UpHealth, Inc. (NYSE:UPH) This autumn 2022 Earnings Convention Name March 2, 2023 8:30 AM ET
Firm Members
Shannon Devine – Managing Director, MZ North America
Samuel Meckey – Chief Govt Officer
Martin Beck – Chief Monetary Officer
Convention Name Members
Mike Latimore – Northland Capital Markets
Operator
Greetings, and welcome to the UpHealth Fourth Quarter 2022 earnings convention name. Presently, all contributors are in a listen-only mode. A quick question-and-answer session will observe the formal presentation. [Operator Instructions] As a reminder, this convention is being recorded.
It’s now my pleasure to introduce your host, Shannon Devine. Thanks. It’s possible you’ll start.
Shannon Devine
Thanks, operator. Throughout at present’s name, administration will probably be making forward-looking statements. Please confer with the corporate’s SEC filings together with the corporate’s annual report back to be filed on Type 10-Okay earlier than the tip of March for a abstract of the forward-looking statements, the dangers, uncertainties and different components that would trigger precise outcomes to vary materially from these forward-looking statements.
UpHealth cautions buyers to not place undue reliance on any forward-looking statements. The corporate doesn’t undertake and particularly disclaims any obligation to replace or revise these statements to replicate new circumstances or unanticipated occasions that happen besides as required by regulation.
All through the decision at present, we’ll confer with professional forma revenues, professional forma gross margins, and adjusted EBITDA. These metrics should not decided in accordance with GAAP and, subsequently, are vulnerable to various calculations. Definitions, calculations, and reconciliations to the monetary statements of those non-GAAP measures might be discovered within the tables included in our press launch. We imagine these non-GAAP measures of UpHealth monetary outcomes present helpful data concerning sure monetary and enterprise developments and the outcomes of our operations.
I’ll now flip the decision over to Sam Meckey, UpHealth’s Chief Govt Officer. Sam?
Samuel Meckey
Thanks, Shannon, and good morning, everybody. Thanks all for becoming a member of us at present. A lot has occurred since I first joined the corporate in July of 2022. Once I first addressed you, I used to be merely weeks into my tenure as UpHealth’s new chief. I used to be optimistic about UpHealth’s mission to allow prime quality, reasonably priced, and accessible healthcare for all. The excellent news is that 8 months later, I’m much more obsessed with our mission and stay optimistic about our firm’s capacity to reach this area.
Throughout that first name, I dedicated to increasing upon my preliminary impressions of UpHealth by the tip of the 12 months, commenting on what I believe the main target areas will probably be going ahead. And after our full 12 months outcomes, I stated we are going to discuss by means of in additional element about our strategic imaginative and prescient and the way they may drive ends in 2023 and past.
As we speak, I’d prefer to develop upon my preliminary impressions of UpHealth, touch upon what occurred within the second half of 2022, significantly within the fourth quarter, and start to touch upon the beginning of 2023. We shared 2023 steerage in at present’s earnings launch, and Martin will develop on this in his feedback.
Since we first met, I’ve spent an excessive amount of time diving deeply into our enterprise. I’ve visited with our prospects, our workers, our buyers, our analysts, our companions, and the individuals whom we now have the respect to serve. It was instantly obvious that there was work to be achieved to enhance the state of the enterprise. Previously 8 months, I hung out immersing myself in all elements of UpHealth and conducting an exhaustive evaluate of the enterprise and our leaders.
As I reviewed the asset combine, we set a aim to make sure that we’re getting probably the most out of our companies. It was crucial to grasp what was working nicely and what we would have liked to rationalize. My aim is to set the stage for UpHealth to ship persistently in opposition to our commitments, respected income, which is rising appropriately, and changing earnings to optimistic free money circulation.
In early 2022, we targeted on constructing a cohesive technique and a plan to make UpHealth’s imaginative and prescient a actuality. We bolstered our fascinated with Digital healthcare, Built-in Care, and Worldwide as key areas of focus. We adopted a 2-pillar strategy to development, investing and rising our present capabilities, and integrating our capabilities to resolve our purchasers’ most complicated issues.
Our preliminary thesis and strategic pivot in early 2022 have been good or confronted with vital challenges. Our development ambitions required extra capital than our price range allowed, resulting in overly optimistic income targets additional impacted by the evolving broader market surroundings. Important contracts, significantly in Europe and Africa, didn’t materialize. The know-how integration was extra sophisticated than anticipated. And, lastly, authorized points and shareholder activism consumed sources, additional limiting our capacity to execute on our technique.
Moreover, market circumstances modified. Inflation and recession fears slowed investments. Labor shortages proceed throughout healthcare post-pandemic, and our prospects, significantly payers and suppliers, are struggling to drive efficiency on this more and more altering macroeconomic surroundings.
That’s not to say that we solely see headwinds. Many issues are going nicely for UpHealth. Our fourth quarter and full-year outcomes are notable. Income for the fourth quarter of 2022 elevated 19.5% to $40.5 million in comparison with revenues for the fourth quarter of 2021 of $33.9 million.
Adjusting for the deconsolidation of Glocal, fourth quarter 2022 revenues elevated 32% to $40.5 million in comparison with $30.7 million within the fourth quarter of 2021. Gross margin expanded to 45% from 18% within the fourth quarter of 2021. The This autumn 2021 gross margin was extraordinary, as a result of it included the popularity for varied bills and built-in care administration with out the good thing about corresponding income recognition.
GAAP income for the 12 months ended December 31, 2022, was $158.8 million, a 28% improve in comparison with GAAP revenues for the 12 months ended December 31, 2021, of $123.8 million and a 7% improve in comparison with professional forma revenues for the 12 months ended December 31, 2021 of $148.9 million. Gross margin for the 12 months ended December 31, 2022, expanded to 44% in comparison with professional forma gross margin of 33% within the comparable year-ago interval.
Moreover, a number of of our enterprise segments had superb years. Our U.S. Telehealth enterprise, exceeded its income and margin objectives for the 12 months and achieved document minute [ph] development. We had sturdy EBITDA margin development in IGI, and our Behavioral Well being providers enterprise additionally outperformed its targets. And we not too long ago handled our 10,000th shopper and continued to develop our work with veterans and first responders.
We served our long-term prospects within the state of California, delivering knowledge integration and interoperability for two of probably the most vital counties within the state. And we stand dedicated to executing extra enterprise and deepening {our relationships} for mutual development.
We achieved over $2 million of financial savings from G&A consolidation and over $1.5 million of financial savings from exterior spend reductions as a part of our integration and transformation work. However the truth stays that regardless of all the good issues we achieved, we missed our targets.
What all of this implies for UpHealth is that we’re in a unique place at present. Due to this, we’re recalibrating our enterprise. We’re specializing in fewer goals. Now we have acknowledged the macroeconomic realities of the market, and we’re responding to them accordingly. We’re decreasing our money burn charge, investing correctly, and enhancing our working self-discipline. We are going to stabilize and speed up the expansion of our core performing companies, and we are going to shut down any initiatives and companies that aren’t working.
Our goal is to maneuver as rapidly and as effectively as potential, figuring out the areas of the enterprise that aren’t according to our go-forward strategic imaginative and prescient of constructing a completely built-in platform to drive development past 2023.
Earlier this week, we introduced that we reached a definitive settlement to divest Improvements Group Included, our compounding pharmacy enterprise to Belmar Pharma Options. We think about the sale of IGI the leaping off level for our recalibration 12 months. We’re targeted on rightsizing the group. We diminished headcount by over 6% since August.
Now we have decreased contractor spend, and we are going to proceed to cut back our SG&An additional by means of the primary quarter. We accomplished an intensive strategic enterprise evaluate of all UpHealth enterprise strains, and we narrowed our focus to these companies that current the most important alternative: Telehealth, which is a part of the Digital Care Infrastructure phase; Behavioral Well being, which is a part of the providers phase; and Built-in Care.
We labored extraordinarily arduous to find out our clear, achievable plan to show the corporate round. We created a 3-year plan that focuses on recalibrating the enterprise in 2023 and constructing and scaling for development in 2024. We are going to recalibrate the baseline of the enterprise this 12 months, and we search to double the dimensions of the enterprise inside 3 years. It’s a pragmatic and sensible strategy that acknowledges the fact of the markets we compete in, and it leverages correctly the capital on our stability sheet.
At this level, we now have touched on the place we began and the place we’re at present, however I’d prefer to spend a while on our strategic plan and near-term execution milestones. First, it’ll come to no shock that as a part of our strategic efforts, capital conservation is a prime precedence. Within the fourth quarter, we recognized extra value financial savings of $3 million, nearly all of that are being carried out within the first quarter of 2023.
These recognized value financial savings have been a direct results of restructuring the general enterprise based mostly on our present revenues and the visibility we now have into our near-term pipeline. We’re conserving capital as we work towards closing the sale of IGI, which is able to ship $56 million in gross proceeds to our stability sheet, guaranteeing our present capital wants are solidified.
Second, we are going to deal with the Telehealth, Behavioral Well being, and Built-in Care companies. This may require us to take a step again and guarantee we now have the required basis for a know-how and technology-enabled providers enterprise that may sustainably scale. Whereas we construct on our know-how basis in 2023, income development will probably be average, and we will probably be aggressively managing our money with the aim of working in the direction of delivering optimistic operational money circulation.
Lastly, whereas development is within the foreseeable future. We need to mood expectations and make sure the correct basis is constructed to set us up for go-forward success. Our breakout years will are available in due time. Helping and constructing the groundwork and liable for income, merchandise, and product advertising and marketing is our newly appointed Chief Progress Officer, Melissa Frieswick, who brings an amazing document of driving development throughout the healthcare continuum, bringing greater than 25 years of healthcare expertise to UpHealth.
Moreover, we employed Timothy Wilde, as our Chief Know-how Officer. He involves us with 30 years of expertise main enterprise transformations and revolutionary approaches to know-how. Lastly, we employed Dr. Mahesh Inder Veer Singh to guide UpHealth Worldwide. Mahesh started his profession as a working towards doctor and involves us with 25 years of expertise as a visionary and professional chief in well being administration.
Earlier than I flip the decision over to Martin, I need to thanks for persevering with with us on this journey. I absolutely respect and acknowledge your help and proceed to imagine there’s a shiny and memorable future for this firm. As evident first in our announcement with IGI, the recalibration right here is nicely underway, and we look ahead to persevering with to ship on our strategic plans and priorities and, most significantly, to delivering for our shareholders.
I’ll now flip the decision over to Martin to debate our monetary ends in element earlier than we open up the decision for questions. Martin?
Martin Beck
Thanks very a lot, Sam. We respect everybody becoming a member of us at present. Earlier than I start my evaluate of our 2022 outcomes, I need to first touch upon the presentation in our earnings launch because it pertains to the outcomes and comparability durations. Recall that we accomplished the merger transactions on June 9, 2021, and so it was solely from that day ahead that we now have consolidated outcomes that we are able to report and examine to on a GAAP foundation. 2022 is the primary full 12 months that UpHealth’s monetary statements will embrace all the companies mixed within the June 9, 2021 transactions.
As well as, we now have deconsolidated our Indian telehealth subsidiary, Glocal from our monetary reporting efficient July 1, 2022. So Q1 and Q2 of 2022 embrace the monetary outcomes of the Glocal enterprise and the U.S. Telehealth enterprise and our Digital Care Infrastructure group. Quarters 3 and 4 of 2022, embrace solely the U.S. Telehealth enterprise and our Digital Care Infrastructure phase.
We accomplished 2022 with revenues of $158.8 million, representing year-over-year development of 13% over our 2021 professional forma income numbers, excluding the Indian companies within the second half of each years. Gross margin for 2022 was 44% in comparison with 33% in professional forma 2021. In 2022, UpHealth recorded adjusted EBITDA of $3.3 million in comparison with 2021’s professional forma adjusted EBITDA of adverse $4 million.
The corporate’s year-over-year development in income, gross margin, and adjusted EBITDA represents sturdy progress in the direction of our objectives. However as Sam talked about, we now have extra work to do to achieve our aim of reaching optimistic working free money circulation.
UpHealth’s income for the fourth quarter of 2022 was $40.5 million and didn’t embrace any income from Glocal, our deconsolidated Indian telehealth subsidiary. This represents a 4.7% improve over Q3 2022 and a 32% improve over This autumn 2021 income, excluding Glocal. Gross margin for the fourth quarter was 45%, up barely from Q3. And the adjusted EBITDA was $1.9 million, up from adverse $1.2 million within the third quarter and adverse $13.8 million within the fourth quarter of 2021.
Taking a look at income breakdown by phase, Providers, which once more consists of our Pharmacy and Behavioral Well being companies, was the most important contributor to the corporate’s 2022 income with $75.8 million or 48% of the entire income. Within the fourth quarter, Providers represented $19.1 million or 47% of whole revenues. Providers income grew 17% from professional forma 2021 to 2022. IGI contributed roughly $32 million to UpHealth’s 2022 revenues, and we count on to acknowledge roughly 40% to 45% of that quantity in 2023, assuming a late Might closing of the sale transaction.
Digital Care Infrastructure, which for the third and fourth quarters, included solely the U.S. Telehealth enterprise and never the Indian enterprise, was subsequent with $65 million of income or 41% of the corporate’s whole 2022 revenues. U.S. Telehealth income grew from $15 million within the third quarter to $17.6 million in This autumn; and in This autumn, represented 43% of the corporate’s whole revenues.
The U.S. Telehealth enterprise grew roughly 58% from professional forma 2021 to 2022. The corporate’s income combine in 2022 continued to shift in the direction of the upper margin U.S. Telehealth enterprise, and we count on that pattern to proceed into 2023.
Built-in Care Administration, or ICM, had income of $18 million in 2022, which represented 11% of the corporate’s whole revenues. When factoring out European gross sales in 2021, the receivables of which have been written off within the third quarter of final 12 months, ICM’s 2022 income was up modestly from professional forma of 2021 income.
The corporate’s gross margin for 2022 was 44% and was 45% within the fourth quarter. 2022 gross margins by phase have been as follows: Digital Care Infrastructure, 46%; Providers, 35%; Built-in Care Administration, 76%. We view gross margin as a key metric for UpHealth and as being helpful for business comparability functions.
Accordingly, let me additionally present some extra coloration on our gross margin from a pattern perspective in addition to framing them throughout the context of our total monetary mannequin. Gross margins in Digital Care Infrastructure elevated from 36% in professional forma 2021 to 46% in 2022, together with each the Indian and U.S. Telehealth companies in professional forma 2021 and within the first two quarters of 2022. U.S. Telehealth enterprise recorded fourth quarter gross margins of 51%, up from 48% in Q3 as we proceed to see working leverage contribute to enhancing gross margins within the U.S. Telehealth enterprise.
Gross margins within the Providers phase elevated from 31% in professional forma 2021 to 35% in 2022 on account of sturdy efficiency in elements of our behavioral well being and compounding pharmacy operations. Gross margins elevated from 35% in Q3 2022 to 36% in This autumn, which included regular vacation season declines in our Florida Behavioral Well being enterprise and weak point in our medical group efficiency in Missouri that have been greater than offset by sturdy pharmacy volumes. We might count on gross margins within the providers sector to extend barely in 2023 as we divest IGI and combine BHS into our legacy TTC operations.
Gross margin at Built-in Care Administration was 76% for the full-year 2022 and was 61% in This autumn. The fourth quarter gross margin was according to the extra normalized 60%-plus gross margin expectation for ICM that we now have mentioned in earlier calls.
UpHealth’s fourth quarter adjusted EBITDA was $1.9 million, which was together with income according to our expectations. Changes have been made for sure non-recurring bills, together with authorized and restructuring bills. We count on bills for authorized and restructuring prices to proceed as we take care of varied shareholder litigation issues, together with with the previous homeowners of our Indian subsidiary and as we consolidate company operations to drive efficiencies and decrease prices. As a reminder, adjusted EBITDA is a non-GAAP measure, and we now have included a reconciliation of GAAP working loss to adjusted EBITDA within the press launch.
I need to spend a couple of minutes discussing the corporate’s liquidity place. As of December 31, 2022, the corporate had an unrestricted money stability of $13.5 million and $2 million of money at IGI, which is included in belongings held on the market on the stability sheet, however which will probably be swept to the company stability sheet as a part of the transaction. As well as, this doesn’t embrace roughly $7 million held in an account from India that has been successfully frozen by the emergency arbitrator and our actions in opposition to the previous Glocal shareholders.
The corporate’s money stability declined over the quarter, largely on account of curiosity funds and funds to numerous skilled charges, together with authorized and consulting bills. However our enterprise segments proceed to indicate good income and EBITDA development.
Because it pertains to the definitive settlement to divest IGI for $56 million in gross proceeds, which is topic to customary changes for objects resembling working capital, in accordance with the phrases of the indenture with our secured be aware holders, the corporate will following the shut of the sale transaction provide to repurchase an quantity of secured notes equaling 20% of the online proceeds of the IGI sale over $15 million. The sale of IGI will end in vital money being added to the corporate’s stability sheet.
Our present money place, mixed with the monetary efficiency of the enterprise, which is trending towards being working money circulation optimistic the subsequent a number of months, when adjusted for extraordinary bills resembling authorized charges and following the gathering of the proceeds from the sale of IGI will present the corporate with ample liquidity to execute on our present development plans. We count on 2023 revenues to be within the vary of $127 million to $135 million. This represents development of 5% to 12% over professional forma 2022 income of $121 million.
For comparability functions, each the 2023 estimated income and the 2022 professional forma income embrace 5 months of operations for IGI and exclude the Indian operations. In 2023, we count on gross margins to be within the vary of 43% to 45%, and adjusted EBITDA to be within the vary of $7 million to $10 million.
That concludes our ready remarks. Operator, we’re now able to take questions.
Query-and-Reply Session
Operator
Thanks. We are going to now be conducting a question-and-answer session. [Operator Instructions] Our first query is from the road of Mike Latimore with Northland Capital. Please go forward.
Mike Latimore
All proper. Nice. Thanks. Good morning, all people. Properly, thanks for that complete evaluate, very useful. And good to see the optimistic EBITDA within the fourth quarter there. I assume, Sam, I believe you talked about incremental value financial savings you’re implementing at present, simply need to make clear that’s proper. And is that kind of the final value discount you count on?
Samuel Meckey
Good morning, Mike, and thanks for the query. I respect it. So, sure, we’ve been engaged on value reductions for the previous a number of months as we’ve adjusted the main target of our construct of our enterprise. We’re at present executing a collection of initiatives which can be reducing spend to get our value construction according to our revenues, and we’ll proceed to guage that as we see what the outcomes are and as how issues come by means of over the course of the 12 months. However, proper now, that’s what we now have needed to say to you right here for the primary quarter of the 12 months.
Mike Latimore
Bought it. Okay. After which when it comes to the steerage for the 12 months, it consists of 5 months of the IGI enterprise. Ought to we expect then in regards to the income being greater within the first half of the 12 months versus second half, simply given you’re together with that IGI enterprise there?
Samuel Meckey
I’d say the income does embrace IGI for the primary 5 months of the 12 months, as you indicated. As we’re pondering all through the course of the 12 months, you clearly are going to need to mannequin that out for the second half. You’ll see a constant sample of development all through the course of the 12 months.
Martin, something do you need to add?
Martin Beck
Yeah. Hey, Mike. How are you? I believe it’s truthful to say that we’d count on the income to say no slightly bit within the third quarter as we take IGI out. It’s clearly not sufficient forecast outcomes for Q3 or This autumn, however then the bounce again in This autumn.
Mike Latimore
Bought it. Okay. After which, you gave, clearly, optimistic EBITDA steerage for the 12 months. Are you pondering that every quarter ought to be optimistic EBITDA as nicely?
Martin Beck
Sure.
Mike Latimore
Bought it. Okay. Nice. Thanks very a lot. Good luck this 12 months.
Samuel Meckey
Okay.
Martin Beck
Thanks, Mike.
Operator
Thanks. That concludes our question-and-answer session. I would really like I flip the ground again over to the administration for closing feedback.
Samuel Meckey
To wrap up, we need to thank all people for becoming a member of at present, and we respect all the curiosity within the enterprise. We understand that we’re on a journey proper now, and the corporate is making an attempt to be as clear and as open with as a lot data as we are able to probably share. So we respect your endurance and your help as we work by means of this, and we look ahead to an excellent 12 months in 2023. Thanks for becoming a member of us this morning.
Operator
This concludes at present’s teleconference. It’s possible you’ll disconnect your strains right now. Thanks on your participation.