SOC Telemed, Inc.

Telemed's first quarter 2021 earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance during today's call, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star then one on a touch-tone phone. To withdraw your question, press star then two. Please note 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 measure and reconciliation thereof can be found on the press release that is posted on the Investor Relations page of the company's website. Also, please note that certain statements made during today's 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 implied in this call. For additional information, please refer to the cautionary statements in the press release and filings with the SEC. all of which are available on the investor relations page of the company's website. With that, I'd 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. Before we get into the results, I'd like to provide a reminder as to the space in which we play and why the differentiation is so important. As the leading and largest dedicated acute care telemedicine provider, We operate in a very different space than those who primarily focus on lower acuity, patient-initiated consumer telemedicine. With that comes the challenges and the opportunities, actually, tied to managing complex workflows. It requires a level of expertise and experience to provide the highest quality care possible. A recent example where the acute care and direct to consumer spaces differentiate came from Q1 telehealth patient usage. As reported by Fair Health, telehealth usage among individuals with private insurers fell 16% month over month, the first decline since September. Conversely, as we operate in a higher acuity space where the need for patient care delivered in hospitals is stable, we actually saw a significant increase in patient consults volume in Q1 across multiple service lines, led by psychiatry, which is what we will cover in more detail here as we move forward. It's just one example of how the acute care telemedicine space differs from telemedicine at large, and we'll continue to focus on this space moving forward. So we had a great start to the year, and I'm pleased to be here today to provide an update to the first quarter. Revenue came in at $14.8 million, inclusive of five days of Access Physicians contribution. This is consistent with prior year Q1 2020 results. And as a reminder, given the timing of the COVID pandemic, there was simply less impact around Q1 2020 patient volume utilization as compared to Q1 2021. Therefore, we're pleased with the results given that environment. Our bookings, which I'll elaborate a little bit more later here, were 8.5 million for the combined company ahead of plan for the quarter. On the call today, I'm going to share more detail on a recent acquisition of Access Physicians, high-level results, and additional industry trends that we observed in Q1. I'll also share more information on investments we're making to accelerate growth and set us up for long-term success, exciting additions to our board, and then I'll close my comments providing an update on recognition we received around quality and innovation. It's only been a few weeks since our acquisition of Access Physicians, so I want to start by spending some time today recapping exactly why this business combination was so important to our ability to meet the needs of the acute care marketplace and what it means for progress through 2021 and beyond. As we've communicated previously, a key pillar of growth for SOC telemedicine is a creative M&A activity. I've heard through many of my conversations with hospital executives across the country the strong desire to work with a single, established acute care telemedicine partner. As such, when considering potential M&A targets, we strategically sought out a company that would broaden our offerings from a number of clinical specialty standpoint that would complement our current capabilities and further enable us to leverage our Telmed IQ platform. Access Physicians brought seven new incremental service lines and 10 years of acute care telemedicine experience. And as we shared this genetic thread for a commitment to addressing inequalities in access to quality care, it was simply a great fit. The combination with Access Physicians provides us three things, all of which I will expand on during this call. First is scale, as they bring an established physician network of over 600 and programs in over 175 hospitals. Second, meaningful growth opportunity, as there is almost no site overlap, both in terms of existing customers and prospects. Finally, it brings diversification. As access physicians started in smaller hospitals, focused on the inpatient space, whereas our start was focused on emergency-based acute care in larger hospitals. That diversification extends to service lines that complement SOC's legacy offerings providing access to several new specialties, including cardiology, infectious disease, maternal fetal medicine, nephrology, and others. This combination has expanded our estimated total addressable market from $2.8 billion to nearly $7 billion. As previously shared, when you look at the number of combined facilities we support, this acquisition has made us over three times larger than the next closest dedicated acute care telemedicine provider, bringing scale, expertise, and highly secure technology as a single solutions provider to the market. This scale ultimately enables us to partner in delivering network integrity, which is a health system or hospital's ability to keep patients within their defined network of providers. Now offering clinicians across 11 service lines our ability to serve as an extension of the hospital provider network through our clinical services or as an enabler to their provider network through Telemed IQ platform ensures patients can stay within the network to receive care. An additional benefit of that scale comes through working with our large customer base under Telemed IQ platform, which enables SOC to deliver significant value back to our customers through benchmarking and advanced analytics to optimize clinical and operational workflows. In a time when hospitals are managing multiple success metrics, They're looking for embedded partners who provide valuable reporting, analytics, and insights, which we do. Now, to provide some additional color on why this is such a good fit for our organization, we should start with the $2.7 billion cross-selling opportunity, our newly expanded service lines to our current combined customer base. Access Physicians' focus has been on establishing new hospital relationships to drive growth. With limited resources for cross-selling and account management, for existing customers, and that's really consistent with a lot of high-growth companies. This is an area where SOC has proactively invested in, and we will continue to do so. In one world, we've seen real momentum expanding from 1.7 service lines in 2019 to 1.9 service lines per site in 2020. That experience and investment will play a significant role in our success. Finally, we're confident in our ability to consolidate on our proven, secure, and flexible Telmed IQ platform that will help better fractionize clinician time to drive longer-term margin expansion. Together, we're in nearly 1,000 sites of care across the nation, yet only overlap in six existing facilities. That ensures that our ability to deliver additional value to better address inequities in access of care is only strengthened together. Our combination with access physicians not only increased our national footprint, expanded our clinical service lines, and significantly grew our provider depth and breadth, but it also accelerated our expansion in the hospitals beyond the emergency department. As an organization that started in the inpatient space, Access Physicians Business saw less impact from COVID-19 as compared to SOC experience in terms of utilization. As SOC historically was an organization with strength in service lines tied more closely to patients coming through the emergency department, This diversification and expansion across the hospital's continuum of needs will be a key factor in our ability to drive growth irrespective of the macro environments and any related volatility of utilization across departments and specialties. In summary, given the feedback we've received from the market and opportunities created by access positions acquisition, we believe our combined organization is well positioned to accelerate growth in the coming years. I'd like to pivot and discuss some industry trends we observed in the first quarter. As we had anticipated, we've seen increased utilization of our psychiatric service line. It's really fitting that here in May, Mental Health Awareness Month, we're talking about what is becoming a concerning but expected rise in behavioral health related volume tied to the pandemic. Volume dropped dramatically in this particular area in hospitals during the height of the pandemic. So we knew it was only a matter of time until those patients would be coming back into the hospitals. As supported by research conducted by the CDC and other agencies, the impact of COVID-19 pandemic on behavioral health was significant. And we saw that in patient volume in the emergency department in late Q1. And that has continued into Q2. Utilization of our neurology offering is also ticking up. Those volume increases generally in line with our expectations. As vaccinations increase, continued patient volume increases will act as a tailwind for our business. While we are seeing these upticks as a sign of normalization of hospital volumes, we are still in the early stages of COVID recovery. And like many others in the space, we're taking a conservative approach to how we see this playing out over the remainder of 2021. However, longer term, the underlying model is built on the idea that there will continue to be a mismatch between supply and demand. As volumes are unpredictable, even more unpredictable now, hospitals look to partners like us to be able to scale and meet those unpredictable acute care volume shifts via telemedicine. This need will only be exacerbated by future volume changes, really in either direction. As previously mentioned, patients are coming back to the hospital for care that can only be delivered in the hospital. The acute care telemedicine space is primarily focused on delivering care to patients who can't receive it at home, or in an inpatient setting, at least not for the initial consult. While the lockdowns tied to the pandemic kept people in their homes, ultimately, as we're seeing in psychiatry, the acute care nature of their issue will continue to drive and return patients back into the hospitals, which is where we provide our services. And for that reason, we're optimistic about the long-term growth of the space and our position within it. All of this speaks to our mission and the value proposition we deliver to our customers and the market at large. In an environment with a significant shortage of specialists and the complexity tied to staffing for acute care volume volatility and surges, hospitals are often challenged to staff to actual volumes. Due to that volatility, they're required to either staff with onsite physicians to meet peak volumes, which is very expensive, and only exacerbated by the maldistribution of specialists, or staff to average volume, which can lead to both quality and operational challenges in the delivery of care during surges. Now, as I've mentioned previously, we saw a 30% increase in our pipeline during the first quarter, nearly all of which came prior, actually, to the Access Physicians acquisition. This included a spike in interest across the four service lines we offered prior to our expansion, including our more recently launched pulmonology services line. When we then layer in the new seven service lines we added, our ability to better address the challenges and complexity that come from working with multiple vendors that we have been consistently hearing across the acute care space further differentiates SOC. In a fragmented space with significant resource constraints, healthcare systems and hospitals are looking for a single partner with a secure platform to optimize their service lines in a meaningful way. Post-acquisition, the conversations, the early conversations, are tied to addressing needs based on both specialist shortages and the challenges around clinical load balancing issues with health systems. These range from strategic sole source conversations with large IDNs to the ability to offer support in multiple specialties in smaller regional hospitals. As a desire for network integrity and the expressed need to work with a single partner in the acute care space for telemedicine, and that continues to grow, we're starting to see clear strategies forming from health systems and hospitals. Additionally, we're only a month into the merger with Axis Physicians, but we have quickly collaborated to ensure we are collectively meeting the needs of the market. A great example of this is our ability to respond to multiple RFPs within days post-closure as one organization across 11 service lines, coupled with our differentiated Telemed IQ platform. This demonstrates how the combined organization is uniquely positioned to meet the needs of the market. This was the type of ask that we anticipated and we expect to only accelerate. I want to close by spending some time discussing how we are ensuring we are set up for success going forward and some recent recognition around our commitment to quality and innovation. We recognize that the investments we began making in 2020 to build out our commercial organization have helped position us for accelerated growth. Those investments were timely, as they've enabled us to actively and quickly move around new opportunities coming in from the Access Physicians acquisition. Connected to our growth, we have plans to continue to expand our customer success organization to enable us to meet the needs of our customers and really ensure we're embedded partners with alignment around delivery of value. Investment in customer success, really an investment in our customers, enables us to spend more time on average per account, which as service lines expand, will be critical to providing the highest quality of support, build deeper relationships, and grow together. As previously discussed, with an increased focus on expanding system level partnerships, we believe we are well positioned to work as a strategic advisor to those systems based on our acute care telemedicine expertise. Now, as you may have seen earlier this week, We're excited to announce the addition of two new board members, which brings our board to nine. Josie Chelsea, former President and Chief Executive Officer, Hospital and Clinics at Cancer Treatment Centers of America Global, and Dr. Chris Gallagher, President of SOC's recently acquired Access Physicians, are now on the team. It was important that we found directors who would bring diversity of thought, background, and experience to our board. And we've done that with Josie and Chris. Both have dedicated their careers to improving healthcare and addressing health inequities. Jossie's a proven leader in the healthcare space with experience leading large healthcare companies, executive roles in managed care space, and multiple hospital administrative roles. Chris is a thought leader in the space of acute care at Telemedicine and brings an additional clinical voice to the board as a physician board certified in internal medicine and cardiology, as well as a strong entrepreneurial perspective. In addition, we're delighted that Chris has joined the management team to play a critical role in day-to-day operations that drive our success. These are two well-qualified leaders, fully prepared to help SOC guide our course forward. Finally, I'd like to share an important update that speaks to our continued commitment to quality, security, and innovation. In March, SOC achieved reaccreditation by the Joint Commission through their Gold Seal of Approval. The Gold Seal is a symbol of quality that reflects a healthcare organization's commitment to providing safe and quality patient care. As the first telemedicine company to achieve the Joint Commission Gold Seal of approval way back in 2006, we are proud to continuously maintain that accreditation today. This is further proof of our commitment to quality, and it really maintains our position as the only dedicated acute care telemedicine company maintaining Joint Commission accreditation URAC accreditation, which recognizes a commitment to quality and clinical excellence in telehealth space, and HITRUST CSF certification, a testament to our commitment to the highest security standards with our TeleMed IQ platform. To add to this news, we're really excited to share that our highly secure TeleMed IQ platform was awarded the 2021 MedTech Breakthrough Award for Best Overall Telemedicine Platform. based on the robust, flexible, and secure nature of this purpose-built offering. This comes a year after winning the 2020 MedTech Breakthrough Awards for Telehealth Innovation. When we developed telemedIQ as our proprietary acute care telemedicine platform, it was built to enable flexibility, robust clinical workflows, and optimization of scarce resources in a highly secure environment. To provide context to why this focus benefits our customers, You need to really consider that we operate in a space with many new entrants, with clinicians using their own personal devices on platforms not built for acute care telemedicine delivery. This creates massive risk for health systems and hospitals operating in an environment where implications of ransomware and other cyber attacks can be crippling the organizations. To address this potential risk, in addition to utilizing Telmed IQ, SOC provides all of our clinicians with company devices that meet the highest security standards to ensure our customers' patient data is secure. We will continue to lead and invest in these areas going forward to provide a secure, differentiated solution to our customers and the market. To close my comments today, I simply want to thank all of the members of our team, of our combined SOC Telmed family. We've taken a number of vital steps over the last few months to set ourselves up for success in 2021. We're encouraged by the market reception and are excited to share our progress with you on future calls. With that, I'll turn it over now to Chris to review the financials in greater detail. Chris?

Thank you, John, and thanks to those of you who have joined us today to review our financial results. Jumping right in, for the first quarter, the combined business generated $8.5 million of new annual recurring revenue buildings, providing a strong start to the year. Given the complexity of our space and the nature of the sales cycle, we continue to expect bookings results to vary between quarters. We are also taking this opportunity to adjust our definition of bookings to reflect the expected annual recurring revenue from new contracts signed during a period, which creates a single definition for bookings between legacy SOC and legacy access positions. Taking a closer look at our bookings during the quarter, cross-selling remained a key focus in our SOC customer base, and greenfield opportunities represented the bulk of Access Physicians' contributions. Additionally, our sales pipeline grew throughout the first quarter, tied to high interest from hospitals looking to adopt acute care telemedicine and current customers looking to add new service lines, even prior to the acquisition announcement. Post-acquisition, we believe Access Physicians' additional specialties and the previously discussed minimal customer overlap provide significant opportunity to continue cross-sell within the combined customer base and to address the broader market's needs for our expanded breadth of services. Reported revenue was $14.8 million in the first quarter, consistent with Q1 2020. As a reminder, given the timing of the COVID-19 pandemic hitting late in Q1 last year, there was limited impact around Q1 2020 hospital volume utilization. This was different in Q1 2021, where we didn't start to see patient volumes recover until late in the quarter. Therefore, we're pleased with the current quarter's results given the environment. The Access Physicians transaction closed on March 26th, hence their results were consolidated for just five days in the quarter and contributed approximately $364,000 to this quarter's revenue. On a pro forma combined basis, we generated $22.8 million in revenue for the full quarter. Revenue for our legacy SOC business was driven by modest recovery in core consult volumes in the second half of the quarter and continued utilization growth of our Telemed IQ platform. For the quarter, 94,000 consults were conducted on our platform, a 40% year-over-year increase. As our platform-only customers continue to increase their utilization, 31,000 of the total consults were what we define as core consults, those that utilize our SOC telemed physicians. For those core consults, we saw volatile utilization trends during the first half of the quarter, which stabilized and then increased over the second half of the quarter, with particular strength in psychiatry, as John previously mentioned. Access Physicians had 28,000 core consults for the full quarter, which represented strong growth year over year for that business. On a pro forma combined basis for the full quarter, the average revenue per core consult was $356, reflecting the lower per consult average from Access Physicians inpatient consults, which generally take less time resulting in a lower revenue per consult. Now turning to our non-GAAP financials in the first quarter, adjusted gross margin was 42 percent compared to 34 percent in the first quarter of 2020. On a pro forma combined basis, our adjusted gross margin was approximately 40 percent in Q1. The improvement in adjusted gross margin is the result of closer alignment of scheduled physician hours with the volatile consult demand experienced during the pandemic. In March of 2020, we were unable to reduce physicians' work schedules as quickly as demand began to fall off in the beginning of the pandemic, which resulted in the lower margin position. Operating expenses excluding depreciation and amortization, integration costs, and stock-based compensation was $10.9 million, an increase of 42% compared to a year ago, reflecting our increasing investments in our go-to-market functions and the costs associated with being a public company. Reflecting those investments, Our first quarter adjusted EBITDA was a loss of $4.6 million compared to a loss of $2.7 million in the prior year quarter. On a pro forma basis, adjusted EBITDA in the first quarter would have been a loss of approximately $5.2 million. We ended the first quarter with $32.5 million in cash. Additionally, as previously discussed, we established a $125 million five-year credit facility, of which we have used $85 million, as well as a $13.5 million subordinated note, both related to the Access Physicians transaction. Finally, while we've seen an uptick in utilization, we are still in the early stages of the COVID-19 recovery, so we're taking a conservative approach and maintaining our previously stated guidance. This is consistent with our underlying model, which assumes overall utilization will return to pre-COVID-19 levels in mid Q3 2021. For the full year 2021, we continue to expect pro forma combined revenue in the range of $107 to $113 million, with access positions contributing approximately 30 to 35 percent. And on a GAAP or reported revenue basis, we expect revenue to be in the range of $97 to $103 million. We expect adjusted gross margins to be in the range of 42 to 45% and adjusted EBITDA loss to be in the range of 15 to $19 million. While there continues to be some pressure on utilization of our core services related to COVID-19, we are seeing a number of promising trends. First, the vaccination distribution has transitioned outside of the hospital, meaning hospital executives can turn their attention back to more normal operational concerns, including projects tied to acute care telemedicine. Second, it's important to emphasize that the pandemic has become a tailwind for our segment of the industry, as it has driven rapid acceptance of telemedicine as a solution to provide efficient, time-sensitive, and high-quality care. Finally, we are seeing the desire for strategic consolidation of telemedicine vendors in the acute care space within hospitals and health systems, which positions SOC very well given our experience, our scale, and established leadership position. Finally, I know many of you are aware of the recent focus by the FCC around SPAC warrant accounting. We are happy to share that this issue has not impacted us because our original accounting was consistent with the SEC's guidance. To wrap up, I want to thank the combined SOC telemed and access physicians teams for their hard work as we integrate into a single combined business. We have a lot of runway ahead of us, and I look forward to keeping you updated as we progress going forward. With that, we'd be happy to take questions.