Healwell AI Inc. (AIDX) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to the MCI Onehealth Technologies, Inc. Third Quarter 2021 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Alexander Dobranowski. Thank you. Please go ahead, sir.

Good afternoon, and welcome, everyone, to MCI Onehealth's 2021 Third Quarter Financial Results Conference Call. I'm Alex Dobranowski, Chief Executive Officer, and joining me today on the call is Scott Nirenberski, our Chief Financial Officer. Our financial results press release is now available online, and I encourage everyone to download a copy of our interim third quarter consolidated financial statements from sedar.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. These forward-looking statements involve risks, both known and unknown, assumptions and other factors, many of which are outside of MCI Onehealth's control that may cause the actual results, performance or achievements of MCI Onehealth to differ materially from the anticipated results or achievements implied by such forward-looking statements. We truly appreciate everyone for joining today, and I'd like to start today's call by providing some detailed commentary on the quarter and also provide key highlights. I would then like to go into further detail on our strategy and expand on what we have accomplished to date and also expand on our outlook as we proceed into 2022. After which, our CFO, Scott Nirenberski, will provide a financial summary of our third quarter 2021 results plus add further detail on each of our core business functions. And after this, we will have time for a question-and-answer period. With regards to this quarter's key highlights, I'm pleased to share that MCI Onehealth continued the momentum off of our second quarter, and we've had a strong and productive Q3. We remain ahead of our targeted schedule on execution, and we are ahead of our plan. Apart from achieving strong quarterly revenue, we also completed a number of important objectives that, in combination, continue to accelerate our 2 strategic objectives: growing our high-performance health care network and continuing to grow our data technology initiatives. As a major operational highlight, As previously reported, we closed our acquisition of the Polyclinic Group of Companies, establishing now a new flagship clinic group for our entire network. The Polyclinic Group is a specialist in primary care medical practice that also has a clinical research organization, a concierge medical channel and a host of other diagnostic and medical services. The founders have built an innovative health care model that allow MCI Onehealth to further optimize patient care, access, increasing quality and adding value. This is a focal point in what I call our high-performance health care network. The synergies for our patients across our entire clinic group are robust, and synergy contribution is expected to be substantial as the businesses are integrated with revenue synergy opportunities already being realized in the fourth quarter. On a separate note, we are continuing to generate technology and clinical data-driven revenues, further marking our transition from health care services delivery to data and technology focus. These initiatives are supported by our brightOS ecosystem and led by our acquisition from Q1, Khure Health. Now Khure Health signed its largest contract to date with a quantum in the range of 500,000 signed in October with a global top 10 pharmaceutical manufacturer. And further to this, Khure has secured strategic partnership agreements with key EMR providers increasing the availability of the Khure platform for more than 15,000 physicians across the country. There is significant opportunity here to scale both domestically and internationally. From a revenue perspective, I'm pleased to share that MCI Onehealth completed the third quarter with strong results. Revenue increased 29% over the same period in 2020, driven by the ongoing recovery of patient volumes, ongoing growth from our corporate health services and revenue contributed by our recently closed acquisitions. Total revenue for the quarter was $12.6 million compared to revenue of $9.8 million in the same period in 2020. A theme that has continued with regards to our strong revenue performance has been the ongoing adoption of telehealth and virtual care, whereas our doctors have completed 450,000 telehealth and virtual care consultation since the start of the pandemic and now with over 90,000 visits completed in Q3, continuing to exceed 49% of all patient consultations with ongoing adoption of our patient experience platform, MCI Connect. With regards to our corporate health services offerings, I'd like to highlight that our customer base is now approaching 600 corporate customers. This is 40% growth this quarter, and this also includes over 40 insurance companies. Substantial progress on this front as we prepare to grow these services nationally. I'd like to make now a few remarks on our clinical care services channel. Our health care system, including both hospital and community-based networks, have been under considerable strain due to the pandemic. That notwithstanding though, our patient volumes grew approximately 31% year-on-year, excluding increases for many acquired businesses in 2021. Our patient continue to improve, and the last of our clinics have resumed full operations coming out of the pandemic restrictions from earlier this year. This is also signaling that both patients and physicians are more comfortable with virtual channels and coming back into the clinic and further highlighting that pent-up demand for health services continues to grow. This backlog of patient care needs to be addressed and MCI Onehealth is uniquely positioned to provide this care and help with this demand and get patients the access they need. Our expectation is that our patient volumes will continue to grow in the coming quarters. Now changing tack for a moment, I'd like to make a few comments with regards to our strategy and outlook. At MCI Onehealth, our mission is an important one. And quite simply, it's to catch disease earlier and, in turn, make health care more accessible, affordable and ultimately, safer. And we have two objectives. The first is to continue to build our high-performance health care network, whereas we have added specialists and diagnostic services, corporate and executive health services, a clinical research organization to our already established foundation of primary care. This allows for exceptional network and revenue synergies, all the whilst providing our patients with more options and higher quality continuity of care. Further to this, having this deeper health services offering allows us to achieve our second main objective, and this is to continue to grow our clinical and commercial data initiatives. This is how we advance care to be truly personalized and truly intelligent, and this is how we can catch disease earlier. MCI Onehealth is advancing on this mission and execution of our plan has resulted in our business evolving from what was a traditional brick-and-mortar clinic group into one that is technology-focused and is high growth and generating higher margin [indiscernible]. Back to total company revenue growth in the first half of fiscal 2022, and we will accomplish this through 2 main efforts. The first through organic growth of all of our health services and in services provided to corporate customers as we expand our customer base and increase the number of available offerings plus growth through network and revenue synergies with our recently acquired companies. The second is through executing on our robust pipeline of M&A opportunities, namely strategic acquisitions to accelerate our technology road map and acquisitions of specialty clinics to expand our health service offerings plus enter new markets to deliver more services to our large and growing patient and physician base. I'd like to turn the call now over to our CFO, Scott Nirenberski, who will review the financials for the third quarter of 2021.

Good afternoon, and thank you for joining our third quarter conference call. I'll 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 the reconciliation of non-IFRS measures to our statutory IFRS reporting. In addition, this quarter, MCI Onehealth Technologies has changed its grouping of expenses into more commonly used functional categories more consistent with our public peers and which better reflect the way we think about the business. You'll see a more simplified reporting of costs and expenses into 4 categories: cost of sales, R&D, sales and marketing, and general administrative expenses. In our financial statements and MD&A filed on SEDAR, 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 to the prior by nature reporting these items. So with that, revenue grew 29% year-on-year, driven by 4 factors: higher patient volumes at MCI organically, the addition of 2 months of the Polyclinic, continued strong growth in corporate health of over 40%, the addition of data revenue from Khure, 2 months of results from Canadian Phase Onward, our clinical research offering and Executive [ Medical ] Concierge Canada, our executive concierge medical practice offering. On the gross margin front, gross margins declined from 31% to 28.3% due to corporate health margins which were impacted simply by the timing of expenses from 2Q to 3Q. As said, corporate health continues to grow very nicely in the current quarter and margins are in line with previous expectations, which you've become used to. Operating expenses grew year-on-year to support the growth for 2022, data-driven revenue and clinical services as well as to support future acquisitions. Specifically, R&D expenses associated with platform development in support of the company's data strategy, enhancements to MCI Connect as well as investment in Khure Health to expand the platform and take it into the cloud. Sales and marketing expenses associated with the ramp-up and efforts to support growth in sales for 2022 include further enhancements to MCI Connect, the addition of Khure, the addition of 2 months of Polyclinic and then branding and awareness and partnership development. G&A expenses grew primarily due to corporate development costs for the expansion of the company's senior management team that we've previously discussed, being a public company, higher legal and audit expenses, 2 months of Polyclinic expenses and, of course, the addition of Khure Health. Adjusted EBITDA was minus $1.8 million for the quarter versus $2.2 million in the year-ago quarter, largely driven by increase in operating expenses and the time -- previously mentioned timing of corporate health expenses. Net loss for the quarter was minus $5.4 million or $0.11 per share, but includes $2.1 million or $0.04 per share of share-based comp and onetime items. MCI exited the quarter with $10 million of cash and nothing drawn on its revolving credit lines. The decline in cash was driven primarily by $1.2 million used in operations, $6.3 million invested largely due to the acquisition of Polyclinic and $2.2 million for -- in financing -- was used in financing activities, approximately $900,000 from stock buyback and then higher net lease payments associated with the assumption of the Polyclinic leases. I'll close with a very brief outlook. We remain optimistic about revenue growth for acquisitions and the ability to deliver on organic growth and growth from revenue synergies with recently acquired companies. In fact, we're already experiencing network revenue synergies and data-driven revenue from MCI Polyclinic and Khure Health, which illustrates that the investment in operations to support these growth initiatives has begun to pay off. As such, and further to Alex's comments, we would expect revenue growth to outpace cost and expenses in 2022, resulting in higher gross and EBITDA margins. We will also expect to return to cash flow positive in 2022. With that, I'll turn it back to the operator. So Jeff, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Doug Taylor from Canaccord Genuity.

I want to ask a question about the last comment you just made there about returning to free cash flow positive in 2022. Are you talking about annually for the year? And is that we should expect to, over the course of the year, be back end loaded?

Yes. Sure. Yes. It'll happen over the course of the year and for the full year, to answer your question directly, Doug. And it will ramp through the year as the revenue grows and the synergies grow.

Okay. That's good to hear. Obviously, the impact of the pandemic on walk-in traffic to physical locations continues to drag on. I wonder if I could get you to comment on what your expectations are around the growth you expect in the first half of next year and that cash flow projection, positive cash flow projection. What your assumptions are around the mix of traffic and the return of traffic into your physical locations?

Yes. Sure, Doug. Thank you very much for the question. With regards to the effect of the pandemic and patient volumes, we're -- and I think this isn't, by any means, news to anyone, but there's a lot of -- a real lot of pent up, there's a backlog of demand for in-person clinical [ access ]. So we're going to continue to see, and we're expecting to see patient volume growth as we not only see the patients that we need to see day to day, but actually make up for some of that backlog and continued growth on our virtual care and telehealth channel, too, as demand for these services also continues to increase.

Yes, volumes have almost recovered at this point, which is pretty much what we had said during the IPO roadshow last year. So by the end of the year, we should be back there. And that's despite the ebbs and flows of COVID.

And are you talking about combined volume from virtual and in-person? Or are you talking about in person by itself?

It's across network, but definitely seeing further strengths in the clinics. And it's what Alex described, there's just a pent-up demand and backlog of in-person visits there. I think the [ province ] is estimating 20 million in-person visits that are needed.

Okay. One final question from me. You certainly allude in your prepared remarks and in your release today about the potential for additional M&A and potentially sizable in the near term. I wonder if you'd talk through what you -- I guess I'd like to ask about how you feel about your ability and your preferred methods of financing that M&A, given the current balance sheet and resources available to you.

So the M&A strategy hasn't changed. It's got to make sense with the overriding strategy of building up the high-performance network and supporting the data initiatives, and the methods of financing, still similar because it's -- on the clinic side there, it's got to be supported with EBITDA. And if it's supportable with EBITDA, then there are a range of options that are available to us outside of common equity in the debt markets.

[Operator Instructions] Your next question comes from the line of Mike Stevens from Echelon Capital.

Congrats on your quarter. I was just kind of wondering with your comments about the volumes getting to where they were pre-COVID, and then you think about the 50% that is virtual. I think you previously spoke to excess capacity and strategies around that going forward. I'm just wondering if there's any insight on those developments or what you guys are seeing over the next year plus?

Yes. Thank you, Mike. Thanks for the question and for joining the call. And so yes, with virtual care, right, and now that means sustained demand for that avenue for the patients to communicate with doctors and staff. I mean it opens up a whole host of opportunities of reutilization, the brick-and-mortar space, and we're currently evaluating these things. But long story short, there are a tremendous amount of efficiency that can result from this change in patients and doctor behavior. And we're making plans to make sure that we can optimize on these changes, and that'll be reflected in how we move forward through the coming quarters.

Okay, great. And on to your Khure Health, the contract that you guys secured. Like, I know you guys discussed previously integrating brightOS into that platform. Is there any insight as to securing that contract? Is that -- brightOS included in that? Or is it still kind of being weaved in? And what kind maybe trajectory are you thinking for these data revenues in 2022, if you had a ballpark type of target that you're going after?

Yes. Hey, look, Mike, thanks for that question, too. So I'll answer the second part first, really, whereas we've spent considerable time and resources this year preparing our foundation so we can grow and focus on these technology and data initiatives further and continue to grow in 2022 and really accelerate in that domain. And to answer your first question, so brightOS is a supportive platform, right, a supportive data analytics platform where we enable, for instance, the growth of Khure Health and support, not just Khure, but on a number of other data-driven initiatives and namely another one is on our ability to help identify and stratify patients for clinical trial recruitment. So you can picture brightOS as the backbone that allows us to execute on a number of data-driven initiatives that are both commercial and clinically valuable.

Okay, great. And for your corporate health, I know Scott had mentioned a rev rec issue in the quarter that will be moved into Q4. I'm just wondering, in terms of your 2022 outlook, you guys mentioned expansion geographically. Yes, where are you seeing that growth in corporate health in relation to 2021? And in what areas would you maybe see it? And also, I think a lot of the growth so far has been organically. I'm wondering if there is any thoughts about inorganic growth in that space.

Sure, Mike. So definitely, you've got growth around the clinics in Alberta and Calgary, you've got national rollout. And then as you might know from prior calls, it's about land and expand. So you're typically called in to do X, Y, Z, and then you get in there and they're happy with the service. And it's, "What else can we do for you?" And there's so many different types of services depending on what the customer desires and what we can do for the customer that are there. So that strategy really is the same in '22 as at '21. It's just geographically, a lot larger. In terms of your question on M&A, yes, there are M&A opportunities in corporate health out there. And it's the same thing as it is with the other health services, which is let's find the gaps in where we are today and see if we can't fill them or if we're -- if we have an opportunity to enhance what we already have, we look at that as well.

Awesome. And one last one, if I can just sneak one in. Your -- given that mental health is so top of mind, I haven't seen much in your press release or notes about Terrace Wellness. I remember you guys made that acquisition earlier this year. And I was just wondering if -- how is that progress tracking? Have you've been able to kind of incorporate it into your corporate health services? Or what's been happening with that business? And what do you -- are you still seeing a lot of opportunity there?

Yes. No, thanks, Mike. And just to, just a point of clarification that we didn't acquire Terrace Wellness Group. We had signed a letter of intent. And after further and deeper due diligence, it didn't really match up to our expectations. So we're right now evaluating a number of different opportunities on the mental health front. And echoing your sentiment, it's such an important part of community care. So we are looking to make an impact there in a big way. But really, I guess my answer there is stay tuned and we'll have something coming soon.

There are no more questions at this time. Presenters, please continue.

Yes, thank you. Just finishing with the concluding set of remarks here, because with the accomplishment of our recent acquisitions and now with continuing technology and data-driven revenues, our transition from a traditional care service delivery model to one that is more personalized, holistic, and of course importantly, data and technology-driven is well underway. Our outlook remains, as Scott and I have shared highly positive across all our business units. And to summarize, we have a growing base of higher-margin revenue, ongoing growth of our corporate health channel, accelerating growth in technology initiatives, and we continue to have a very strong balance sheet. And critically, wanted to highlight a very exciting pipeline of business development opportunities. I'd like to thank everyone for joining us on this call today, thank our investors and our shareholders for their support. And also like to thank my executive team, management teams and all of our employees and clinical staff for their ongoing and continued efforts. Thank you very much, everyone, for attending and listening to this Q3 results of 2021.

Thanks, everybody.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.