Agiliti, Inc.

Q4 2022 Earnings Conference Call


spk_0: that afternoon and welcome to agility his fourth quarter and four year twenty twenty two earnings conference call today call is being recorded and we have allocated one hour for prepared remarks and question and answer at this time i'd like to turn the conference over to take either senior vice president of corporate communications and investor relations that agility thank you you may be
spk_1: gun thank you operator and hello everyone thank you for joining us today call as the provide an overview of agility felt that a quarter ending december thirty first twenty twenty two before i begin or remind you that during today's call will be making statements that are forward looking and consequently are subject to read and uncertainty certain factors may affect us in the future and the cause actual results to differ materially from those expressed in a forward looking statements pacific a factors a detailed and i actually and in our most recent sep filing which can be found in the investors section of our corporate website and agility help dot com lots to be referring to certain measures that are not calculated and presented in accordance with generally accepted accounting principles during the fall you can find a reconciliation of the measure to the most directly comparable gap measures and a description of why we use these measures and are factually to download a copy of the presentation that will used to facilitate today's discussion we visit our website and agility help that from the left the investors section of the top of the screen and then events and presentation finally put
spk_2: to prevent hastened titled agility que for and four year twenty twenty two earning flight on option to call over to tomlin it good afternoon like you for joining us as we review a result from the fourth quarter twenty twenty two and reflect on the performance for the full year jordy me today as our president from burning and or see a foe to be cured beginning with a recap on a recent news on january ninth i announced my plans to retire from the feel role and agility i will continue to serve the company as a member board of directors combining will officially take the field position and join our board of directors on march tenth thomas served right beside me since january twenty twenty years or president leading our commercial organization with the key member of our leadership team i've known him nearly twenty years ago the colleague and as a friend and a full confidence in his ability to lead our company the transition part of a thoughtful succession planning process he began shortly after tom joined agility two years ago the board of directors and i are excited about our future and look forward to the company continued progress undertones leadership today i'll highlight a few headlines and twenty twenty two and then turn the call the tom and gym we delivered by the end results that met our expectations for the fourth quarter and for the full year we successfully flexor operation to capitalize on the favorable tell with of kobe and realized the financial benefit for managing and deploying the hhs stockpile of medical devices we recently secured the long term renewal of our hhs contract is part of the competitive process continuing our strong track record of execution that we shared over the last few earnings call you seem strong demand for our services that customers resume focus on the long term priorities resulting in some of the largest contracts and the company's history agility enters twenty twenty three well positioned to extend the momentum from twenty twenty two and driver performance in the years to come we enjoy strong backlog of sign contracts the growing pipeline of new customer opportunities all of which phil and are double bass business as we move to the first half of this year will laugh the prior years benefits from covered by team and the hhs contract renewal and we expect your backyard results the more clearly demonstrates the predictable organic growth of our base business it's like include by time as ceo of agility a could not be more confident in our company or more proud of our teams agility has become a truly essential part of our nation's health care infrastructure when my privilege to serve this company it's team members customers and shareholders for the past eight years as it's ceo look forward to supporting it's continued progress and betting leadership
spk_3: i now turn the call over to our new ceo banning
spk_0: thanks tom and alavi one thanks for joining us today
spk_2: i'm honored to have the opportunity be part of his leadership team and i can't think tom it offers partnership and guidance
spk_0: after more than twenty five years and healthcare i can confidently say that there is no other company that can match or unique capabilities exciting growth potential were important purpose
spk_2: since joining agility three years ago i had the pleasure of working alongside our colleagues and our customers to deliver our are critical mission underlying agility results reputation is the durability of it's business model the strength of it's nationwide scale and dedication to quality and service as ceo i look forward to furthering are strong customer partnerships is powering are incredible team and delivering and are proven growth strategy to drive value for our show turning out to her most recent results we finished twenty twenty two in line with both our expectations for the fourth quarter and or revise guidance ranges for the full year our performance demonstrate the underlying resilience of our model was standing the transit impacts of coated and the delays in time and material work associated with the hhs agreement both of which caused a variance and are expected results as we move to the year covered related impacts on the hhs agreement have in fact been the primary transient drivers variability in our report and results during a roughly two years a public company
spk_4: in the first quarter of twenty twenty two they represented tailwind benefit to a report it results than in the second half of the year we experienced short term headwinds related to the coded impacted lower than expected utilization about running device fleet and the timing delays associated with renewal of he ha
spk_2: just contract
spk_0: we anticipate more stability in twenty twenty three
spk_2: by the end of two to we will have lapped the prior year tell it at the same time we expect the underlying organic growth engine of the business
spk_3: to come more clearly into focus later this year driven by are consistent new business momentum and steady customer demand for are connected solutions
spk_2: i'll offer a few highlights before inviting gender provide the detail our results
spk_0: beginning with some recent news on december fourteenth agility was awarded a long anticipated new agreement with the us department of health and human services or hhs
spk_2: under this curse word agility will continue to manage the inventory distribution and retrieval a ventilators and powered air purifying respirator systems within the strategic national stockpile and continue overseeing the ongoing preventive maintenance and management services to ensure these
spk_3: critical emergency medical devices
spk_2: ready for use the contract proponents period begins on august twenty eight twenty twenty three misguided up to nearly five hundred million dollars over a term of for and a half years concurrent with this long term a word agility received a six month extension to it's current one year contract which was previously scheduled to expire on february twenty seven twenty twenty three their bright bridging the term between these two contract to span a total of five years
spk_0: since twenty twenty agility is operated under a series of short term contracts with hhs that were designed to meet emergency response need throughout the pandemic
spk_2: as expected and important to note the new multiyear contract covers work related to the need for ongoing management maintenance and deployment activities in a normalized post covert hero
spk_3: the scope and economics align with the expectations we've outlined to date and will provide more color on how this factors into our twenty twenty three guidance
spk_2: we're pleased at once again earn this important contract and look forward to continuing to deliver value to hhs for the next five years
spk_0: more broadly across the business we continue to see positive organic growth momentum driven by are selling organization who are dedicated to helping uncover and solve for the needs of our customers
spk_2: the recently had the opportunity to hear directly from several of our larger customers as part of our annual commercial kick off event where we bring together our sales and operations teams for a week of focus training and preparation for the year ahead we were reminded of the many challenges healthcare providers are facing as the industry emerges from the pandemic in some cases their primary near term goal is to simply get back to financial breakeven the continued uncertainty surrounding the financial and operational environment is causing healthcare executive to seek partnerships with a nurse who can help to meaningfully reduce costs while enabling better patient care agility remains uniquely position to help them accomplish love in the last few years we work to elevate or value proposition broaden our solutions portfolio and train teams for these higher level customer engagement that work has resulted in strong pipeline of sizable new business opportunities in just the last few quarters we have signed more seven and eight figure annual value contracts than ever before and our companies eighty plus year history the result has been a solid backlog sizable new opportunities for agility
spk_0: is positive evolution toward more system wide and idea level engagements is a testament to the essential nature of our work in the value we've long provided to our customers
spk_2: as we previously mentioned these larger deals require somewhat longer and more complex implementations is when that ourselves deeply into our customers operations to unlock value in their medical device value chain as we shared last quarter we expected this growth trend will yield some near term lump penis in our financial results for the first half of the year as we enter the back out for twenty twenty three weeks that these multi year contracts will once again support a highly visible and predictable financial outlook more typical of our long history as a company with our sights set squarely in the future a like to reiterate a point we've long made around the extraordinary resilience unpredictability of our business model as you look across our offerings you can observe our connection to every phase of our customers medical device life cycle as well as the balance of our business between the medical and procedural sides of a health systems operations regardless of the macro trends facing our health system is a whole more specific situations are challenges affecting an individual customer there are parts of our solution said that are always in demand we are proud of the work of our teams and of the important role that agility as one performed in support of our nation's health care delivery system looking forward were even more enthusiastic about the momentum in our business and the opportunities at of us for now our teams remain focused on discipline execution of our strategy and on fostering strong collaborative partnerships with our customers is we pursue our goals and twenty twenty three and beyond
spk_5: i'll now passed the called to gym for detail on our financial results and initial guidance for twenty twenty three
spk_6: thank you tom i'll start with an overview of our cue for and four year twenty twenty two financials and then and with some comments on or twenty twenty three financial gains for the fourth quarter total cop me revenue total two hundred eighty two million dollars representing a three percent decrease over the prior here excluding the favorable impact from coated in the prior year which with estimated at twelve to fifteen million dollars revenue and cute or twenty twenty two increase two percent over the prior year adjusted ebitda total seventy one million a sixteen percent decrease compare to queue for last year and adjusted ebitda margin totaled twenty five point three percent adjusted ebitda margin versus the prior year were affected by the revised scope of a new hhs contract renewal as well as lower medical device rental yours asian in the quarter adjusted earnings per share of eighteen cents in the quarter compared to twenty five cents in the year ago period driven by both a decline in the adjusted net income and an increase in the effective interest rate on our debt which amounted to three cents per share in the quarter for the four year total company revenue totaled one point one two billion represent any eight percent increase over the prior year excluding the net favorable impact are coated in twenty twenty one vs twenty twenty two revenue increased approximately eleven percent for the full year adjusted even got totaled two hundred ninety seven million representing a ten percent decrease over the prior year adjusted ebitda margin or twenty six point five percent for twenty twenty two down five hundred basis points from last year lower kobe driven medical device rachael utilization versus the prior year and the transition over hhs contract to a post pandemic and focus were key drivers for the decline in addition adjusted ebitda margin to negatively impacted by the on boarding have a higher proportion of a larger customer contracts which tend to have a lower upfront profitability during the implementation face are operating performance drove and adjusted earnings per share of eighty five cents per share down fourteen cents per share with higher interest expense impacting our results by five cents per share for the year taking a closer look at the fourth quarter across each of our service lines equipment solutions revenue total one hundred and seven million down eleven percent year over year the decline was primarily attributable to lower customer utilization of our peak need rental medical equipment fleet in the quarter a reminder that when comparing your over your performance for que for in the prior year period we estimated a favorable impact from kobe driven device demanded of approximately twelve the fifteen million dollars which primarily impacted equipment solutions excluding the prior year excess covert impact equipment solutions was up approximately two percent in queue for twenty twenty two moving the clinical engineering q for revenue was one hundred and ten million representing a year over year increase of fourteen percent for the quarter new customer organic growth was the primary driver for the increase first the prior year as we continue to advance or solutions including within our surgical equipment repair portions of a business finally onsite managed services revenue total sixty five million representing a year over year decline of thirteen percent for the quarter this is primarily driven by the renewal pricing and scope of our hhs agreement
spk_7: as the agreement reset to the longer term pricing model or managing the stockpile devices
spk_6: continuing down the pan out gross margin dollars for que for totaled one hundred and eight million a decrease a twelve percent year over year or gross margin rate with thirty eight percent compared to forty two percent the prior year period the decline in march and rate with volume driven primarily due to lower medical device rental placements as well as the factors related to the hhs agreement as previously described as she in a costs for que fourth totaled eighty five million dollars a decline of ten million year over year
spk_8: the decreases primarily due to lower employee and center cause first the prior year
spk_6: moving to the balance sheets we close key for with net that of one point nine billion our cash flow from operation for the year with two hundred million driven by strong operating results and queue for we invested approximately sixty million dollars in to talk and acquisitions these investments added to our local capabilities and footprint and select markets within a surgical equipment repair and surgical rental portions of our business these two smaller transactions and que por or financed through a combination of cash on hand and are revolving credit facility are reported leverage ratio at the end of queue for approximated three point seven times excluding the impact of the late queue for acquisitions and the associated sixty million and purchase price paid for the businesses our leverage ratio would have approximated three point five times as of december twenty twenty two for the year we have utilized cash on hand to retire over one hundred and twenty million dollars in debt obligations looking forward we will remain diligent in determining the optimal uses of are strong cast generation agility maintains a position of solid liquidity with two hundred and twenty one million dollars available as of december twenty twenty two
spk_7: a reminder and the terms of our debt given a macro view on near term interest rates
spk_6: our one point nine billion in debt we maintain an interest rate swap agreement on five hundred million which is swapped floating rate terms for fixed rate terms this provides a partial heads for any anticipated market rate increases in the short term and will expire in june twenty twenty three we will continue to evaluate the interest rate environment and our capital structure and ensure we are well positioned to support the future growth of the business turning now to or twenty twenty three financial guidance as a reminder we provide guidance for key performance metrics on a full year basis or twenty twenty three revenue guidance is in the range of one point one six to one point one nine billion representing top line growth of forty six percent or just that even that games is in the range of two hundred ninety five million to three hundred five million in are implied for your adjusted ebitda margin which can be calculated from our twenty twenty three games are expected to be in a range of twenty five twenty six percent as describe our net cash cap x games reflects are expected investment in the range of eighty five and ninety five million finally adjusted earnings per share guidance is in the range of sixty five cents to seventy cents per share we estimate the negative impact of higher interest expense to be in the range of fifteen cents to twenty cents per share from a qualitative perspective as we have shared in each of our earnings calls in twenty twenty three our financial results will be campaign against a favorable five point seven million impact of kobe in que one twenty twenty two in addition as we shared and are prior earnings calls as of cute to last year we saw lower than expected utilization of our equipment rental fully leveling out below twenty nineteen pre pandemic levels our twenty twenty three guidance assumes placement will continue at this new baseline level and that we will continue to benefit from normal seasonality throughout twenty twenty three additionally and as time described earlier on december fourteen twenty twenty two we were awarded a new multiyear contract with hhs our guides reflects a thirteen to fifteen million dollar year over year reduction and adjusted a be even die as the contract resets to pre pandemic pricing models overall excluding the one time impact described above and contributions from emanate aren't games implies load amid single digit organic revenue growth and twenty twenty three which is weighted toward the second half of the year as we continue to onboard new business
spk_0: i'll now turn the call over tour operator to provide instructions for are you in a thank you will now be conducting a question and answer session if you'd like to ask a question please press star one on your telephone keypad and confirmation tongue when the carolinas in the question q he may press start to if you'd like to remove your question from the queue for participants is a speaker equipment and may be necessary to pick up your handset before pressing the sarkies and the interests of time last participants one themselves one question and one for one moment played volleyball for questions
spk_9: thank you our first question is from kevin suspect with bank of america please proceed with your question
spk_2: great thanks maybe to to pick up on that last comment about the the guidance assuming that the people that you're gonna grow and twenty three
spk_10: he there as a number that is like covert adjusted youth you feel like that number will be higher excavator gonna get a decent what to think about they're gonna a
spk_9: yeah kevin thanks for the question ah yeah that's a decent way to think about the organic growth kevin okay great and then as far as the new contract with bigger part of the story the you think that and other there's onboard and cause the beginning of these contracts for wants their up and running or his contracts likely to be the same type of margin or worse such you're going bigger and deeper within these companies yeah they're asking for a little more the savings going through to them they sort of the
spk_6: yeah that any modifications of a big contract next
spk_11: yeah kevin a good question you should be thinking about it in line with our overall even that margins
spk_10: director
spk_0: you gotta catch kevin thanks for the question
spk_12: i give our next question format machine with keybank capital markets please proceed with your question a god has gone this is brett been on from out today and thanks for taking the questions i'm i think i'm you walk through some of the movie pieces you're impacting the year over year comparisons in twenty three burst twenty two i'm in a little bit of a piecemeal milpitas just wondering if you could specifically quantify what you're expecting to see from the inorganic benefit around emanate and then the for your headwind i'm around
spk_6: the lower equipment rental utilization as well as lower revenue from the age as contract on all your basis ah thanks for the question ah i wouldn't quantify it this way i guess first of all and that am and a piece it's clearly immaterial from our overall financial statements they're they're small deals and talk games the most important pieces that and i references and call that they're in the space that were already seen good strong growth them but in terms of them math i would i would share this think about the a even die from these tough games in her as a mid single digit ebitda i would i would leave it at that korea in terms of the other elements that you asked about we've described last year that the kobe benefit for us in que one way as in the five to seven million dollar range the other thing that we described as we entered into que to and for the balance of the year is that read baseline of kobe below two thousand and nineteen levels was in the twenty to thirty million dollar range but again it started towards cute to that that would also get factored into the math that you're trying to derive we don't describe the actual hhs impact from a top line perspective you should be thinking about that consistent with what we've previously shared the terms of guidance overall
spk_12: i'm in l a leave it at that
spk_3: or an excellent that that hubble and then just turning back to the conversation around on emanate and capital allocation i'm contagious give a little bit more color on what these tokens are bring to the table strategically on your her how they add to your current momentum and then just hired thinking about you know additional board on the all capital allocation priorities for for the rest a twenty twenty three thank you and thanks bread and headed tom adding as you know we we look at emanate augment are strong organic growth profile and these talk and acquisitions did just that we always retain a strong pipeline of acquisition is that compliment are overlap and extend strategy of our current offerings so we certainly have identified and keep pipeline have some tuck and acquisitions and will consider over the course of a twenty twenty three and of course always have our eye out for more substantial acquisitions for the company but touch our and ten
spk_13: did help compliment the great organic growth of the business
spk_0: i did they give thanks breath like uber as a reminder of you'd like ask the question please press star one on your telephone keypad the confirmation turn one the carolinas in the question que
spk_14: our next question from case and sorrell with city group please proceed with your question great thanks like a definite everyone are just looks with the clinical continents and material the top while performance and a quarter you flag increasing customer go road was originally contemplated and guidance on as revenue is decently how to from where you're training for most the year and then think about twenty three should consider car clinical engineering and that
spk_10: hi single digit kind of growth rate in the back half year or so actually think about the person takes for that segments grounds and twenty twenty three yeah thanks for the question jason
spk_6: what what i would share is this you're obviously we don't guide to the individual solution in terms of revenue growth but what i would share is that the map toward twenty twenty two was consistent with what we had a guided to overall
spk_10: so it it was consistent oh and it the way to think about twenty twenty three is the way we've described it historically in terms of that growth to slick at the growth profile with in clinical engineering historically and i would be it
spk_15: good representation without breaking out any the details jason
spk_14: okay got it and the movie just wanted to ask about the embedded cash flow with and guidance needed about two hundred million operating cash for twenty two and about three million to be better to think about a similar level of cash generation for twenty three at the midpoint of gallons are in either one time items which are you thinking about cash or perhaps higher interest costs and like just for
spk_16: she out that are pretty casual dynamic for for twenty three
spk_6: the helpful yeah know where it that the couple of big chunk to think about for twenty twenty three as it relates to the modeling of the cash flow is the interest that i referenced in the script if you think about a year over year would be fair to say that the interest rates said are reflected his we model and twenty twenty three are consistent with the said rates and coming off as swaps he can think about it in terms of car three hundred and three hundred fifty basis point fish
spk_10: increase in overall interest costs on are dead
spk_6: and then the second piece to think about it taxes with shared this previously but as we can continue to utilize her and wells really a very little in terms of and orwell's to utilize in twenty twenty three and so the overall cash
spk_17: the taxes go up a bit
spk_0: i'm that the other thing that think about for twenty twenty three
spk_18: thank you
spk_2: you gotta jason i keep our next questions from kevin kelly under with you bs please proceed with your question
spk_6: thanks i'm so i'm doing the math right the the guidance with the midpoint in does assume a margin step down by the one hundred basis points and i'm just trying to understand what the driver of that is is sure we think about it as your mix is the cost of business and and the time of either that margin books it's what what are the drivers of the of that nurse how should we think about it yep thanks for the question ah i had shared in the script that the impact from the hhs renewal
spk_2: well within the thirteen or fifteen million dollar range from a profitability perspective that certainly had an impact and there's with a less of an impact but an impact from mix is well i'm obviously we have that you know get on the other side of covert i pointed out in the earlier part of the q and a the benefit that we obtain in the first quarter of twenty twenty two which was in the five to ten million range as well as this repay signing okay and with well but yet to to complete the thought we'd share this previously in our dialogues but it's important to understand that not only does that ever top line impact but it has a high flow through ducks impacting are are you but the margins i'm just given the leverage at the end of the year
spk_6: and the free cash flow and in the day i guess my my question is use the cash it would you should we assume that with the free cash flow generation for the year of would be used to paid out that would you self and acquisitions you are you in a position where he would wanna take on any additional leverage to do anything before the think about how you're thinking about that
spk_10: should we assume that the free cash flow
spk_19: racial to operating cash or remains roughly the same as well
spk_6: yeah
spk_20: the at that the most important call out i would make their is that is we've shared previously we've target are leveraging the load amid threes
spk_6: we've shared that with am and a can go up his eyes for went away to think about this is and we made these acquisitions at the end of two four
spk_2: and what we've shared in terms of the back half been better than the front half what you should expect to that we should be and towards the back that starting that the lever that would be the way to think about it back more towards the games that we've shared around that load amid threes
spk_21: overall
spk_22: in terms of capital allocation will be thoughtful around capital allocation as we all always are either
spk_23: i'm paying down debt or reinvesting it in the business or considering
spk_0: other uses for it kevin
spk_9: and make in the capital costs we should just assume is there anything in in twenty twenty two and twenty twenty three that you would call out to be abnormal versus what you would think about it your normal spend no not at all what did occur
spk_6: yeah matter not at all
spk_9: thank you
spk_6: you got it
spk_9: thank you are nice questions from your drew we're nearing with morgan stanley please pursue their question
spk_6: i thought engine banks are take the question i maybe just to stars when an usher i'm i'm doing my bath right here but we should be thinking about load of putting on his organic growth as right what the thing about the the business from here the opposition's for the year my dad a hundred pattern city basis points to growth plus or minus and that the acquisition drafting about five million and either does it is that kind of the right messaging today yeah i think you're actually that's right through aka geiger and maybe just on the barge inside
spk_0: to maybe help us better understand what the margin expansion story as from here in twenty twenty three seems like a bit of a transition year off of covered ah off of some of the rebates utilization but how should we be thinking about margin expansion opportunities for the company are looking ahead actually take the questions yeah
spk_2: good good good question drew ah the the key for us
spk_0: always is fine growth of i miss her friend it it it helps us tremendously with

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