Agiliti, Inc.

Good afternoon and welcome to Agility's third quarter 2023 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 and hello everyone. we appreciate you joining us on today's call as we provide an overview of Agility's results for the quarter ending September 30th, 2023. 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 in our most recent FCC filing, which can be found in the investor section of our corporate website at agilityhealth.com. We will 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 and a description of why we use these measures in our press release. 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 Q3 2023 Earnings Slide. A final note before we begin our prepared remarks. On October 2nd, 2023, Agility announced that Tom Leonard would rejoin the company as its Chief Executive Officer, effective immediately. Mr. Leonard previously served as CEO of Agility, beginning in April of 2015, until announcing his retirement in January of this year. I will now turn the call over to our CEO, Tom Leonard.

Thank you, Kate, and good afternoon. It's great to be back at Agility. I'd like to begin today with some brief reflections on rejoining the company and our path forward. Over the first few weeks, my focus has been on reconnecting with our teams across the company and doing a deep dive into our solutions and operating systems. seeking a clear understanding of our performance, obstacles, and opportunities. What gives me confidence as I reenter the business is that we don't need to look outside for near-term growth opportunities, and no part of our business faces a structural hurdle that impacts its long-term potential. In other words, agility has far more room to execute than has been apparent in recent quarters. The key to unlocking our potential begins with a rebalancing of mix. We've already begun to refocus and retrain our selling teams to once again deliver a healthy, balanced business mix for the company. For agility, mix is not simply the relative proportion of the individual solutions we sell. That's an important point that bears repeating. For agility, a healthy mix of business is not just about the relative proportion of our individual solutions. It also includes balancing larger multi-year customer contract wins with a steady flow of more transactional high contribution margin business, including rental and supplemental clinical engineering. It means regaining the discipline of building local market density to ensure we best utilize our existing local market capabilities, a key driver to improving our overall margin profile. It's about refocusing on share of wallet capture opportunities within our existing customers, that our combined solutions drive meaningful synergies for customers, and we benefit from the efficiencies of shared teams, tools, and infrastructure. And it includes targeting our selling efforts in local markets where we have pre-existing capabilities to reduce our growing short-term reliance on margin-sapping third-party service partners. Importantly, these actions are not meant to represent a comprehensive list. Rather, they're among the many levers the company has long used to deliver a best in class margin profile. But that have been missed is the company over indexed on generating top line growth. Also key to achieving both near and longer term growth goals will be unlocking the potential of our entire business. In recent quarters, Much of management's discussion with investors has revolved around a post-COVID rebaseline for our peak-need rental solution, as well as the financial impact of delays and upfront implementation costs as the company onboarded more and larger contracts than ever before in its history. This remains an accurate description of the variance in reported results from management's expectations in those prior periods. But variance to expectations is not the same as unrealized potential. Let me illustrate that point with a couple of examples, beginning within our equipment solution service line. Peak need rental had emerged as a significant driver in Agility's financial performance over the prior three years. First, as the company benefited from outsized demand for medical equipment during the pandemic. And again, as we moved toward a lower utilization baseline post-COVID. as a result of our customer's excess medical device purchases during that period. But keep in mind, deep need rental represents just 6% of total company revenue this year. So while it will always be critical for us to continuously refill the bucket with this type of transactional high contribution margin volume, board financial impact of P&R on our overall results should be more muted at this current level. Today, as it was prior to the pandemic, the more strategic offerings within our equipment solution service line and more importance to our longer-term growth plans include our specialty beds and clinical services solution, or SES, as well as our surgical services offering. SES includes product manufacturing capabilities and clinically differentiated support services acquired through the SizeWise acquisition in 2021. This solution has been a consistent growth driver and presents a long runway for margin improvements, as well as opportunities for future strategic investment. Shortly after our acquisition two years ago, we began to invest in R&D, systems infrastructure, and manufacturing automation. Starting in 2024, we'll begin to see clear benefit as a result of those investments. One example? We currently make and support more than 100 variations of therapeutic support services in a variety of sizes, materials, and levels of performance capability. We will soon launch a streamlined, best-in-class range of therapeutic support services under the Agility brand that will simplify the decision process for our customers and provide Agility line of sights to gross margin improvements as we simplify our supply chain and achieve benefits from our increased manufacturing scale. We're excited about our first significant new product family launch within a solution we see is key to our long-term growth goals. Our surgical services offering is primarily focused on urology procedures, where agility mobilizes surgical lasers and certified laser technicians provide access to a range of modalities and a pay-per-case model we enjoy the number one competitive position by revenue in this segment and have access to a broad range of technologies, including several on an exclusive basis through our strong manufacturer relationships. Having completed the integration of the contracts, teams, and modalities that came with the late 2022 acquisition of Healthtronics, we're well positioned with growth and margin expansion initiatives as we prepare to enter a new year. Staying on the topic of unlocking the potential of our entire business, I'll share just one more example, this time from our clinical engineering service line. You'll recall that we acquired mobile instruments in early 2020 and Northfield Medical in 2021. These acquisitions of the prior numbers two and three players by revenue in surgical equipment repair launched agility into a fast-growing segment of the market. As an independent service provider, We offer our customers a strong financial value proposition, a one-vendor solution for their repair needs, along with the confidence of working with a business that is ISO 1345 certified and backed by a full medical device quality management system. Both mobile instrument and Northfield were acquired during the pandemic when surgical case volumes around the country were below normal levels. So we took the opportunity at that time to focus on integrating our operations, and harmonizing our commercial strategies. Today, we hold a strong competitive position. We enjoy positive momentum in the market and are executing on our roadmap for growth and accelerating margin expansion. In summary, as we rebalance our selling mix and focus on better execution across all of our solutions, we believe our core financial engine will once again deliver highly profitable predictable growth. Our ability to execute on these and other opportunities within our portfolio remains well within our control. As I conclude my prepared remarks today, I want to acknowledge the recent analysts and investor feedback we've received. We appreciate the importance of management rebuilding the trust and confidence of the market. We believe the recent performance of our equity significantly undervalues the strength of our financial engine, our competitive position in the markets we serve, and the sustainable advantages of our unique operating model. We understand the overhangs that currently weigh on our valuation, and we're committed to working through them. I return to Agility to lead this company because I deeply believe in our team and the critical role Agility plays in our national medical device infrastructure, and in our ability to rebuild a bright future for this company while delivering strong returns for our shareholders. So as we complete and prepare to report on the full year and set expectations for 2024, we're committed to providing the right level of transparency and color on the business to strengthen your view of our progress. For now, I'll pass the call to Jim to provide detail on our Q3 results before returning to take your questions.