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spk04: Good day, and thank you for standing by. Welcome to the MCI One Health Technologies second quarter 2022 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Nolan Reeds, VP of Marketing and Communication. Please go ahead.
spk00: Thank you, Amy. Good afternoon and welcome everyone to MCA One Health's 2022 second quarter financial results conference call. I'm Nolan Reeds, Vice President of Marketing and Communications. And joining me today on the call is our Chief Executive Officer, Dr. Alexander Dobrnowski and Scott Niren-Burski, our Chief Financial Officer. Our financial results press release is available online at the moment, and the other documents will be available shortly on cedar.com. I encourage everyone to download a copy of our second quarter consolidated financial statements from cedar.com. Other than historical performance, our discussion today may include predictions, estimates, or other information that might be considered forward-looking. While these forward-looking statements represent our current judgment on what the future holds, They are subject to risks and uncertainties that could cause actual results to differ materially. You are cautioned not to place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this presentation. These forward-looking statements involve risks both known and unknown, assumptions and other factors, many of which are outside of MCI One Health's control, that may cause the actual results, performance, or achievements of MCI One Health to differ materially from the anticipated results or achievements implied by such forward-looking statements. I'll now hand over the call to Dr. Alexander Dobrynovsky, our CEO. Alex?
spk02: Thank you, Nolan, and thank you, everyone, for joining today. And I'd like to start today's call by providing commentary on the quarter, inclusive of key highlights on each of our business functions, namely our growing high-performance healthcare network and our technology, research, and clinical data initiatives. I'll then like to go into detail on our strategy and expand on our outlook of the coming quarters, after which our CFO, Scott Nirenberski, will provide the financial summary of our second quarter 2022 results, plus add further detail on the overall outlook of each of our core business functions. After this, we'll have time for a question and answer period. We are very pleased with our second quarter of 2022, Last year and the first quarter of this year were very important to MCI One Health, with the overarching theme being investment and improvement. Whereas we completed two very substantial acquisitions, we invested heavily into research and development, we grew our data-driven revenues, we added significant scale to our business, added to our leadership and technology teams, and we are now targeting to be a cash flow positive entity in the back half of this year. With regards to the second quarter 2022 key highlights, I'm pleased to share that MCI One Health continued the momentum off of our first quarter, and we've had a very productive lead up to the middle of the year. Apart from achieving strong quarterly revenue, we also continue to execute a number of important initiatives that in combination accelerate our two strategic objectives. And to recap, the first is growing our high performance healthcare network, and the second is executing on our data and personalized medicine initiatives. This then allows us to achieve our mission of increasing access, decreasing costs, and improving the quality of healthcare in Canada. And with regards to our clinical data insights and technology commercial efforts, I'm excited to report that our heavy investments made in research and development in previous quarters have continued to deliver material and now accelerating results. From a pure data and research perspective, we generated revenues of 1.2 million in Q2, reflecting our capabilities to deliver commercial value from clinical insights. This is up 508% over the same quarter last year. A major part of this commercial progress was secondary to the growth of sales of our rare diseases screening product, anchored by our subsidiary, Cure Health, and led by our president, Don Watts, who delivered very strong growth in May and June of this quarter. Further to this, we now have five separate clinical insight products, three of which are now commercially active, the latest being our data insight as a service product. Exciting progress has been made on this front and we anticipate continued growth in this very important segment of our business, specifically growth that targets the US market. Further to this, we previously announced that we had entered into a multi-year agreement with a global leader in data science and security. During the last quarter, we made additional progress with regards to our smart referral system to shorten the time between primary care visits and specialist referral visits for patients. This partnership will continue to accelerate our data strategy and disease screening, novel referral optimization, and other custom data and precision medicine initiatives. As I mentioned, throughout 2021 and into the early parts of 2022, we invested heavily in improving our foundation. modernizing our healthcare clinic capabilities, investing in our technology and cybersecurity infrastructure, and importantly, adding a number of healthcare services and specialists to our ecosystem, leading to the culmination of what I call our high-performance healthcare network. In our view, we have built a first-of-its-kind model in community healthcare that is now demonstrating efficiencies and improving patient access in ways that has not yet been demonstrated before in Canadian healthcare. Unfortunately, this is especially important right now, as our healthcare system is in a real difficult state, a state of crisis, whereas it is also the responsibility of healthcare organizations in the community, such as ours, to step up and help alleviate the strain on our hospital systems. Now back to key highlights. From a revenue perspective, I'm happy to share that MCI One Health completed the second quarter with strong results, revenue for the second quarter increased 23% to 13.8 million over the same period in 2021. This has been driven by the ongoing growth of patient volumes, material growth in our data-driven revenue streams, and revenue contributed by our acquisitions, plus significant success with other important initiatives or key competencies, such as physician recruitment and patient care pathway optimization. We're seeing very strong growth in patient visit volumes, which are significantly on the rise from the increasing availability of MCI health services across multiple platforms. Volumes were up 10% versus the same period from last year, and this is excluding increases from our acquisitions. On that note, another important highlight of the quarter is that we have again had strong growth of specialist visits through in-network care pathway optimization and significant advancement in the rollout of our smart referral system that leverages our new data backbone. We achieved record high volumes of specialist visits week over week throughout the quarter. With regards to physician recruitment, I'm excited to report that we have successfully recruited over 40 new physicians years to date, a run rate at the moment of five to seven new physicians added to our network per month, with 15 net new physicians added in the second quarter, and we have seen this trend continue well into the third quarter. With regards to highlights from our Corporate Health Solutions Division, We added another 20 corporate health customers in the second quarter of 2022, including one of Canada's largest retail distributors and a world-renowned private education institution in Toronto. We are expecting a re-acceleration of growth in this division as we continue to expand services with now also a national purview. We also saw strong continued growth of our executive concierge health program. And from a research perspective, our clinical research organization currently has 15 active clinical trials and screening engagements underway. Throughout the first quarter of 2022 and still into the beginning of the second, the Omicron wave required great effort to deal with by our physicians, nurses, and clinical support staff. And I'd like to take this opportunity to thank our staff for their efforts as the stresses the pandemic has put on our healthcare system has been nothing short of extraordinary. That notwithstanding, we've been experiencing month after month growth in our patient volumes, in our base business of healthcare services, and also in our data initiatives as our clinical staff are more engaged and available for us to make progress on this front. Now I'd like to make a few brief comments with regards to our strategy. At MCI One Health, we remain committed to our mission, as I said, to make healthcare more accessible, affordable, and ultimately safer. And we have two key objectives The first is to continue to build on our high-performance healthcare network. Our healthcare services and clinical insights flywheel, as this allows us to keep capturing considerable network and revenue synergies, all the while providing our patients more options, faster access, and higher quality continuity of care. Further to this, having deeper health services offerings allows us to achieve our second main objective, and that is to continue to build a much richer and deeper patient profile for each of our patients. By having a higher quality data profile, this is how we advance care to be truly preventative and actually catch disease earlier. Execution of our plan has resulted in our business evolving from what was a traditional brick and mortar clinic group as recently as early 2020 into one that is technology focused and is high growth and generating higher margin revenue. As our theme in 2021 was investment and improvement, The theme for 2022 as we continue into the third quarter is growth and scaling. We expect to continue to accelerate total company revenue growth in the next few quarters of fiscal 22, and we will accomplish this through organic growth of all our business units, plus considerable focus on executing our data-driven commercial pipeline. Plus, we will continue to execute on our robust pipeline of M&A opportunities. I'd like to turn the call now over to our CFO, Scott Nierenberski, who will review the financials for the first quarter of 2022. Thank you, Scott. Thank you, Alex.
spk03: Good afternoon and thank you for joining our second quarter conference call. I will provide a brief summary of key financial measures, some of which may include non-IFRS terms. Please refer to our financial statements and MD&A for descriptions of these measures, as well as a reconciliation of non-IFRS measures to our statutory IFRS reporting. As a reminder, in the third quarter of 2021, MCI One Health Technologies changed its grouping of expenses into more commonly used functional categories more consistent with our public peers and which better reflects the way we think about the business. In our financial statements and MD&A file filed on CDAR, we have provided further details to help you understand the underlying cash costs of each expense category as well as how the new reporting costs expenses compares with the prior by nature reporting of these items. Turning to the quarter, the following comments compare 2Q 2022 with 2Q of 2021. Revenue grew 23% year-on-year, driven by four factors. Strength in rare disease screening from the CureData products, which posted 508% growth year-on-year. 30% growth in publicly insured services, which is driven by 10% organic higher patient volumes at MCI clinics, as well as the inclusion of the Polyclinic, Quit Clinic and the North York Pulmonary Function Testing Clinic. In addition, revenue was also aided by the inclusion of executive medical concierge clinics at the Polyclinic and our clinical research organization also at the Polyclinic known as Canadian Phase Onward. The above factors more than offset weaker corporate health service revenue, which was down 71% from its all-time high in 2Q of 2021, due to weaker COVID testing. However, CHS assigned 20 new customers recently, and we expect growth to re-accelerate in the back half of the year. I'm quite optimistic with some of the new programs that they're rolling out, including those in wellness and health. Turning to gross margins, adjusted gross margins of 30.7% was lower than 31.3% a year ago, reflecting the mixed shift towards government-insured services. Strength and cure helped margins However, the decline in corporate health services affected margins just because there weren't as many corporate health services gross profit dollars flowing through the income statements. This said, corporate health service gross margins remain very healthy and at similar levels to prior quarters, which is testimony to the strong business model that leverages our contractor workforce there. Executive medical gross margins and clinical research gross margins also remain very healthy and consistent with prior periods. Turning to operating expenses in the quarter, operating expenses grew 34% year-on-year on the reported numbers driven by R&D spending to launch our data products and enhance our rare disease screening capability. Specifically, the company expensed $2.2 million in research costs, which accounted for 95% of the expense increase. I'm pleased to report that MCI's Data Lake, servicing large data-driven customers in pharma, healthcare services, and drug distribution, is operational and began delivering analytic insights to customers in 2Q 2022. As noted, capital development costs for R&D are $2 million on the balance sheet and they supported our data lake as well as our online virtual platform and the CURE platform. We expect capitalized R&D will begin flowing back through the income statement in 3Q 2022 and beyond now the platform is operational. However, cash spending on R&D is expected to decline somewhat in 2H 2022, just given the fact that the services are now launched and operational. Polyclinic operating expenses were not in the mix in 2021, so they also contribute to higher overall operating expenses. MCI continues to make progress in reducing corporate overhead. If you exclude the investment in R&D and the impact of acquisitions, corporate overhead actually shrank by over 15% reflecting the company's cost control initiatives. Finally, adjusted EBITDA was negative $2.9 million for the quarter versus minus $0.7 million in the year ago second quarter, and that was primarily driven again by the mixed shift to health services as well as the previously mentioned revenue dynamics in corporate health, coupled with the higher expenses for R&D. Net loss for the quarter was minus 4.2 million, or 8 cents per share, and that included 2 cents a share from $840,000 of share-based compensation. Looking at the balance sheet, MCI exited the quarter with a million of cash, and the decline was primarily driven by 2.4 million used in operations. 0.4 million used in investing, and then some generation from financing as we drew on our lines of credit. We're pleased to reiterate that the founders and majority shareholders have provided additional liquidity in the form of a $5 million line as needed to support the rollout of our new initiative strategies in growth in the company. Overall liquidity was nearly $7 million at the end of the quarter between the cash on hand, access to unused lines of credit, as well as the new facility. I'm going to close with a brief outlook. We continue to remain very optimistic about revenue growth from multiple sources, and most notably our data-driven initiatives. As Alex has pointed out, the pipeline is growing, and in fact, the pipeline grew from 4 million in 1Q 2022 to nearly 6 million across multiple projects, and we expect invoicing on these projects imminently now that the customers have had data in their hands for a while. Cure Health's move to the cloud is substantially complete at this point, which paves the way for accelerated revenue growth in 2H 2022, and frankly, it'll be a lot more efficient than it has been in the past because we're able to onboard doctors much more quickly, and we actually expect to onboard some fairly large physician networks in the back half of the year. Accelerating growth in high-margin exec medical should continue as well as clinical research operations, and that's driven by both the existing efforts as well as the ability to now screen and find patients for clinical research, both within MCI companies and externally. And this was actually not even possible just 90 days ago. So we're really quite optimistic about what we can do in clinical research. Additionally, we continue to onboard new physicians. We did 15 in the new quarter, in the recent quarter, and we expect five to seven new per month going forward in both Ontario and Alberta collectively. So we expect volumes of patients going through our clinics or by whatever channel they choose to see us. to continue to grow very nicely in the back half of the year. We have further initiatives on cost control, which we're executing to make our operations network more efficient and better align our capacity to the way our patients and customers want to access the healthcare system. We're reiterating that revenue growth should outpace OpEx growth and CapEx levels should decline from 2021 levels in comparable periods, returning the company to positive EBITDA and cash flow during the back half of 2022. With the additional liquidity on hand, MCI is on solid footing to execute its plan. And with that, I'll turn it back to Alex for further comment before opening the line to questions.
spk02: Great. Thank you, Scott. Our outlook, as Scott just mentioned, remains highly positive across all our business functions. And part of my optimism and confidence with regards to this outlook stems from what we've accomplished since our IPO early 2021, or roughly 18 months ago. And I call these our key competencies. And from what I understand, we are currently the leading healthcare organization in the community in Canada to demonstrate an actual capability of optimizing the patient care pathway from primary care doctor to specialist, to diagnostics, to back again at this kind of scale. We are also a leader in the very critical competency of physician retention and recruitment. And as I mentioned, we've added over 40 doctors year to date to our ecosystem. To the best of my knowledge, we are the only organization to have a fully accessible and secure clinical data insights platform of this magnitude, now holding 2.9 million de-identified patient records. And to the best of my knowledge, we're the only organization that has been able to fully leverage technology and actually commercialize clinical insights at this quantum. And lastly, we have partnered with some of the world's leading healthcare data and precision medicine companies such as those we have recently named, like MD Clone and Euclid Telehealth, and a number of future announcements are in the pipeline. We are firmly committed to drive excellence in health care in Canada, support our government and hospital health care systems, and we are committed to delivering on our strategy and value for our shareholders. I'd like to thank everyone for joining us on the call today and thank our investors and our shareholders for their support. I'd also like to thank my chairman, Dr. George Christodoulou and Dr. Sven Grail, my executive team, in particular, my chief operating officer, Jennifer Foster, my management teams, and all of our employees and clinical staff for their continued efforts. I'd like to now open the floor to any questions. Thank you very much.
spk04: All right. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. All right, our first question comes from the line of Rob Goff with Echelon Wealth Partners. Your line is open.
spk01: Thank you very much for taking my questions. And I'd like to start with respect to the data lake. Could you give us any further color with respect to the pipeline there that you put at $6 million? What component of that might be SAS as opposed to specific contracts? And over what duration do you see that $6 million being run through the income statement?
spk03: Sure. No problem, Rob. Thank you for the question. So about a third of it is FAS, meaning it would be a monthly subscription for a certain data. In this case, it happens to be cardiovascular data over the coming year. And the rest of it is more project-driven. But some of those projects go anywhere from call it six months to nine months in that respect. And of the six, we should be able to access as much as four of it this year.
spk01: So in terms of accessing six, you said get as much as four this year. Does that mean book and run through the income statement?
spk03: Of course, Rev Rec under IFRS is always a tricky thing to do, but certainly we can certainly invoice for four, right? Yeah, because there's always, you have to go through your test, as you know, to do that. But certainly invoicing for four is certainly possible. And frankly, there's more that come in every day. Each week we're starting to see that because these discussions have been going on for a while, right? So it's not like these customers that we're speaking of in this pipeline were just brand new last week or anything like that. So typically what's happened is they come in, there's a specific project they want to work on, then we deliver them things, and then all of a sudden it's, oh, can you do this? Can you add this? Can you do that? So it's actually a pretty intriguing time right now.
spk01: Thank you. And a related question. You mentioned that the R&D budget has probably peaked at the $2.2 million. Can you talk about the decline that you might see there and some of the partnerships that you did announce and those that are in through your CEDAR filings?
spk03: Yeah. So in the case of, it's really the cash costs, right, that I was referring to that will come off a bit in the back half of the year now that the lake is up and running. So And as it becomes more stable, that's the case now. I would say you're talking about it's not huge declines. It's not like it's going to go away because you never stop spending on your platform and maintaining it. And there may be new features and things like that that we need to add on it. But the heavy lift is what I'm trying to communicate. Most of that is really behind us at this point from the first half of the year. And now it's just a question of really harvesting what the data lake can do.
spk02: Yeah, Rob, I'll just add that there was a period of time here that we needed to stand things up, and that took considerable investment. So now we're starting to harvest the fruits from that investment over the previous quarters, and you'll see some of that ongoing R&D investment is going to decline. but we're still going to need to keep investing, right, to keep innovating and, of course, keeping our platform, you know, secure and with all those extra features that are required.
spk01: Thanks, Alex. And on the theme of harvesting, could you talk to any revenue lag that you may be seeing with respect to adding 40 physicians here to date? Do you add them in at, you know, six months before they get up to full billings, or how does that work?
spk03: Yeah, we're getting better at forecasting that as you empirically add more doctors. But the way to think about it is it'll be a good nine months to get a physician who doesn't have a practice up to what you call full speed. And by full speed, you're talking about a GP that's grossing something in the range of $250,000 to $300,000 in billings per year. That's about nine months to there. If they come with a practice, of course, it can be much, much faster.
spk01: Okay. Thank you. I will just jump back in the queue. Cheers. Thank you, Rob. Thank you, Rob.
spk04: Thank you. Currently showing no further questions. So this concludes today's conference call.
spk03: Oh, wait. I think Rob might jump back in the queue. I don't know if he wants to.
spk04: No problem. Just a reminder to ask a question, just press star 1-1.
spk06: Just standing by.
spk04: All right. All right. No further questions. This concludes today's conference call. Thank you all for participating. You may now disconnect.
spk03: Thank you, Amy.
spk04: You're welcome.
spk03: Thanks, everybody. Thanks, everyone. Thank you.
spk04: To raise your hand during Q&A, you can dial star 1 1.
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