Dear shareholders and investors,
I am pleased to report Premier Health’s results for our second quarter ended March 31, 2023, and to update you on the status of our operations as well as recent developments.
Results and Operations
The Corporation’s revenues reached $21.8M for the second quarter ended March 31, 2023 ($17.6M for the same period in FY2022). Due to increased competition by smaller agencies since the beginning of the pandemic, our number of billable hours has declined from the past years. The Corporation was nevertheless able to maintain its general level of revenue in the province as well as an average gross margin of 26.5% for the period, slightly above our 25% objective. On a quarterly basis, administrative expenses were in line with the same quarter last year. Considering the integration of CHCA and its management infrastructure in April 2022, this implies that overall administrative expenses as a percentage of revenues on a consolidated basis decreased over the period. This resulted in an adjusted EBITDA of $1.9M for the three-month period ($0.5M for the same period in FY2022). Net income for the quarter was $0.1M compared to a loss of $0.8M for the same period in FY2022. Over the quarter approximately 836 healthcare professionals were deployed through our platform monthly for a total of 212,600 hours billed for the three-month period.
For the six-month period ended March 31, 2023, the Corporation recorded revenues of $43.4M, an adjusted EBITDA of $3.4M and a net loss of $0.3M, compared to $36.0M, $2.0M respectively and a net loss of $0.5M for the same period last year. The improvements in profitability are driven mainly by the acquisition of CHCA, which is performing generally as expected, and which in hindsight, is also a great addition in terms of diversifying activities outside Quebec.
Generally, our Quebec businesses are performing well. Since January 1st, 2023, some of the COVID decrees have been removed and accordingly we have been able to bill at the contracted rates for regions outside Montreal, Laval and Quebec City. Our rates in these urban areas remain capped at levels below our contracted rates which were obtained pre-pandemic through a competitive request for proposal. The increased rates have compensated partially for lower volumes observed since last year. Note that lower volumes are due mainly to the lower availability of staff, which we believe follows an increase in the number of agencies within the province of Quebec. Demand remains strong as we are booking only a fraction of the calls we get. Reducing the number of agencies in Quebec, would certainly help us recruit and build back the volumes. Bill 10 could have some benefits here.
- Code Bleu has signed two new agreements of an approximate value of $1.8M.
- Placement Premier Soin has returned to pre-pandemic levels of bookings.
- Solutions Nursing has a record number of active nurses, and its training programs are sold out.
- Nordik is stable and working on improved margins.
On the staffing side, we remain cautious about political issues influencing their morale. From what we gather, they are not too frightened by the current events. But still, our Human Resources department keeps an open dialogue with our professionals.
Canadian Health Care Agency
The Ontario agency was acquired in April of 2022. With this acquisition close to 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.
Recently, CHCA was awarded a contract valued at around $2M in the province of British Columbia. We welcome the opportunity to work in that province and are happy to increase our diversifications in that business unit. We continuously participate in procurement process to extend our reach to new clients.
From a recruitment perspective, CHCA uses a similar program than in Quebec. Visibility is promoted through social media by posting relevant and informative content. Thanks to this, but also proactive recruitment, our hiring has accelerated since last year. This bodes well for the future.
As part of its integration process, the agency plans to roll out our LiPHeÒ platform later in 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.
Quebec political landscape
Bill 10 limiting the use of independent labour in the Quebec healthcare system was sanctioned on April 20, 2023. The government also tabled Bill 15, a more significant initiative entitled “An Act to make the health and social services system more efficient” that introduces several initiatives to overhaul the provincial healthcare system.
Bill 15, tabled March 29th, is the most complex bill ever put forward in Quebec having more than 300 pages, close to 1,200 articles, and modifying over 30 existing laws. It proposes the creation of “Agence Santé Québec”, a central agency to oversee the policies, and be accountable for the system’s management and performance. It also aims at regrouping a large number of unions into only four entities to facilitate the negotiation process for the fundamental changes the Minister is proposing. In itself Bill 15 does not address placement agencies, nor is it intended to supersede or modify Bill 10. However, it is possible that Agence Santé Québec will influence the regulations as to maintain a certain level of recourse to placement agencies.
Bill 15 will be debated and possibly modified in the coming months. It will likely require much attention from the National Assembly, as it will from the unions, the doctors, the healthcare professionals, and the hospitals’ management. Given its size, it’s still unclear when the Bill will be passed into law. Although sanctioned, Bill 10 is not yet officially in force either. Detailed regulations must still be published in the Gazette Officielle du Québec and therefore the date of entry into force of Bill 10 is still unknown.
More specifically with regards to placement agencies, the Minister’s declared objective is to limit the use of independent healthcare workers and eventually integrate them in the public system. The law, when effective, will grant the Minister of Health the power to frame the use of agencies through regulations, which are still in preparation. It states that placement agencies and independent workforce shall not be used for healthcare services unless they meet certain criteria contained in the regulations to be adopted and published. These criteria shall include the definition of “placement agencies” and “independent workforce”, the periods within which an institution can use these services, reasonable hourly rates, obligations and responsibilities, terms and conditions, and finally penalties and administrative measures applicable to the violations thereof. The regulations will be gradually deployed in certain regions starting in December 2024.
According to a recent Raymond Chabot Grant Thornton (RCGT) study, independent workers in Quebec were making an hourly wage of 21% to 26% lower than healthcare system workers historically, until the current government introduced the reform of the Act respecting labour standards. Today, due to the labour standards reform and labour shortage, the wage for hours worked by healthcare system workers is almost equal to that of independent health care system workers on average. On a more granular scale, data shows a higher cost for independent workers in remote areas related to accommodation, travel and per diem for the human resources deployed, which significantly increases the all-in rate. On the contrary, independent workers deployed in urban centers, Bill 10’s main target, cost on average 12% less than healthcare system workers. In our opinion the cost cutting narrative used by the authorities doesn’t follow a financial logic.
Working conditions and flexibility are by far the most important considerations that leads medical personnel to find alternatives to the public network. A large proportion of independent professionals choose us for personal, family, or logistical reasons. The use of placement agencies allows them to practice their profession within their own constraints. Without that possibility, a large proportion of them would leave the system to work in other sectors (+/- 70% of independent health professionals according to an internal EPPSQ survey). In the North American context of healthcare workers shortage, the priority must be to encourage Quebec health professionals to remain active in the network, regardless of the mode of work they chose.
As stated before, we believe that Bill 10 and the current political exercise could eventually have a positive impact on our sector by setting a clear framework for agencies. Such a framework would improve the competitive landscape and favor those like us who are capable and willing to work within a well-defined environment for the long term. In fact, these rules will likely weed out some of the smaller agencies created during the pandemic, some of which are responsible for the detrimental business practices that are now affecting the reputation of our sector in general. We are confident in our capacity to adapt to the changing political environment, and we are determined to continue helping people within the province of Quebec and elsewhere in Canada.
We continued investing in technology in the second 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.
We have been working on new functionality within our systems to ensure better communications with all of our staff.
Finally, we are also developing new AI models in order to streamline and automate our staffing processes.
The healthcare sector in North America is currently experiencing the compounded effect of an aging population, an important wave of early retirements, and the continued impact of the pandemic. These circumstances, like a perfect storm, produced a general physical, mental, and emotional exhaustion amongst healthcare workers, early retirements, and career changes in the sector, that resulted in a general a shortage of personnel. Generally speaking, demand for our services is expected to remain strong for the foreseeable future.
In the short term, the headwinds that we are facing in Quebec will limit organic growth and create uncertainties in the province until the government articulates its healthcare strategy and more specifically the regulations applicable to Bill 10. We see divergences in provincial healthcare policies and system management strategies and in that context, we anticipate the progression of our revenue base to come from diversification outside of the province of Quebec. 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. 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.
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.
In the near term, and in line with our stated long-term strategy, our actions will be two-fold:
- Seek acquisitions outside the province of Quebec with a goal to reduce its EBITDA contribution below the mark of 25%.
- Manage rigorously our current assets here and opportunistically hire staff from the agencies that cannot comply with the eventual requirements of Bill 10.
We have had a good track record of acquiring solid organisations over the last three years. We see no reason why we could not deliver on our strategy.
Wishing you all the best,
Martin Legault, Chief Executive Officer