This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good morning, and welcome to Up Health's Analyst Day webcast, live from the New York Stock Exchange. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal remarks. As a reminder, our session is being recorded. Today, I am joined by Ramesh Balakrishnan, our Chief Executive Officer, Martin Beck, Chief Financial Officer, and Andy Panos, Executive Vice President of U.S. Telehealth. During today's webcast, management will be making forward-looking statements. Please refer to the company's SEC filings, including the company's quarterly report on Form 10Q and its various registration statements on Form S1, S4, for a summary of the forward-looking statements, risks, uncertainties, and other factors that could cause results to differ materially from these forward-looking statements. Uphold cautions investors to not place undue reliance on any forward-looking statements. The company does not undertake and specifically disclaims any obligation to update or revise the statements to reflect new circumstances or unanticipated events that occur, except as required by law. Throughout today's call, we'll refer to pro forma revenues, pro forma gross margins, and adjusted EBITDA. These metrics are not determined in accordance with GAAP and therefore are susceptible to varying calculations. Definitions, calculations, and reconciliations to the financial statements of these non-GAAP measures can be found in the tables included in our press release. We believe these non-GAAP measures of Uphill's financial results provide useful information regarding certain financial and business trends and the results of operations. With that, I'd like to turn the session today over to Ramesh Balakrishnan, Uphill's Chief Executive Officer.
spk08: Thank you, Shannon, and good morning, everyone. We appreciate your time with us today, and we look forward to our session together. I want to first thank all of you already familiar with UpHealth for your ongoing support of us. To those of you new to the UpHealth story, thank you for joining us today. We look forward to spending more time with you as we continue to execute on our mission to reshape healthcare, a massive and unfortunately broken industry. We focus on the most innovative and high growth sections of the digital health markets, and we are excited to share our story with all of you. We have four major sections to cover today in our time together. Part one, an overview of the agenda today. Part two, Q4 and full 2021 performance highlights. Part three, accomplishments and milestones and our strategy going forward to maximize the potential of our products and services. Andy Panos will join Martin and me for this section. And part four, Martin Beck will present financials in detail, followed by a Q&A session. Let's start with our vision as a company. Our vision is to take healthcare to a next level, a new future, and there's a lot to be done here. What we envision, I hope we share with many, is a world where everyone everywhere has access to care, not just to address sickness, but to maintain the best possible health. This is a critical element for economic prosperity and general well-being of societies. We've made excellent progress to realize our vision with executing on strategic growth across the core businesses that enable our vision, integrated care platform, virtual digital health infrastructure and technology enabled services will expand on these business lines today. Our success is only possible because of the people of UP Health. As a result of the determination and innovation of our whole team, we are incredibly proud of this team and we'd like to introduce you to some of them and the UP Health story in a short video.
spk07: Healthcare in the United States is broken. Costs are out of control, health outcomes and access are far from ideal. Mental health is increasingly affecting whole person well-being. The US's healthcare system is first in cost and last in effectiveness among high-income countries. Globally, the same story can be told in many countries. Inadequate access to affordable and quality care. Calls for change are loud and clear.
spk06: We're closing the long-standing gaps of communication and access that have kept healthcare innovations from making the difference they should. If patients, doctors, caregivers, and providers can't communicate, simply put, healthcare fails and costs rise. The 30-day hospital readmission rate is more than double for patients who are deaf, hard of hearing, or have limited English proficiency. Hospital readmission rates can be cut almost in half if language services are provided from admission through discharge.
spk05: of health combined established services with a digital first approach that doesn't adapt to today's challenges, but leapfrogs past them.
spk10: UpHealth is a high growth, profitable company that is delivering impact across massive markets. Our global footprint allows for operating scale. Over the next few years, UpHealth will see its fastest growth in its highest margin businesses. More than half of UpHealth's business is under multi-year recurring revenue contracts, providing stability for future results.
spk00: We're succeeding by focusing on three priority areas, integrated care, virtual care infrastructure, and services.
spk05: The center of UpHealth's integrated care service is Syntranet, a cloud-based platform that aggregates patient data and identifies health needs and risks. Syntranet transforms data into actionable insights that result in better health at less cost.
spk00: Syntranet allows health care providers, payers, and governments to link disparate systems for seamless operation.
spk10: Centranet's differentiated capabilities are enabling it to take market share in the rapidly evolving population health management sector. Its revenues grew rapidly last year, and today it serves over six million lives. Together, Marty and Hello Life will help hundreds of thousands of people access quality healthcare.
spk06: At the heart of our virtual care infrastructure are Marty and Hello Life. Marty is a well-known language interpretation and translation service. Our third offering is services.
spk07: UpHealth offers a variety of care delivery and health management services from behavioral health to pharmacies. Our service areas are delivering benefits to people around the world and helping deploy new models of care. UP Health may be new to you today, but we're working every day around the world to overcome disparities of access, empower providers at the point of care, and enable population health programs to improve outcomes for all. In the future, our hope and mission is to change the world for the better. We deeply care about people's health and dare to design solutions that promote and improve health through more connected, effective, accessible and integrated care.
spk08: Let's begin with the core propositions that highlight our value as an investment. First, we offer a unique set of products and services that differentiate us from the companies in this space. For those of you new to us, we offer a unique combination of technology for integrated care, virtual digital health infrastructure, and technology-enabled services that add to the power of our technology platforms and infrastructure. Second, our products and services address massive markets and we have strong operational results. Third, we completed 2021 with strong growth, 28% in pro forma revenue with negative adjusted EBITDA of 4 million. Fourth, we continue to shift our revenue mix towards our higher margin businesses integrated care platform, and virtual care infrastructure. This is evident in the contribution to revenue from these business lines from 48% in 2020 to 56% in 2021. Fifth, we have solid cash and working capital positions. Lastly, we have made very substantial progress towards integration across Uphill to unlock revenue and cost synergies and have also launched a transformational initiative with the world's leading business consultancy. We have a whole section dedicated to financial results, but what I'd like to do now is turn it over to Martin to go over the highlights of our performance for Q4 and 2021.
spk10: Thanks very much, Ramesh, and thank you all for joining us today. As Ramesh said, we'll go into the numbers in more detail later. But in summary, we ended 2021 with pro forma revenue of $148.9 million, representing year-over-year growth of 28% from our 2020 unaudited combined pro forma revenue numbers. In 2021, we had pro forma adjusted EBITDA of negative $4 million and pro forma adjusted EBITDA of positive $1.1 million before public company expenses. While 28% revenue growth is strong, this number does represent a gap to our projections. It's important to note that this difference resulted largely from the decision to redeploy digital clinics to operate for our own account in India, rather than to sell them in Africa, and from the deferral of recognition of revenue in Q4 from two material contracts. Importantly, the deferral of this revenue will enable us to recognize the revenue this year. We also cleaned up receivables and prepaid expenses relating to legacy contracts within the business units. Excluding these one-time factors, our growth and performance was very strong and our high growth trend line will continue. We have solid cash and working capital positions. We've made significant progress with integration across UpHealth and we are well into a large transformation initiative focused on realizing the company's full potential. We're confident in our ability to realize our vision to reshape healthcare and to create substantial growth and value in the months and years ahead. Today, we're providing guidance for 2022 and project revenues of between $205 and $233 million, an increase of 38 to 56% over 2021's pro forma revenues, and 2022 gross margins of 42 to 43%. We're projecting 2022 adjusted EBITDA of between 14 and $19 million. More on that later. We're reporting $33.9 million in GAAP revenue for Q4, which is approximately 6% above Q4 2020s unaudited combined pro forma revenues. GAAP revenue for 2021 was $123.9 million, and pro forma revenues were $148.9 million, an increase of 28% over 2020s unaudited combined pro forma revenues. Proforma 2021 revenue was impacted by our decision to redeploy digital clinics in India rather than sell them in Africa. And as I alluded earlier, the deferral of revenue recognition on two significant integrated care management contracts from Q4 2021 until mid 2022. In just a minute, I'll discuss our revenue bridge. The company's gross margin in Q4 2021 was 38% and was 40% for 2021 on a gap basis and 39% on a pro forma basis. We continue to experience our fastest growth in integrated care management and virtual care infrastructure, the highest margin segments of our business. Adjusted EBITDA for Q4 was negative $8.8 million, and pro forma 2021 adjusted EBITDA was negative $4 million. Both those numbers were significantly impacted by $7.6 million in write-offs of receivables and prepaid expenses stemming from transactions, some of which predated the business combination, and by lower total revenues. Future cash collections of accounts receivable may result in changes to those write-off numbers. Our adjusted EBITDA before public company expenses, which was the basis upon which we provided our original guidance, was negative $5.6 million for the fourth quarter and positive $1.1 million pro forma for 2021, again impacted by the write-offs. We'll get into more details around those write-offs in the financial section of the presentation. As I mentioned, the company's Q4 revenues were impacted largely by three contracts, and the revenue bridge to the 2021 guidance shows the impact of those contracts. The first impact, with $14.3 million of associated revenue, represents revenue reversed and foregone from the sale of digital primary care centers in Africa. During the fourth quarter, we re-evaluated the financial and operating capacity of our partner in the Congo and decided to redeploy 260 digital primary care centers in India. We expect that redeploying those digital primary care centers in India will result in a higher and more secure cash flow stream over the life of those assets. The second contract involves $8.3 million, a very high margin revenue, which we now expect to recognize in mid-2022. The third contract is a contract in Europe under which our integrated care management business provides our CentroNet software for population health management and pandemic prevention activities. Payment stop health under this contract have been delayed as a result of a slower than expected ramp up in services provided by our customer and by slower than anticipated payments to our customer, which were impacted by COVID. While we're still providing services to this customer and have recently received a $4 million payment for outstanding receivables, we've decided to take a bad debt reserve against this customer's Q2 and Q3 accounts receivables balances. we deferred revenue recognition of about $7.8 million in the associated margin for this customer in Q4. As I noted, we'll continue to do business with this longstanding customer and we'll recognize the appropriate revenues and margins when its payments are in line with our recognition standards. I want to reiterate, in each of these cases, we consider this a one-time cleanup, allowing us to be aligned with the strategic direction that we're tracking in 2022. Adjusting to these items, the company would have been within its revenue guidance projections as depicted on slide 12. The team has taken strong measures to ensure that the reversal of revenues associated with the DRC and Q3 will not be repeated. We've worked with Mazars to implement comprehensive compliance programs across the company, and we've put rigorous contract approval and customer vetting procedures in place. We've also appointed additional leadership to the international telehealth side of the business. I'll hand it back to Ramesh to review our product deliveries, business status and strategy going forward. And then I'll step back in to review the financials in more details. Ramesh.
spk08: There is general consensus of this fact. Healthcare is in critical need of transformation. in the United States and globally. UpHealth is positioned with our products and services and the markets we serve to play a key role in this much needed transformation. In the United States, problems with healthcare have been persistent and intractable. Costs are unaffordable, access to care is still limited, we have relatively poor health outcomes for the money we spend, and behavioral and mental health conditions along with what we now call social determinants of health, are adding to the health burden. Globally, in emerging economies, legacy approaches to building healthcare infrastructure are neither feasible nor scalable, especially as social health insurance schemes are rapidly deployed, expanding demand for healthcare. We help healthcare organizations governmental agencies, managed care organizations, healthcare providers across the globe transition to new models of care with an integrated set of technologies, infrastructure, and services. Our integrated care management platform helps organizations transform a patchwork of disconnected information providers and services into integrated systems of care to create the necessary foundation to deliver care and manage health with integrated information, advanced analytics, coordinated teams, and guided protocols. Our virtual care infrastructure fully realizes the premise of digital health by dramatically expanding virtual care models across primary, acute, and critical care with standalone digital clinics and hospitals, as well as platforms that digitally enable existing settings of care. Our technology platforms and infrastructure provide the ability to onboard networks of service providers, our own and others, that are now available at any point of care to help deliver services and manage health. Our initial focus has been on medications, especially personalized medications and behavioral health conditions. We will be expanding on these to provide a full range of services to help our clients manage health programs and risk. There are macro trends that drive the need for our products and solutions. There is a massive expansion in the need for virtual care infrastructure, especially solutions that can deliver higher acuity of care with remote monitoring and diagnostics with a digital first model that coordinates teams that are both at the patient side and remote. There are big drivers and funding in place at the national, state, and local levels to deploy whole person models of care, essentially models that can integrate managing medical, mental health, and social needs for populations that consume the most healthcare resources. Healthcare providers are being mandated to contract under alternate payment models that now link payments to demonstrating improvements in costs, quality, outcomes, and other measures. And large budgets are in place for spending on healthcare infrastructure in emerging economies. And this spending is prioritizing digital first innovative approaches to delivering affordable care rather than legacy brick and mortar infrastructure. We deliver a comprehensive and unique solution for our customers. Our solutions are designed to meet our customers where they are to begin with an immediate need and expand as they evolve along the path to transformation. The integrated care platform provides an open, extensible platform that our customers can deploy without ripping anything out, and it brings together information from disconnected systems, deploys advanced analytics, and coordinates cross-sector teams to manage health for individuals and populations enrolled in a wide range of programs to improve costs, quality, and outcomes. With our virtual care infrastructure, we extend our customers' ability to deliver care, both primary acute and critical care. We also extend their access to remote care teams and resources, language interpreters, clinicians, pharmacists, and other service providers. And our service offerings further augment our customers' ability to deliver care and also manage health. The technology platform and infrastructure are designed around a unique architecture that allows us to onboard provider networks to the platform, our own, our customers, and our partner networks. Last year, we grew the integrated care business by 82%. We added $14.4 million in revenue to deliver $13.1.9 million in revenue for the year. Our integrated care platform is a cloud-based platform delivered as a SaaS offering that enables our customers to create integrated systems of care around a whole person model of health. We create an extensible care community for our customers that includes their internal organizations along with partner organizations. And typically, we charge a one-time license fee to create this care community for our customers. We then charge recurring subscription fees for access to functionality for data integration, for analytics and workflow applications. And the amount of subscription fees we charge is based on the population we onboard to the care community, as well as the number of individuals enrolled in various programs. We configure and customize the solution for customers as part of professional services. Specific configurations we deploy for customers typically begin with reference configurations, which we have for health plans, county agencies, healthcare providers, and so on. And we're continually adding to these reference configurations. We are bundling the technology platform with services to manage care and health programs as a partner to our customers. Our first focus is on programs that manage health for populations with complex medical, behavioral health, and social needs in an integrated manner. Syntranet is designed around a unique architecture to create what we call care communities. These communities, these care communities, can in turn be connected to create and deploy regional and nationwide networks of care. Centronet is an end-to-end platform for data integration, analytics, and care and population health management. We currently have more than 8 million lives on the platform, and we added 2.3 million lives last year. We begin by creating a connected care community and our customer is the anchor of this community. And this community functions as an integrated system of care for specific populations that are managed by care teams distributed across the care community. We then integrate information from a variety of data sources to create 360 degree views of patients and providers. We deploy advanced analytics to stratify populations to better understand population and individuals and what is going on with their health, factors affecting health, risk, cost, outcomes, and many other indicators that we look to optimize. Using rules and other advanced heuristics, we identify individuals that qualify for and could benefit from enrollment and care programs. We then help coordinate cross-sector team workflows across care management, utilization management, referrals to help improve quality and outcomes while also managing costs for our customers and all of this with evidence-based guidelines and protocols. We also help engage members and their families to participate in self-management of health and to collaborate with their distributed care teams. And we provide analytics and reporting needed for compliance to measure outcomes, quality, cost, risk, efficiency, productivity, opportunities for improvement, as well as a number of custom measures designed for specific programs. The integrated peer platform integrates with our virtual care digital health infrastructure to also dramatically expand the ability for distributed care teams, physical and remote care teams collaborate. We are continuing to invest to expand and enhance the capabilities of the overall platform. A virtual care infrastructure provides a comprehensive global digital-first infrastructure to deliver care with integrated remote and physical resources and care teams. This infrastructure spans video endpoints, remote monitoring diagnostic standalone solar-powered kiosks with attached labs and pharmacy, and full digital hospitals that are able to deliver acute and critical care with facility-based technicians, nurses, and other staff, and remote teams of clinicians, primary care, and specialists. Our revenue model for the virtual care infrastructure business includes three components. We charge an infrastructure fee to deploy these endpoints, these digital clinics and health centers. We have subscription fees that are based on the minutes of consultations delivered on our platform. And we have recurring fees for services that we charge for patients that we serve through this infrastructure in areas that are assigned to us. In 2021, we achieved the following important milestones. In the United States, our platform and video endpoints, the MARTI platform, is deployed across more than 2,100 facilities and locations. The first service we delivered on the platform was language interpretation, a very critical service to provide access to care and address healthcare disparities. We're adding additional services on the platform, such as telepsychiatry and translation, and we're proud to announce that we recently exceeded 3 million minutes of consultation a month on the Marti platform. In India, our Hello Life digital clinics, health centers, and hospitals now serve a population of over 25 million, providing affordable, high-quality care to populations that otherwise have little access to quality care. We contract with provincial governments to deploy this infrastructure, which is truly the first of its kind to provide this level of access to quality care. In 2021, we increased pro-pharma revenue of the virtual care infrastructure business by 37%, from 31.8 million in 2020 to 52.2 million in 2021. For a deeper dive into the Marti platform, I'll turn it over now to Andy Panos.
spk06: Thank you, Ramesh. MARDI is launched at the point of care with easy-to-use applications that integrate with EHRs and other systems deployed at healthcare providers. The applications intelligently route requests and connect with remote resources and care teams. Remote resources collaborate to provide care with specialized applications for specific roles, such as applications for language interpreters or for clinical resources. Each application represents a particular use case for virtual care, and we are expanding on these use cases. Today, we deliver applications to bring remote resources via video endpoints for language interpretation, telehealth consults, virtual quarantine, specialty care, and integration of family members with patients and care teams. I'd like to expand on how we use MARDI to implement change for the better with a client testimonial from Evan, the medical interpreter supervisor at VCU, who has been a client of Marty since 2014. I'd like to point out his quote, there's no such thing as luck, just preparation for opportunity. The ongoing technology integration across UpHealth with Marty demonstrates that opportunity. To expand on that, I'd like to share another testimonial from Chi, who is the Regional Director of Diversity, Equity and Inclusion at Trinity Health of New England, a client since 2009. Her quote, you actually understand what diversity and inclusion looks like. Marty supports diversity and inclusion in healthcare. Studies have shown that language barriers decrease patient safety, reduce the quality of care delivery and diminish patients and healthcare provider satisfaction. In fact, we are very proud of our net promoter score of 55 and a CSAT of 4.9 stars out of five. This is represented with 30% response rates and 97% satisfaction rate. Marty's unique ability to deliver telehealth with on-demand language interpretation promotes equitable care delivery to all patients, regardless of language or hearing barriers. I'll turn it back to Ramesh now.
spk08: Thank you, Andy. The heart of our virtual care infrastructure in India is the Hello Life platform, technology for telehealth integrated with remote monitoring, diagnostics, and other technologies for patient care, all combined with an advanced platform for clinical workflows, decision support, and guided protocols. The HoloLife platform can be delivered in existing locations or packaged with our infrastructure as standalone kiosks, clinics, health centers, even hospitals. We completed a thorough analysis on the return on capital of each of these packages and are now focused on the offerings that deliver the highest returns. Every week, every day, we hear directly from the communities served by our digital clinics. It is both heartbreaking and heartwarming to hear from our patients. We have a truly unique opportunity to make a big difference in the lives of these ordinary men and women who have waited patiently for years to have access to the care we can now provide. We'd like to share one short testimonial with you.
spk04: The Uphill technology platforms and infrastructure are designed to onboard service provider networks and to make them available remotely at the point of care. We can also onboard teams to help manage health programs.
spk08: We deliver a core set of in-house services, which include market-leading language interpretation with a fully HIPAA-compliant multi-platform and medically trained interpreters, manufactured and personalized medications with a full-service retail and compounding pharmacy licensed in all 50 states and D.C., supplements to support health, with new prescriptives direct, a new model for physicians to integrate supplements with other health protocols. Behavioral health services with a comprehensive suite of mental health treatment programs delivered across inpatient, outpatient, and telehealth settings. We focus on a core set of metrics to track our progress. The number of lives on our integrated care platform, we ended 2021 with a little over 8 million lives, with 2.3 million added in 2021. The number of active digital clinics and hospitals, at the end of 2021, we had 466 active digital clinics and hospitals. The minutes of consultations delivered on the Marti Telehealth platform, which grew by 58% to 3 million minutes, We delivered 1.8 million encounters with our services businesses. We had an average 39% gross margin across our businesses and 84 million in recurring revenue. We bring unique differentiators to the markets we address. Our integrated care platform is designed around a unique care community model from the ground up. to support the new models of care we enable. We are not retrofitting an HIE or an EHR or legacy health plan solution. This, along with the ability to configure and extend solutions with metadata, allows us to adapt as new protocols and models emerge. And our company is not weighed down by legacy technology systems. We deliver the most comprehensive virtual care infrastructure in the market today with the ability to support physical and virtual care teams collaborate to provide not just primary care, but also acute and critical care. Our service offerings benefit from our technology platform and innovation and infrastructure. We can onboard service providers to the platform and have them enable at any endpoint we serve And we have the ability to onboard a wide range of providers to deliver a wide range of services for care and health management. We started with pharmacy services around personalized medications and behavioral health programs, but are now starting to fully deploy a wide range of technology-enabled services to create network effects around the care communities we serve. We started with pharmacy services around personalized medications and behavioral health programs, but these are only starting points as we fully deploy a technology-enabled services architecture to create network effects around the care communities we deploy. We also uniquely address managing health for some of the most complex individuals We have a very experienced team with deep domain and technology expertise and long-standing relationships with marquee customers. Upheld's customers span across the healthcare spectrum and include leading healthcare organizations globally. We're expanding our sales and commercial organization to create customer segment focused teams and streamlining our sales cycle process. These efforts are part of a broad focus to invest in sales and marketing, and we expect the result to be larger pipelines and additional revenue from existing and new customers. We occupy a unique position in the market. at the intersection of large, high-growth segments of healthcare, solutions for integrated care, telehealth and virtual care, and services that address critical needs specifically around behavioral health and medications. While we have specific competitors in each of these segments, our integrated products and solutions deliver more completely on the goals and needs for the digital transformation of healthcare, combining information integration, analytics, workflow applications with digital health infrastructure, the primary acute and critical care, and an open architecture to onboard and manage provider networks to deliver care and manage health programs. Many of the companies in the circles are also potential partners for us. The addressable markets for our offerings in the US and globally are large. The global market for population health management technology is estimated at 50 billion, and of this, the U.S. market is about 38 billion. This number does not include the sizable market for retrofit of legacy solutions as we upgrade systems and providers and health plans move to new models of care. In the United States, behavioral health represents a 77 billion market opportunity that continues to expand post pandemic. Potential international markets represent an additional 56 billion for global language services and 12 billion for the integrated care market. Outside the United States, India is our most important market. Very large disparities in access to care exist between rural and urban India. 75% of clinics, 60% of hospitals, 80% of physicians are in urban areas, which only include 28% of the whole population. In rural areas, where the majority, 72% of the population lives, only 37% of access to healthcare facilities within a five kilometer radius. our innovative digital clinics and hospitals are closing this gap, bringing affordable and high-quality care to rural India. A world-class executive team of founders and experienced executives drives Uphel. The team brings together decades of expertise in healthcare, finance, entrepreneurial, and large-scale operations, Some of the members of this team that have joined the founding team include Mike Rolla, a former Teladoc sales executive who is now chief revenue officer, Sarah Onquist, a former Beacon Health executive who now leads our managed care offerings, Ashish Chona, a former Silicon Valley technology founder and builder with deep technology and operation expertise, who now leads the integrated care platform business, which includes the Centronet platform. Edna Johnson, an experienced communication executive from Michelin, CNN, and Burger King, who joined us as chief communications and corporate marketing officer, and Martin Beck, our CFO who brings deep expertise in finance and investment banking. We have a number of wins and milestones now to share with you. And for this, I will ask Andy Panos to join us.
spk06: Thanks again, Ramesh. We are very excited to discuss our wins that we've had recently. Our teams are continuously closing deals, blowing past milestones, and taking healthcare to a new level. I'd like to share a few successes that bring us much pride. Up Health operates over 600 Hello Life CX digital clinics in India. And we are so excited to announce that last month we surpassed 2 million consultations. The annual run rate of 2 million consults is rising rapidly. Consultations in the digital clinics are extremely efficient, providing complete primary and emergency care through consultation, confirmatory tests, and dispense medications, requiring only 30 minutes on average. Last year, UpHealth India took home a coveted TV9 Gujarati Company of the Year Award for its outstanding leadership in digital transformation. Last month, we launched Marty Translation, an industry-leading document translation service for care providers and community agencies. Marty Translation is the latest addition to Marty's suite of language access products that bridge healthcare disparities for patients that are deaf, hard of hearing, and or limited English proficient. The easy-to-use self-serve portal allows for efficient, timely completion of translation jobs on demand. Hospitals, healthcare systems, provider groups, and other organizations can access translated documents in just four easy steps via the MARDI Translation Portal, where they can upload documents for 24-7 comprehensive, reliable translation in over 100 languages. Each translated document undergoes a comprehensive quality assurance review by experienced, certified translators, ensuring accuracy and clarity, in addition to review for cultural considerations. This service closes the loop as we are now able to provide language services throughout the full continuum of care, all the way to in-language insurance processing and discharge materials with Marty Translation. In Alameda County, CentraNet powers Alameda Healthcare Services Agency to deploy a social health information exchange and community health record and applications available to healthcare providers, health plans, community and county-based organizations to get a better understanding of factors affecting the health of Alameda residents served by these organizations and to better coordinate their care. CentraNet integrates over 58 disparate data feeds in the county, from medical treatment, housing, transportation coordination, to jail data to create an integrated view of help for 725,000 Alameda County residents. Over 1,000 users across 53 organizations and 200 community programs use CentraNet to support coordinating care for residents with complex needs. In many ways, California is setting a model for how care and outcomes can be managed for populations that have complex medical, behavioral health, and social needs. We are very proud to be part of this showcase, not just in Alameda, but also in Los Angeles County. This year, we've made great strides in payer contracts with our services segment for our behavioral care business segment. we are happy to announce that we now have payer contracts with Cigna, Magellan, Blue Cross Blue Shield, TRICARE, Zealous, and BrightHealth to name a few. We're close to finalizing six additional payer contracts. When it comes to providing the best of care to our first responders and veterans, our VA contracts across all three of our facility types, detox, residential, and PHP, extends our reach of care where it is needed most. These contracts have already allowed for a 42% projected increase in revenue this year. We're enjoying great momentum and we look forward to sharing more shining success to come. Ramesh.
spk08: Thanks, Sandy. Really exciting progress from our teams. I'd like to talk now about our path forward. As I mentioned, our vision is to transform healthcare, take it to the next level, to a new future. We launched a broad transformation initiative across the company to accelerate the realization of our mission, synergies through integrated offerings, and our capacity to deliver on financial performance, operational excellence, and organization health goals. To realize our vision and the combined opportunity across our business lines, we've launched a broad-based transformation of our business. This transformation positions UpHealth to deliver on its growth objectives and fully realize synergies across our core businesses to achieve a one plus one equals three promise of the integrated set of UpHealth products and services. The transformation initiative is driven by our strategic priorities. Strategically, we are prioritizing three areas of focus, Invest to extend the capabilities, reach, and scale of Sintranet, Marti, and Polar Life. Launch managed care services as a health management partner to our customers that leverage our collective capabilities across all of our products and services. deliver operational synergies to drive innovation and efficiency, and a culture aligned with our mission that can attract the most talented people globally. I'd like to expand on the second area of focus. We offer Sintranet today as a technology platform to help our clients manage a range of programs and initiatives to improve care delivery and manage health. We've created a managed care services focus under a new executive, Sarah Unquest, to bundle our technology capabilities with add-on services to help our customers manage provider networks and programs to address access, quality, and outcomes. Essentially, our focus here is to become a partner with our clients in managing population health, with technology and managed care services. This focus is also driving expansion of the technology platform and integration of the integrated care platform capabilities with MRTI and our virtual digital health infrastructure to expand capabilities for care teams to collaborate. The goal of our transformation is to deliver a strong foundation for growth, operational excellence, and enhanced financial performance. In addition, we want to ensure that we remain a strong and healthy organization while maintaining our customer-focused culture as we grow. I'll turn it over now to Martin. to provide further details about our Q4 and full year 2021 performance. Martin.
spk10: Thanks, Ramesh. As you've heard, 2021 saw strong operating performance in many areas across our three business units. We achieved year-over-year revenue growth of 28% and continued the shift of revenue mix towards integrated care management and virtual care infrastructure. In fact, those two groups accounted for 48% of total revenue in Q4 and 56% for 2021 compared to 48% of total revenue in 2020. We have solid cash and working capital positions. And as you've heard earlier, we've made significant progress toward integration goals that will unlock revenue and cost synergies. We delivered $33.9 million in revenue for Q4 at a gross margin of 38%, an adjusted EBITDA of negative $8.8 million. On a pro forma basis for the full year, we had revenues of $148.9 million at a gross margin of 39% and an adjusted EBITDA margin of negative $4 million. To remind you all, on a combined pro forma basis, the UpHealth companies recorded unaudited revenues of $117 million in 2020 and pro forma revenues of $30.6 million in Q1 2021 and $39.2 million in Q2. Q3 2021 was our first full quarter reporting as a public company, and we reported revenue of $45.3 million. For the first three quarters of 2021, we reported quarter-over-quarter revenue growth in each of our three business segments and integrated care management and virtual care infrastructure as a percentage of total revenue increased in each quarter. In Q4, UP Health recorded revenues of $33.9 million. This number was significantly impacted by the postponement of revenue recognition during the quarter, totaling $16.1 million associated with two contracts in our integrated care management business. We experienced a 2% quarter over quarter decline in services revenues, which is attributable to normal seasonal volume fluctuations in our behavioral health businesses. we experienced larger quarter over quarter declines in integrated care management and virtual care infrastructure, which we'll delve into deeper in the revenue bridge to follow. For the full year of 2021, we saw a 28% growth in total pro forma revenues to over $148 million, with a 6% increase in our services business, a 37% increase in virtual care infrastructure, and an 82% increase in integrated care management. Rapid growth over 2020 in our integrated care management and virtual care infrastructure businesses, the highest gross margin segments of our company, drove up health's gross margins to over 39% for the year ended December 31st, 2021. For the fourth quarter, gross margins across the company were 38%. Gross margins in our integrated care management business for the fourth quarter were 72%, which was driven by the exclusion of lower margin revenue associated with the European contract. Gross margins for our virtual care infrastructure business were 38% in the fourth quarter and were driven by improved expense management in our U.S. telehealth businesses. Finally, gross margin in our services business, which includes both our pharmacy and behavioral health operations, was 34% in the fourth quarter, and that number was adversely impacted by seasonally lower volumes in our behavioral health business. On a pro forma basis, 2021 gross margins for the integrated care management segment were 51%, 38% for the virtual care infrastructure segment, and 34% for the services segment. We expect to see continued improvement in the gross and operating margins in the integrated care management and virtual care infrastructure segments as those businesses continue to drive the company's growth. As you'll recall, we re-evaluated the financial and operating capacity of our partner in the Democratic Republic of Congo and decided to redeploy the 260 digital clinics originally scheduled for sale there as our own operating assets in India, where we are experiencing very strong demand for our digital clinic services. As a result of this change, we reversed the recognition of $3.8 million of revenue associated with the sale that we recorded in Q3. We will not recognize the remainder of the sales under that contract, representing approximately $10.5 million that we had previously included in our fourth quarter revenue estimates. From an operating perspective, we will immediately deploy approximately 50 of the digital clinics in clusters around 10 of our hospitals to continue to improve both inpatient and outpatient hospital utilization. And we will roll out the remaining 210 clinics in various Indian states over the course of the next nine to 12 months. We expect that our revenue stream from operating these digital clinics in India will ultimately exceed what we projected from the Democratic Republic of Congo. And that having those digital clinics as part of our infrastructure in India will add further scale and visibility to our growing business there. The second impact to Q4 revenue came from the deferral of revenue from Q4 2021 to mid 2022 of about $8.3 million in integrated care management revenue. We've executed a contract with an established US partner under which UpHealth is providing us internet software and some hosting services to improve communications and information sharing between more than 3000 hospitals and clinics in a West African country and to support that government's development of a universal health record program. We expected that the government would have by this date formally executed the public to private partnership documents supporting the program. And while we have signed a contract with our customer and have begun work, we will not recognize any revenue or margin associated with that contract until the government has formally executed its documents. We expect that to be completed in mid 2022. Finally, payments to UP Health under an integrated care management contract with a European customer have been delayed as a result of a slower than expected ramp up in services provided by that customer and slower than anticipated payments to that customer, partly as a result of COVID related disruptions. While we're still providing services to this customer and have recently received a $4 million payment for outstanding receivables, we deferred recognition of $7.8 million of revenues and the associated margin for this customer in Q4. As I noted, we will continue to do business with this longstanding customer and will recognize the appropriate revenues and margin when its payments are in line with our recognition standards. We expect to recoup the full amount of revenues and cash flows from the redeployment of the digital clinics and the integrated care management contracts over time. This change will not materially impact our timing to reach positive cash flow from operations. Slide 50 shows our EBITDA trajectory as we reported $8.2 million of pro forma adjusted EBITDA in 2020. And through the first three quarters of 2021, reported approximately $8.5 million of pro forma adjusted EBITDA. In Q4, we recognized negative $8.8 million in adjusted EBITDA. As part of our first audit as a consolidated public entity, we revisited a number of entries for receivables and prepaid expenses that were booked prior to the June 9th, 2021 transaction date. We determined that it was appropriate to write off approximately $3.4 million in receivables and $500,000 in prepaid expenses relating to contracts executed by Therese in 2020. We are currently negotiating and expect to announce a contract that will replace approximately $3.1 million of the receivables written off in the fourth quarter. In addition, we reserved for bad debt against the European customers Q2 and Q3 accounts receivables balance, totaling $15.6 million, with a net impact to EBITDA of $3.7 million. As I noted, we recently received a $4 million payment for outstanding receivables from this customer, and we'll revisit the collectability of the outstanding receivables when its payments are in line with our recognition standards. In addition, the company had higher than normal G&A costs in Q4 relating largely to legal defense costs, compliance, and integration expenses. In terms of pro forma adjusted EBITDA, we provided guidance in March of 2021 of $16 to $20 million for fiscal 2021 and noted that this was before public company expenses. At that point in time, we had little visibility into fluctuating costs of D&O insurance, the size and expenses of the final board composition, and other significant expense categories. Building up from our reported 2021 pro forma adjusted EBITDA number of negative $4 million, we show the add back of public company expenses of $5.1 million, including $2.2 million in DNO expenses to get to positive $1.1 million in adjusted EBITDA before public company expenses. Adding back the write-off of prepaid expenses of $500,000 and the write-offs of $7.1 million in bad debt takes us to $8.7 million in adjusted EBITDA before public company expenses. Finally, we've included the impact of delaying recognition of the margin, approximately $7 million, associated with redeploying the 260 digital clinics in India versus the Democratic Republic of Congo to build to the original estimate range of $16 to $20 million in adjusted EBITDA before public company expenses. Had we included in Q4 the margin from the integrated care management project in West Central Africa that will now be recognized during the first half of 2022, we would have exceeded our outlook. UpHealth experienced strong revenue growth from 2020 to 2021, with pro forma 2021 revenues growing 28% from 2020's unaudited pro forma combined revenue and recorded pro forma gross margins of 39%. All in all, a remarkable year in which we combined six businesses and made our debut as a public company in June of 2021. We expect strong revenue growth and solid gross margins to continue in 2022, and a forecasting revenue between 205 to $233 million, an increase of 38 to 56% over 2021, and gross margins of 42 to 43% in 2022. we're forecasting adjusted EBITDA of $14 to $19 million in 2022, with improvements stemming from expense consolidation and from the realization of some of the operating leverage inherent in our businesses. Over the next five years or so, our goals are to maintain annual revenue growth of approximately 35%, increase gross margins to 45% to 50%, and increase our adjusted EBITDA margins to 15% to 20%. The company maintained its strong cash position through the end of the fourth quarter. As of December 31st, 2021, we had over $55 million in unrestricted cash and over $18 million in restricted cash, which is primarily associated with our forward share purchase agreement. We reduced our short-term debt balance by approximately $20 million in the fourth quarter, largely as a result of repaying relatively high coupon debt in India. We expect to refinance this debt with lower coupon rupee denominated debt sometime during the course of the next two quarters. We're confident that our current cash position and the financial performance of the business, which we expect to become operating cashflow positive during the third quarter, will provide us sufficient liquidity to execute on our current growth plans. I'll pass the presentation back to Ramesh for concluding remarks.
spk08: Thank you, Martin. We're very proud of the progress we've made as a combined team. With nearly a year as a public company under our belt, we have firmly found our footing and are well positioned to deliver on our near-term goals while laying the foundation to deliver long-term value for our shareholders. To summarize, we are truly differentiated in what we bring to market. Our offerings and products are unique, with recurring revenues which provide visibility into our go-forward financial projections. The company and team are nimble, and as demonstrated by results and conscious efforts, know how to maximize both near and long-term value of our platform. This foundation is combined with a clear strategic focus to achieve success in 2022 and beyond. And lastly, and I believe most importantly, the team, some of whom you have met today, are passionate about the Uphelp mission and platform. And this passion is at the heart of all our successes. Thank you for joining us on this journey. We look forward to sharing our successes with you in the future. That concludes our prepared remarks. We'll take a short break and then we'll be ready for questions.
spk09: Thank you, ladies and gentlemen. We will now take a five minute break. Anyone who would like to ask a question can dial in now to secure your place in the queue to ask a question. Once you have dialed in, please press star one on your phone to enter the Q&A queue. Once again, if you wish to ask a question, please dial in and then press star one on your phone to enter the Q&A queue. We will be back in five minutes. Thank you. Thank you. Thank you. Thank you.
spk11: Thank you. Thank you. Thank you. Thank you. Thank you.
spk09: Thank you for holding, ladies and gentlemen. We will now begin our Q&A session for today's event. The first question is coming from Frank Takanan from Lake Street Capital Markets. Frank, your line is live.
spk02: Hey, thanks for taking my questions and I appreciate all the color on the analyst meeting here. A couple questions. I wanted to start with the 2022 revenue guidance. We've previously spoken to what's contracted in that revenue guide and how that's giving us predictability. With the reset here, the Congo contract, some of the ICM disturbances, how should we be thinking about the predictability around the new 2022 revenue guidance and how much of that is contracted in the backlog type of situations?
spk08: Thank you very much for the question, Frank. I'll just say a few words and then I'll hand it over to Martin. As we've said, part of what we're refocusing with the company is on the specific areas of the business with more predictability in terms of recurring revenue and contracted revenues. We've got a number here in terms of where we are with the recurring revenues. The forward confidence we have in the projections are really based on very specific initiatives that are unfolding in 22 around expansions of the integrated care in the California market and additionally in additional states that we are expected to enter. And also based on the continued expansion of recurring revenues in the virtual care infrastructure. But I'll turn it over to Martin to add to that.
spk10: Yeah. Hi. Good morning, Frank. Just one thing to add. Our percentage of forward year revenue at this point in 2022 is approximately the same as it was at this point in 2021. If you look at the 21 revenue, what we've done is essentially pushed out some of the revenue recognition. And so we feel comfortable that the guidance that we've given you today is very achievable.
spk02: Okay, that's helpful. I wanted to ask one specific to the 260 Republic of Congo Digital dispensary is now going to India. Heard your comment about 50 almost instantaneously being set up around hospitals in that geography. Talk about how those are going to scale in relation to how they were contracted with Congo. If I understood correctly, with Congo, they were an upfront ASP of some figure and then a revenue share contract beyond that. How does it work when it is under your umbrella in the India geography now?
spk08: You want to take that, Martin?
spk10: Sure. Yeah. So of the 260 DDs that will deploy in India, about 50 of them will be immediately deployed around 10 of our existing hospitals to India. both drive DD revenue and drive in and outpatient utilization at the hospitals. We would anticipate that number of 50 or roughly five per hospital, potentially scaling to about 10 per hospital. So if you think about 100 of the 260 being deployed in clusters around our hospitals, and then the other 160 being deployed independently of the hospitals. In terms of the revenue side of things, we would expect the volumes to be actually higher in India. We've seen very strong volumes from the most similar DDs that we have in India to those that we would have deployed in Congo. You're right, there won't be an upfront payment as there would have been at Congo, but we think that over time, The security of the revenue stream, the volume of the cash flows at steady state will be higher than they would have been had we deployed them in Africa.
spk02: Okay, that's helpful. And maybe one for Ramesh specifically. How should we be thinking about integration? I think the first indication we saw was MARDI being integrated into the integration. integrated care management platform, but what should we be watching for over the next 12 months to gauge how integration is going internally?
spk08: I think a couple of things. I think it's a broader integration of integrated care and the virtual care infrastructure, both Marty and the Hello Life components of it. The second thing I think is really You know, as we mentioned, the platform is designed to create an ongoing provider networks. And what you'll see is that we're bringing on provider networks, not just our own, but our customer and other partner networks onto the platform so that we can now have both the infrastructure technology and technology enabled services as a sort of expanded offering under an expanded PMPM model where we're not only a technology partner, but we're a health management partner to our customers as well.
spk02: Got it. That's helpful. I'll hop back in the queue. Thanks for taking my questions. And again, thanks for all the color on the end of this meeting. Thank you. Thanks, Frank.
spk09: Thank you. And the next question is coming from Mike Lattimore from Northland Capital Markets. Mike, your line is live.
spk12: Great. Yeah, thanks. And thanks for all the info today here. I guess just on, you know, RevRec, I mean, what are some of the resources you're deploying here to make sure that you have a better line of sight on RevRec going forward?
spk08: A few points on that. Thanks a lot, Mike, for the question. We've created a committee to review all of the contract terms we have, and that's along with the financial team, legal, and the compliance team, which includes Mazars, making sure that all of the terms are aligned with the guidelines for revenue recognition that we have established. You want to add to that, Martin?
spk10: Sure. Hi, Mike. I would say a couple of things. With respect to the Congo, our decision to redeploy those digital dispensaries in India, as I mentioned, we were seeing very strong demand, was the catalyst behind that. So really self-driven. And then I think the other two contracts, we're taking a conservative tack there.
spk08: We believe that good contracts... Martin, we lost you there for a second. Do you want to continue?
spk10: No, no, I'm good. Thanks. Sorry. Can you hear me now? Is that better?
spk08: Yes. So I think what Martin was stating there is around the other two, we really are being conservative in terms of, as Martin mentioned, in the specific case of West Central Africa, a contract was signed, work started, the care community deployed, but we wanted to be specifically conservative until the government official PPP had been signed. And on the European situation, we wanted to make sure that our customer and the wrap-up of revenue and services to our customer had reached a certain level for us to feel comfortable recognizing that.
spk12: And then, you know, you talk about this, the transformation initiative, and you're bringing in McKinsey here. I guess... How long do you expect that to play out? What are the big steps and how long will that take to kind of get through the full transformation?
spk08: Yeah, sure. Thanks for that, Mike. So just to give a little bit of color on that, you know, we started working with them to essentially first do an independent assessment of the full potential of what we could do with soft health, which was extremely encouraging and optimistic for us. And based on that, we've sort of embarked on what is initially a two-quarter effort. And the whole focus of it is really sharpen the strategic focus, We've identified areas where the greatest potential are focused on that with specific initiatives to drive some strong financial performance targets we have. And we've also identified a broad organizational health initiative where we're looking across many, many dimensions of how we are functioning to optimize our ability to deliver, not just on financial performance, but innovation, a number of things. So a two quarter effort, building on top of a very comprehensive assessments of our strengths, the markets, where the potential is, and the initiatives to really realize as much of that full potential. And it's over the next two quarters that that will unfold.
spk12: And then just two financial questions. What are the working capital requirements for the year and Should we think of, in terms of your revenue guidance, should we think of the first quarter as being kind of the low point and sort of building from there?
spk08: Martin, you want to take that?
spk10: Yeah. Take your first question, or your last question first, Mike. Yes. We'd expect 2022 to be much like 2020, where we saw growth in the quarter-over-quarter revenues. With respect to working capital, we haven't disclosed figures on working capital requirements, but as we've discussed, we do have working capital requirements for the growth in our virtual care infrastructure and integrated care management segments. We're comfortable that we have the capital to be able to fund that growth.
spk12: Great. And just last on, I guess, on the demand, you know, you obviously are seeing opportunities to do 260 new clinics in India. I guess one is that within that same state, are you getting into other states within India? And then, you know, what's the visibility into getting into other states? And then also, Ramesh, you talked about, you know, the work you're doing in California, that you see other opportunities outside of California. Maybe you can just elaborate a little bit more on that as well.
spk08: Yeah, sure, sure. We'll do that, Mike. So the opportunity in India is outside just Madhya Pradesh. It's not only the states we've been in historically, but new states as well. And it's a very broad conversation at both the national and state level. A very big, ambitious effort in India to really build up this health care infrastructure. And we're a critical piece of that at all three levels, at the level of the, you know, what we call health and wellness centers, the primary health centers and the digital hospitals. So it's a nationwide across multiple states. Yes, we're expanding into California, obviously driven by the CalAIM and initiatives around Medicaid and dual eligible populations, and we're expanding from there into really the big states that are attempting to deploy models around a very, very critical challenge. New York, Illinois, Texas, Florida, D.C. are target areas where we are currently engaged in several conversations.
spk12: All right. Great. Thanks a lot. Good luck this year.
spk09: Thanks, Mike. Thank you. And the next question is coming from Michael Wiederhorn from Oppenheimer. Michael, your line is live.
spk13: Thank you. You kind of touched on this a little bit, but if you can extrapolate, that would be great. How are you physically positioned to pursue your strategic goals in the future? And number two, can you review your expectations around your ability to meet your debt obligations during 22 and 23? And ultimately, how should we think about more granular as you move toward cash flow break-evens?
spk08: Thank you, Michael. I missed the first part of it. Did you say how are we physically positioned or financially? Fiscally positioned. Fiscally. Fiscally. Okay. All right. Okay. Thank you. I'll ask Martin to address that. Thank you.
spk10: Sure. Hey, Mike. So as I mentioned in the call, we'll report in the K at least $55 million worth of unrestricted cash and $18 million of restricted cash that's associated with the ship purchase agreement. We have some cash interest obligations associated with the convert. And as I mentioned, we've paid down about $20 million worth of debt in India. We would expect to replace that debt, refinance it essentially with lower coupon rupee denominated debt. And we would look at terming out some of our other remaining short-term debt in the United States. So we feel comfortable that we have the cash and the capital structure required to fund our growth going forward. And as we come through to operating cash flow positive status in the third quarter, we'll be devoting that operating cash to continued growth, essentially funding working capital to grow the integrated care management and virtual care infrastructure businesses.
spk13: Great. Thank you. Change gears on the revenue side. If you can give us kind of a, you know, kind of a breakdown by segment, you know, for 22 and in terms of how should we look at it by, you know, growth by segment as well, that'd be helpful.
spk10: Yeah, I'll take that one. Mike, we haven't given specific guidance around revenue growth by segment. But what we can tell you is that we would expect the growth to continue in a much stronger fashion in the integrated care management and virtual care infrastructure segments. If you look at the progression of the revenue mix between those two segments as a total, as a percentage of the total revenue, you know, in the third quarter, we were well north of 60%. We would expect that to continue in 2022 and expect to see integrated care management and virtual care infrastructure constitute an even greater percentage of total revenues at the end of the year.
spk13: Okay, thanks. I appreciate all the color today.
spk09: Thank you very much. Thanks, Mike. Thank you. And once again, ladies and gentlemen, if you wish to ask a question, please press star one on your phone at this time. Once again, please press star one on your phone if you wish to ask a question. And the next question is coming from Bill Sutherland from The Benchmark Company. Bill, your line is live. Thank you.
spk03: Hey, guys. Thanks for this call today. I'm looking back at the range you've provided for the 21 year, based on what drops into the fourth quarter. Martin, can you just go into, because you had slides in the presentation that assumed the low end, or the bottom of it. I'm just curious about, okay.
spk10: Yeah, I don't know if they were able to pop up on the screen. I think there might've been a problem with the slides, but basically what we were trying to do with the revenue bridge bill was to take you from the low end of the range up to the guidance. So you'll see basically three contracts that- Yeah, I'm sorry, Martin.
spk03: I'm sorry to interrupt you. No, I understood the bridge. What I... I'm wondering about the range provided in the press release. Oh, you're working from the bottom.
spk10: Oh, OK. The range itself. OK. Yeah. Sorry. Sorry, Bill. So the range itself itself stems from questions about the revenue recognition associated with the European contract. So this is a contract with a customer that we've done business with for a number of years, and that customer is experiencing a slowdown in payments that it receives, and that's causing a slowdown in payments to us. We booked about $7.8 million worth of revenue from that customer in Q2 and Q3 and continue to do work for that customer at about that same pace in Q4 and will continue to work with that customer. Given the status of cash collections, and we did receive about $4 million from them last week, there is uncertainty around the timing of the receipt of enough cash to warrant from an accounting perspective, recognition of the revenue in the fourth quarter and around the allowance for doubtful accounts in the second and third quarter revenues. So what we've shown you is essentially, I wouldn't, is the conservative case in which we write off the receivables from quarter two and quarter three and don't recognize the revenue in quarter four. Now, If we received an adequate amount of cash over the near term, we would probably not have to take those steps. If we received the cash afterwards, then we may have to take those steps. So we wanted to show you the conservative outcome of that situation. Does that make sense? I know it's a little... Yeah, yeah, yeah. No, it does now. I appreciate that. It's all driven by timing of cash receipts. We feel very comfortable that we're going to collect the cash. It's just when we receive it drives the timing of the revenue recognition and the treatment of the receivables.
spk03: So I think there's something, there's a prepaid expense for Thrasis that's also, that you're also potentially going to write off. Is that right? Yeah.
spk10: That one we will write off. It's a prepaid marketing expense that predates the combination.
spk03: Okay. So the total would be the 7.8 plus 0.5 if you were to do the component that's the European client.
spk10: The European client... The European client would be in terms of impact to EBITDA or write-off. One is looking at the margin, one is looking at the receivables themselves.
spk03: Yeah, please give me both. Thank you.
spk10: So the receivables on the European contract would be a total of 15.6%. and an EBITDA impact of 3.7. So call it a 23, 24% margin. And then the write-offs associated with contracts and receivables and prepaid expenses at Theracis that predate the combination would be 3.9 million, both at least on an EBITDA basis. So you've got a $7.6 million total associated with write-offs if we end up writing off the European receivable.
spk03: Okay. All righty. Can you, I think, can you kind of characterize the customer in Europe? Is it a health plan? I mean, or, you know, something akin to what you all do with... the public health providers here?
spk08: They are actually a interoperability platform that we're helping expand with full population health capabilities and are contracted in turn by governments and other entities to deliver a range of services around large initiatives around interoperability, population health, and pandemic response.
spk03: Oh, I see. So it's sort of like being a subcontractor to them.
spk10: Bill, just to note, this is a customer that we've worked with for a number of years and have a very strong working relationship with and will continue to work with.
spk03: Got it. The specialty pharma group, I don't think I've heard any information on kind of how they ended 21 and what their outlook is.
spk08: this is the pharmacy group. So we are, there's three things we're doing there and Martin can talk about the numbers itself. The first is that we have specific initiatives around the the new prescriptives direct product line, which is expanding supplements as part of protocols that physicians are offering, which we expect revenue growth coming out of there. The major other initiative that we're doing there is to start to position the pharmacy services with the pharmacists and other staff to support medication therapy management initiatives for MA plans and other entities that are required or engaged in delivering those services as part of a broader offering we will combine with our technology.
spk10: And Bill, from a financial performance perspective, we don't break out the pharmacy and the behavioral health businesses separately. But we can say that the pharmacy business grew at a relatively good pace in 2020. in 2021, and we would continue to see it growing reasonably in 2022. The seasonality of the behavioral health business masks a little bit of the performance of the pharmacy business, but it's going well.
spk03: Oh, you've got the fourth quarter seasonality for behavioral. Ramesh, I'm not sure I heard correctly the first point you made about pharma. Were you referring to the launch of the nutraceuticals? Yes, that's correct.
spk08: I'm following that. Yes, that's what I was referring to. Yes, correct.
spk03: All righty. And then finally, going back a little bit here on the focus, that Venn diagram you guys used on slide 29, I'm curious about, Vermeshka, you mentioned the potential for relationships with some of those other parties that cross over with your capabilities. Is there an example or two you can give or is there anything that's actually coming into place?
spk08: Not specific names, but we can give you some sense of those, Bill. So, for example, in that circle, we have companies that are delivering specific health services that require the delivery of compounded medications as part of their offering. of specialty health services, a service provider, and then they become a partner to us. There are companies that are providing also mobile health services that are interested in a technology platform to support their delivery of services. We also have vendors that are providing access points in hospitals and others that are in there as infrastructure for virtual care in a different way than we are that are interested in delivering our language interpretation services on top of that. Just a few examples.
spk03: That's interesting. Okay. Again, thanks for the call today, guys. Appreciate it.
spk09: Thank you. And there were no other questions in queue at this time.
spk08: Well, we want to thank everybody for joining us today. We are looking forward to continuing to share our progress, our success, our milestones. Thank you for all the support and for the time you've taken to spend with us today. Thank you all.
Disclaimer