Dear shareholders and investors,
I am pleased to report Premier Health’s results for our third 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 $22.4M for the quarter ended June 30, 2022 ($18.6M for the same period in FY2021). The increase in revenues is linked to the consolidation of the Canadian Health Care Agency (“CHCA”) acquisition completed in the third quarter. Absenteeism amongst healthcare professionals in Quebec continue to have a negative impact on hours billed but the Company maintained an average gross margin of 24.4% for the period, in line with our objective of 25%. Compared to the last quarter, administrative expenses were stable over the period with an increase in salaries and rent related to the consolidation of CHCA that was counterbalanced by lower non-recurring expenses. This translated in an adjusted EBITDA of $1.6M ($1.3M for the same period in FY2021) and a net income of $0.4M ($0.1M for the same period in FY2021). In the course of the third quarter approximately 1,300 healthcare professionals were deployed through our platform for a total of 254,377 hours billed.
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 is based in Cambridge, Ontario, and provides services in Northern Ontario, 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 currently has over 200 active and specially trained Registered Nurses and Nurse Practitioners in its organization. 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. We anticipate over 25% of our revenues to be generated outside of Quebec going forward. This represents a material 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
According to Statistics Canada, the health care sector lost 22,000 jobs in June while more than 10 percent of all nurses called in sick at least once during the month. After more than two years of caring for Canadians during the pandemic, burnout and job churn in the sector is becoming an important issue. Nursing vacancies in early 2022 were more than triple the level of five years earlier and it is easy to conclude that recent job decline in health care has been due to voluntary quits rather than layoffs. This exodus of burnt-out health care workers has led to a surge in temporary closure of emergency rooms in Ontario and Quebec. In that context, all provincial contractual arrangements for our business units, including renewal options for a period of six months each and transition options, were recently renewed until January 2023. This is part of the Quebec government’s transition strategy and an element of stability for our activities in the short term.
During the third quarter our Premier Soin business unit’s revenues remained stable while Code Bleu’s business unit revenues decreased by 5.7%. Although the two subsidiaries offer similar services 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 Code Bleu was mainly due to a temporary shift in the business mix during the quarter as well as absenteeism, a situation previously experienced by Premier Soin in the second quarter. Medical personnel are in recuperation mode and we expect a soft summer in terms of hours billed. Realisation by health care authorities and decision maker that attempts at shedding has unwanted impact both on personnel and service has led to the government dropping some of the restrictions imposed by the ministerial orders in 7 regions of Quebec. Mandatory overtime is also targeted by nurse associations and unions as a major cause of frustration for the healthcare personnel. Taking all this into consideration, we expect an eventual stabilization in hours billed in urban centers, but little headway will be achieved before the fall provincial elections.
Our northern regions business units performed in line with our expectations. Since the start of the fiscal year Premier Health Nordik signed contractual arrangements with eleven hospitals, mainly in Northern Ontario and we anticipate a positive impact of these contracts on the revenues before year-end. 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. Solutions Nursing is also negotiating a framework agreement with a Northern Territory that we expect to come into force within the next two quarters. We anticipate 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
Premier Health needs approximately 40 specialized transport units to perform an estimated 28,000 transport segments per year from two regional contracts. At the time of the contracts award in March 2021, the company’s strategy was to acquire new vehicles with lease maturities matching contracts’ maturities. This strategy provided the company with predictable operating expenses as well as a measurable and appropriate return on investment. As of today unfortunately, due to global supply chain issues, none of the new vehicles ordered were delivered. Meanwhile, the utilisation of older vehicles acquired to perform the services continues to have an important impact on this business unit margins due to high maintenance costs, as well as Premier Health’s EBITDA margin. At this point, we have no visibility on new vehicle deliveries with approximately two thirds of the contracts’ duration remaining. Considering the above, and the cost of the planned technology improvements, we are exploring different options including the non-renewal of non-ambulatory transport services contracts. We estimate the financial impact for the company would be marginal since eventual asset write offs would be expected to be counter-balanced by a decrease in general and administrative expenses. In the long term this would also enable us to allocate resources to more profitable business units and focus on the growth of our core business in other Canadian provinces. We already negotiated a bilateral agreement to terminate one of the two contracts without penalties.
We are gradually integrating CHCA’s operations by managing the transition to our existing portfolio of technologies. This includes basic services such as proper internet links and IP phones but also more complex items including ERP requirements. We expect to complete the transition within our estimated timeline.
We are still spending considerable amounts of resources on a quarterly basis to improve the efficiency and robustness of our systems. We recently onboarded a new programming partner with additional resources to accelerate the development of our platform and are gradually deploying our new mobile application which development was completed in the last quarter.
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 the newly deployed CRM 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 expect to use a similar solution at recently acquired CHCA once the initial transition is completed.
The acquisition of Cambridge 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 have adapted our acquisition strategy to include smaller regional opportunities in the province.
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. However, healthcare workers generally need to recuperate form physical, mental, and emotional exhaustion following the COVID outbreak and the sector in general is experiencing a shortage of personnel, a situation expected to eventually be resolved.
We see divergences in provincial healthcare policies and management strategies and we believe that a sound geographical diversification is paramount for stability and organic growth. We are continuously 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.