Dear shareholders and investors,
I am pleased to report Premier Health’s results for our first quarter ended December 31, 2022, and to update you on the status of our operations as well as recent developments.
Results and Operations
The company’s revenues reached $21.6 M for the first quarter ended December 31, 2022 ($18.4M for the same period in FY2021). Chronic changes in the Quebec government’s directives regarding independent health care workers and general absenteeism amongst healthcare professionals had a negative impact on hours billed in some of our business units when compared to previous quarters. The acquisition of Canadian Healthcare Agency (“CHCA”) more than compensated for the slowdown in Quebec during Q1 where billable hours decreased by about 7.5%. The Company was nevertheless able to maintain an average gross margin of 23.5% for the period, generally in line with our 25% objective. On a quarterly basis, operating and administrative expenses increased compared to the last quarter in part due to non-operational transaction expenses, and the deployment of the company’s new ERP system, which combined cost close to $0.5M. This resulted in an adjusted EBITDA of $1.5M for the three-month period ($1.5M for the same period in FY2021). Net loss for the quarter was $0.4M compared to a net income of $0.3M for the same period in FY2021.
National Challenges and Opportunities
The pandemic had an important effect on health labour shortages with the resulting exhaustion, burnouts, and job dissatisfaction across the country. The current problem, however, has been in the making for decades and was easily predictable. The baby boomers, born between the end of the second world war and the early 60’s, still represent 25% of today’s Canadian population and have been expected for a long time to eventually strain public resources during their retirement. This group of individuals used to remain active in the workforce for longer and hold onto jobs that would otherwise be filled by the other generations. But the pandemic has recently pushed millions of baby boomers in North America to retire sooner than they planned. Accordingly, the Canadian healthcare sector is currently experiencing the compounded effect of an aging population, an important wave of early retirements, and the impact of the global health crisis.
The unprecedented shortage in health labour in the country has become an important political focal point in most Canadian provinces. While provincial premiers are negotiating increases in funding through Federal transfers to deal with the swelling costs of health delivery, they are in parallel exploring measures to specifically address health labour shortages in their respective provinces.
In British Columbia, the provincial government has taken a proactive approach to facilitate recruiting from different sources. First, the province is providing new financial support to nurses returning to practice after a period of absence. This includes the reimbursement of reinstatement application fees, and over $4,000 in financial support to cover assessment and eligible travel costs for nurses to re-enter the workforce in exchange for committing to work in the province’s health-care network. BC is also taking measures to remove financial barriers for international workers who want to work in the province by providing internationally educated nurses with an easier access including new financial supports and a faster, more efficient assessment pathway. Ontario is going in the same direction, albeit on a smaller scale, with the introduction of a new legislation expected in early 2023 that could allow Canadian health care workers already registered or licensed in other Canadian jurisdictions to practice in Ontario. Meanwhile, New Brunswick health authorities are recruiting directly in the province of Quebec. For NB’s health managers, Quebec represents a pool of highly qualified, often bilingual, and largely underpaid (when compared to NB starting salaries for similar responsibilities) nurses.
The Quebec government has taken a more defensive approach by tackling the retention end of the equation. Last year the Ministry of Health and Social Services (MSSS) in Quebec has deployed several retention measures including approximately $1 billion in bonusses to nurses accepting to commit to work full-time for one year. Staff employed in the network data show a moderate increase following the special bonus announcement at the end of September 2021 but a 3.4% decrease from the announcement date until January 14, 2023, implying a temporary impact of the measure. Recruiting programs have not yielded the expected results either. Difficulties the MSSS is facing include cultural and linguistic specificities, uncompetitive working conditions and protective measures from the unions. These factors are making access to out of province or international nurses extremely difficult.
According to the Canadian Medical Association (CMA) “nearly five million Canadians do not have a primary care provider. Emergency departments routinely close due to staff shortages. Hundreds of thousands of patients on surgical waitlists and health service backlogs remain. Physicians and other health care workers continue to work overtime as they try to provide care to those who need it most, worsening already existing burnout.” Although the U.S. is facing a similar conjunctural compounding effect, the possibility for healthcare workers to work across states has a dampening impact on the current shortages by enabling punctual help to be available in geographical areas where they are more severe. In addition, higher compensation, flexible working hours, opportunity to travel, and greater exposure to various medical systems are factors that increase the attractiveness of allied healthcare, per diem, travel nurse, or locum tenens as a career option.
In Canada the national nature of the problem is also evident, and the CMA has recommended a series of potential actions to stabilize the provincial health systems. Amongst other measures, the CMA has recommended the establishment of a pan-Canadian licensure model to facilitate the mobility of medical professionals and the creation of a national health human resources strategy to plan for the recruitment and retention of health workers.
We also believe that facilitating movement of personnel across provinces is one of the corner stones of an efficient national system.
Quebec Healthcare Solutions
The majority government elected in October 2022 is exploring different paths to improve the province’s healthcare situation. A series of measures imposed by the Quebec Ministry of Health and Social Services (MSSS) in the course of 2022 had a destabilizing effect on our industry in general. The temporary nature of these directives and chronic changes in modus operandi for the use of independent work force resulted in a decrease in efficiency of personnel placement over the period. That translated into available nurses that could not be placed in a healthcare system that desperately needed them and a decrease in billable hours for nurse agencies active in the province. The state of health emergency declared on March 13, 2020, ended on December 31, 2022, and our first quarter of 2023 was the last quarter to be impacted these special measures.
The Government of Quebec has recently unveiled a proposed bill regarding the framing of independent labour in the provincial health system. This was expected and doesn’t come as a surprise to the industry. According to the MSSS health network performance dashboard, independent workforce in the network varied from a low point of 3.6% to 5.2% of the workforce in terms of dollars spent over the last 2 years. These numbers include 5 distinct categories of workers, nursing staff being only one of them.
Most of these independent professionals choose this way of work for personal, family, or logistics reasons. The use of placement agencies allows them to practice their profession with more flexibility. An internal survey showed that, faced with the obligation to reintegrate the public system and the unionized framework, 81% of our healthcare professionals (more specifically 84% of nurses and 90% of auxiliary nurses) say it is unlikely they would reintegrate the public healthcare sector before retirement. In a North American context of healthcare workforce shortages, we believe it is essential to encourage Quebec health professionals to remain active in the network, regardless of the work arrangements they chose. We welcome the Quebec government’s desire to better regulate the industry. We reiterate our willingness to participate actively and constructively in the legislative process to improve certain aspects of the proposed bill. We expect the proposed Bill to map precise guidelines for the interaction between private and public entities to avoid a migration of healthcare workers to other sectors of activities.
Meanwhile we anticipate a gradual return to pre-Covid normality in 2023, the most important aspect of it being a return to a sound competitive environment in which the engagement with the different levels of our healthcare system is done through structured calls for tenders, with credible players who act in accordance with the established regulation instead of OTC contracts with minimal intermediation and regulations. We believe this will favour larger and well-organized agencies that offer a much lower risk profile like our organization. Our role is to provide flexibility to our professionals and to the healthcare system at the same time. We provide on-demand solutions that are critical to providing the level of care owed to the population. We feel we are well positioned to continue this important role in the Quebec market going forward.
Our northern regions business units performed in line with our expectations. Contractual agreements in northern regions are gradually resuming as we move toward a return to normality. Due to the requirements and specificities of the extended roles our personnel are required for, Nordik has been less exposed to changing contractual parameters and accordingly revenue volatility. Mild fluctuation in hours billed where a function of available personnel. While the two business units are facing the same recruiting challenges the industry faces, Solutions Nursing is still experiencing 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 currently participating in an RFP process for the renewal of an important contract in Northern Quebec due for 2023 with the objective to play an increased role in this region. We anticipate this growth in registrations and the increase in existing and potential contractual relationships to have a positive impact on future organic growth for our two specialized business units.
Canadian Health Care Agency
The Ontario agency was acquired in April of 2022. With this acquisition over 30% of our revenues are generated outside of Quebec. The integration of CHCA has been a success and the business unit is performing well with a solid and well-established management team. CHCA is an important service provider to Indigenous Services Canada (ISC), who’s responsibility is to improve access to high quality services for First Nations. Most of CHCA’s contractual relationships are based on long term RFP awarded contracts, some of which are expected to be renewed in the current year. The agency is present in Ontario, Manitoba, Alberta and expects to increase its presence in British Columbia.
As part of its integration process, the agency plans to roll out our LiPHeÒ platform During Q3 of 2023. The platform was updated to include contract-based management and to cover longer term assignments to match CHCA’s specific operating requirements. With CHCA’s presence in numerous Canadian provinces, we believe this is an important step in deploying our platform country-wide.
We continued investing in technology in the first quarter to improve the efficiency and robustness of our systems. 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. The launch our new mobile application at the end of the calendar year has been successful. Our application was already a very attractive scheduling and reporting tool for healthcare professionals in our network, but the new features and enhanced user experience further facilitate reporting. We are currently in the process of training our health professionals to maximize the use of the application namely on the new features that enables to take snapshot of documents and signatures to facilitate time sheet management and approvals. These elements also simplify our billing process by decreasing the number of exceptions and anomalies that eventually require escalation.
The company is facing the similar recruiting challenges the other actors in the sector are experiencing. We are currently rolling out an applicant tracking system with the objective to automate, improve and monitor our hiring process. We believe this is another strategy that will be beneficial in the long term. Finally, we successfully deployed SAP for all our accounting and financial management processes on October 1. This brings all our agencies in Quebec and Ontario on the same accounting and reporting system. We expect this will also facilitate and de-risk the integration of future acquisitions.
The acquisition of Cambridge based Canadian Health Care Agency and the hiring of a general manager for Ontario in 2022 signalled the start of a second phase of our growth strategy in that province. With a revenue base that represents a material geographical diversification of our revenue sources and a good management infrastructure in place, we have adapted our acquisition strategy to also include smaller regional opportunities in the province. In the context where healthcare policies and budgets are a provincial responsibility, political cycles can impact our sector regionally and we believe that diversification is paramount to revenue stability. We are continuously seeking transaction opportunities in other Canadian provinces.
Across Canada in general demand for healthcare personnel is very high and expected to remain so at least over the anticipated COVID recovery period, while healthcare organizations will address the increasing backlog of non-critical surgeries and other care services. General physical, mental and emotional exhaustion of healthcare workers, early retirement, and career changes in the sector result in a general a shortage of personnel, a situation not expected to be resolved in the short term. We see divergences in provincial healthcare policies and system management strategies. In that context we anticipate a progression of our revenue base outside of the province of Quebec but limited organic growth in the province in the short term, and until the provincial government articulates its healthcare strategy.
Our short-term technology roadmap is aimed at positioning ourselves to manage a coast-to-coast operation. Our strategy is to position our platform as a service to subsidiaries to facilitate onboarding of new business units, with the objective to provide regional-specific business protocols, recruiting methods, and branding. We continue to believe that technology is an important barrier to entry and an important element of differentiation as a consolidator. We believe that the 2022 challenges we faced in our main market may continue into 2023 and therefore our activities outside of the province of Quebec will drive growth. We will continue investing in our people and technology platforms to support the buildout of our footprint across Canada.
I wish you all the best,
Martin Legault, Chief Executive Officer