SOC Telemed, Inc.

Good afternoon and welcome to the SOC TeleMed fourth quarter 2020 earnings conference call and webcast. All participants will be in a listen-only mode. Should you require assistance, please press star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. To remove yourself, please press star then two. Please note that this event is being recorded. Leading today's call are John Kalix, Chief Executive Officer, and Chris Nibb, Chief Financial Officer. Please note that the company will be discussing certain non-GAAP financial measures that they believe are important in evaluating performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliation thereof can be found in the press release that is posted on the Investor Relations page of the company's website. Also, please note that certain statements during this call will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results for SOC Telemed to differ materially from those expressed or amplified in this call. For additional information, please refer to the cautionary statements in the press release filings with the SEC, all of which are available on the investor relations page of the company's website. With that, I would now like to turn the call over to SOC Telemed's CEO, John Kalix. Please go ahead.

Thank you, Operator, and welcome everyone on the call. Thank you for joining us this afternoon to review our fourth quarter and full year 2020 results. I want to start the call today by thanking the entire SOC team for their hard work throughout the year. It's your persistence and commitment to the organization that empowers us to deliver time-sensitive care to patients at their most vulnerable. 2020 was an important year for SOC telemed. On October 30th, we closed the SPAC merger transition and began trading on NASDAQ as a standalone public company, and we made significant additions to our team across the organization to best position ourselves to capitalize on the opportunities that lie ahead of us in 2021. On the call today, I'm going to share some high-level results, recent additions we've made to the team, and trends we're seeing in the industry. I'll also share some details of the acquisition we announced today of Access Physicians, an experienced multi-specialty acute care telemedicine provider that further solidifies SOC's position as the largest acute dedicated telemedicine provider in the US. I'll close my comments today by reviewing investments we're making to set up for future growth and what we were planning for 2021. So first of 2020, our revenue for the full year of 2020 was 58 million, a 12% decrease from 2019 really resulting from the impact of COVID-19 had on the emergency room utilization for our hospital customers. That's something we've previously discussed on our last earnings call. At the same time, we achieved record bookings of $12.2 million, doubling our results from 2019. Now, on the last call, I told you about our commitment to ensure our future success by enriching and enhancing the SOC team. To that end, we recently brought on Chris Nibb as our Chief Financial Officer, Ron Egan is our Chief Customer Officer, and Stephanie Harris is our Chief Human Resource Officer, all of whom bring public company experience, strong track records of success, and diversity of thought to the business. As we grow our organization, we remain acutely focused on both optimizing the value we deliver to our customers on a daily basis and being aggressively committed to our people. It's critically important in this stage of the company's life to have experienced Visionary leaders focus on these two key elements, and that's exactly what Chris, Ron, and Stephanie have brought with them to SOC. Additionally, High Tran has been promoted to President and Chief Operating Officer to focus his attention on the operations and growth of the organization. Given his deep domain and company expertise, High is well-suited to drive the operational excellence needed. So as this is only our second earnings call as a publicly traded company, I wanted to step back and provide a quick reminder to all of those where we are positioned in the telemedicine space, really before getting into some of the trends we're seeing in the industry. SSC Telemed is the largest provider of acute care telemedicine solutions that are primarily used inside the hospitals by onsite care teams to provide time-sensitive acute care specialty solutions. The service we deliver is initiated directly by members of the care team, and this is a really important distinction from the consumer-initiated access to remote primary care type clinicians. SLC Telmed provides a differentiated solution through the seamless integration and flexible deployment of our proven, secure, purpose-built software platform called Telmed IQ, a panel of consult coordination experts, and then finally an access of networks of providers across multiple specialties. We are proud to have worked with our pioneering partners who are on the cutting edge of Q-Care telemedicine. And as it becomes more widely accepted, we look forward to this future together. Now Q-Care telemedicine has emerged as a solution to increase access to scarce clinical resources, improving clinical quality and really driving operational efficiencies. This creates a clear path to revenue generation and improve profitability across healthcare systems. We're well positioned to step in and assist hospital leaders in both the emergency departments and across the hospital more broadly. Hospitals are struggling with the challenges of acute care capacity management, physician scarcity, and cost optimization. Our unique position, developed over 17 years of acute care telemedicine experience, is a result of our ability to deliver clinically effective coverage at a meaningfully lower cost than traditional onsite alternatives and that's due to this fractionalization of remote providers with outcomes as good as or better than traditional care. The COVID-19 pandemic has had a meaningful impact on the delivery of care and the evolution of telemedicine. Starting from the early stages of the healthcare crisis, there's been a rapid uptick in the acceptance of telemedicine, accelerating a multi-year adoption curve. We believe that virtual care will continue to be critically a critical component of the industry's ability to deliver increased access and improve quality of care. All that said, the pandemic clearly demonstrated that high-quality healthcare can indeed be delivered virtually through partnership between virtual specialists and on-site clinical teams. As we look at the long-term demand for our solutions, it's evident the same underlying challenges in place pre-pandemic still exist and persist in our healthcare systems. We directly address increasing financial pressures, the challenges of balancing high labor costs with the delivery of quality care and the widespread shortage of specialists in the US, compounded by the expected increase in the care of the growing aging population. These challenges are only exacerbated by this mild distribution of clinicians nationally. Given the inequities of care delivered today, we believe that where you live should not dictate the quality of care you have access to. The pandemic may have caused a near-term challenge in terms of the emergency room utilization, but we believe it's very clear that virtual care will continue to be a critical component of the healthcare industry's ability to address the aforementioned challenges, delivering increased access and improved care to patients. What today we refer to as telemedicine, tomorrow we may just call medicine. As tele, becomes woven into the fabric of how we provision care. As you likely saw today, in conjunction with our earnings release, we're incredibly excited to announce our acquisition of Access Physicians, an experienced and high-growth multi-specialty acute telemedicine provider. This is a pivotal moment in the growth of SOC TeleMed, and follows through on a critical pillar of our growth strategy. This combination furthers SOC TeleMed's position as the largest pure play provider of acute care telemedicine in the nation, reaching nearly 1,000 facilities, including over 700 hospitals across 47 states. Combined, we bring over 27 years of telemedicine experience to those in need of acute care solutions. When we think about the number of combined sites we support, this acquisition makes us over three times larger than our next closest dedicated acute care telemedicine solution provider, bringing scale, expertise, and technology as a single solution provider to the market. After doubling our bookings from 2019 to 2020, we believe that this strategic acquisition will enable us to nearly double our revenue on a year-over-year basis in 2021. Supported by a purpose-built acute care telemedicine platform called TelmedIQ, the business combination with Access Physicians will enable us to accelerate adoption of acute care telemedicine to have a larger impact in addressing inequalities. We share a mission with Access Physicians' team in the way we strive to deliver high quality care via telemedicine to all patients. We believe this will be a great cultural fit as we progress through the integration process. Part of the rationale around any access or acquisition is the quality of the talent we bring on board. Chris Gallagher, MD, the CEO of Access Physicians, is one of those individuals. Chris is a board certified cardiologist who's a clear thought leader in the telemedicine space with just an impressive entrepreneurial track record. I'm thrilled he's joining my direct leadership team as president of Access Physicians, a division of SOC Telemed. Chris also brings a very strong leadership team with him, and I'm excited to get to work with such a phenomenal team as we grow the combined business. Strategically, our acquisition of Access Physicians expands our clinical service lines and grows our physician networks in both size and experience. As a complement to our current offerings, this combination provides us access to several new specialties, including things like cardiology, infectious disease, maternal-fetal medicine, nephrology, and many others, expanding our estimated white space opportunity to approximately $2.7 billion. And with our combined customers and expanded offerings, we have tremendous opportunity. Moreover, this acquisition positions us as a single acute care telemedicine solution provider that we believe the market demands. One of the most attractive elements of this acquisition for SLC TeleMed is that it further accelerates our expansion into the hospital beyond the emergency department, as Access Physicians has historically focused on inpatient solutions. While many patients come through the ED, when we think about inpatient solutions, It is a term more broadly used to define any patient who has been formally admitted to the hospital. These patients require highly trained specialty physicians and care providers for their inpatient care, which all have significant clinical shortages. This is truly a complementary combination that broadens our solutions across a hospital's continuum of care, which also provides a natural hedge to volatility of utilization across departments and specialties. Importantly, we expect that the combined company creates a meaningful opportunity to accelerate growth through cross-selling as we only have six of 1,000 sites that overlap between the two organizations today. This business combination will create a singular clinical solutions provider and partner rapidly growing demand in the market. Together with Access Physicians, we will be a solutions provider that can offer more to our customers than any other organization could on its own, supported by one platform built with a focus on security and flexibility. Moving forward, as we look at 2021, in addition to the integration of Access Physicians, we have a number of key strategic priorities aimed at driving growth in our business. First, we continued our investment in our go-to-market capabilities during the fourth quarter, further developing our sales and customer success teams. We're taking a phased approach to that expansion of our sales organization And while there's still some work to be done, this development is designed to enable our success in 2021 and beyond. The new team members are building pipeline, closing deals, and expanding our reach. As hospital leadership's primary focus shifts away from vaccine distribution back to really hospital operations and the strategic initiatives that they have, we're poised to gain momentum through this team. These investments were intentional and have been time to help us activate our expanded capabilities outside of the ED with access to physicians acquisition. In summary, we are really confident in our ability to leverage this investment to deliver results. Further, in 2021, our customer success organization will provide continuous support and deliver value for a growing number of customers. As we mature, this is an area where we plan to continue to invest to really ensure optimal support for our customers. scaling accordingly with our growth. With an increased focus on expanding system level partnerships, we really believe that we're well positioned to work as a strategic advisor to those systems based on our telemedicine expertise. This expertise is only bolstered by the access positions acquisition as we now offer more services to address the needs of our current customers. Finally, as we look in 2021, we plan to continue to expand our new markets and into new offerings to address the winding needs of our hospital customers throughout their facilities. My interactions alone with large health systems as well as independent hospitals reinforces our belief that there's a pent up demand for a single multi-specialty solutions provider with a broad portfolio of clinical networks that can be accessed through a proven, secure, and flexible telemedicine platform. Purpose built to support the facilitated care model Additionally, I continue to hear the term vendor fatigue used by both current and potential customers. In a fragmented space, hospital systems and independent hospitals are looking for a single partner with a single secure platform to optimize their service lines in a meaningful way. We're now uniquely positioned to be that partner. We intend to continue to build our presence in adjacent specialties in the acute care market, both organically and inorganically. Our experience with the TeleMed IQ platform, where we support more than 20 clinical service lines today, provides the foundation we believe is really required to enable this growth. Now more than ever, I feel incredibly confident that SOC TeleMed is providing the right solutions to meet the needs of the market. There is clear opportunity to leverage our foundation of 750 plus physicians, 27 years of combined acute care telemedicine experience, and proven, dedicated, and secured technology platform to expand into adjacent markets to accelerate our growth. Before I hand it over to Chris, I want to officially welcome the entire Access Physicians organization to SOC Telemed. Additionally, I want to really thank both the SOC Telemed and the Access Physicians leadership teams for just their tireless efforts to execute this meaningful transition and acquisition. With that said, I'll turn it over now to Chris Nidd to review the financials in greater detail. Chris?

Thank you, John, and thank you all for joining us today to review our financial results. I'll start my comments today with an overview of the Access Physicians transaction details. I'll then review the fourth quarter results and finally share our initial thoughts on guidance for 2021. To expand upon what John already shared, We announced today, after market close, our acquisition of Access Physicians via a cash and stock purchase valued at approximately $194 million with an additional potential consideration based on performance. The transaction, which closed on March 26, is comprised of $100 million in equity and approximately $94 million in cash, funded from a new five-year term loan and a subordinated note. For the full year of 2020, Access Physicians generated approximately $27 million in revenue and grew approximately 50 percent from 2019. while approaching break-even with an adjusted EBITDA loss of $1.8 million. As you heard, the acquisition will broaden our service offerings and is expected to create meaningful cross-sell opportunities. At the same time, it continues our expansion outside of the emergency room to several departments throughout hospitals, making our solutions more robust as a single provider of multiple service offerings. Over the long term, we see potential for increased operating efficiencies as we consolidate onto a single platform, resulting in improved margins. Now, turning to the results from the quarter. We generated $3.9 million of new bookings in the fourth quarter, a 95 percent year-over-year increase. These strong growth rates reflect the increased interest in acute care telemedicine solutions and the momentum we are seeing in our suite of services. As John mentioned, in the latter part of Q4, we started to make investments to build out our go-to-market teams. Accordingly, their ramp-up will take some time. As a result, we expect to start seeing the increased benefits from those investments in the second half of 2021. Revenue was $14.5 million in the fourth quarter, a decline of 13% year-over-year. As we've discussed previously regarding utilization volatility, revenue in the quarter was impacted by lower utilization of our core services, resulting from a decrease in hospital and particularly emergency room visits due to the third wave of the COVID-19 pandemic. After seeing an initial recovery in volume in October, that third wave led to a volume reduction in November and December, which we understand is consistent with hospitals' experience in emergency department utilization across the country. In terms of total consults on our platform, we conducted 88,000 consults during the quarter, a 26 percent increase compared to a year ago, as our platform-only customers continued to increase their utilization. 31,000 of the new consults were what we define as core consults, those that utilized our network of specialist physicians. Now turning to our non-GAAP financials. In the fourth quarter, adjusted gross margin was 44%. relatively flat compared to 45% in the fourth quarter of 2019. Although revenue was down 13% year over year, we were able to largely offset margin pressure by managing our expenses through closer alignment of our physicians' schedules. Our operating expenses, excluding depreciation and amortization, integration costs, and stock-based compensation, was $10.3 million, an increase of 42% compared to a year ago, reflecting our increasing investments in our go-to-market functions and the cost of being a public company. Looking forward, our public company costs are expected to be higher than previously guided, as directors and officers' insurance expense is about $3 million higher than what we had anticipated. as the market for SPAC-related insurance increased dramatically throughout 2020. Reflecting those investments, our fourth quarter adjusted EBITDA was a loss of $3.9 million compared to a positive $200,000 last year. We ended the fourth quarter with approximately $39 million in cash and no debt. However, subsequent to quarter end, in conjunction with the access positions transaction, we established a new $125 million five-year term loan of which we utilized about $85 million and we established a $13.5 million subordinated note. Finally, we are initiating our outlook for the full year of 2021 as a combined company on a pro forma basis as follows. Revenue will be in the range of $107 to $113 million, of which approximately 30% to 35% is expected to be contributed by access physicians. Our adjusted gross margin will be in the range of 42% to 45%, and our adjusted EBITDA loss will be in the range of $15 to $19 million. Going a little deeper into our guidance, the pandemic has and will continue to impact us in multiple ways, which have been considered as part of the guidance provided. One short-term headwind is the variable utilization of core services as I discussed earlier, which impacts, but we are starting to see early signs of stabilization, particularly around psychiatry. The pandemic has also created significant tailwinds, which we believe to be an enduring long-term benefit, given the growing recognition for the solutions that we provide, which has led to meaningful interest and a growing pipeline. Additionally, we will now be able to cross-sell a broader portfolio of solutions and continue to diversify our revenue base. For bookings, we see them as weighted to the second half of the year as our existing potential hospital customer decision makers are focusing their attention on the vaccine distribution in the near term. Additionally, we expect the increased contribution from our new from our newer sales members to have a ramping effect as they mature into their roles. As we look at consolidating the practices of both organizations, we will be reporting on our 2021 bookings to be defined as an estimate of first year revenue. In terms of quarterly revenue, given the higher levels of COVID cases early in the quarter, We expect Q1 to be down sequentially and then grow throughout the rest of the year. We believe adjusted gross margins will be in the low to mid-40s, reflecting access positions' lower margin profile. SoC's standalone higher margins are the result of our more robust platform, Telemed IQ, which will drive long-term margin improvements as the business is integrated. Our adjusted EBITDA outlook reflects continued investment in the incremental cost of being a public company and our go-to-market teams. In conclusion, I want to thank the leadership teams of both Access Physicians and SOC Telemed for their continued hard work throughout a very dynamic year. We look forward to continuing to update you on our progress throughout the year, and with that, we'd be pleased to take questions. Operator?