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spk10: Good morning and welcome to SOC Telemed's third quarter 2021 earnings conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Steve Rubis, Vice President of Investor Relations.
spk04: Thank you. Good morning and thank you for joining our conference call. With me on the call today are Dr. Chris Gallagher, Chief Executive Officer, and David Fletcher, Interim Chief Financial Officer. On today's call, Chris and David will provide an update on SSC Telemed's business, as well as a review of financial results for the third quarter of 2021. The news release detailing these results is available on the company's website. A replay of this call will also be archived on the company website. During the conference call, we will be discussing certain non-GAAP financial measures that we 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 in 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. I will now turn the call over to Chris.
spk03: Thank you, Steve. Good morning, and thank you to everyone joining our earnings call today. I am pleased to provide an update on our third quarter performance. David Fletcher, our interim CFO, will provide greater detail on our financial and operating performance. Before turning the call over to David, I would like to provide an update on our go-forward strategy, our restructuring efforts, and an overview of our third quarter performance. Our goal is to maintain and grow our position as the leading acute care telemedicine provider through our optimized technology-enabled clinical services. As we think about the company's key objectives moving forward, we have identified four areas of focus. First is integrating the legacy SSC and access physicians' clinical services. Second is bringing focus to very specific areas of telemed IQ development, in standardizing all programs going forward on the access telemedicine cart. Third is to broadly apply the most successful go-to-market processes across the newly integrated sales team. Fourth is refocusing the customer service reps on lead generation and cross-sell opportunities. We believe that continued focus and action across these areas will drive opportunities for improvements in revenue growth, bookings growth, gross margin, and EBITDA over the coming quarters. Our third quarter results illustrate resiliency and focus on three key areas as we achieve revenue growth, bookings growth, and improved our liquidity position. Revenues totaled $26.7 million, growing 76% year-over-year, demonstrating a focus on execution. Bookings totaled $9 million, growing 247% year-over-year, led by strong cross-sell activity driven by increased service line diversity. Consult volumes grew 76% year over year. Our third quarter performance allowed us to improve our liquidity position as we have drawn down an additional $12.5 million from our credit agreement with SLR. Improved operating results enabled us to renegotiate the terms of the SLR credit agreement. David Fletcher will provide further details regarding the company's cash positions. The third quarter was the beginning of a company-wide transformation, which remains in process. Now, just over 60 days into the role as CEO, this has been a period of in-depth learning as I've held nearly 30 feedback sessions, listening to our clients, our providers, and our employees. While working through a period of enormous change and disruption, the company demonstrated resiliency and generated solid third quarter results. During our introductory call with investors in September, we identified two key areas of focus, driving greater efficiency across the organization and accelerating revenue growth. The implementation of these plans is expected to result in the non-clinical headcount reduction of roughly 12%. We expect cost savings between $7 million and $9 million on an annualized basis starting in 2022 associated with these efforts. Our corporate restructuring refocuses the organization as a technology-enabled clinical service organization. Such an organization approaches the market opportunity through a clinical lens, with an intense focus on patient, provider, and their shared experience through technology. We now deliver 11 clinical service lines to both inpatient and emergency department settings via the TeleMed IQ platform and our proprietary telemedicine carts. This allows us to solve hospital's most common challenges, including optimizing medical staff resources, addressing physician shortages, eliminating the need to transfer high acuity and complex patients, and keeping care local. The restructuring process focused on two primary areas. First, we aim to improve operational performance through a flatter and more efficient management structure. Second, We identified the most successful strategies across each legacy organization to guide our future transformation around best practices. These are the first steps to improving the operations of the company. During the restructuring process, we conducted an enterprise wide analysis of legacy process and systems. The analysis identified the best practices across both legacy organizations. Access physician strengths included the sales process, CART technology, and revenue cycle management. SSC strengths revolved around staffing and gross margin within the emergent neurology programs and the credentialing, licensing, and privileging process, as well as the TeleMed IQ consult management platform. We will spend the next several quarters diligently and thoughtfully integrating these systems and processes. The second objective of our restructuring process is building a plan to accelerate revenue and bookings growth at SSC TeleMed. An important driver is the repositioning of the company as a tech-enabled clinical services organization. Our clients face clinical challenges and provider shortages. In response, we are most successful when we lead with clinical solutions supported by our technology. We believe that establishing a clinically focused organizational culture is key to accelerating our growth. Our go-to-market strategy is an important component of driving bookings and revenue growth. As part of our restructuring efforts, we spent significant time as a management team evaluating the legacy sales organizations. We have seven months of observational data regarding legacy sales performance as the two companies operated in parallel post acquisition. With that data guiding our direction, we will begin implementing the best go-to-market processes. There are a few details worth highlighting that illustrate the go-to-market changes between the two organizations. The first difference is the flexibility afforded to the sales team in service proposals to meet client needs. While each hospital opportunity may look the same on paper, each hospital represents a unique customer with very specific needs, resources, and culture. Historically, the legacy access physician sales process exhibited an ability to be flexible and adaptable in clinical service operations, tailoring workflows to align with client needs. Legacy SOC was primarily focused on delivering emergent neurology and emergent psychiatry consults within the emergency department, resulting in a more rigid workflow. Improving flexibility across the organization, especially in the neurology and psychiatry service lines, will make our technology-enabled clinical services platform more attractive to a larger number of hospitals. The second point of differentiation is the inclusion of clinical subject matter experts strategically throughout the sales process. Hospital sales opportunities require a sophisticated approach to appropriately scope and design clinical services through technology. Integrating clinical subject matter experts into all sales opportunities should improve sales outcomes over the long term. Going forward, the organization will endeavor to take every opportunity to convert not only new clients, but also existing clients to our proprietary carts. We believe that the cart represents one of the single most important touch points to drive cross-sell and upsell throughout hospitals. Our analysis showed that proprietary carts provide greater client retention over a technology agnostic approach and offer another access point from which to build dialogue with our current and potential clients, increasing the possibility of service line additions over time. In the third quarter, we added several new clients and benefited from several cross-selling opportunities. Our go-to-market strategy focuses on four areas, new clients, multi-site expansions, multi-specialty expansions, and enterprise programs. The bookings performance in the third quarter exhibited an even weighting between cross-sell and upsell. Service lines exhibited strength in bookings during the quarter, including neurology, hospitalists, critical care, psychiatry, and emergency medicine. In September, SSC Telemed and the OB-Hospitalist Group announced a collaboration combining OB-HG's leading OB-Hospitalist programs with SSC TeleMed's maternal fetal medicine experts. The combined OB-Hospitalist tele-maternal fetal medicine service offering will expand to additional OB-HG hospital sites nationwide. Medical claims share data provides a unique lens to assess where we currently stand on the telemedicine adoption curve. Current fair health estimates showed telemedicine claims to be roughly 4% of all medical claims. We believe current telemedicine share illustrates mainstream adoption and illustrates the multi-year growth opportunity ahead of us. In closing, I'm encouraged by the execution and momentum the organization displayed in the third quarter in the midst of organizational change. Our new management team is in place with David McCullough as our chief operating officer, and David Fletcher as our interim chief financial officer. SSC TeleMed represents a resilient and agile organization beginning to better execute on the telemedicine opportunity. We look forward to providing updates on our execution in future quarters. I will now turn the call over to David.
spk07: Thank you, Chris. I will discuss our third quarter results in more detail. Overall, we are pleased with the strength of our quarterly results. I will start with an overview of our restructuring and then provide a detailed walkthrough of the financials. We were pleased with our third quarter results as the organization executed well across revenue and bookings. Another key achievement was the ability to improve our balance sheet liquidity. Importantly, we were able to execute well despite undergoing an enterprise-wide review and reorganization. As Chris described in his prepared remarks, company completed the enterprise-wide review aimed at improving productivity and reducing complexity. The implementation of our reorganization plan is expected to result in the non-clinical headcount reduction of roughly 12% or 44 positions. The identified workforce reductions are expected to be completed by the end of 2021. We are also initiating activities to further reduce operating costs through non-workforce cost reductions. A majority of the non-workforce cost reductions are expected to be completed by the end of 2021 and fully executed in 2022. Additionally, our annualized cost savings associated with the restructuring are expected to generate between $7 million and $9 million in cost savings starting in 2022. We expect to incur roughly $3 million in restructuring costs, consisting of approximately $2 million in severance and termination benefits, and $1 million in site closure and other exit and disposal costs. For the third quarter, revenues were $26.7 million, up 76% year over year, driven by new client implementations, the addition of access physicians, the growth in core consult volumes as the COVID surge positively impacted pulmonary and critical care, hospitalists, infectious disease, and new clients in neurology. While emergent neurology dropped in the latest COVID surge, we are a much more diverse company given our 11 service lines and the heavy focus on the inpatient care helped offset downside in the emergent side of our business. Overall, revenue performance came in ahead of our forecast. Access physicians contributed $9.7 million of revenue to the quarter. Bookings were $9 million, up 247% year-over-year. Our bookings performance benefited from strength in cross-sell opportunities, driven by a more extensive service line offering to the market. Total system-wide consults were approximately 140,700, up 76% year-over-year, driven primarily by the access physician acquisition. On a pro forma basis, total system-wide consults grew 32% year-over-year, driven primarily by better-than-expected volumes in emergent psychiatry and neurology, as well as strength in pulmonary and critical care, hospitalists, and infectious disease. As a reminder, total system-wide consults include core consults at both standalone SOC and access physicians, as well as consults from the TeleMed IQ managed services platform. System-wide core consults total approximately 75,800, up 136% year over year. As a reminder, we define core consults as those consults performed by our panel of physicians Strong core consult volume growth can be primarily attributed to the acquisition and better than expected volumes across emergent psychiatry and neurology, as well as strength in pulmonary and critical care, hospitalists, and infectious disease. Our SOC telemed standalone core consults totaled approximately 37,800, while access physicians contributed 38,000 core consults in a quarter. Coming out of the second quarter earnings call, our forecast took a conservative approach, assuming that consult volumes would be flat to down from the end of the second quarter, given prior COVID wave impacts to the legacy SOC business. In the third quarter, consult volumes improved throughout the quarter as the COVID-related increases in inpatient service lines counterbalanced the COVID-related drops in emergent neurology. Unlike prior COVID waves, there was not a drop in emergent psychiatry. As we plan for next year, management will review the key operating metrics and select those that best describe the operating business. Our adjusted gross margin was 36% versus 44% in the third quarter of 2020. Adjusted gross margin was negatively impacted, primarily by an increase in physician incentive payments related to the rapid increase in volatility we experienced in consult volumes, specifically increased volumes in several of the access physician service lines, including pulmonology, infectious disease, and hospitalists, as well as SOC psychiatry. Operating expenses were $21.2 million compared to $12 million a year ago. The increase in operating expenses results from investments in our go-to-market functions stock-based compensation, added costs associated with being a public company, and the acquisition of access physicians. Adjusted EBITDA loss for the third quarter was $5.6 million versus a loss of $2.9 million a year ago. We ended the quarter with $37 million in cash on the balance sheet. In November, we pulled down an additional $12.5 million from the SLR term debt facility to further bolster our liquidity and cash position. Due to our improved top line results, we were able to modify the terms of the SLR credit agreement to accelerate the takedown of these funds. Given the strength of our third quarter operating performance, we are taking the opportunity to raise our full year 2021 guidance. Currently, we expect full year 2021 gap revenue to be between $91.5 million and $93.5 million, with Access Physicians contributing roughly 30% of full-year 2021 revenue. We expect to generate an adjusted EBITDA loss of between $21.5 million and $22.5 million. While we do not provide specific guidance on bookings, we remain positive on the Access Physicians acquisition and the longer-term growth in the business. We would like to provide some additional considerations around our guidance. Due to our enterprise-wide integration efforts, we will need to dedicate significant time to focus on the sales team and clinical team optimization, as well as the integration of the two businesses over the next year. We will provide more detailed fiscal year 2022 financial guidance on the fourth quarter call. we remain optimistic about our ability to execute on the significant growth opportunity in acute care telemedicine, which remains in the very early innings of acceptance and adoption. As the scale player in acute care telemedicine, we are well positioned to help our hospital clients solve friction points around access to acute care. Thank you, and operator, please open the line for questions.
spk10: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Ryan Daniels with William Blair. Please go ahead.
spk05: Hey, guys. Nick Spiga for Ryan. Thanks for taking my question. The first one is going to be for Chris. I was just wondering if you can expand on your overall vision of the company that you laid out in your prepared remarks. And I guess why are you excited about the opportunity going forward?
spk03: Hey, Ryan. Good morning. Thanks for the question. So I think in terms of vision and in the future of the company, we can look at both near term and long term. I think near term, what we're most excited about is our strong same store sales growth at our large hospital systems. That's a key point of strength, which gives us considerable encouragement and excitement. Long term, we're building the nation's largest acute care telemedicine tech-enabled clinical services organization. And that is an incredible mission to be a part of. And today, the care within those services is delivered within the four walls of the hospital. So we're caring for the sickest, most acutely ill patients. But over time, we're seeing an expansion and a transition to those patients being cared for outside of the four walls of the hospital. So not only building for the very sick, highly acutely ill patients today inside of the hospital, but knowing that we're transitioning and building outside of the four walls. I think those are areas where we're very excited.
spk05: Great, thanks. And then I guess with the recent rebound in ED volumes that we've been seeing in a lot of these acute chains reported year over year, I'm just wondering what that's meant for you and your clients so far.
spk03: So as an organization where a considerable amount of our work takes place in the emergency department, the uptick in emergency department volumes is favorable to both our emergent neurology and emergent psychiatry business. But also when we think about the inpatient side of the business with our other service lines, the emergency department is a key source of admissions. the hospitals that we serve and so busy ers also lead to busy admissions so being able to care for more patients help our hospitals keep that care local both in the emergency care setting it's good for our clients as well as our business that also translates into to inpatient admissions as well great thanks man i guess last one on the restructuring um just wondering how you balance the need to reduce costs and cash burn but not impact you know growth or
spk05: leadership on the tech front and development.
spk03: The entire focus of the reorganization, Ryan, was to really look at right-sizing the cost structure while we ensured the ability to execute on our growth opportunities. And given the cash burn rate, there were significant opportunities to reduce spend without negatively impacting the business. So we looked at that in great detail and and confident about the future.
spk05: Great. Thanks, guys. That's it for me. Congrats on the quarter, first quarter.
spk03: Thanks, Ryan.
spk10: The next question comes from Jaylandra Singh with Credit Suisse. Please go ahead.
spk02: Thank you, and good morning, everyone. I actually want to follow up on the last question in terms of restructuring planning, which includes the headcount reduction of 12% on nonclinical side. Can you be a little bit more specific on the areas where these headcount deductions are focused on? I understand these decisions are always tough, but in an environment where labor market is already very tight, why do you think this was the right move? How would you make sure that overall productivity, efficiency, and client service is not impacted? Any general thoughts on the tight labor market overall?
spk03: Yeah, so as we went through the review, Jalindra, We conducted meetings with our third-party advisors, clients, clinicians, as well as our employee base to really develop our plans to make sure that we were identifying the right areas of underperformance and also identifying areas where we could appropriately right-size the organization. And so it was a very diligent process with multiple different stakeholders reviewing to ensure that we could remove areas of the expense structure without doing any kind of harm to the business ability to grow and function going forward. I think we do recognize that the labor market is tight. And so to kind of answer your last question there, we strongly believe we need to be flexible. to our current employees and to our future employees and create the best work experience possible so that we can remain competitive.
spk02: Okay. And then my follow up on the gross margins, thanks for the color there in terms of impact from higher physician incentive payments and lack of availability of physicians. How much of this gross margin pressure would you say is temporary? How much is like some structural change? And are you taking any proactive steps in terms of leveraging technology or third-party vendors to offset some of these gross margin pressure, even if these pressure points continue even in the near term?
spk03: So, Jalendra, I think there's two parts there in terms of gross margin. In the immediate surges and volume volatility that we saw, those are more short-term. We do have two different clinical models to which we are in the process of beginning to integrate. And as we integrate those two clinical models into a unified clinical practice that is specialty-based, that will give us further opportunity to adjust the business, operate the business, and optimize gross margins going forward. An enormous area of focus for us going forward is to to unify so that we can then globally operate the business, pulling levers to assure that we improve gross margin on the clinical services.
spk09: Good. Thanks, guys. Thank you.
spk10: The next question comes from Vikram Kesavabatla with Baird. Please go ahead.
spk01: Yeah, thanks for taking the question. My first one is on the restructuring. I guess first, the seven to nine million of cost savings you've identified, should we expect that to flow through to EBITDA or should we expect some reinvestment of that going forward? And then I guess as a follow up to that, I mean, should we be thinking about the seven to nine million of savings as an initial phase of a process that could lead to more savings down the road? Or from your perspective, is this a pretty comprehensive list of all the immediate actions you've identified?
spk07: I'm sure. Good morning. From an EBITDA perspective, we expect that to translate into savings starting in the fourth quarter, but we'll realize the full benefit of those through fiscal year 2022. The company did go through a very comprehensive enterprise-wide review and looked at not only the workforce reduction but non-workforce reductions. We feel very confident about those numbers of $7 million to $9 million in savings. Obviously, we're going to continue to execute on a continuous improvement strategy and continue to look at further improvement opportunities.
spk01: Okay, great. Thanks. And my follow-up is around, you know, obviously we're still in an evolving backdrop here with respect to the pandemic and the impact it has on the different service lines that you offer. Could you just give us some more color on how you've contemplated utilization trends to the balance of the year and your guidance? Thanks.
spk03: Yeah, Vikram, so there's two things at play that we have to take into account is, one, there's been a I think a historical cadence and seasonal variation in healthcare that's very well established that clearly has been upturned by COVID. Not only COVID itself, but its ripple effects on influenza in the winter months. So in terms of how we're looking at the business going forward for utilization, in terms of existing clients, we're taking a very conservative approach with a assumptions in our models of a very light flu season. And then also, I think we have better insights into the impacts of COVID waves on our business. And so if we begin to see an uptick as a result of COVID in terms of cases, we do have patterns that we can begin to model now having been through four waves as well. So I think looking at the business overall, contemplating a lighter flu season, seems to be the more conservative approach. And then as we'll watch CDC data in terms of COVID impacts going forward. That's our existing business. In terms of new business, we'll continue to pursue that with vigor.
spk09: Great, thank you.
spk10: The next question comes from Sean Dodge with RBC Capital Markets. Please go ahead.
spk06: Yeah, thanks. Good morning. Maybe, Chris, staying on utilization, can you help kind of quantify maybe a little bit of the comments you just made? You know, there are a few different ways the pandemic's affecting you. It sounds like it's a little bit of a tailwind in some service lines, still proving to be a challenge in others. I guess if we take a step back and look at, on a consolidated basis, how much do you think COVID is still weighing on your revenue? How much lift do you think you can get over the coming quarters just by kind of a normalization alone.
spk03: Yes, I think as a broader, more diversified company, now able to offer 11 service lines that operate both within the emergency department in the inpatient settings, the impacts of COVID on our organization will mirror more the impacts of COVID on healthcare. And so I think, you know, In terms of the impacts going forward, in Q3, we saw that net-net, there was a more favorable impact with the COVID wave than expected. We were able to deal with more patients. So I think going forward, any disruption or change in the healthcare environment that leads to more volume will be more favorable to our organization given the diversity. Specific service lines that are negatively impacted by an environmental change within healthcare We are again more diversified so impact the overall performance of the organization less going forward To put okay exact numbers on it on I don't think we have enough data to accurately say that yet given how new the two organizations are and coming together, but we'll obviously learn and be able to gather more data and over the coming quarters.
spk06: Okay, that's helpful. And then you mentioned listening sessions that you've been doing with clients. Some of those, I guess, how would you characterize the health of the two client bases? Have you all experienced any churn as you work through the restructuring, or have there been any customer service issues that could potentially catalyze some attrition in the months or quarters ahead?
spk03: We have not experienced any undue churn as a result of the change. In fact, it's actually been received as positive from our clients. It's unlocked new opportunities, and some doors that have been closed in the past have actually reopened as we refocus the organization on providing tech-enabled clinical solutions. So those conversations have been great, and we continue to see expansion within our client base.
spk06: Okay, great. Thanks, and congratulations on the progress in the quarter. Thanks, John.
spk10: The next question comes from Bill Sutherland with the Benchmark Company. Please go ahead.
spk08: Hey, thanks, and good morning, everybody. On the Salesforce, can you give us a sense of headcount now and where it, and perhaps the comp, just to, you know, be able to see where it's come from?
spk03: So, Bill, just in terms of the size of our Salesforce, so that was, you know, as we looked at the entire organization, we looked at performance. And so we were able to reduce the overall Salesforce headcount by several individuals. And then I guess on the second part of your question, do you mind expanding on that? I wasn't really clear on the ask there.
spk08: Oh, just, you know, what the size of the Salesforce was, I guess, last year and prior to access being added in?
spk03: Sure. So I think we've seen a refocusing on kind of the impactful and successful strategies, Bill. And so that's allowed us to considerably reduce the size and footprint of the sales force. I don't have the exact numbers here handy with me in terms of the percent decrease. But it's been considerable, Bill.
spk09: Okay.
spk08: And you mentioned, Chris, the proprietary cart is a focus of your sales process going forward over using, you know, installed or, you know, existing technology the hospital may have. How does that focus help in your, you know, the sales motion?
spk03: Well, in terms of sales, so the CART itself, I think, is important in a couple different kind of viewpoints. I think first and foremost is the ability for our providers and our clients to standardize on a unified experience, which we know is robust, reliable, and simplistic to use and facilitates a better experience for the patients. And so from that standpoint, it has resonated very well with our clients and led to very successful programs in terms of having reliable encounters, high quality encounters that do a great job of replicating an in-person experience. And so when that strategy is applied to the sales team, it gives the sales team an additional opportunity to build the relationship with the hospital. And many of our engagements with facilities, they may have the clinical team, but need assistance with the know-how and building of telemedicine programs to include the tools, whether it be the application such as TeleMed IQ or the hardware. And so it gives our sales team an additional tool to add in their sales process to help clients solve their problems.
spk08: So the value add of the technology is, you know, I guess the client's getting it that the higher cost implementation is worth it for the results down the, you know, in the ongoing operation.
spk03: Yeah, and it's not necessarily a higher cost. There has to be an endpoint in the hospital, you know, to which the video is, encounter takes place to which the stethoscope can connect to so that we can do a physical exam. And actually, in most cases, our proprietary carts are lower cost than much of the rest of the cart market. So we're actually able to oftentimes come in at a better value and not only a better value when we consider price, but also better value in terms of performance and standardization.
spk08: Sounds like a win-win. That's it for me. Thanks, guys. Thanks, Bill.
spk10: This concludes our question and answer session. I would like to turn the conference back over to Chris Gallagher for any closing remarks.
spk03: Thank you to everyone who joined our call today. We look forward to meeting with you again next quarter and to provide an update on our fourth quarter and full year results.
spk09: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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