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spk08: Good afternoon and welcome to Agility's fourth quarter and full year 2021 earnings conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I'd like to turn the conference over to Kate Kaiser, Senior Vice President of Corporate Communication and Investor Relations at Agility. Thank you. You may begin.
spk00: Thanks, Jamali, and hello, everyone. Thank you for joining us on today's call as we provide an overview of Agility's results for the quarter ending December 31st, 2021. Before we begin, I'll remind you that during today's call, we'll be making statements that are forward-looking and consequently are subject to risks and uncertainties. Certain factors may affect us in the future and could cause actual results to differ materially from those expressed in these forward-looking statements. Specific risk factors are detailed in our press release and our most recent SEC filings, which can be found in the investor section of our corporate website at agilityhealth.com. We'll also be referring to certain measures that are not calculated and presented in accordance with generally accepted accounting principles during this call. You can find a reconciliation of those measures to the most directly comparable gap measures under the description of why we use these measures in our press release. To download a copy of the presentation that we'll use to facilitate today's discussion, please visit our website at agilityhealth.com, select the Investors section at the top of the screen, and then events and presentations. Finally, select the presentation titled Agility Q4 and Full Year 2021 Earnings Slides. With that, I'll turn the call over to our CEO, Tom Leonard.
spk02: Thanks, Kate, and good afternoon. Thank you for taking the time to join us as we review our results from the fourth quarter of 2021 and reflect on our performance for the full year. Joining me today is our CFO, Jim Pekarek, and our president, Tom Benning, who leads our commercial operations. Our results for 2021 finished ahead of our expectations and our previously increased guidance for the year. And agility crossed the $1 billion annual revenue milestone. Today, we'll walk through the factors that drove our performance throughout 2021, offer perspective on current trends in the business, and share our initial outlook for the year ahead. Jim will provide details on our results and our 2022 guidance later in the call. I'll begin with a few insights into our overall performance and direction. First, we continue to deliver on our commercial goals as reflected in our results for both the quarter and the full year. With the rapid rise and spread of the COVID-19 Delta and Omicron variants late in the year, we saw increased customer demand on our medical device rental fleet. which favorably impacted our equipment solutions results. Within equipment solutions, we also recognized the financial contribution from our recent size-wise acquisition. We continued to see solid performance across the rest of our business as well. Clinical engineering performance in the quarter was largely driven by new customer contracts and our ongoing work supporting the strategic national stockpile. Revenue from onsite managed services held steady year over year. On March 1st, Agility filed an 8K announcing a new one-year agreement with HHS to continue our important work, managing, maintaining, and deploying the federal government's emergency medical device stockpile. Tom Benning will provide additional details in his prepared remarks. With our focus now squarely on 2022 and beyond, I'd like to offer a brief recap on our strategy and the overall direction of the company. We have established agility as a key part of our national healthcare delivery infrastructure. Starting at a local level, we help hospitals, health systems, and other provider organizations efficiently manage their medical device needs, ensuring the availability of patient ready medical equipment whenever and wherever needed, including rights to the patient's bedside. The medical devices we manage, mobilize, and maintain on behalf of our customers are paired with clinical expertise and technology-enabled service capabilities, helping to drive down costs and improve patient care outcomes for our customers. With more than 150 local medical device repair and logistics centers, our teams quite literally live and work in the same neighborhoods as the customers we serve. We have previously shared that Agility's unique operations infrastructure puts us inside a hundred mile radius of more than 90% of all staff beds in the country. It provides us a meaningful structural advantage in how we access our customers and identify new opportunities, as well as a cost advantage in how we serve them. At a national level, Agility delivers integrated medical device repair and logistics solutions targeted at improving device readiness and availability and delivered at scale. Our national operations footprint uniquely enables us to serve many of the nation's largest and most sophisticated healthcare systems and provides rapid coast-to-coast support during times of peak or emergent need. Throughout our long history, Agility has provided the supplemental medical device capacity required for health systems across the country to meet the patient surge during each flu season. We've supported our health system's regional response to fires, floods, and other natural and manmade disasters by mobilizing teams and medical equipment on short notice to wherever needed. And over the last six years, we've been supporting device management, maintenance, and deployment needs on behalf of city, state, and federal government emergency response teams. Our work on behalf of these government agencies has been an important part of the national medical response throughout this period impacted by COVID-19. Agility has even become the partner of choice for many medical device manufacturers, serving as an extension of their own field repair capabilities to solve large-scale challenges, including nationwide medical device recalls. On top of our established history of consistent organic growth, Agility has demonstrated a record of successful tuck-in M&A. Our stated approach to evaluating opportunities is to overlap and extend, meaning we look to build on our existing capabilities to drive additional profitable volume through our national service infrastructure, continuing to grow our market size and share while always staying close to what we do best. In 2021, we completed two acquisitions that clearly illustrate this approach. First was Northfield Medical, nationwide provider of surgical equipment repair and maintenance services, which we closed last March. Building on the 2020 acquisition of Mobile Instruments, we combined the second and third largest independent service providers to expand our capabilities in surgical instrument repair and to complete our nationwide service footprint. More recently, we acquired SizeWise in a transaction that closed on October 1st A manufacturer and distributor of standard and specialty bed frames, therapeutic support surfaces, and patient mobility equipment, the addition of SizeWise clearly illustrates our overlap and extend model. And beyond the direct and near-term synergies, we're excited about the future opportunities that the SizeWise acquisition opens up for agility. Obesity is a national challenge. Across the continuum of care, these patients require specialized medical equipment and handling protocols, and they are at significantly higher risk for medical complications associated with prolonged bedrest. Despite the need, the patient population and the clinicians that care for them remain woefully underserved. Looking forward, we see a compelling opportunity to build on the SizeRise Foundation and deliver new targeted solutions complete with the local clinical and operational support for which Agility is known. More broadly, Agility maintains an active pipeline of M&A opportunities and the financial flexibility to pursue them. We'll continue to seek targets that can drive profitable volume to our national operations infrastructure, extend the value that we provide for our customers, and enhance our competitiveness. The final point I'll make today regarding our strategy is around the extraordinary resilience and predictability that we've built into our business model. As you look across our business, you can observe our connection to every phase of our customer's medical device lifecycle, as well as the balance of our business between the medical and the procedural sides of the hospital's operations. Financially, This serves for us as a natural internal hedge, meaning regardless of macro trends facing our health system as a whole or specific situations or challenges affecting an individual customer, some part or parts of our solution set are always in demand. I previously described this durable nature of the agility business model, which has been evidence in our stable financial performance. starting well before COVID and throughout the highs and lows of the pandemic, and now as we support our customers' transition back to normal operations. Reflected in our results is the resilience of our model and the essential nature of our work. We're proud of the performance of our teams and of the important roles that Agility has long performed in support of our national healthcare delivery system. Looking forward, we're even more enthusiastic about our strong business momentum and the opportunities ahead of us. Let me now turn the call to Tom Benning for his perspective on our performance.
spk07: Thanks, Tom. I'll begin with some additional color on our commercial performance and then share a few reflections on recent macro trends and their impact on our business. First, we continue to see heightened customer demand for our rental equipment during the fourth quarter, driven by both the Delta and Omicron variants of the COVID-19 virus. Our peerless national network of medical device service and logistics capabilities ensured that we remain responsive to the needs of our customers as they navigated the effects of the pandemic. We're now seeing a return to normal non-COVID device utilization levels as we approach the end of Q1 2022. We likewise expect to see a return to normal surgical case volumes across the country, which will favorably offset some of the impact from normalization of equipment demand. More broadly, while the persistence of COVID-19 and its variants had an ongoing impact on customer mindshare, our teams continued to enjoy access as we supported their short-term needs. Today, we're increasingly engaging with our customers on their longer-term strategic initiatives. Coming to the topic of our new federal government agreement for emergency medical device stockpile management, On February 28th of this year, Agility entered into a new one-year agreement with the U.S. Department of Health and Human Services Assistant Secretary for preparedness and response for the comprehensive maintenance and management services for medical ventilator equipment. This contract consolidates several prior agreements, and it's comprised of an initial six-month base term and a six-month option term. On March 1, 2022, Agility publicly released details of this award. In summary, the term of this new agreement is for up to 12 months. It's intended to provide sufficient time for HHS to run a competitive multi-year contract award process while minimizing the risk of interruption to the critical services that Agility provides in support of our nation's ongoing COVID-19 response. Agility, of course, fully intends to compete for any future contract award. As we've shared on previous calls, we operate under a strict non-disclosure agreement with HHS regarding the details of this contract and the work that we perform at their direction. Information we can discuss today is limited to what the federal government discloses publicly and what we've provided today in our prepared remarks. I'd like to take a moment to touch on the general subjects of labor availability, wage inflation, and supply chain risk. We continue to closely monitor these important inputs to our business, and we follow the broader discussion happening across all industries. As we shared last quarter, we are not seeing a significant impact from these macro issues. Regarding labor availability, we tend to view this subject across three broad categories. Are we attracting high-quality candidates at the top of the funnel? Are we able to land the right candidates once we've engaged them in the recruitment process? And finally, can we retain good talent once they've joined Agility? With that context in mind, what we're seeing today is we're currently attracting somewhat fewer candidates at the top of our funnel, and our time to fill positions has ticked up slightly. We've also seen increased wage pressure in certain local markets, and that complicates our ability to successfully land candidates once we've engaged them in the process. As a result, today we're seeing our open positions approaching 12% of total positions within the company. While positions normally hover in the high single digits based on historic turnover levels and our high growth rate, to date we've not been able to manage through these additional open roles without meaningful customer impact or excess overtime. We continue to monitor our teams and our customers closely to ensure we can continue our important work while trying to minimize the risk of employee burnout. Our overall employee retention rates have held relatively steady over the last three years. We credit this to a culture that prioritizes the needs of our team members, including throughout COVID, when we extended new targeted benefits to ensure our team's financial and personal well-being. Your picture, agility prides itself on mission-driven work. We offer the opportunity to build a rewarding career doing work that makes a difference in the lives of patients and that supports our nation's healthcare system. Further, we ensure our team members have the opportunity to share in the success of the company through our cash and stock-based incentive programs and, more recently, the introduction of an employee stock purchase plan. Overall, we believe Agility remains competitively positioned in a generally difficult labor environment. In terms of supply chain risks, our outlook is somewhat similar. Agility generally operates under longer-term supply agreements with relatively fixed pricing. Our centralized purchasing and supply chain management processes ensures efficient acquisition and management of critical repair parts for the devices that we service, both for our own fleet and for those devices that we manage for our customers. Further, with the recent addition of manufacturing capabilities through our acquisition of SizeWise, we are maintaining adequate safety stock to support the business through potential short-term disruptions. I'll conclude with an update, the integration of our recent acquisitions. First, we have completed the integration of Northfield Medical. Today, we go to market as a single surgical equipment repair team. We serve our customers with a differentiated service offering supported by our integrated technology platform and a common operating infrastructure. We're also now well underway with our integration of SizeWise. We've aligned our commercial selling team and our operations leadership, which is our highest integration priority. Combined team is collaborating in the field to bring our newly expanded solution directly to customers. We're now taking steps to combine our financial and operating systems as well as our corporate functions. And we're just beginning to merge our facilities, vehicle fleet, equipment inventory, and operations personnel, a project that will span roughly the next two years. With that, we turn things over to Jim to review our financial performance.
spk01: Thank you, Tom. I'll start with an overview of our Q4 and full year 2021 financials, and then end with some comments on our 2022 financial guidance. For the fourth quarter, total company revenue totaled $290 million, representing a 36% increase over the prior year. Adjusted EBITDA totaled $85 million, an 18% increase over the prior year. We estimate that SizeWise contributed approximately $40 million in revenue and $10 million in adjusted EBITDA for the quarter, which includes an estimated $2 million to $3 million of revenue contribution from COVID-driven demand. Adjusted EBITDA margins were 29 percent in Q4, down 440 basis points from last year. Adjusted EBITDA margins versus the prior year were impacted by the acquisition of SizeWise as well as the acquisition of Northfield Medical. You will recall that Agility generally enjoys a very strong margin profile, so the companies we have acquired all start with lower pre-synergy adjusted EBITDA margins. Our strong operating performance drove an adjusted earnings per share of 25 cents, up 25% or 5 cents a share over Q4 of last year. This growth was a direct result of our strong overall business performance, partially offset by an increase of 32 million weighted average fully diluted shares outstanding associated with our April 2021 IPO. For the full year, total company revenue totaled $1.04 billion, representing a 34% increase over the prior year. Adjusted EBITDA totaled $331 million, representing a 41% increase over the prior year. Adjusted EBITDA margins were 32% for 2021, up 150 basis points from last year. Margins were favorably impacted by overall volume growth, most notably from record utilization of our medical device fleet and services performed under our HHS contract. Organic growth from new customers and COVID-driven medical device rental utilization were also significant drivers. Our strong operating performance drove an adjusted earnings per share of 99 cents, up 48 cents and nearly double last year's results. taking a closer look at the fourth quarter across our service lines. We delivered strong revenue growth across both equipment solutions and clinical engineering, and a slight decline in onsite managed services revenue. Equipment solutions revenue totaled $120 million, up 54% year-over-year. Our October 1st acquisition of SizeWise contributed approximately $40 million in revenue in Q4. In addition, COVID demand continued in Q4, and while difficult to quantify, we estimate at a net favorable impact of between $12 and $15 million versus pre-COVID levels. In the prior year period, we also experienced a favorable impact from COVID of approximately $11 to $15 million. Moving to clinical engineering, Q4 revenue is $96 million, representing year-over-year growth of 57% for the quarter. A significant driver of this performance was higher than anticipated revenue from work performed under our HHS agreement. In addition, we reported the revenue contribution from Northfield Medical within our clinical engineering solution during the quarter. Finally, Our onsite managed services revenue totaled $74 million, representing a year-over-year decline of 1% for the quarter. As we have previously described, for nearly two years, customers have been focused on the near-term challenges related to COVID, and Agility's Equipment Solutions service line has directly benefited. As we emerge from this COVID-dominated period, we are once again engaged with our customers on longer-term, more strategic initiatives. We are already seeing an increase in new on-site managed opportunities moving through our sales funnel. Continuing down the P&L, gross margin for Q4 totaled $121 million, an increase of $34 million, or 40%, year-over-year. Our gross margin rate was 42%. more than 100 basis points better than the prior year. This improvement in margin rate was driven by record levels of utilization of our medical device fleet and by general volume growth across our solutions. As all lines of business leverage a common operations infrastructure, volume has a favorable impact on our margins. SG&A costs for Q4 totaled $95 million. an increase of $26 million or 37 percent. SG&A expenses as a percentage of revenue increased by approximately 30 basis points over the prior year. The increase is primarily due to SG&A costs from our 2021 acquisitions net of achieved synergies. Moving to the balance sheet, we closed Q4 with net debt of $1.18 billion. which includes $1.19 billion in debt, left $74 million of cash on hand on our balance sheet. Our cash flow from operations for the year was over $210 million, driven by strong operating results and lower interest costs, resulting from the pay down of our second lien debt facility as part of our IPO. Strong cash flow generation and adjusted EBITDA growth resulted in a reduction versus the prior year of our reported leverage ratio to 3.4 times at the end of the quarter. As we stated in our Q3 earnings call, we had estimated that the size-wise acquisition would result in an increase in our leverage ratio by approximately half a turn, which is consistent with our actual results. A reminder that over the longer term, we expect to maintain our leverage in the low to mid three times range as we anticipate using our strong balance sheet and cash flow generation to fund opportunistic M&A. Agility maintains a position of significant liquidity with $316 million available as of December 2021. This includes our $250 million revolving credit facility as well as cash on hand On October 1st, 2021, with the closing of the size-wise acquisition, we successfully raised $150 million add-on term loan with terms and pricing consistent with the most cost-efficient portion of our term loan debt. As we turn towards 2022, I'll spend a minute on planned near-term incremental capital investment. We are guiding full-year CapEx in the range of 80 to 90 million, or approximately 7 to 8% of revenue. This is one to two percentage points higher than our normal level of annual investment to support our operations and IT infrastructure, as well as the maintenance and growth requirements of our business. There are several drivers for the increased spend in 2022. First, we were unable to invest at the targeted level of maintenance capex for our equipment fleet last year as some device manufacturers experienced supply chain challenges and or quality-related ship holds. This is simply a timing delay. It had no impact on our operations, and we finished 2021 below our targeted spend level. Next. we are modestly increasing our IT investment to accelerate the ongoing build-out of our internal systems infrastructure. These investments are focused on improving customer experience and upgrading capabilities to support the rapidly expanding scale of our business. Finally, with the acquisition of SizeWise, we are making several focused investments to modernize and expand our manufacturing infrastructure to align with our near-term growth projections. Turning now to the rest of our 2022 financial outlook, as a reminder, we provide guidance for key performance metrics on a full-year basis. I'll start with a quantitative summary and share our significant assumptions. We currently expect to deliver 2022 revenue in the range of $1.16 billion to $1.19 billion, representing top-line growth of 12% to 15%. We anticipate adjusted EBITDA in the range of $305 million to $315 million, a decline of approximately 5% to 8% compared to the prior year. And as just stated, our net cash CapEx guidance reflects our expected investment in the range of $80 to $90 million. Finally, we are adding adjusted earnings per share to our full-year guidance metrics as we approach the one-year anniversary of our IPO, and our capital structure has stabilized. For 2022, we expect adjusted earnings per share in the range of 89 cents to 94 cents per share. From a qualitative perspective, and as we have shared in each of our earnings calls, Throughout much of 2022, our financial results will comp against the 30 to 40 million in high-margin COVID-driven revenue tailwinds from 2021. While we saw some COVID-driven demand early in Q1 of this year, our 2022 plan assumes a return to pre-COVID equipment utilization levels for the balance of the year. Additionally, And as Tom described earlier, our new HHS contract consolidates several prior agreements, and its narrowed scope reflects the ongoing management and maintenance of the device stockpile without the incremental activities associated with its initial stand-up or deployment. While the financial details of the contract remain confidential, implicit in our guidance is that Agility will see an approximate $40 million to $50 million in revenue reduction in 2022. That difference will be accounted for within both clinical engineering and onsite managed services, though the majority of the impact is expected within onsite managed services. Consistent with our ordinary course of business, we expect to continue signing and implementing new contracts for our solutions throughout the year. as customers turn the attention back to their long-term strategic and financial initiatives where our solutions play an important role. Net of the COVID impact in the re-scoped HHS contract and adjusting for the annualized impact of acquisitions made in 2021. Our guidance implies organic revenue growth in the mid to high single-digit range, consistent with our historical pre-COVID growth rate. Finally, our implied full-year adjusted EBITDA margins, which can be calculated from our 2022 guidance, are expected to be in the range of 26% to 27%. Primary drivers that will impact margins for the balance of the year include the normalization of rental device utilization back to pre-COVID levels. our internal assumptions on the new HHS contract, and the impact of our acquisitions in Northfield Medical and SizeWise, both of which start with lower pre-synergy EBITDA margins when compared to Agility's historical average. I'll now turn the call over to our operator to provide instructions for our Q&A.
spk08: Thank you. And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We also ask that everyone limit themselves to only one question and one follow-up question. One moment, please, while we poll for questions. Our first question comes from the line of Matthew Warsh with BMO Capital Markets. Please proceed with your question.
spk06: Matthew Warsh Yeah. Can you just talk a little bit more about the change in your experience with labor availability and wage inflation? I remember what you said on the third quarter. You weren't saying there was no impact, but it was modest. It really accelerated. Is there anything you can say about regional variation or what you know about where the bid away might be coming from, anything like that.
spk07: Matthew, it's Tom Benning. Thank you for the question. As we said in our prepared remarks, we usually run in about the high single-digit range in terms of our vacancy rate within the company. We're now hitting the low double-digit rates. And we certainly are amping up our recruiting efforts to be able to make sure that we get the right people in the right roles. We've had to make some modifications in certain markets to our incentive structures in order to make sure it was attractive to get people in those particular markets. But generally speaking, as we shared in our remarks and, of course, what we talked about last quarter, it's not having a material impact on the business.
spk06: Are you just in terms of where the trend has been going for what you've seen over the last two months of, you know, 2022 as a game? Has it gotten better or worse just recently? I'm just trying to figure out how the train's running right now.
spk07: Yeah, it's a good question. So retention has remained relatively steady. But with our growth, we have vacancies that we're trying to fill. And I would say it's been a little slower to fill the positions, as we stated, than it has been in the past. But the retention rates, again, remain relatively steady, which is encouraging that, you know, we have the right models in place, our team members feel fulfilled in what they do, and that the incentive structures are aligned with what their desires are. So we're doing well in terms of retaining, but recruiting certainly in certain markets, it's a little more difficult than it has been.
spk08: But our next question comes from the line of Kevin Fishbeck with Bank of America. Please proceed with your question.
spk06: Great. Thanks. I appreciate the comment about breaking out the organic revenue curve because it is kind of hard to tell what's uh, what's underpinning everything, uh, given the deals and COVID and everything, but maybe it makes sense to, if you can give it a little additional color by segment, as you think about, you know, what's going to be growing, maybe above that, you know, mid to high single digit range and what might be growing below that, how much kind of a, you know, are you assuming kind of a return to normal as far as core volumes or is there pent up demand anywhere in the assumptions?
spk01: Yep. Thanks, Kevin. We don't break out the details within revenue, but just sharing a couple of things that I had shared in the prepared remarks. First, from a COVID perspective, we do expect that we're going to get back to a pre-COVID level here very quickly and Recall that what I shared was that the 2021 impact for us overall was 30 to 40 million. So that would be a good reference point as you're thinking 2021 to 2022 within equipment solutions. The other thing I called out, which is an important one, is in Q4, the estimate for the size-wise revenue for the acquisition was about 40 million for the quarter. So that also will impact equipment solutions in 2022. So those are a couple of pieces to keep in mind. The other piece to keep in mind, Kevin, and I pointed it out, is within HHS, that contract that we just renewed, we estimate that the impact there is between 40 and 50 million of lower revenue, and that primarily will impact on-site. It will impact both clinical engineering and on-site, but primarily on-site. So that hopefully gives you a little bit more color as you think about 2022 within each solution.
spk06: Okay. And I guess as we think about the CapEx shift that you guys were discussing, it sounds like some of that was because of equipment delays and things like that. Are those things fully resolved now, or is this still having an impact and you expect it to be resolved by year end? And if there are future delays, would that potentially have an impact on your ability to serve clients?
spk02: So this is Tom.
spk01: Yeah, maybe you can hit that one.
spk02: Yeah, so are they fully resolved? No. Microwave manufacturers are both seeing still some impact to the supply chains And there are still recalls that impact availability of equipment. In terms of its impact to our business, though, zero risk. I would think about this as maintenance, CapEx, and our fleet. We maintain our fleet at a level where we're continuously refreshing the equipment that we own. So a delay simply means the average age of our equipment may age slightly over the course of the year, but no impact to our ability to meet the requirements of our customers. And we just make it up when we can to ensure that we're refreshing our fleet appropriately.
spk06: All right, great. Thanks.
spk08: Our next question comes from the line of Frank Fennell with Jefferies. Please proceed with your question.
spk04: Hey, guys. Russ in the front quarter here. I guess for me, on the contract, on the lower 40, 50 million low revenues in the quarter, just wondering if you could maybe unpack that, provide a little clarity there. Is there some assumption there that there's sort of a six-month contract that it could end at six months or it goes all the way to 12 months? Is there sort of a midpoint there? And what is that options, that second six-month option period, just for clarity's sake?
spk02: Sure. This is Tom. Let me go ahead and take that for you. So if you take a look at what has happened, the current contract extension ends, by the way, will be from two and a half years into the one-year contract, initial contract. Let me give you some color to what's gone. There has been... There has been a medical device stockpile for a very long time. We've been part of that medical device stockpile, actually, and managing it for the half dozen or so years that I and this team have been here. As part of COVID and a new use case, it is a pandemic. It was significantly expanded and directly awarded to us. What you've seen us share over the last few six months with a series of these one- and two-month extensions, and then now a one-year direct award that consists of a six-month base period, a six-month option period. Effectively, what's going on, and they describe it in the contract award, over those first initial extensions, there was a hope that COVID would wane and there'd be time and the ability to run a competitive process without risk to the vital services that we provide. With Delta and then with Omicron and an uncertain path with regard to COVID, the strategy that they outlined was a new one-year then directly awarded contract to Agility to give them time to run a process when they feel that the world has stabilized, that COVID has. to the background so they can run a full government procurement process without risk to the services that we're providing. So it's structured as an initial six-month with a six-month option term, and we would generally expect that sometime between the first six months and the end of that option term that they'll go ahead and run this competitive process. As we've stated continuously, we've consolidated all of the predecessor parts of this stockpile under our management over the last six years. We've additionally consolidated other previously unrelated stockpiles under our management. We continue to feel very good about our position on this whenever the government is finally in a position to be able to run a new longer-term contract at work.
spk04: Great. Thank you for that. And then just sort of taking a longer-term view there, Is it prudent to assume, I guess, given the variable portion there, that this sort of steps down or contribution wanes over time to 23, 24, et cetera?
spk02: Oh, yeah, I'm sorry. So the $40 million, $50 million reflects what we have been generally pointing to as we've spoken about the contract. It reflects what is the ongoing maintenance, storage, management of the stockpile. Imagine in this first year when we got the award, there was a substantial increase in the number of devices that needed to be managed, being made by a wide variety of manufacturers. So to provide us protection and taking on this greatly expanded and uncertain new stockpile, it was structured in a way to support us. all these stand-up activities, ensuring these devices are ready, and then whatever deployment activities might occur over the course of that year. And so it was a larger contract. The current contract goes back to the stockpile management and maintenance without assumptions of future deployments. So it's a normalized level, this $40 million to $50 million that we've guided to here of reduced revenue. It's really that normalized level. level of revenue we'd expect to see in a future five-year renewal, just reflecting the management of the stockpile. Again, not the deployment, not the stand-up.
spk04: Great. Thank you. Appreciate it.
spk08: And our next question comes from the line of Jason Casorla with Citi. Please proceed with your question.
spk03: Great. Thanks for the questions. I just wanted to quickly turn back to the labor supply commentary. You noted 12% open positions currently versus high single digits historically. And while that isn't a significant difference, could you maybe expand on if this labor supply dynamic is impacting your go-to-market strategy for new revenue opportunities in the near term. I guess just considerations around impacts that go forward as opposed to the ability to service current contracts, which you said you haven't really noticed an impact yet. If you say any color, that would be great. Thanks.
spk07: Yeah, thanks, Jason. It's Tom Benning again. So we don't see the macro trend right now inhibiting growth. And I think it speaks to the strength of our model and our ability to retain talent. We obviously have been proactive in making sure we recruit and retain at an accelerated level. But Also, some of the acquisitions that we have done have created some really nice synergies that have allowed us to be able to meet the customer demands without having to fill these positions. So we've grown 20% year over year, and the pressure of filling these positions and the headcount really hasn't impacted our customers in part because of the fact that we've been able to manage the talent and balance that talent that we have both through the acquisitions and the existing resources that we had well. And so right now, again, no impact on our delivery to our customers and our ability to meet the growth targets that we set for ourselves.
spk03: Got it. Great. Thanks. And then maybe just as a follow-up, you called out short-term COVID focus as an impact for on-site managed services. I think this is the first time you're calling this argument out specifically. I could be off here. But I just hope you delved deeper around your comments on the sales funnel there and how you're seeing the opportunity for that segment develop amid that dynamic. Thanks.
spk07: yeah thank you jason so on the equipment solution side which is you know our augmentation of both equipment and labor resource for clinical engineering that was obviously in the highest demand during the critical periods for our customers as they were trying to meet the needs of their patients in various markets of course it was dramatic And so the strategic conversations around, for instance, coming in and managing their equipment either across their facilities or across their IDN were postponed because their near-term needs on the transactional basis outweighed their demand to try to really manage the equipment across their enterprise. So it was much more tactical than strategic. And now that we're seeing the amount of hospitalizations begin to drop, we're seeing our customers reengaging on these on-site conversations, which are much more strategic. And that's why we're seeing the growth on the on-site side. And as we mentioned earlier, a return of some of the equipment that's been deployed and distributed for some time because of the fact that the hospitalizations are beginning to drop. So that pivot is to more strategic conversations around full management of their equipment across their enterprise is starting to become more relevant than it has been over the last year, year and a half, because of the COVID demands.
spk02: Just an additional point I'd share with you. You said it wasn't clear if we had indicated where we're on site with land for the year what i'll remind you that we guide only to full year revenue not to individual solutions but what we've pointed out consistent is uh some portion of our business no matter what's going on is always in demand both our balance across cycle needs of our customers uh when it comes to the devices as well as they balance across both the medical and the procedural sides of the house in this case specifically yeah i'd like to give you the example of when the house is on fire that somebody's looking for somebody to hand them a hose or a bucket of water not pulp redesigning the kitchen in the same way when their houses were on fire during the course of probate our customers were looking for help servicing the devices the teams and the equipment necessary to meet the needs Now that the fire is out, they're once again thinking about how do I increase the value of my home? How do I remodel the kitchen? This shift back to their longer-term initiatives as our conversations with them shifting, once again, back to a focus on what we do in our on-site programs.
spk05: Got it. Thanks for all the comments.
spk08: Our next question comes from the line of Matt and Michonne with KeyBank. Please proceed with your question.
spk05: Good afternoon, and congratulations on a nice quarter. Just a quick one. What percentage of your business is now tied to, like, recovery and procedural volumes? I mean, now that the fire is out, it seems that that's going to be the area of the hospital that starts coming back a little bit faster. I just wanted to better understand how leveraged you are to that.
spk02: we are somewhat leverage the procedural side in two places within equipment solutions we have a business that provides lasers and technicians to support surgical cases as well as the surgical repair businesses that we acquired both northfields as well as mobile instruments business so we are leverage well to procedure volumes. When we've spoken in the past about COVID impact, we've always described it as a net impact. So the excess of demand, some types of equipment on the medical side, net of reduction in surgical case volumes that impact those parts of the business I've just described. so we would expect these things to reverse so lower utilization of things like pumps and vents and beds and monitor equipment but a core funding pickup for things like our surgical laser business and our surgical instrument repair business okay excellent um and then just on revenue synergies you know
spk05: You've made a couple of really great acquisitions, but when you think about the acquisitions you made, you made them during a very difficult time for the hospitals. As you look to increase your share of wallet and grow market share, is there sense you've had those conversations with those customers and we're now at a point in 22 where you feel comfortable that they could start deploying those?
spk02: So, yes, and in the one acquisition, again, just to speak to the balance across the medical and the procedural, the sideways acquisition clearly benefits on the medical side, and as we described, they've been a beneficiary of some excess COVID demand. Northfield and Mobile Instruments, both in the surgical instrument repair side, have been, you know, somewhat impacted by a reduction in surgical case volumes, and we've continued to sign business throughout this period, and we do expect as surgical case volumes return to be a beneficiary of that, both the increase in case volumes as well as you're continuing to sign new business. We shared, we combined the number two, number three independent service organizations through those acquisitions in surgical instrument repair We're very excited about what our competitive position looks like, and we do expect that to be an important driver of growth for us in the future. Thank you very much.
spk08: And our next question comes from Amit Hazan with Goldman Sachs. Please proceed with your question.
spk06: Thanks. This is Phil on for Amit. A couple of clarifications, if I could. The first one, I appreciate the $40 million to $50 million Headwind comment on the HHS contract. I'm wondering if you can characterize whether or not the reduction in scope that's expected on the go forward occurred prior to this kind of full-on renewal over the course of the last few months when the contracts were just being rolled forward, or if this is a new phenomenon that the scope will be reduced moving forward.
spk02: The prior extensions were an extension of the existing original one-year direct contract that we're awarded. And this new contract that we've just announced is where we expect to see this revenue reduction that impacts 2020. And it is much as we have been consistently guiding in terms of our expectation on what the scope of the longer-term agreement would be as well. Again, what comes out that causes the $40 to $50 million reduction is a reduced scope as we've now stood up and we don't expect to further deploy, need to further deploy this equipment-supported pandemic response. So those line items effectively come out and result in about a $40 to $50 million reduction. reduction in scope and revenue for us. But that's for the new contract that was just announced.
spk06: Okay, that's very clear. Thank you. And then secondarily, on the year over year COVID impact, I saw the 30 to 40 and obviously 12 to 15 comment on the quarter. I also heard the getting back to the normal environment for equipment solutions during the course of 2022, but it's fair to think about some level of impact occurring in 1Q persisting from Omicron, correct? Is the 12 to 15 experience in 4Q a reasonable starting point for the impact expected within 22 guidance and primarily within the 1Q quarter?
spk01: Thanks. Yeah, Amit, I wouldn't think about it that way. As I shared in my script, We saw it early in the first quarter, but what we've assumed in for the balance of the plan is that it's not going to be material. So we'll be back to a pre-COVID level, candidly starting in the middle of Q1.
spk02: So that range that you suggested would be much higher than what we would expect to see in the quarter. We would expect a non-material impact in Q1. Okay, thanks very much.
spk08: We have reached the end of the question and answer session. I'll now turn the call back over to CEO Tom Leonard for close remarks.
spk02: Well, thank you, and thank you again, everyone, for joining our call today. I'll say it's absolutely a privilege to get to share the great work of our teams and what they're doing to support our nation's healthcare system. We're excited about our momentum as we enter 2022, and we look forward to sharing our continued progress with you. With that, we'll conclude today's call.
spk08: And this concludes today's conference call, and you may disconnect your lines at this time. Thank you for your participation.
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