Assure Holdings Corp. (NASDAQ:IONM) Q1 2023 Earnings Call Transcript May 16, 2023

Operator: Greetings. Welcome to the Assure Holdings First Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Brett Maas of Hayden IR. You may begin.

Brett Maas: Hello, everyone, and thank you for participating in today’s conference call to discuss our shareholdings financial results for the first quarter of 2023. On the call today are Executive Chairman and CEO, John Farlinger; and CFO, John Price. Pre-market this morning, the company issued a press release announcing its results. The release is available in the Investors section of the company’s website. Before we begin the prepared remarks, I’d like to remind everyone that some of the statements made today will be forward-looking and are made under the Private Securities Litigations Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors. We refer you to Assure’s recent filings with the SEC including its annual report on Form 10-K for the full year for a more detailed discussion of the risks that could impact the company’s future operating results and financial condition.

Also on today’s call management will reference certain non-GAAP financial measures which we believe provide useful information for investors. For reconciliation of these non-GAAP measures, please consult the most recently filed 10-Q associated with the filing of the earnings release for the quarter ended March 31, 2023, which is available on the SEC’s website. This call is being recorded and will be made available for replay via a link on the company’s website. Now, I’d like to turn the call over to Executive Chairman and CEO, Assure Holdings, John Farlinger. John?

John Farlinger: Thank you, Brett. Hello, everyone, and thank you for joining us today. Reflecting our first quarter results, the company had a slight increase in the number of cases managed an approximate 25% decline in our operating expenses and a much lower use of cash in operations reflecting the tremendous progress we have made towards strengthening our operations and improving our financial results despite persistent challenges with reimbursement across the industry. Our first quarter case volume was up slightly year-over-year as we supported approximately 5,200 managed cases. We collected approximately $5 million in cash and reduced our average days to collect by 15 days from 61 days for the fourth quarter to 46 days during the first quarter of 2023.

On the cost side, we reduced our operating expenses by $1.2 million or 26% year-over-year as the benefits of the cost reduction initiatives that we put in motion in 2022 and earlier this year are being realized. We are encouraged by the progress we’re making toward achieving our targets of profitability on adjusted EBITDA basis and positive cash flow from operations during the latter part of 2023. Across the industry, reimbursement to providers continues to be challenging. At the federal level, time from claims submission to resolution has not changed substantially in 2023. We have filed nearly 400 claims to-date under the Federal No Surprises Act. While we remain optimistic with eventual improvements to the reimbursement process, the time from submission to resolution continues to be several months longer than the 90 days expected.

Given these conditions, the internal revenue cycle management process that we’ve established is crucial. As we built a sophisticated data-driven revenue cycle management function, our collections are improving. Our first quarter revenue collections were better than our internal forecast. The percentage of first pass payment rates has been increasing and days to pay have been reduced. Collections and cash management is a key differentiator for us in contrast to many of our competitors. The industry remains highly fragmented and we are establishing the analytics and operational footprint to be a consolidator as others in our space are struggling. While there is no transaction imminent, we are actively evaluating tuck-in M&A opportunities in attractive markets that could help us scale our business.

Neuromonitoring is widely considered to be the standard-of-care and surgeons agree it is a vital resource in the operating room, despite the operational reimbursement challenges that we believe are temporal. Demand for our services is strong. We have a business model that is readily scalable and yield economics that make our business attractive for investment. Subsequent to quarter end, we performed our first neuromonitoring case in the State of Montana. We’ve established ourselves with a distinguished surgical center of this market and have an additional foothold from which to grow from. We are eager to scale our operations there and believe this is an opportunity to increase our cases by approximately 150 cases annually across Bozeman and Livingston.

Beyond this key win, we’re also continuing our efforts to expand in high-performing markets like Texas and Colorado, which we already established and highly concentrated in. Today, we closed an underwritten public offering of 5 million common shares, including pre-funded warrants in lieu stock. Shares were offered to the public at $1.20 per share, or $1.199 per pre-funded warranty. The pre-funded warrants are immediately exercisable at a nominal exercise price of $0.001, or on a cashless basis and may be exercised at any time until all the pre-funded warrants are exercised in full. The offering was fully subscribed and the underwriters have a 45-day option to purchase up to an additional 750,000 shares of common stock at the offering price, less underwriting discounts and commissions to cover over-allotments.

We plan to use the proceeds of this offering for continued growth, the rolling out of a potential new service line, general corporate purposes, including working capital, sales, product development and capital expenditures. Importantly, this offering gives us the runway to execute our strategy and strive to achieve our targets of positive adjusted EBITDA and cash from operations during the second half of 2023. In addition to this new financing, there are two other items that could positively impact our financial position in 2023. First, we have filed for the employee retention credit, or ERC. A refundable tax credit for businesses that continue to pay employees while shut down due to COVID-19 pandemic. Related to that we are filing amended federal tax returns for the years ended 2020 and 2021, and we expect that we could receive a cash refund from the IRS of approximately $3.3 million.

Secondly, we have filed a multimillion-dollar lawsuit against an orthopedic and spine surgery center located in the State of Louisiana. The lawsuit is related to the reimbursement of services provided. The case is scheduled for a jury trial in late July of this year. With the completion of the offering and the receipt of the ERTC credits, the company would have generated nearly $9 million of cash, which is approximately $1.50 per share outstanding. Further, the company has nearly $13 million of trade accounts receivable due from commercial payers, hospitals and the winding down of the MSA structure. Next John Price will walk us through the financial results for the first quarter. John?

John Price: Thanks, John and thank you everyone for joining us today. Our total managed case volume for the first quarter was 5,200, an increase over the prior year first quarter and as expected down sequentially due to typical seasonality of our business. For the first quarter of 2023, we reported gross revenue of $4.8 million and net revenue of $3.6 million. Net loss was $4.3 million and the adjusted EBITDA loss was a loss of $3.1 million. Gross revenue for the first quarter was negatively impacted by weakness in reimbursement rates in the industry and continued backlog of cases eligible for federal arbitration under the No Surprises Act. As of March 31, 2023, the total accounts receivable reserve was approximately $15.2 million or 54% of our outstanding gross accounts receivable compared to $14 million or nearly 50% of our outstanding gross AR as of December 31, 2022.

The cost of revenues for the first quarter of 2023 were $3.4 million compared to $3.9 million for a year ago quarter, a decrease of 13%, while the number of bench cases increased a positive proof point of our efforts to reduce our cost of delivery. Operating expenses for the first quarter of 2023 were $3.5 million compared to $4.8 million in the year ago quarter, a decrease of 26%. Sequentially, operating expenses declined 19% on a normalized basis excluding a one-time non-cash goodwill impairment charge of $3.5 million and a one-time non-cash acceleration of amortization expense of $3.1 million. Normalizing operating expenses were $4.3 million in the fourth quarter of 2022. We collected approximately $5 million of cash in the first quarter of 2023 compared to $5.6 million in the first quarter of 2022 and $4.3 million in the fourth quarter of 2022.

We’ve reduced our average days to collect by 15 days in the first quarter of 2023. I’ll pass the call back over to John Farlinger for the second quarter and full year 2023 expectations. John?

John Farlinger: Thank you, John. This is certainly a challenging business in a challenging industry. And now understanding the significant impact of downward reimbursement pressures, we believe the company does have a number of things to be positive about. First, the focus of the company will be to continue to run leaner over the balance of 2023. Second, cash collections exceeded $21 million in 2022, and we expect them to be strong in 2023. Total system-wide collections in 2022 were a record $27.5 million. Third, our plan is to be out of the MSA revenue sharing agreements by the end of the second quarter of 2023. Currently, over 70% of the remaining MSA volume is being transitioned to wholly-owned entities by the end of the second quarter of 2023.

Fourth, we have shut down the number of unprofitable markets during 2022. These markets will no longer be a drain on operations, or cash during 2023. Fifth, the certainty of what we will recover on revenue being realized in the cash collections process is now much more certain. And there could be upside coming out of the federal arbitration process, as it starts to take effect in 2023. Last, we’re involved in two pieces of outstanding litigation in Louisiana during the course of 2023, with the first and more significant case going to trial in late July of this year. These could have a material impact on our cash position over the balance of the year. Further, we are finalizing our employee retention credit, an expected meaningful amount to be recovered from the IRS.

This is a potential seven-figure recovery and will be filed over the next 10 days. We’ve historically been very successful in recovery incentives and monies being obtained from the federal government over the last three years. We’ll continue to focus on driving our cost of delivery to less than $11 per patient, including the cost of our RCM function, so that we can meet the demands of ongoing lower reimbursement. I’ll turn the call back to the operator for Q&A.

Q&A Session

Operator: It appears we have no questions in queue. I’d like to turn the call back to John Farlinger, CEO for closing remarks.

John Farlinger: Good afternoon everyone. Let me start by saying obviously our recent share prices have been disappointing and obviously, there have been concerns about our solvency. It’s been a tough year for us and everyone else in the interoperative neuromonitoring industry like I’ve been told it’s probably been the worst period ever. But all periods tend to come and all cycles tend to go over time. This recent route of growth capital along with — and I should point out that the $6 million of growth capital very good job done by the Joseph Gunnar team. Management participated for about $250,000 of the round and we feel this is going to give us a shot in the arm to get back in the growth mode, M&A mode, and to open up some new markets.

That coupled with the potential recovery of ERTC credits of over $3 million will give us a fresh $8 million to $9 million of liquidity going forward. We are also very optimistic about settling one or both of our lawsuits in Louisiana prior to the year. That being said, the focus is very clear for us. We’ve got to continue to increase our scale to get to breakeven. We’ve got to continue to run leaner and continue to run costs at a much lower scale than we have in the past, and we have got to strive for profitability this year so that we’re not relying on outside capital. Our team is feeling energized right now and we are up for the challenge and I want to thank all of you for dialing into today’s call and we look forward to chatting in the near future.

Thank you.

Operator: This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.