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spk00: Good day, and welcome to the MCI One Health Technologies, Inc., third quarter 2022 results call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Nolan Reed, Vice President of Marketing and Communications. Please go ahead.
spk01: Thank you. Good afternoon and welcome, everyone, to MCA One Health's 2022 Third Quarter Financial Results Conference Call. I'm Nolan Reed, Vice President of Marketing and Communications, and joining me today on the call is our Chief Executive Officer, Dr. Alexander Dobronowski, and Scott Niren-Burski, our Chief Financial Officer. Our financial results press release is now available online, and I encourage everyone to download a copy of our third quarter consolidated financial statements from CDAR.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. We were 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 off to our CEO, Alex.
spk03: Thank you, Nolan, and thank you to those of you who are joining us today. I'd like to begin today's call by providing commentary on the quarter with a focus on key highlights on each of our business functions, namely our growing high-performance healthcare network and our technology, research, and clinical data initiatives. I'd then like to expand further on our strategy and also like to touch on our outlook of the coming quarter, after which our CFO, Scott Nierenberski, will provide a financial summary of our third quarter 2022 financial results, plus add further detail on the overall outlook of each of our core business functions. Before we conclude the call, we'll have time for a Q&A period. We are pleased with our third quarter of 2022. And as a quick recap, last year and the first half of this year were very important for MCI One Health, with the overarching theme being investment and improvement. Whereas we invested heavily into R&D, we grew our data-driven revenues, we added significant scale to our business via acquisition, added to our leadership and technology teams, and we are targeting to be even a positive entity by exiting this year. With regards to the third quarter 2022 key highlights, I'm pleased to share that MCI One Health continued the momentum off of our second quarter in 2022. Apart from achieving strong and consistent quarterly revenue, we also continue to execute a number of important initiatives that in combination accelerate our two strategic objectives. The first is growing our high-performance healthcare network, and the second is executing on our clinical data and personalized medicine initiatives. These then allow us to achieve our mission of increasing access, decreasing costs, and improving the quality of healthcare in Canada. Now, specifically with regards to our clinical data insights, research, and technology commercial efforts, I'm especially pleased to report that our heavy investments made in R&D in previous quarters have continued to deliver material results, with our risk-adjusted pipeline growing to just over $6.5 million of revenue to be realized in the coming quarters. From a pure clinical insights and research perspective, we generated revenues of $0.4 million in Q3, year-to-date revenue of $1.7 million, up 324% over the same period of last year, reflecting our capabilities to deliver commercial value from clinical insights. A part of this progress was secondary to the growth of sales of our rare disease screening product led by our president, Don Watts, And we've expanded our customer base to include a number of new names that are leading organizations in the life sciences and pharma industries. Further to this, MCI currently provides data insights as a service in six categories. Rare disease screening, complex and major medical condition screening, patient cohort building, clinical trial recruitment, and synthetic health data. In addition, in Q3, we have added a new data-driven product to our menu, that we have successfully commercialized our CME, our continuing medical education product. Lots of innovation is happening on this front. In addition, we previously announced that we had entered into a multi-year agreement with a global leader in data science and security, Palantir. During the third quarter, we have made continued progress from Q2 with regards to our smart referral system to shorten the time between primary care visits and specialist referral visits for patients. a very important initiative to continue to optimize patient access to specialist care. This has also resulted in a compelling increase in per patient revenue. This is up 6.2% compared to the same period in 2021. Now back to some key highlights. From a revenue perspective, I'm happy to share that MCI One Health completed the third quarter with strong and consistent results. Revenue for the third quarter is $12.5 million, an increase of 16% for the nine-month period ended September 30th compared to last year. This has been driven by the ongoing growth of patient volumes, growth in our clinical data insights, driven revenue streams, and revenue contributed by our acquisitions, plus significant success with other important initiatives, such as physician recruitment, which I'll touch on in just a moment, and our patient care pathway optimization. We're seeing consistent growth in patient visit volumes, which are on the rise from the increasing availability of MCI health services across multiple platforms. Volumes were up 8% for the nine-month period ended September 30th versus the same period from last year. On that note, an 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, and this has resulted in a material improvement in our per patient revenue. Plus, specialist revenues are up 9% in Q3 compared to the same quarter last year. With regards to physician recruitment, I'm excited to report that we have successfully recruited over 65 new physicians years to date. a run rate at the moment of five to seven new physicians added to our network per month with 20 net new physicians added in the third quarter. And we have seen this trend continue well into the fourth quarter and we anticipate that our physician base will have increased by over 20% by the end of 2022. With regards to highlights from our corporate health solutions division, we added 20 new corporate health customers in the third quarter of 2022, including Meridian, Cowan and Intermac in the insurance sector. We are expecting a re-acceleration of growth in this division as we continue to expand services and now also with a national purview. We also saw strong continued growth of our executive concierge health program and from a clinical research perspective, our CRO organization currently has over 15 active or in-pipeline clinical trials. Throughout the first and second quarters, the Omicron wave required great effort to deal with by our physicians, nurses, and clinical support staff And I did want to take a second to thank our staff for their efforts as the stresses of the pandemic that put on our healthcare system have been nothing short of immense, especially now in light of new pediatric stresses on the system. I'd like to make a brief comment now with regards to our strategy. At MCI One Health, we remain firmly committed to our mission to make healthcare more accessible, affordable, and safer. And we have two main objectives. That first is to continue to build our health services offerings, build on our high-performance healthcare network. As this allows us to keep capturing considerable network and revenue synergies and optimizations for our patients in the community, all the whilst providing our patients with more options, faster access, and higher quality continuity of care. Further to this, having this deeper health services offering 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. And by having this higher quality data profile, this is how we can advance care to be truly preventative. I'd like to turn the call now over to our CFO, Scott Nirenbierski, who will review the financials for the third quarter of 2022.
spk02: Good afternoon, and thank you for joining our fourth 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 in MD&A for descriptions of these measures, as well as the 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 filed on CDAR, we've provided further details to help you understand the underlying cash costs of each expense category, as well as how the new reporting of cost expenses compares with the prior by nature reporting of these items. Turning now to the following comments. Compare third quarter 2021 with the third quarter of 20, sorry, third quarter 2022 with the third quarter 2021. Revenue was flat year on year, resulting from the following drivers. Strength in rare disease screening from cured data products grew 39% year on year. Publicly insured health services grew 5% year on year from the addition of a full quarter of polyclinic versus only a partial quarter in the prior year. Privately insured health services grew 35% with recovery and physio services, other privately paid for service and a full quarter of executive medical concierge compared with only two months in 2021. Health research services from Canadian phase onward grew 4% year on year due to the inclusion of three months versus two months in the prior year. The above factors more than offset weaker corporate health service revenue, which was down 58% year on year due to weaker COVID testing. CHS growth is expected to resume from current levels as it continues to sign on new customers and add new wellness services entering 2023. Adjusted gross margin of 31.7% versus 28.3% a year ago reflect healthy margins really across all lines. Corporate health service margins were particularly healthy at similar level to prior quarters, but substantially higher than the depressed levels of the third quarter in the year ago period. Executive medical gross margin and clinical research gross margin also remained very healthy and consistent with prior periods. Operating expenses were roughly flat year on year on the reported numbers driven by increase in R&D spending to launch MCI data services and enhance rare disease screening capability, which more than offset declines in both sales and marketing and G&A. Specifically, the company expense $1.8 million in research costs, which offset an $830,000 decline in sales and marketing and $683,000 decline in G&A. MCI's data lake servicing large data-driven customers in pharma, healthcare services, and drug distribution is operational and continues to deliver analytic insights to customers in 3Q 2022. As noted, the company also amortized $303,000 of capitalized development costs in the quarter. Cash spending on R&D declined during the quarter as anticipated. MCI continues to make progress on reducing overall corporate overhead and will also look to further streamline clinic operations to improve margins in the basic core clinic operations. Adjusted EBITDA was minus $2.1 million for the quarter versus minus $1.8 million in the year ago third quarter and minus $2.9 million last quarter quarter. And this was driven by the increase in gross margin, which was more than offset by higher operating costs in R&D. The net loss of $9.1 million or $0.18 per share includes $0.07 per share in the non-cash write-off of the deferred tax asset, as well as $0.02 per share from $1.1 million of share-based comp. Turning to the balance sheet, MCI exited the quarter with $1.3 million in cash, up slightly from the $1 million at the end of 2Q 2022. Changes in cash during the quarter were driven by cash used in operations of $2.2 million, cash used in investing of $300,000 largely due to software development costs and IT infrastructure to support growth and health technology data-driven efforts. It is worthy to note CapEx and capitalized software costs are down 25% year-to-date due to lower spending compared with the early part of the year, which was as we had anticipated. Cash generated from financing of $2.8 million due to the usage of lines of credit and the loan from shareholders drove the overall increase in cash on the balance sheet. MCI is in active discussions with its shareholder parties to increase its liquidity from current levels of $3.5 million as needed to support its strategy and growth initiatives through the end of 2023. I'll close with a brief outlook. We continue to remain very optimistic about revenue growth from multiple sources and most notably our data-driven initiatives. MCI executed an agreement in November worth up to $1.7 million with a large pharma customer, which would be the largest research study in MCI's history and the largest contract with a pharma customer we've signed to date. This would not have been possible without MCI's data lake. And as Alex has pointed out, the pipeline continues to grow and now sits at $6.5 million at the end of 3Q 2022. Furthermore, Cure Health recently executed its first U.S. customer agreement, as well as follow-on agreements with existing customers to accelerate revenue growth in 4Q 2022 and the first half of 2023. So we remain very optimistic about Cure. We also remain optimistic about physician increases as Alex pointed out the increase of 20% in the MCI ecosystem in both Ontario and Alberta with more to come in the fourth quarter and beyond should bolster revenues in the clinic operation. at roughly the same time as we're beginning to streamline operations there, so we look for both revenue increases and margin improvements there going forward. We have further initiatives on cost control we're executing to make the operations more efficient and better align our physical capacity to the way our patients and customers want to access the healthcare system. We continue to believe that revenue growth should outpace OpEx growth and CapEx levels should remain at lower levels for the remainder of 2022, setting the company up for positive EBITDA exiting 2022 and positive free cash flow in the first half of 2023. With that, I will turn it back to Alex for further comment before opening the line for questions.
spk03: Thank you, Scott. And echoing some of your sentiment and part of my optimism and confidence for regards to our outlook really stems from some of the major, what I call key competencies we've accomplished over the last 18 months. And to the best of my understanding, we are currently one of the only healthcare organizations in Canada to demonstrate a capability of optimizing patient care pathway from primary care to specialist and back, especially at this kind of scale. I'd also say that we're a leader in the very critical competency of physician retention and recruitment. As I mentioned, we have added over 65 doctors year to date to our ecosystem. And to the best of my knowledge, we are one of the only organizations to have an actual fully accessible and secure clinical data insights platform of this magnitude. And now we are holding just over 3.2 million de-identified clinical records. Also, to the best of my knowledge, we are, I think, one of the only organizations that is able to fully leverage technology and actually extract both clinical and commercial value from clinical insights at this quantum. So we're looking forward into the fourth quarter with quite a bit of optimism. In parallel to advancing on these key competencies and capturing some of these new revenue opportunities, we're also turning some focus to optimizing our clinical network, as Scott had mentioned, and identifying opportunities to streamline our costs and improve efficiencies network-wide. And we're firmly committed to drive excellence in healthcare in Canada, support our government, our hospital healthcare systems, and we are committed to delivering on our strategy and, of course, value for our shareholders. So I'd like to thank those of you that joined us for this call today and thank our shareholders for their support. I'd also like to thank my executive team and my co-chairman, Dr. Sven Grail and Dr. George Christodoulou. our management teams, and all of our employees and clinical staff for their continued and ongoing efforts. I'd like now to please open the floor to any questions. Thank you.
spk00: Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. And our first question will come from the line of Doug Taylor with Canaccord. Please go ahead.
spk04: Yeah, thank you. Good evening. Hey, Doug.
spk03: Hey, Doug.
spk04: For my first question, you speak to this pipeline of 6.5 million in data related bookings or backlog. Could you help us understand the timetable to recognizing that as revenue? I believe Last quarter, you'd said something along the lines of $4 million expected to be invoiced in the second half of the year. Can you just update us on what has been recognized and what's still to come and when?
spk03: Yeah, I'll add a little bit of context as well. Doug, because there's a bit of an ebb and flow to the life science and pharma industry as well, where over the summer months, there's a bit of a quieter period and then there's more activity in the fall. And we certainly saw that last year and then historically in the previous year, 2020. And so there remains a great deal of optimism to finish this year in a very strong position.
spk02: Yeah, and so far as the $4 million is concerned, Doug, so the contract that I mentioned, which would be the largest one we've ever done, that's the first 1.7 of the four. And then with what's happening in CURE and the other studies that MCI Data Products has done, we still feel confident that we'll be able to at a minimum invoice for it. We'll see how the contracts come through in terms of, you know, revenue recognition on it. But we're well on our way there. November has been a particularly strong month in that regard.
spk04: Okay. I mean, that leads me to the next question as we look into Q4. And I believe you still point to the expectation of achieving EBITDA positivity by the end of this year. First of all, is that correct?
spk02: That's right. It's a combination of revenue and a combination of better, frankly, gross margins from streamlining both clinic operations, as well as a little bit of improvement in corporate health. And then, of course, the data revenues that we just talked about from the pipeline, as well as just existing cure business coming through. So it's It's all oars in the water in that regard. And then there'll be some more, you know, streamlining of the operations, the clinics themselves as well, and really corporate overhead.
spk04: Well, and maybe I can get you or press you there to, you know, provide some more quantitative data there just, you know, to help us bridge the gap there because it's obviously – you know, a key, you know, concern or risk for investors. So could you maybe speak to the are you expecting revenue growth, which was flat in this third quarter, to accelerate? And what kind of savings are you expecting in the OPEX and gross market? Fair question.
spk03: Doug, I'll add a little bit of color. You know, so through the original waves of the pandemic and into earlier part of this year, we were hesitant to to make too many optimizations at the at the clinic level uh because we wanted to see how how patient volumes and and patient behavior and and quite frankly physician behavior was going to to play out in a quieter period but now we've been able to do some of these analysis so there is there is opportunity for us to to do some consolidation right and to uh optimize everything really from the ground floor at the clinic level to to all the way up to head office so I just wanted to add that comment and then secondly, in terms of growth and revenue growth, we've had some success with recruiting physicians and it always takes time and it takes a little bit longer for those physicians to be fully onboarded and actually be productive within the network and seeing a meaningful volume of patients. We're anticipating that we'll see a steady climb in patient volume growth reflected by that new physician number. And then also, the fall is usually seasonally our strongest quarter with summertime months. And not just, of course, for our healthcare network, but healthcare systems wide are always a little bit quieter. So those two drivers will certainly help from the growth side. And then, as I mentioned, there's been quite a bit of groundswell, if I may, in terms of effort and R&D spend on making sure we can execute on our data roadmap. So, you know, we're finally starting to see and demonstrate the capabilities to be able to harvest this. So before we would, you know, we'd engage with pharma very successfully on smaller contracts and
spk02: less ambitious for instance screening programs and now we can actually we've been able to demonstrate that we can do these things and and do them at a larger quantum to be a bit more quantitative for you doug think of it as two-thirds to three quarters is the range of that closing the gap in the you know the two million dollar ebitda um for on on the revenue side and the remainder would come from a combination of reduced expenses across a number of areas.
spk04: Just to be crystal clear, you're expecting a positive or breakeven EBITDA number for the quarter, or just that you'd achieve it at some point?
spk02: It would be achieving it at some point.
spk04: Okay, thank you. I will pass the line. Thank you, Doug. Thanks, Doug.
spk00: Thank you. One moment for our next question. That will come from Robert Goff with Echelon Wealth Partners. Please go ahead.
spk05: Thank you very much for taking my question. If I would be looking at some of your organic growth outlooks, like when we see the physicians that had 20% year-on-year and we see the revenue per patient up by 6.2% year-on-year, How do you see traction building there? And Alex, you had mentioned that it does take some time for new positions to build up the revenue traction. Are there drains associated with the time lag there between a position coming on the platform and they're hitting their stride?
spk02: Yeah, it's a great question, Rob. And the simple answer is yes, there are definitely There's a ramp period, and it starts with, hey, we signed a new physician today, and they're not going to start for nine months. They join next week, and they take nine months to ramp. Nine months is not a set-in-stone number. We've seen it everywhere from a couple of months to nine months so it really just depends on each individual position so the numbers of new physicians and who's joining and so forth really hasn't changed if anything it's probably going up a little bit it's a question of the ramp period and trying to figure that out which is a bit of a crystal ball exercise so And certainly though we would expect to see improved volumes because a number of these folks, you know, A, started in the first part of the year, and B, if they hadn't started in the first part of the year, we're definitely starting in the third quarter. The other thing that I think will be interesting to watch will be on December 1st in Ontario, you get a change in reimbursement rates for the telehealth stuff. And it's going down to drive physicians into the clinics. And I think there'll be another follow-on one beyond that in the first quarter. So it'll be interesting to see what that does because it is meaningful to them in terms of their income. And that has in the past tended to drive physician behavior. So you would expect, if anything, the clinics to be the beneficiary of that as you head into December and then beyond that. So that's something to keep an eye out for. Generally speaking, though, the revenues for visitor going up, just part of that is the fact that we're driving more internal referrals in the system. So there's more specialist visits that are being handled within the system as originally planned.
spk03: Rob, I'll just add to that. There was, you know, there's a new balance, right, that's played out as we're all very aware, right, between virtual care, telephone consults, and in-clinic visits. And as I think has been highlighted over and over by the media, right, and including some outreach from the ministry and OMA, et cetera, that doctors in primary care weren't seeing their patients in person as they were historically. And now we've now learned how to navigate that balance and how to make sure that we deliver the best care for our patients and get our physician and clinical staff motivated and re-motivated to be in clinic and seeing their patients. So these efforts from even just a behavioral perspective are going to start to help also and will be reflected in our patient volumes going forward. And I comment that that Scott made about a change to the reimbursement rate, that historically has always had a fairly significant effect. And we expect that our physicians will be more and more in clinic and more and more available in person.
spk05: Okay. Thank you. And Cass, with respect to your pipeline put at 6.5 million, that was described as risk adjusted. Was the 1.7 million in there at 1.7 million?
spk02: No, it's actually in there a little bit less than that. So typically that's going to depend on the number of patients you screen in the study. And the original commitment was for 1.5 million, but then they've come back since and said, you know what, we have some more money at this and we're willing to up it. So, you know, the 1.5 is closer to the number.
spk05: Thank you. And if I could, the last question would be on the corporate health. Could you talk to the revenue profile you see there and the timeline to year-over-year growth?
spk02: Yeah, for year over year, of course, it was very heavily influenced by COVID in the summer months of 2021. So, you know, we're certainly, from our perspective, we're not planning on getting back to those kinds of levels until well into next year, COVID aside. So in our, when we talk about what's, you know, what we're expecting for 4Q in terms of EBITDA, there's no assumption that the thing's going to hockey stick again or anything like that. It's sort of, you know, gradually building off the current run rates really is what's supposed to happen.
spk03: Well, and we're, Rob, we're also putting together new programs, new products and new offerings, right, in different initiatives, right, to reaccelerate the growth in corporate health. But it's more about now that type of growth as opposed to relying on, hey, is there going to be another wave of testing that's coming? So it'll take us a little bit longer to get there, but we certainly have a strong plan to do it. And we are signing up new customers at a fairly significant clip. You know, we had just over 20 last quarter, another 20 in Q3, right? And Q4 is looking just as strong.
spk05: Thank you very much.
spk00: Thank you all for participating. This concludes today's conference call. You may now disconnect.
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