Dear shareholders and investors,
I am pleased to report Premier Health’s results for our second quarter of FY2022, and to update you on the status of our operations as well as recent developments.
Results and Operations
The company’s revenues reached $17.6M for the quarter ended March 31, 2022 ($17.0M for the same period in FY2021). The revenues were impacted by a certain level of absenteeism amongst healthcare professionals on our platform due to Omicron isolation requirements and a temporary shift in business mix at our Premier Soin business unit. This as well as a material increase in administrative expenses translated in an adjusted EBITDA of $0.5M ($1.6M for the same period in FY2021) and a net income of $-0.6M ($0.3M for the same period in FY2021). Our average gross margin of 24.7% for the period was close to our objective of 25%. However, the lower than expected revenues and the increase in administrative expenses impacted our EBITDA margin in the context where we are increasing management and technology related expenses in expectation of a wider geographical footprint. We expect a certain level of volatility of our gross margin and EBITDA margin as we continue our acquisition program in other markets.
The $1.0M increase in administrative expenses for the quarter can be attributed to several factors, some of which temporary or non-recurring. Salaries (+13.2%) and training (+35.0%) represented an increase in recurring expenses of approximately $0.3M on a quarterly basis. Professional fees linked to the ERP system deployment, recent computer expenses and higher-than-expected maintenance expenses associated to the transport division’s fleet represented temporary increases in expenses for the quarter. Lastly, $0.3M were provisioned for transaction expenses incurred as at March 31 for the acquisition of CHCA on April 19.
Over the quarter, with the exception of Premier Soin, our main business units performed in line with our expectations. There are approximately 1,060 healthcare professionals currently active on our platform and the company reached a total of 227,748 billable hours in the second quarter, below our objective of 250,000 hours billed on a quarterly basis.
Acquisition of Canadian Health Care Agency
We completed our first important acquisition outside of the province of Quebec on April 19. Canadian Health Care Agency (CHCA) is based in Cambridge, Ontario, and was founded in 2001 in response to severe staffing shortages in Canada’s northern regions. CHCA started its operations in Northern Ontario and quickly expanded its activities to providing services in Nunavut and Northern Manitoba. The acquisition of CHCA starts our expansion outside of the province of Quebec and consolidates our market position in Canada’s northern regions. CHCA is the primary provider to Indigenous Services Canada (“ISC”) for nursing services to remote and semi-remote Indigenous communities in both Ontario and Alberta and provides nurses services as a backup provider to ISC for these communities in Manitoba. CHCA currently has over 200 active and specially trained Registered Nurses and Nurse Practitioners in its organization and is expected to add approximately $24M to PHA’s annual turnover going forward.
This is an important milestone for us and the start of our Canadian expansion. First, the Cambridge based agency provides us with a good management infrastructure in Ontario that will serve as a base to continue our expansion in this province. This is a strategy we are expecting to follow in other provinces as well. Second, we anticipate approximately 27% of our revenues to be generated by Federal government sources going forward, and 26% will now come from outside of Quebec. This represents an important diversification of our revenue sources. In the context where healthcare policies and budgets are a provincial responsibility, political cycles can impact our sector locally and we believe that diversification is paramount to revenue stability.
Healthcare workforce solutions
During the second quarter our Premier Soin business unit experienced a revenue contraction of 8% while Code Bleu’s business unit revenues remained stable. Although the two subsidiaries offer similar servic
es across the province of Quebec, their respective pricing strategy and resources profiles can sometime lead to positive or negative revenue generation discrepancies. The decrease in revenue at Premier Soin was mainly due to a temporary shift in the business mix during the quarter. Premier Soin experienced a lower demand for longer term replacement blocs and a higher demand for short-term daily shifts. An augmentation of short-term shifts increases the turnover rate and by extension the risk of not being able to fulfill every request for resources on short notice due to personnel availability. We believe this temporary impact is related to an adjustment period in the context of the receding pandemic. We already experienced a rebound from this situation in April but still anticipate a certain level of volatility in the near future.
The government of Quebec recently confirmed that it intends to end the public health state of emergency at the end of the year and retain extraordinary powers until December 31, 2022. In that context, all provincial contractual arrangements for our business units were recently renewed until January 2023. These contracts are also subject to the exercise of options renewal by the Government Acquisitions Center (CAG). Three renewal options for a period of six months each and a transition option of two months are provided for in the contract. This is part of the government’s transition strategy and an important element of stability for our activities in the short term.
Over the second quarter our northern regions business units have shown an excellent traction in their respective markets. Premier Health Nordik signed contractual arrangements with six additional hospitals, mainly in Northern Ontario. This follows the five contracts that were signed earlier in the first quarter. The relationship with these hospitals is characterized by bilateral communication channels and a common goal of developing efficient working protocols to ensure a consistent level of services to the population. Solutions Nursing has experienced a record level of registration for its extended role training program. Typically, nurses acquire the required training with the objective to accept permanent or temporary assignments in northern regions within 12 months following the training. Finally, Solutions Nursing is currently negotiating a framework agreement with a Northern Territory that we expect to come into force within the next two quarters. We expect this increase in registrations and the new contractual relationships to have a positive impact on future organic growth for our two specialized business units.
Non-ambulatory transport services
We are still experimenting supply chain issues, which resulted in our new vehicles deliveries being postponed. The first 3 new transport units which delivery was postponed to March 2022 are now scheduled to be delivered only at the end of the third quarter. PHA needs approximately 40 specialized transport units to perform the estimated 28,000 transport segments per year. Meanwhile, the utilisation of older vehicles acquired to perform the services continue to have an important impact on this business unit margins, as well as PHA’s EBITDA margin, due to high maintenance costs. We expect to resume our initial deployment strategy once we take possession of the new fleet and the business unit’s performance to be in line with our performance indicators at that point in time. We are planning to roll out an important technology improvement that will improve the efficiency of transport routes in June of this year. This deployment will also include a transport version of our mobile application to further improve the efficiency and profitability of this service.
The disease activity is still high in Canada and the BA.2 sub-lineage now accounts for more than 90% of reported cases. The emergence of new variants that are less severe and ultimately like a common cold could signal a transition of the virus from pandemic to endemic. Although there are early signs that transmission may be near or past peak in some jurisdictions, including in the province of Quebec, a certain volatility in number of cases and regional discrepancies can be expected over the coming months. The government of Canada is maintaining a vaccination strategy approach with the expectation that it can provide for a better protection going forward. Close to 82 of total population and 90% of 12 and older are now fully vaccinated.
We don’t expect material changes for our business units over what is anticipated to be a 1 to 2 years post COVID recovering and planning period. We see however the importance of diversification in Canada within the framework of a decentralized approach to healthcare management and delivery of services to the population. We strongly believe that a better integration of public infrastructure and private solutions can leverage available resources to enable a better continuity of service to the population. However, political ideology, system management philosophy, and long-term resources planning can have an impact locally on personnel demand. Accordingly, our privileged approach is to be able to evolve in different markets to ensure revenue stability and organic growth.
We spent a considerable amount of resources in the course of the second quarter to improve the efficiency and robustness of our systems. We proceeded with the virtualisation of legacy servers at Code Bleu, installed gigabit links at most of our business units and deployed new support processes throughout the group for dashboards and analysis.
These efforts are put forward to ensure that our business units use similar systems, performance indicators, and business processes to facilitate integration and generate synergies where possible. A good example of the potential synergy gains is the impact of a ZOHO CRM test project performed at our northern regions business units. This project includes integrated business development protocols and has proven to facilitate knowledge transfer and increase top line opportunities for the business units. We are now planning to move forward with the deployment of the solution following the positive impact of the test period and expect to eventually use a similar solution at recently acquired CHCA.
The acquisition of Cambridge (ON) based Canadian Health Care Agency and the hiring of a general manager for Ontario signals the start of a second phase of our growth strategy in this province. With a revenue base and a management infrastructure in place we now have the capacity to explore smaller regional opportunities. Accordingly, we are adapting our acquisition strategy to include smaller agencies in the pipeline for Ontario.
In the short term, we expect a fair level of stability in demand for our services over the anticipated COVID recovery period, over which healthcare organizations will address the increasing backlog of non-critical surgeries and other care services, while healthcare workers will also generally need to recuperate form physical, mental, and emotional exhaustion. The recent developments at Premier Health Nordik and Solutions Nursing enable us to anticipate a fair level of organic growth coming from these two business units.
We are always actively seeking transaction opportunities in other Canadian provinces. Our short-term technology roadmap is aimed at positioning ourselves to manage a coast-to-coast operation. We continue to believe that technology is an important barrier to entry in our market and a very important growth vector. At this point the company has the critical mass and the liquidities to be an active consolidator. We had an excellent track record in terms of integration and so far, we see no factors that could mitigate our growth path across the country in the foreseeable future.
I wish you all the best,
Chief Executive Officer
Premier Health of America Inc.