the market and when we can out of blackout. be able to participate. But at the same time, it's, you know, we're excited about the future. We have no reason for us to think that that needs to be a course of action for the business. And there's a ton of value to be had before that conversation even comes up. But, you know, we'll always maintain fiduciary responsibility. But like I said, we're heads down.

Okay. Okay. Thank you. I hope that gives a cue.

Thanks, Toby.

This concludes the question and answer session. I would like to turn the conference back over to Mr. Shaker for any closing remarks.

Thanks, Ariel. I appreciate everybody's time. I know we're about a minute after the call ends, but we hope we're able to convey all the excitement that we have going forward and able to describe some of the initiatives we've been working on in the past several months. Transparency will be important to us. We'll continue to keep shareholders up to date, but please note that we are very much focused on driving forward, and we look forward to keeping you all aware of our progress. In the meantime, I invite you to visit our website, skylighthealthgroup.com. You can get more information about our company or contact details in case you want to reach out to us. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.