Agiliti, Inc.

Good afternoon and welcome to Agility's second quarter 2022 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 Communications and Investor Relations at Agility. Thank you. You may begin.

Thank you, Operator, 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 June 30, 2022. 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 filing, which can be found in the investor section of our corporate website at agilityhealth.com. During this call, we'll also be referring to certain measures that are not calculated and presented in accordance with generally accepted accounting principles. You can find a reconciliation of those measures to the most directly comparable gap measures and a description of why we use these measures in our press release. To download a copy of the presentation that we will 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 a presentation titled Agility Q2 2022 Earnings Slide. With that, I'll turn the call over to our CEO, Tom Leonard.

Thanks, Kate, and good afternoon. Thank you for taking time to join us as we review our results from the second quarter of 2022. Joining me today is our CFO, Jim Pekarek, and our President, Tom Benning, who leads our commercial operations. While our overall financial outlook remains largely on track for the full year, in Q2, some aspects of our business performance differed from our expectations. Today, we'll provide color on the factors that impacted the quarter and share our perspective on the remainder of 2022. With half the year's work still ahead of us, we continue to expect our full year results to be within our original guidance range, but we now expect to finish at the low end of that range. As we review our results today, I want to emphasize the consistently strong underlying performance of our core business. Later on the call, Tom Benning will provide an update on some of the factors driving our confidence in our financial outlook. Then Jim will provide additional detail on our Q2 results and share our high-level assumptions for the full year before we pause to take your questions. I'll start by discussing the two transient factors that were a drag on our performance in the quarter and that caused a variance from our expectations. First, you'll recall that Agility was previously awarded an extension of up to one year on our Health and Human Services Government Agreement for medical device stockpile management, or for simplicity, the HHS agreement. This extension rescoped our work to reflect normalized post-COVID management of the medical device stockpile and consists of both a fixed fee and a time and materials-based fee structure. Our assumption accompanying our full-year financial guidance was that revenue from the rescoped HHS agreement would show a year-over-year decline of $40 to $50 million, with the difference primarily reported within our onsite business. However, in Q2, the government unexpectedly paused the time and materials work that we perform at their direction. Consequently, we now expect the full-year financial impact from the HHS agreements to be an incremental $10 to $15 million reduction to revenue compared to last year. Jim will provide additional detail during his remarks. A final note related to the HHS agreement, the Department of Health and Human Services recently published a request for proposal for its new multi-year agreement for the management of the federal emergency stockpile of medical equipment. On August 5th, Agility submitted its formal response, and we are awaiting next steps on what is expected to be a new five-year contract award. The second factor driving variance from our expectations comes from the rental portion of our business. We have previously described the net COVID impact of higher medical device utilization in 2021 as a $30 to $40 million full-year benefit to revenue. We further defined this tailwind as the excess of COVID-driven rental revenue in 2021 over the 2019 pre-COVID baseline utilization for our rental fleet. Starting in Q2 this year, rental device utilization appears to have re-baselined at a level below that 2019 pre-pandemic level, meaning utilization for these peak need devices, which primarily include infusion pumps, ventilators, and patient monitoring devices, and which represent a subset of our overall rental fleet has recently stabilized at a level that would suggest $20 to $30 million less revenue and corresponding margin in 2022 than implied by our initial guidance. I want to note that our rental rebaseline assumption is simply a conceptual jumping off point for managing and growing the business from here. This assumption may prove conservative. and we may ultimately see some reversion towards historical utilization levels. Both COVID impacts and the HHS agreements have been the primary drivers of unexpected variability in our reported results, both favorable and unfavorable, during our first five reporting quarters as a public company. Throughout this same period, our base underlying business has continued to perform in line with our expectations and our financial guidance. While COVID and the government contracts have been topical issues in recent quarters, it is the strong and predictable performance of our base business that puts us in the position to largely overcome these short-term, unanticipated headwinds and reaffirm our full year guidance range. Further, we're particularly excited about the results coming from our 2021 acquisitions of SizeWise and Northfield Medical. Both are performing well, and in some measures, performing well above our initial expectations. We're seeing strong momentum from the combination of these businesses into our solution offerings. As we lap the next few quarters, which still include both COVID and HHS contract impacted results, we expect to carry our organic growth momentum into 2023. Let me now turn the call to Tom Benning to offer his perspective on the business in the quarter.