Skylight Health Group Inc. (NASDAQ:SLHG; TSXV:SLHG) (“Skylight
Health” or the “Company”), a multi-state primary care management
group in the United States, today announced its financial results
for the first quarter ended March 31, 2022.
- Strong revenue growth of 255% Year
over Year through the continued acquisition of primary care
practices.
- Accelerates its 3-5 year journey to
Medicare Advantage (“MA”) full risk into 2022 with the acquisition
of NeighborMD (“NMD”) and the joint venture (“JV”) with
Collaborative Health Systems (“CHS”).
- Over $70 million revenue run rate
on a proforma basis with the acquisition of NMD and before any
revenue synergies from new MA contracts within current
practices.
- Closes a US $20 million credit
facility with US $10 million remaining and an additional $4.2
million in cash at the end of the first quarter.
“We are pleased to continue executing against
our business model into 2022,” said Prad Sekar, CEO and Co-Founder
of Skylight Health, “Over the past 18 months, Skylight has seen
transformative growth in annualized revenue from $13 million to
over $70 million on a proforma basis today. As we continue to focus
on integration and leveraging the revenue and cost synergies
between our assets, we are very focused on a pathway to
profitability. Based on performance today, the practices remain
profitable from an operating model. Corporate and administrative
expenses related to the public market listings and integrations
have been the primary contributors to a negative EBITDA, and we
have since seen the majority of these costs decrease over the past
few months. We project expenses, on a proforma basis, to be 40-50%
lower than this reported quarter, as we continue to find further
cost and revenue synergies.”
Financial Highlights:
- Revenues for the quarter were
$7.7 million, compared to $2.7 million for Q1 2021
(excluding revenue from discontinued operations of
$2.8 million), an increase of $5.0 million, and down 18% from
the previous quarter. The reduction in revenue can be attributed to
two primary reasons, the implementation of a new electronic medical
record system (“EMR”) and secondly, the reduction in urgent care
visits as COVID-19 cases reduced within the markets;
- Gross profit was $3.4 million
for the quarter, compared to $1.2 million for Q1 2021
(excluding gross profit from discontinued operations of
$2.2 million), an increase of $2.2 million and down 36% from
the previous quarter;
- Gross margin was 44% for the
quarter, compared to 55% for Q1 2021 (discontinued operations gross
margin of 77%) and 57% in the previous quarter. The Company expects
to see this number improved in the upcoming quarters as it
transitions to higher value-based care (“VBC”) models which will
yield a higher gross margin;
- Adjusted EBITDA loss of $6.7
million in the quarter compared to loss of $1.9 million in Q1 2021,
driven by net loss and compared to loss of $5.1 million in the
previous quarter. Majority of these expenses were related to one
time integration and platform development costs. The Company has
already seen a significant reduction in these expenses resulting in
an expected EBITDA improvement from this period onwards;
- Loss from continuing operations in
the quarter was $7.6 million, with approximately $1.7 million in
share-based compensation and depreciation and amortization and $1.0
million in professional fees related to accounting, legal and
consulting fees;
- Cash balance of $4.2 million as of
March 31, 2022, not including the remaining US $10 million debt
facility.
Operational Highlights:
- The launch of Athena Health EMR
across all practices providing a strong foundation to manage
practices across multiple markets efficiently and track operations
and revenues.
- Establishment of a centralized
dashboarding and reporting platform to provide key performance
indicators across multiple stakeholders in the organization,
pulling data from Athena, financials and accounting systems and
other applicable applications.
- Initiated multiple cost saving
initiatives driven by centralized system opportunities to benefit a
positive contribution from existing practices and realize over a
40-50% savings at a corporate level on a proforma basis.
- Entered into a JV partnership with
CHS, a population health management services organization and
wholly owned subsidiary of Centene Corporation (NYSE: CNC), to
integrate essential VBC services and contracts into Skylight
Health’s growing enterprise of primary care practices.
- Closed on the acquisition of NMD,
to add 9 new practices in the Florida market, and enter full risk
on 2,400 Medicare Advantage lives with Humana and CarePlus.
Purchase price consideration was $10.2 million (US$ 8.0 million)
for an annualized revenue contribution from NMD of an estimated US
$35 million.
- Closed a $25.5 million (US$ 20.0
million) debt facility with FLC Credit Partners (“FLC”), a New York
based lender. Post the closing of NMD, the Company still has $12.8
million (US$ 10.0 million) available in the facility. With the JV
and NMD acquisition in place, the Company is now ready to begin
transitioning Medicare Advantage lives within its current
practices, realizing a growth of US $200-$400 to US $10,000 -
$12,000 per member per year under current capitated payor
contracts.
First Quarter Performance:
Q1 2022 was an extension of efforts from 2021
and 2020 from both a healthy and robust market for raising equity
and opportunities for acquisition. As previously communicated in
the last earning call, integration of systems, resources and
technology continued through to the end of Q1 2022. Costs and time
associated with these integrations have now largely been realized,
and the Company has already begun efforts to remove any related
expenses. Further, the Company expects that synergies and
efficiencies from a more robust unified platform will allow for
further savings. On a proforma basis, the Company estimates that
improvements to its current operations will result in a 40-50%
reduction in costs compared to this reporting period. This will
lead to a reduced cash burn as the Company continues to work
towards a pathway to profitability.
Revenue was down 18% from the previous quarter
increased 255% compared to the three months ended March 31, 2021.
The reduction in revenue can be attributed to two primary reasons,
the implementation of a new electronic medical record system
(“EMR”) and secondly, the reduction in urgent care visits as
COVID-19 cases reduced within the markets.
The launch of Athena Health, the EMR chosen to
be rolled out Nationally, will lead to significant improvements in
the operations and management of practices across multiple markets.
As with any new software used at the point of care, training and
new users will lead to reduced patient volume. This reduction is
only temporary and since the launch in February and March, patient
volumes in the primary care space have already returned to expected
levels. The reduction in volume due to lower number of patients
seeking care due to COVID-19 testing and affiliated symptoms is
resultant of an improved health climate. This is a trend that
affects all healthcare organizations across the country. Since the
reduction in these office visits, the Company has begun to see an
increase in primary care visits where patients looking to avoid
unnecessary exposure are now returning for standard care
treatments. The Company expects that as this trend normalizes in
the coming quarter, the need for primary care will continue to
increase. The Company is well positioned to meet this demand of
patients and see continued growth.
However, Q1 2022 continued to be a challenging
period for companies looking to raise additional capital due to
macro factors affecting investors and the healthcare sector,
similar to 2021. While markets have remained volatile, the Company
has been limited in its ability to raise capital to support future
acquisitions. While the pipeline continues to remain robust, these
market forces have affected its ability to drive additional growth
by way of acquisition, as part of a plan communicated in 2021.
The Company is excited to be able to communicate
that over the last 6 months, its efforts to build a foundation to
successfully integrate the practices that were acquired will lead
to positive growth in the coming quarters and years. This
foundation now presents a platform upon which patient growth, and
transition to value can be established upon.
To expand on its journey to value, the Company
has made two major subsequent announcements. The first was the
completion and launch of a JV with CHS, a wholly owned subsidiary
of Centene Corporation, a top national healthcare payor in the US.
CHS along with Skylight, through the JV, will begin VBC
contracting, and execution against these contracts. The strength
that CHS brings in addition to its many years successfully managing
and winning savings in the Medicare and Medicare Advantage space,
will be its infrastructure and resources to support Skylight's
journey. Skylight brings to the relationship, a partner committed
to VBC, and a platform to rapidly grow the number of practices and
patient panels to support these efforts. Together, the JV will mean
significant growth opportunities as VBC care contracts can
transform revenues and EBITDA contribution with its improved
economic structure.
Secondly, the Company recently completed the
acquisition of NMD, a primary care group in Florida that has over
2,400 Medicare Advantage ("MA”) lives at full risk through its 9
owned practices and an affiliate network. Contracted currently with
Humana and CarePlus, NMD enables Skylight to accelerate its journey
to value by establishing itself as a full risk player in the MA
category in one of the fastest growing Medicare markets in the
Country. Skylight is now able to leverage these contracts to
support the expansion of programs to its Jacksonville market and
leverage these skills and expertise to bring VBC to its other
markets. With the NMD team, Skylight also welcomes over 5 years of
experience in managing risk successfully and adding to its core
capabilities. Under these contracts, Skylight will be able to
recognize a fully capitated revenue model of between US $10-$12K
per member per year as compared to the US $200-$400 per member per
year in fee-for-service revenue. This transformative acquisition
will bring significant growth to the top-line but also organic
growth as the Company expands these plans to its other markets.
Additionally, the capabilities through NMD and with the JV, allow
Skylight to be well positioned to introduce other MA risk plans,
thereby opportunities to further grow its patient panel.
While equity markets remain challenged due to
macro conditions affecting the second half of 2021 and into 2022,
the Company has been working diligently in 3 key areas: integration
and implementation of infrastructure to support a profitable
enterprise, continued diligence on key strategic acquisition
opportunities while sourcing access to capital through non-dilutive
alternatives, and lastly developing and building on partnership
opportunities to establish a framework and entry for VBC in 2022.
The private market for healthcare growth companies remains ripe for
strategic investment with partners who share our long-term vision.
While the Company has seen a slower trajectory to growth, this is a
result of the Company’s focus in adapting to changing market
conditions rather than a change in strategy in any capacity. The
Company remains confident in its ability to acquire accretive
revenue while continuing to grow organically, and will aim for
transparency in keeping investors informed of its progress.
A large portion of the capital and operational
costs over the last year represented investments in infrastructure
in order to facilitate the integration of independent primary care
practices as well as the progression towards VBC. The Company
believes it has since surpassed expectations in this timing and
will continue to diligently reduce costs with the goal of breaking
even by the end of 2022.
Several large-scale initiatives that were
executed through 2021 and into 2022 included the integration of
technology systems in human resources, payroll, electronic health
records and the implementation of improved benefits and insurance
programs. These initiatives, while an investment in 2021 and early
2022, will lead to improved cost synergies and savings while
driving future revenue growth through better practice
management.
Each of these programs has now been executed and
the Company is starting to see immediate improvements to its annual
expenses under each of these initiatives. These initiatives will
also support the implementation of business development activities
which the Company has outlined as its priorities for 2022. These
include a national contact center to boost patient access, improve
service and drive revenue growth, in-house revenue cycle
management, improved payor contract negotiations and the ability to
better identify the shift to VBC care under certain payor
agreements.
While the Company saw a reduction in revenue and
contributing EBITDA from the divestiture of the legacy business in
2021, it expects to be able to continue to focus on its core
primary care business and execute against its organic growth plan
to boost annual revenues in its primary care business line. The
shift to value in 2022, is also expected to boost annual per
patient revenue both by way of increased fee-for-service rates as
well as quality and outcome-based payments.
Skylight has seen a significant rise in expenses
in the following major categories: salaries and wages, office and
administration, professional fees, marketing activities and
depreciation and amortization as a result of eight clinical
acquisitions made since Q4 2020. Our commitment to centralizing
shared services will help create offsets allowing the Company to
realize economies of scale. As the Company is in rapid growth mode
driven by both an aggressive mergers & acquisition strategy and
a future focus on organically shifting to VBC reimbursement models,
additional investments in these areas enable the development of
core competencies to realize stronger future growth potential met
with higher value payor contracts.
During the three months ended March 31, 2022,
the items above totaled $10.5 million (three months ended
March 31, 2021: $3.9 million). The Company bolstered its
operational teams in the areas of clinical leadership, marketing,
revenue cycle management, operations & integrations, and payor
contracting. As the Company will continue to grow key team members,
it is in a strong position today to begin integrating and preparing
acquired practices towards the transition to VBC models.
The increase in salaries and wages during the
three months ended March 31, 2022 is connected to the recruitment
of key leadership, management and operational hires. This increase
is also connected to focused short-term hires related to
infrastructure buildout, such costs and expenses are expected to be
eliminated as the Company completes execution of these one-time
infrastructure initiatives. On a going forward basis, the Company
expects to see further option issuances to employees as part of its
human capital investment. Aligning employees to the growth of the
Company is a strong differentiator and ensures a shared approach to
driving shareholder value.
The increase in office and administration
expenses during Q1 2022 versus Q1 2021 is related to the growth of
the business due to the numerous acquisitions completed from Q4
2020 to Q3 2021, with increases to insurance, dues, and
subscriptions also contributing. Compared to Q4 2021, office and
administration remained at similar levels. The increases in
professional fees and marketing fees during the Q1 2021 versus Q1
2021 mainly related to fees associated with the acquisition of new
clinics during 2021. Compared to Q4 2021, professional fees and
marketing fees have remained at similar levels.
The Company expects going forward that most
investments made during the three months ended March 31, 2022 and
the year ended December 31, 2021 will result in both a higher
growth of revenue driven organically and by acquisition but will
also result in a stronger EBITDA recognition. The Company is
focused on revenue growth which it believes is how its peers are
measured and expects to compete aggressively for market share
growth. Further, as the Company advances its participation in VBC
programs, it expects to see increased expenses in the near term
which will be offset by the expected growth in revenue through
shared savings and more economical payor agreements.
The Company continues to demonstrate its
capabilities to not just acquire but integrate and manage practices
under its umbrella. Further, while the Company continues to drive
top line growth, it will continue to work to create opportunities
for organic revenue and cost synergies.
With a robust acquisition pipeline, experienced
operational team, existing contracts for Medicare and managed care
patients, and an active market to support organic growth to VBC,
the Company believes it is well positioned for growth in the coming
quarters.
The Company is also pleased to announce that its
research division continues to see growth and future opportunities.
Having already surpassed 2021 revenue in the first 5 months of
2022, the Company is seeing growth from both revenue and adoption
of the program with its sponsors. The unique ability for an
organization such as big pharma or biotech to leverage patient
access and clinical support through one organization, enables
Skylight to be a differentiator in the market and attract ongoing
study proposals. As the Company is now already engaged in 10 active
studies across 5 of its practices, it expects to increase the
number of research sites and studies ongoing. The costs for running
the research department are largely already realized within the
practices. This maximizes the margin contribution from research and
the Company expects this to support future growth of EBITDA and
cash-flow.
Outlook
2022 Financial Performance Outlook:
Over the past 18-24 months, the Company has seen
growth in annualized revenue from $13 million in revenue to over
$70 million on a proforma basis today. As the Company continues to
focus on integration and leveraging the revenue and cost synergies
between its assets, it is also focused on a pathway to
profitability. Based on performance today, the practices remain
profitable from an operating model and where corporate and
administrative expenses related to the public market listings and
integrations have been the primary contributors to a negative
EBITDA. Like with all integration efforts, the Company has seen a
major cost reduction over the past few months and projects on a
proforma basis, to be 40-50% lower than this reported quarter. With
further synergies in the pipeline and improvements to revenues
organically through MA contracting and other efforts, the Company
expects to continue working towards a pathway to profitability.
The Company closed the quarter with $4.2 million
in cash and a new debt facility which has $12.8 million (US $10.0
million) remaining to be drawn down. The Company remains committed
to focusing on a positive bottom line, while minimizing the need
for external capital. With the acquisition of NMD, and its JV with
CHS, it expects to be able to begin recognizing revenue synergies
in 2022 as it begins to onboard new MA members within its existing
practices. This will allow the Company to focus on growing the
revenues organically, improving contribution to the bottom
line.
With the acquisition of NMD, the Company has now
entered total cost of care or full risk contracts for MA in the
state of Florida, which was originally planned for 2025. An
important consideration for growth and margin recognition will be
further explained in the Q2 MD&A segmentation of revenue. A
full capitated risk contract reimburses the Company a fixed per
member per month fee that is aligned with the condition(s) of a
patient population within the group. This aggregation of
conditions, or otherwise known as a risk score, determines the
capitated amount. A higher risk score can mean a patient that
requires more intervention and thus a higher fee. The capitated fee
or benchmark can vary but Skylight can expect an average of US
$10,000 – US $12,000, per member per year. The gross margin or
contribution to Skylight is based on the benchmark minus the
medical costs attributed to the patient during a given term. Gross
margins in full risk models will generally be much lower than in a
fee for service model as it is expected to be net of all medical
expenses. However, the dollar value realized can be substantially
higher. By accurately coding for risk score, and managing patient
expenses, the contribution to a practice can be dramatically
improved, maximizing the EBITDA contribution post clinical
expenses. Prior to the acquisition, NMD has continued to operate in
a surplus and Skylight expects this will continue to be the case
post acquisition. Further, through the JV, the Company expects to
further improve on the KPI's to increase contribution from the
current plans.
Q1 2022 Financial Highlights**
(in 000s of dollars) |
Three months ended |
|
March 31, 2022 |
December 31, 2021 |
March 31, 2021 |
Revenue |
7,713 |
9,409 |
2,174 |
Cost of sales |
4,285 |
4,082 |
974 |
Gross profit |
3,428 |
5,327 |
1,200 |
Total operating expenses |
11,009 |
12,983 |
4,936 |
Loss from continuing operations |
(7,581) |
(7,656) |
(3,736) |
Net loss from continuing operations |
(8,303) |
(8,187) |
(3,254) |
Net income from discontinued operations |
– |
5,931 |
857 |
Net loss |
(8,303) |
(2,256) |
(2,397) |
Adjusted EBITDA* |
(6,673) |
(5,075) |
(1,877) |
*Adjusted EBITDA is defined as earnings before
interest, tax, depreciation, and amortization, adjusted by
significant nonrecurring, nonoperational expenses and partially
offset by the cash impact of certain accounting treatments during
the period. Please see the Company’s Management Discussion &
Analysis for a detailed reconciliation to loss from continuing
operations.
** Certain prior period financial information on
the consolidated statements of loss and comprehensive loss, and
consolidated statements of cash flows have been updated to present
the Legacy Business as discontinued operations and has therefore
been excluded from continuing operations for all periods presented
in this MD&A. This press release reflects only the
results of continuing operations, unless otherwise
noted.
Conference Call Details
The Company will host a conference call at
8:00am EDT on the morning of May 17, 2022 to discuss the financial
results. If you would like to participate in the call, details can
be found below. Please dial in approximately 10 minutes prior to
the start of the call. An audio replay of the conference call will
be available on www.skylighthealthgroup.com within 24 hours
after the live call has ended. within 24 hours after the live call
has ended.
Date: |
May 17, 2022 |
Time: |
8:00am Eastern |
US/Canada Toll Free Dial In: |
1-800-319-4610 |
Toronto Local Dial In: |
416-915-3239 |
International Dial In: |
+1-604-638-5340 |
Call Name: |
Skylight Health Group First Quarter 2022 Financial Results |
ABOUT SKYLIGHT HEALTH GROUP
INC.
Skylight Health Group (NASDAQ:SLHG; TSXV:SLHG)
is a healthcare services and technology company, working to
positively impact patient health outcomes. The Company operates a
US multi-state primary care health network comprised of physical
practices providing a range of services from primary care,
sub-specialty, allied health, and laboratory/diagnostic testing.
The Company is focused on helping small and independent practices
shift from a traditional fee-for-service (FFS) model to VBC through
tools including proprietary technology, data analytics and
infrastructure. In a FFS model, payors (commercial and government
insurers) reimburse on an encounter-based approach. This puts a
focus on volume of patients per day. In a VBC model, payors
reimburse typically on a capitation (fixed fee per member per
month) basis. This places an emphasis on quality over volume. VBC
will lead to improved patient outcomes, reduced cost of delivery
and drive stronger financial performance from existing
practices.
For more information, please visit www.skylighthealthgroup.com
or contact:
Investor Relations:
Canadian Investors
Jackie
Kelly investors@skylighthealthgroup.com 416-301-2949
Currency Usage, Cautionary and Forward-Looking
Statements
All currency contained in this Press Release represent Canadian
Dollars unless otherwise stated.
Statements in this news release that are
forward-looking statements are subject to various risks and
uncertainties concerning the specific factors disclosed here and
elsewhere in Skylight Health's filings with Canadian and United
States securities regulators. When used in this news release, words
such as "will, could, plan, estimate, expect, intend, may,
potential, believe, should," and similar expressions, are
forward-looking statements.
Although Skylight Health has attempted to
identify important factors that could cause actual results,
performance or achievements to differ materially from those
contained in the forward-looking statements, there can be other
factors that cause results, performance or achievements not to be
as anticipated, estimated or intended, including, but not limited
to: the ability of Skylight Health to execute on its business
strategy, continued revenue growth in accordance with management’s
expectations, operating expenses continuing in accordance with
management expectations, dependence on obtaining regulatory
approvals; Skylight Health being able to find, complete and
effectively integrate target acquisitions; change in laws relating
to health care regulation; reliance on management; requirements for
additional financing; competition; hindering market growth or other
factors that may not currently be known by the Company.
There can be no assurance that such information
will prove to be accurate or that management's expectations or
estimates of future developments, circumstances or results will
materialize. As a result of these risks and uncertainties, the
results or events predicted in these forward-looking statements may
differ materially from actual results or events.
Accordingly, readers should not place undue
reliance on forward-looking statements. The forward-looking
statements in this news release are made as of the date of this
release. Skylight Health disclaims any intention or obligation to
update or revise such information, except as required by applicable
law, and Skylight Health does not assume any liability for
disclosure relating to any other company mentioned herein.
Non-GAAP Financial Measures
This Press Release contains references to EBITDA
and Adjusted EBITDA. These financial measures are not measures that
have any standardized meaning prescribed by IFRS and are therefore
referred to as non GAAP measures. The non-GAAP measures used by the
corporation may not be comparable to similar measures used by other
companies. EBITDA is defined as “income (loss) before interest
expenses, taxes, expenses related to listing on the Canadian
Securities Exchange, depreciation, foreign exchange and financial
expenses.
Adjusted EBITDA excludes the effect of
share-based compensation expenses and related payroll taxes as well
as removes substantial one-time costs for unusual business
activities. Additional discussion on this can be found in the
Skylight Health Management Discussion and Analysis filed on
SEDAR.
The Company uses these non-GAAP measures because
they provide additional information on the performance of its
commercial operations. Such tools are frequently used in the
business world to analyze and compare the performance of
businesses; however, the Company’s definition of these metrics may
differ from those of other businesses. Skylight Health will, at
times, use certain non-GAAP financial measures to provide readers
with additional information in order to assist investors in
understanding our financial and operating performance. Skylight
Health believes that these non-GAAP measures provide readers with
useful information about the Company’s operating results, enhance
the overall understanding of past financial performance and future
prospects, and allow for greater transparency with respect to key
metrics used by management in its financial and operational
decision making.
Such non-GAAP financial measures should be
considered as a supplement to, and not as a substitute for, the
corresponding measures calculated in accordance with IFRS. See the
Company’s unaudited Financial Statements for a reconciliation of
the non-GAAP measures.
Neither the TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in the
policies of the TSX Venture Exchange) accepts responsibility for
the adequacy or accuracy of this release.
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