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15-05-2025
- Business
- Yahoo
Q1 2025 Sanara Medtech Inc Earnings Call
Ronald Nixon; Executive Chairman of the Board; Sanara Medtech Inc Seth Yon; President, Chief Commercial Officer; Sanara Medtech Inc Suresh Muppalla; President and Chief Executive Officer of Tissue Health Plus, LLC; Sanara Medtech Inc Elizabeth Taylor; Chief Financial Officer; Sanara Medtech Inc Yi Chen; Analyst; H.C. Wainwright & Co Ross Osborn; Analyst; Cantor Fitzgerald Operator Welcome to the Sanara MedTech first quarter of 2025 earnings conference call. Please note that this conference call is being recorded, and a replay will be available on the investor relations page of the company's website shortly. The company issued its earnings release earlier today. Before we begin, I would like to remind everyone that certain statements on today's call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1,995. For more information about the risks and uncertainties involving forward-looking statements and factors that could cause actual results to differ materially from those projected or implied by forward-looking statements, please see the risk factors set forth in the company's most recent annual report on Form 10k. This call will also include references to certain non-GAAP measures, reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings materials available on the investor relations portion of our website. Today's call will be hosted by Ron Nixon, Executive Chairman and CEO, and feature additional remarks from Seth Yon, President and Chief Commercial Officer, Sam Muppalla, President and CEO of Tissue Health Plus, and Elizabeth Taylor, Chief Financial Officer. I would now like to turn the call over to Mr. Nixon. Please go ahead. Ronald Nixon Thanks, operator, and welcome everyone to our first quarter of 2025 earnings call. Let me provide a quick agenda for today's call. I'll start by discussing a few of our financial and operational highlights from the first quarter. Seth will then discuss the commercial execution and progress made in our scenario surgical segment and outline the multiple growth opportunities we're focused on pursuing. Next, SAM will provide an update on our tissue Health Plus segment. And finally, Elizabeth will review our quarterly financial results in further detail before opening the calls for questions. Beginning with our first quarter highlights, our Sonari surgical team delivered net revenue of $23.4 million, representing 26% growth year over year. This performance was consistent with our expectations for the quarter and represents a strong start to 2025. Our net revenue growth was driven primarily by sales of our soft tissue repair products, which increased 28% year over year to $20.5 million. Specifically, we saw strong growth in sales of both our CellerateRX, surgical and Biasurge products, which continue to fuel our performance. We were also pleased to see contributions from sales of our bone fusion products, which increased 18% year over year to $2.9 million, with growth across multiple products in this portfolio. As Seth will discuss in detail, our sales performance reflects impressive execution by our Sanara surgical commercial team on our growth strategy. We remain excited by the large greenfield opportunity that remains ahead of us. In addition to our scenario surgical segment revenue performance, we also enhanced our gross margins. Net loss per Sanara surgical segment increased by $200,000 dollars year over year to $600,000. And importantly, we were pleased to see some neurosurgical segment adjusted EBITDA increased by $1.5 million year over year to $2.7 million. In our tissue Health Plus segment, we continue to invest in the development of this value-based wound care strategy as we prepare to launch our pilot program with a wound care provider later in the second quarter. We are in active discussions with multiple potential financial partners to invest in the execution of our tissue Health Plus strategy and Ryan focused on allocating capital strategically and thoughtfully between our two business segments. In terms of our other operational highlights in the first quarter, as discussed in detail on our last earnings call, we enhanced our new product pipeline by securing the distribution rights to two additional technologies and expanded our senior leadership team with key appointments. We also amended the terms of our debt facility to provide increased financial flexibility as we execute our growth strategy. Lastly, our team has continued their work to strengthen our portfolio of clinical evidence. We look forward to having multiple clinical manuscripts submitted for publication in key medical journals in 2025. I'm proud of our entire team's performance this past quarter across multiple fronts and look forward to continuing our momentum over the balance of 2025. I'll now turn it over to Seth to discuss the commercial execution and growth opportunities in our scenario surgical segment. Seth Yon Thanks, Ron. As Ron mentioned, our Sanara surgical segment commercial team delivered net revenue growth of 26% year over year. This growth was driven by our team's execution with respect to the following 3 initiatives related to our commercial strategy. One advancing and deepening our distributor relationships. Two selling into new healthcare facilities, and three further penetrating the existing healthcare facilities we serve. Beginning with the first of the three commercial initiatives, we significantly expanded our network of distributor partners. Specifically, at the end of the first quarter, our team had engaged and secured selling agreements with over 400 distributor partners compared to over 250 of the first quarter of 2024 and over 350 at the end of 2024. As a reminder, our expanded distributor network provides us with increased sales coverage and presence in key markets across the US. Turning to our second commercial initiative, we continue to add new healthcare facilities to our customer base by securing value analysis committee approvals and commencing sales to surgeons at these facilities. Over the last 12 months, our products were sold in over 1,300 facilities compared to over 1,080 facilities in the prior year period. With respect to our third commercial initiative, we increased our penetration of the existing healthcare facilities we serve by increasing the number of surgeons using our products within these facilities. While it's not our practice to disclose specifics related to our active surgeon user base, I'm pleased to share that we saw solid growth in the number of surgeon users on a year over year basis in quarter one. With this as a backdrop, we're pleased with the execution of our team and the progress we're seeing on our commercial strategy. We believe our commercial performance speaks to the durability of our customer base as well as the value that our Sanara surgical products provide. As surgeons gain firsthand experience with the use of our key products like CelerateRX Surgical and Biasurge, the value they bring to their procedures often leads them to become dedicated long-term users. Looking ahead, we remain focused in 2025 on pursuing these three commercial initiatives to capitalize on the multiple growth opportunities ahead of us. I'll now take a minute to outline some of these growth opportunities and our specific plans to pursue them over the balance of the year. While we will continue to add new distributor partners selectively, given our progress on the front over the last 18 months, we are increasingly focused this year on onboarding our recently added distributors and positioning their reps for success in selling our products. Our existing distributor network represents thousands of third party sales reps. Importantly, only a percentage of these reps are currently selling our products. This is especially true for our larger distributor partners and our distributor partners engaged in recent quarters. With this in mind, increasing the number of distributor reps selling our products within existing distributor relationships represents a significant growth opportunity for our organization. In 2025, our team is focused on onboarding, training, and providing the requisite technical support needed to help additional reps within each distributor to begin selling our products. In parallel, we will continue to focus on adding new surgeon users within the more than 1,300 facilities that we currently serve. The vast majority of these facilities are hospitals and importantly, our surgeon penetration within these facilities remains low. Adding new surging customers within our existing facilities continues to represent one of the largest untapped areas of growth for our organization. Lastly, we'll focus on continuing to add new healthcare facilities to our customer base with the goal of selling into more than 1,450 facilities by the end of 2025. As a reminder, we have contracts or approvals with over 4,000 facilities. This represents a significant opportunity for our commercial team and distributor partners to begin selling into new facilities. For all these reasons, we continue to believe we're in the early innings of our commercialization effort. We look forward to capitalizing on the multiple growth opportunities ahead of us as we educate prospective surgeon customers about the benefits for our products. With that, I'll turn it over to Sam to provide an update on Tissue Health Plus. Suresh Muppalla Thanks Seth, 2025 has been a period of focused execution for Tissue Health Plus. Thanks to the hard work of the team, we announced the availability of the first release of THP's technology platform on May first as planned. This is a pivotal milestone in our journey to disrupt non-acute wound care. The THP Tech technology platform release included THP co-pilot, our software offering which is designed to standardize wound care and reduce the administrative burden for wound care clinicians across all settings. THP Co-pilot consists of a mobile app designed for use by clinicians, which integrates both our software as a medical device and clinical decision support systems. These tools aid clinicians' ability to deliver precise and personalized wound care while not replacing their professional judgment. Additionally, THP co-pilot includes an administrative autopilot which for clinicians automates the process of enforcing reimbursement guard rails, optimizing billing codes, ordering medical supplies from durable medical equipment companies, and tracking the delivery of those supplies. THP co-pilot is also designed to integrate with the clinician's existing electronic medical record systems, which eliminates the need for charting after a clinician's encounter with the patient. THP co-pilot was developed on the top of CarePix Technology stack, which we acquired on April first. In advance of this acquisition, our team had been previously partnered with CarePix over the past year to leverage both the functionality and the technology frameworks which formed the foundation of our THP technology platform. Specifically, we use the mobile app functionality to accelerate the development of our THP copilot app. Our THP technology platform release is being implemented with the wound care provider group in preparation for the launch of our first pilot program. The implementation process involves configuring the wound care provider's clinical and administrative workflows to support an integrated wound care operating system aligned with their growth strategy. With this as a backdrop, we remain on track to launch our first pilot program with the wound care provider group later during the second quarter as previously discussed. Our team is also focused on raising the awareness of our THP offering in the provider market. Our THP solution was very well received last week at the symposium of advanced wound care spring meeting, one of the premier annual conferences for healthcare professionals and companies in the wound care industry, and we're building a strong pipeline of interested providers. In addition to these efforts, we continue to focus on launching a pilot program with the pair during the second half of the year. I would like to now turn this over to Elizabeth to review our first quarter financial results in more detail. Elizabeth Taylor Thanks, Sam. I will begin my remarks at the gross profit line since Ron discussed our quarterly revenue performance unless otherwise specified, all growth rates referenced during my prepared remarks are on a year over year basis. First quarter, gross profit increased $5 million, or 30% to $21.6 million. Gross margin increased approximately 240 basis points to 92% of net revenue, driven primarily by lower manufacturing costs related to Cellerate or surgical. First quarter operating expenses increased $5.5 million, or 30% to $23.7 million. The change in operating expenses was largely driven by a $5.2 million or 32% increase in selling general and administrative expenses and to a lesser extent, a $0.2 million or 18% increase in research and development expenses. The $5.2 million increase in SG&A expenses primarily reflects $2.4 million of direct sales and marketing expenses in our neo surgical segment, $1.7 million of SG&A expenses in our tissue Health Plus segment, and approximately $0.7 million of costs related to the build out of our corporate infrastructure. Note the tissue Health Plus segment SG&A expenses are primarily related to the buildout of certain aspects of the THP platform and infrastructure, which accelerated beginning in the second quarter of 2024. Operating loss in the first quarter was $2.1 million compared to a loss of $1.5 million last year. Importantly, our scenario surgical segment generated operating income of $0.8 million in the first quarter of 2025, an increase of $1 million year over year. Other expense for the first quarter was $1.4 million compared to $0.3 million of expense last year. The increase in the other expense was primarily due to higher interest expense and fees related to our CRG term loan. Net loss for the first quarter was $3.5 million or $0.41 per diluted share compared to a net loss of $1.8 million or $0.21 per diluted share last year. By segment, our scenario surgical segment generated a net loss of $0.6 million compared to a net loss of $0.4 million last year, and our tissue Health Plus segment generated a net loss of $2.9 million compared to a net loss of $1.4 million last year. Adjusted EBITDA for the first quarter of 2025 was $0.7 million, an increase of 111% year over year. By segment, Cinna Surgical generated segment adjusted EBITDA of $2.7 million compared to $1.2 million last year, and Tissue Health Plus generated segment adjusted EBITDA loss of $2.0 million compared to a segment adjusted EBITDA loss of $0.9 million last year. With respect to our balance sheet, as of March 31, 2025, we had $20.7 million of cash, $42.8 million of principal debt obligations outstanding, and $12.25 million of available borrowing capacity. This compares to $15.9 million of cash, $30.5 million of principal debt obligations outstanding, and $24.5 million of available borrowing capacity as of December 31, 2024. During the first quarter, we amended the terms of our CRG term loan agreement to provide more flexibility with respect to the timing and amount of potential future borrowings, and borrowed an additional $12.25 million. As a reminder, our loan agreement provides for one additional borrowing of up to $12.25 million on or before December 30, 2025. Lastly, a few considerations to bear in mind for the remainder of the year. As Ron mentioned earlier, our net revenue performance in the first quarter was consistent with our expectations, and we remain pleased with our start to 2025. Our team remains focused this year on delivering net revenue growth driven by our Sanara surgical segment. We continue to expect improvements in our scenario surgical segment profitability in 2025. With respect to our tissue Health Plus segment, we expect our cash investment in the first half of 2025 to be approximately $7.5 million to $8.5 million compared to our prior expectation of $7.5 million to $10 million, excluding the acquisition of CarePix. This implies cash investment in the second quarter of 2025 of approximately $4 million to $5 million. Note. This expectation does not include the CarePix acquisition, which, as SAM mentioned, we completed on April first for a total of $3.65 million upon closing. We also remain focused on pursuing financial partners to invest in the execution of our tissue Health Plus strategy. With our existing cash on hand, the expected cash generation in our scenario surgical segment in 2025, and the available borrowing on our existing facility, we believe we have the requisite capital to continue to pursue our strategic growth initiatives. Lastly, with respect to tariffs, it is important to note that with the exception of Biasurge, all of our commercial products are manufactured in the United States. With this in mind, we do not anticipate a material impact from tariffs on our results of operations in 2025. With that, I'll turn it back to the operator to open the call for questions. Operator Thank you. (Operator Instructions) Your first question for today is from Ye Chen with HC Wainwright. Yi Chen Good Morning. Eduardo just to get a little bit more color on your rates of penetration and understanding intuitively that seems like the area where, you probably get the most benefit in ROI approaching profitability. It's kind of your vision for how you're going to improve penetration at existing facilities, and your strategy there. Ronald Nixon Yeah, Seth, would you mind taking that, please? Sure, I. Seth Yon Of course, good morning. We do it with really a coupled approach between our RSMs, which we've talked a lot about in the past, territory managers as well, and then our distributor expansion. So our distributor expansion has jumped significantly over the last 18 months, and that's been done intentionally for that very reason. It's to get us access into new accounts but also to penetrate existing accounts deeper and further. So, it's really a coupled approach between both the RSM and our distributor partners. Yi Chen Got it. And is there any kind of signal on reorder rates, that you could provide that, you mentioned that people who use the product really like it, do you have any numbers on the reorder rates? Seth Yon We haven't provided that in the past. I will say this. Our business tends to stick, both on the Cellerate side and Biasurge alike. Once surgeons gain comfort with those two products, and that takes some time to do that. Oftentimes they'll start with high-risk cases to see how products perform, and then as they do perform highly and with highly successful rates, they continue to use that and expand that across more procedures. Yi Chen Okay, got it. That's really helpful. Thanks for the taking the questions. Ronald Nixon You he thanks you. Operator (Operator Instructions) Your next question for today is from Ross Osborn with Cantor Fitzgerald. Ross Osborn Hey guys, this is Matt Park on for us today. Thanks for taking the questions. I guess starting off with gross margin, came in very strong in the quarter. Can you, help us frame how we should think about gross margin cadence for the remainder of 2025 and any areas for further leverage those volume scales? Ronald Nixon So Ross, this is wrong. So how I think about it is when we bought the technology from the original designer developer of the product and, last year, that actually gave us some advantage on the manufacturing side because there was some additional margin there that to be had. So, I would say that it's you never can tell what external other costs could come about. So, I just think modelling it in your, just kind of consistent with how you've done it in the past is probably good to go forward. I can't see us achieving a lot more leverage than what we have today on the gross margin side. Ross Osborn Got it. That's helpful. And then, just one more for me on, tissue health plus, given that you remain on track for a pilot program launched in the second quarter, can you help walk us through what success will look like in this initial phase, whether that's clinical outcomes, patient volume, or economic validation, and how quickly you anticipate scaling beyond the first sight. Thanks. Ronald Nixon Yeah, that sounds good. Suresh Muppalla Sorry Ron, I jumped the gun there. So, Ross, to just to answer your question, we're really looking at the success of the pilot being measured in three sets of metrics. First is the clinician facing metrics. These include things like protocol and formal adherence. So, to just remind you, one of the key things we are actually implementing as part of our platform is a clinical decision support which. The clinic, so how well they adhere to the protocols and the formulary. That's a key metric there. The second metric facing the clinician again is helping them decrease their post-encounter time. So, for every minute the clinician spends in front of a patient, they could be spending up to two to three minutes. After the patient encounter completing the documentation, so that is a key metric we are trying to influence. And the last is clinician metric is around completion of documentation, how well documented is the encountered. On the operating side, which is the second category of metrics, we look at things like increase in staff productivity. And the way we do that is before we started the implementation, we have actually done time and motion studies of them of their practice end to end so we have baseline timings, and we look at improvements based on our workflow technology or how we are helping them with that. We also look at increased capture in billing services per visit, and we also look to decreasing inventory. Wound care related inventory costs and wastage. So, some high level operational metrics. The third bucket of metrics we look at are adoption metrics, which is, for example, the person that the clinicians using our THP copilot, what's the user satisfaction surveys, NPS, so on and so forth. Ross Osborn Got it. That's helpful. Thanks for taking the questions, guys. Operator We currently are seeing no remaining questions at this time. That does conclude our conference for today. Thank you for your participation.
Yahoo
15-05-2025
- Business
- Yahoo
Q1 2025 Local Bounti Corp Earnings Call
Jeff Sonnek; Investor Relations; Local Bounti Corp Craig Hurlbert; Senior Vice President - Strategy, Director; Local Bounti Corp Kathleen Valiasek; Chief Financial Officer; Local Bounti Corp Kristen Owen; Analyst; Oppenheimer & Co. Inc. Ben Klieve; Analyst; Lake Street Capital Market Operator Good morning and welcome to Local Bounti's first quarter 2025 earnings conference call. (Operator Instructions) At this time, I'd like to turn the call over to Jeff Sonneck, investor relations at ICR. Please go ahead. Jeff Sonnek Thank you and good morning. Today's presentation will be hosted by local bounties executive Chairman Craig Hurlbert and President, Chief Executive Officer and Chief Financial Officer Kathleen Valiasek. The comments made during today's call contain forward-looking statements within the meaning of the safe harbour provisions of the Private Securities Litigation Reform Act of 1,995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management's current expectations and beliefs, as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements. Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We'll also refer to certain non-GAAP financial measures today. Please refer to the press release, which can be found on our investor relations website, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. And with that, I'd now like to turn the call over to Craig. Craig, please go ahead. Craig Hurlbert Thank you, Jeff, and good morning, everyone. I want to start by taking a moment to express my sincere gratitude. Local Bounti team. The dedication and commitment I've witnessed across the company has been truly remarkable as we navigate this important phase of our company's journey. We have assembled an exceptional group of people who continue to drive our mission forward with passion and focus. I'm pleased to see the continued validation from our customers whose increasing desire for CEA products reinforces the market opportunity ahead of us. The foundation we've built over these past years has positioned local bounty to achieve positive adjusted EBITDA in the near term, and I'm confident that under Cathy's leadership, we'll continue to execute on our strategic vision. Create meaningful value for all stakeholders. With that, I'll now turn it over to Kathy. Kathleen Valiasek Thank you, Craig, and good morning, everyone. First, I completely echo Craig's sentiment and want to acknowledge the incredible dedication and focus of our entire organization. As Craig alluded, our team has fully embraced our mission to reach positive adjusted EBITDA in the third quarter of this year. From operations to sales to finance, everyone is aligned around this critical goal, and I couldn't be prouder of the collective effort. To that end, our first quarter progress, including all of our commercial and operational initiatives, are converging toward a significant revenue lift in the second half of 2025, and our achievement of this positive adjusted EBITDA milestone we are positioned to reach in quarter three. Importantly, the disciplined approach we've taken from product diversification to operational efficiencies to cost management is creating a strong foundation that will support our long-term growth and profitability as we scale our business to meet growing retail demand for our products. Starting with our operational progress, the product mix recalibration work at our Texas facility continues to advance as planned. We are in the final stages of completing this work and expect to begin for full commercial production in this section starting this month. As we discussed previously, the purpose-built automated harvesting equipment will be installed early in the third quarter, replacing the temporary harvester we will use this quarter. The new harvester is expected to drive significant operational efficiencies and marginal improvement. I'm particularly excited to share that our yields in our Georgia facility have increased by 20% in the first quarter compared to our fourth quarter rates. This improvement is largely attributable to the refinement of our growing system with the stack phase which has outperformed our internal expectations. Our next step is to implement this program in our Texas and Washington facilities where we expect. Achieve similar yield increases. These yield improvements over our existing performance create an excellent opportunity for a sales team to engage prospective retail partners who are looking for CEA suppliers that can deliver consistent performance, something that truly differentiates us at a time when retailers are increasingly taking interest in CEA products. Regarding our plans to enter the Midwest with a new facility, I'm pleased to report significant advancement in our strategy there. We are actively engaged in promising discussions with multinational and national retailers to include the Midwest region in their sourcing plans. While we're very far along in this process, it's still too early to announce anything definitive. These developing relationships represent important validation of our expansion strategy and our ability to serve retail partners across multiple regions. Turning now to our commercial progress, building on the incredible momentum from last year in quarter one 2025, we expanded our Texas grown arugula offering with Brookshires in approximately 80 stores and began distributing organic living butter lettuce from California to HEB. We also started shipping Living Basil to an existing large retail customer across 60 stores and secured distribution with several other wholesalers for our basil products. Notably, our relationship with Walmart continues to strengthen. In addition to the 191 stores, we are already serving with premium baby varieties as of quarter four, we secured an additional commitment to serve 13 Walmart distribution centers with our conventional living butter lettuce. With those shipments having commenced just a couple weeks ago from both our California and Texas facilities, we've also evolved our grab and go salad kit offerings to better serve retail partners and consumer trends. This includes the launch of new salad kits in quarter one 2025 with additional Flavors expected to be introduced in quarter three, as well as the creation of a new product line that meets the needs of today's value-oriented consumer. We're particularly excited about our upcoming exclusive launch of a new larger approximately 12-ounce family size Caesar salad kit with a large multinational retailer in the Pacific Northwest, beginning in the third quarter. We also continue to expand our relationship with the leading meal subscription business that is now seeking additional skills from us. These commercial wins demonstrate the strong pull we're seeing from our customers and their increasing desire to purchase more CEA products, validating our mission and reinforcing the long-term market opportunity ahead of us. Turning briefly to our first quarter results. Our first quarter sales were $11.6 million in line with our expectations and representing a 38% increase compared to the first quarter of 2024 and a 15% sequential increase compared to the fourth quarter of 2024. This growth was driven by increased production and sales from our Georgia, Washington, and Texas facilities, partially offset by the ongoing product mix for calibration work at our Texas facility, which has temporarily decreased capacity. Our adjusted growth margin for the first quarter improved approximately 500 basis points versus the prior year and approximately 400 basis points versus the fourth quarter 2024. This improvement is particularly encouraging as it demonstrates that our product mix recalibration work and operational efficiency initiatives are yielding tangible results. We continue to expect that over time, our adjusted gross margin will increase as a percentage of sales as a result of the continued scaling of the business and ongoing efforts to optimize costs. Net loss for the quarter was $37.7 million compared to a net loss of $24.1 million in the prior year period, which largely reflects higher interest expense. Our adjusted EBITDA loss for the quarter was $8.8 million compared to $6.9 million in the prior year period, and importantly, representing an improvement of $50 million from our fourth quarter 2024 loss of $9.3 million. We remain on track to achieve our third quarter target to reach positive adjusted EBITDA, driven by the full realization of our ongoing cost reductions alongside our anticipated revenue lift that we expect to be more fully visible in the third quarter of 2025. To emphasize the cost reduction point, we took out approximately $3 million of annualized GNA expenses in the first quarter, and during the second quarter to date period, we've actioned another $4 million of annualized expenses across both GNA. And cost of goods sold. These initiatives are a direct result of our operational focus, which is resulting in significantly improved consistency across all facets of our growing operations and allowing us to drive those efficiencies through our income statement. Turning to our balance sheet, we ended the quarter with a significantly strengthened financial position with cash and cash equivalents and restricted cash of $28.4 million. That said, I do want to provide some clarity on how our debt restructuring appears on our financial statements. While we eliminated approximately $197 million of debt to our March restructuring. Accounting rules require us to maintain the original carrying value of the pre-restructuring debt amount on our balance sheet, with the reduction being recorded as a debt premium that is amortized over the new loan term. You'll see this as a new line item on our first quarter balance sheet. This means that our reported debt balance won't immediately show the reduction, but the economic benefit remains unchanged and will be reflected through lower interest expense over time. This accounting treatment is standard for transactions of this nature and does not impact the fundamental improvement of our capital structure. Now for some comments on our outlook for the second quarter, we expect revenue in the range of $12 to $12.5 million, which reflects the partial impact from our Texas facility transition, which is expected to be complete in the third quarter. Looking at the cadence for the balance of the year, we expect to see a material lift in the second half of 2025, resulting from a convergence of activity, including the aforementioned full quarter contribution from our Texas facility transition and the additional capacity from our Georgia yield improvement. Additionally, new product introductions and expansions with existing customers are anticipated to also support our expectations for sequential growth in the second half of the year. I'd also like to briefly comment on our EBI progression from quarter four to quarter one and highlight how we expect to improve on this in quarter two. In quarter one, we experienced temporary cost increases that we expect will be eliminated in quarter two. These included higher utilities associated with weather anomalies and higher GNA expenses, which were impacted by the combination of a higher mix of product donations associated with the better than anticipated yield improvements in Georgia, lower capitalization of labor now that the construction projects have been completed, and lastly, higher severance associated with our cost optimization work. These collectively impacted our EBITDA by approximately 900,000 in the first quarter and are not expected to reoccur in the second quarter. These dynamics combined with our second quarter to date cost actions are providing us some tailwind toward our goal of achieving positive adjusted EBITDA in the third quarter of 2025. In conclusion, we're energized by the progress we're making across all areas of our business. Our entire organization is aligned behind our mission to reach positive adjusted in the third quarter, and I couldn't be prouder of the collective effort of our team. With that please open the call for Q&A. Operator Thank you. (Operator Instructions) Our first question comes from the line of Kristen Owen with Oppenheimer and Company. Please proceed. Kristen Owen Hi, good morning, and thank you for taking the question. Congratulations on the nice progress made in the first quarter here. Kathy, you touched on this in some of your final, prepared comments here, but I want to double click on sort of what's driving that material list, coming into the back half of the year. You noted Texas transition, the Georgia yield improvements, some new products. I want to double click on that towards the yield improvement. I think you said 20% over fourth quarter. Just help us understand, what, what's changing in the production process, how you're achieving that yield, and then on the commercial side, sort of the velocity of sales and your ability to sort of sell out that incremental yield as you're thinking about that at the back half of the year. Kathleen Valiasek Yeah, great series of questions, Kristen, and good morning to you. Thank you. So yeah, the 20% yield increase in Georgia is an R&D program that was developed last year. We were able to finally put it in place in Georgia, and it was, it actually exceeded our expectations in terms of yield increases, which is fantastic, right? So, as we said in my, as I said in my comments, we will also be implementing that program in Texas and Washington in quarter three, so we expect to see that similar level of bump and yield in both of those facilities. If you think about it, so out of Georgia, when the yield increases that much, your production increases, right? And so, it takes a little bit of time for our sales team to place the product, right, which is normal. So And then in terms of the ramp in the back half, right, it's several things going on with all of our customers, right? We, talked about all of the Walmart projects, the grab and go salads, the increased revenue that we will anticipate out of Montana. Several things are impacting the uptick, including, also as we discussed, the yields. So hopefully that's helpful. Kristen Owen That's great. The follow up question that I have is a little bit more modelling oriented just given some of the nuance around the restructuring that you announced last quarter, you mentioned the balance sheet implications. I'm trying to think about the. The income statement implications in particular how to think about the interest expense that you're reporting what if that is cash versus non-cash and how that will change with this restructuring just a little bit of nuance on the model that would be helpful. Thank you. Yeah. Kathleen Valiasek Yeah for sure so you know GAAP accounting, right? You would have anticipated that we would be able to recognize the full gain of the debt write off of $197 million. But we're actually having to take it over 10 years, which actually in effect is fantastic because every quarter it will reduce our interest expense on the face of our P&L, right? So, the accrual every quarter is the debt balance times the interest rate, which again we, as we disclosed, it's, 50% of what it used to be. And then the amortization of the premium will reduce the interest expense on the face of the P&L. So, in effect, every quarter, the interest expense as it appears on the P&L will be less than $5 million. And then also keep in mind, yeah, let me just add one more comment there. Keep in mind that the restructure with Cargo allows for, two full years of no cash interest or am amortization payments. So, but obviously right there there's still the accrual. Kristen Owen Perfect thank you I'll pass it on. Kathleen Valiasek Okay, thanks Kristen. Operator Thank you. Our next question comes from the line of Ben Klieve with Lake Street Capital Markets. Please proceed with your question. Ben Klieve Alright, thanks for taking my questions. I want to circle back to this 20% yield enhancement. I'd like to kind of better understand I think cat in your prepared remarks you said that this was, a project, explicitly around the stack phase of the Georgia facility. And so, I'm wondering is this a situation where you have 20% more plants coming out of the stack phase, just from a pure, kind of per square foot perspective, are they coming, are the same number of plants coming off 20% faster? Are you kind of changing the varieties to maybe faster growing, options? What exactly is the driving force behind that? Kathleen Valiasek Yeah, sure, great question, and good morning, Ben. Yeah, so it's really within the stack phase. It's very simply light optimization, okay, and it's something we nicknamed it Thor. Our R&D scientists who are amazing developed the program, actually early last year. What it does is it just, it increases the output out of the stack phase and basically, even all the way through then the process through the greenhouse, we're literally seeing 20% increase in pack down every single week. It's actually pretty amazing, but it's basically within the stack, it's light optimization. And what it does is it increases the output of number of plants, sorry, poundage of plants out of the coming out of the stack face. Ben Klieve Got it. So, four is light optimization on the same number of plants that makes those plants grow 20% faster. Kathleen Valiasek Correct. Ben Klieve Got it okay, very impressive, so then. Yeah, sounds like it. My other question, then before I'll get back into you is, you talked, it seems like it was a bit more, kind of conviction regarding the future of the Midwest, facility, and I'm wondering if you can talk about. How you're thinking about financing that facility, are you looking at kind of project specific financing, the external parties, leaning back into the existing credit facilities that you have a mix of those two or something else? Kathleen Valiasek So, we're, as any company, right, you're always trying to bring new capital providers in the capital stack, so we are talking to sort of very project specific financing, but you know I think we'll probably be bringing new, obviously non-dilutive partners into the capital stack. Okay. Ben Klieve Very good that's helpful well I appreciate you taking my questions best of luck here and what should be a, pretty interesting next few months for you guys. I'll get back in you. Kathleen Valiasek Thanks. Operator Thank you, ladies and gentlemen. I'm showing no other questions at this time. I'll turn the floor back to for any final comments. Kathleen Valiasek I just would like to thank everybody for joining us today and we look forward to updating you on our progress as we further scale and grow local bani's business in the coming quarters. Thank you very much. Operator Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation. Sign in to access your portfolio
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14-05-2025
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Q1 2025 Acadia Healthcare Company Inc Earnings Call
Brian Farley; Executive Vice President, General Counsel; Acadia Healthcare Company Inc Christopher Hunter; Chief Executive Officer, Director; Acadia Healthcare Company Inc Heather Dixon; Chief Financial Officer; Acadia Healthcare Company Inc AJ Rice; Analyst; UBS Brian Tanquilut; Analyst; Jefferies Whit Mayo; Analyst; Leerink Partners Andrew Mok; Analyst; Barclays Sarah James; Analyst; Cantor Fitzgerald Joanna Gajuk; Analyst; Bank of America Operator Good day and welcome to Acadia Healthcare's first quarter of 2025 earnings call. (Operator Instructions) Also, please be aware that today's call is being recorded.I would now like to turn the call over to Brian Farley, General Counsel. Please go ahead. Brian Farley Thank you and good morning. Yesterday, after the market closed, we issued a press release announcing our first quarter 2025 financial results. This press release can be found in the investor relations section of the website. Here with me today to discuss the results are Chris Hunter, Chief Executive Officer, and Heather Dixon, Chief Financial the extent any non-GAAP financial measure is discussed in today's call, you will find in the press release that is posted on our website, a reconciliation of that measure to the most directly comparable financial measure calculated according to conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1,995, including statements among others regarding Acadia's expected quarterly and annual financial performance for 2025 and statements may be affected by the important factors, among others, set forth in Acadia's filings with the Securities and Exchange Commission. And in the company's first quarter news release, and consequently actual operations and results may differ materially from the results discussed in the forward-looking this time, I would like to turn the conference call over to Chris. Christopher Hunter Thank you, Brian, and good morning everyone. Thank you for being with us for Acadia's first quarter 2025 conference call. We are pleased with our start to 2025 with both first quarter revenue and EBITDA landing in line with our expectations, while we made continued progress against our strategic growth quarter revenue of $770.5 million came in just above the midpoint of our outlook range of $765 million to $775 million while adjusted EBITDA of $134.2 million was near the high end of our outlook range of $130 million to $135 million. We also reaffirmed our previously issued full year financial guidance ranges for both revenue and adjusted EBITDA, which Heather will provide further detail on later in the to volumes, same facility patient days grew 2.2% in the first quarter, which included an unfavourable leap year impact of roughly 110 basis points over the first quarter of 2024. The strong relationships we've built with our referral sources and our 21 joint venture partners continue to be an important part of our strategy for continues to be the preferred partner for leading health systems with both local and national brand recognition across the country to better serve patients by bridging the gap between physical and behavioral healthcare. Along those lines, I'd like to provide a progress update on our strategic the first quarter, we added 378 new beds comprised of 90 beds to existing facilities and 288 beds from two new facilities that were opened in the quarter, which includes a joint venture hospital in partnership with Henry Ford Health in West Bloomfield, Michigan, and a de novo facility in North Port, addition, Acadia added seven new comprehensive treatment centers in the first quarter, extending the company's market reach to 170 CTCs across 33 states. For the full year 2025, we expect to add between 800 and 1,000 total forward, we have a solid pipeline of potential opportunities in attractive markets and expect to add between 600 and 800 beds annually over 2026 to 2028. Before I turn the call over to Heather, I would like to spend a few minutes discussing the numerous efforts this company continues undertaking to support our quality initiatives and share a few thoughts on the policy Acadia, our commitment to quality and safety is a foundational element of our strategy. Our facilities are licensed, accredited, and regularly inspected to uphold high regulatory and quality standards, including rigorous requirements for employee training and patient employ a multi-layered approach to patient protection that often exceeds industry and regulatory standards. These measures, such as 24/7 patient monitoring systems, mandatory de-escalation training, and regular safety rounds are designed to meet the specific needs of the patients and staff at each Acadia ability to use data has continued to advance significantly. Our hospital CEOs and leadership teams also use a variety of sophisticated cloud-based systems with deep data capabilities to monitor care quality. Further, our integrated quality dashboard now provides real-time visibility into over 50 distinct safety patient experience and regulatory compliance related key performance the corporate level, our team supports this work with weekly, monthly, and quarterly operational and quality performance reviews. We believe the supportive multidisciplinary relationship between the field and the corporate teams ensures we find and eliminate sources of operational and clinical variation and helps us translate behavioral science to practice with health is complex, but it is clear the need has never been greater for high quality behavioral health care, given the severe mental health crisis that our nation faces. Our strategy at Acadia remains centered on high quality care and clinical health outcomes, and we will continue to prioritize our quality initiatives and expand them when to labor, we believe our differentiated quality initiatives are having a positive impact on our ability to recruit and retain our staff. These efforts are directly connected to our emphasis on employee engagement and talent acquisition, ensuring we have appropriately staffed facilities with trained employees which have improved underlying labor trends for our is further reinforced by our premium pay, which declined on both a sequential and year over year basis in the first quarter. We are extremely proud of the commitment of Acadia's nearly 26,000 employees that have chosen to join our mission to provide compassionate care that improves the lives of patients and their I would like to briefly touch on the policy landscape. First, let me say that we believe government policy has an important role to play in continuing to strengthen the behavioral healthcare system, and we remain highly engaged on the policy front so that we can continue advocating strongly on behalf of patients in the situation in Washington is fluid, we believe that the essential care we provide to underserved and vulnerable patient populations will continue to be recognized and supported. To cite one example, supplemental payment programs have been a key enabling force behind not only our ability to serve high acuity behavioural health patients, but also patients in many other essential parts of the healthcare system, including rural hospitals, children's hospitals, and nursing this in mind, we expect these programs to remain an important funding mechanism for Medicaid populations. We remain focused on providing programs and facilities that provide these patients with the best possible care. And we'll provide updates to the investment community as we receive clarity on any potential policy related impacts to our that, I would now like to turn the call over to Heather to discuss our financial results for the quarter. Heather Dixon Thanks, Chris, and good morning everyone. Our first quarter financial performance for both revenue and adjusted EBITDA fell within our guidance ranges, with adjusted EBITDA performing at the high end of the range. We reported $770.5 million in revenue for the quarter, representing a slight increase over the first quarter of last we had expected Medicaid supplemental payments to be down $10 million to $15 million year over year in Q1, and these came in near the midpoint of that range. Main facility revenue grew 2.1% compared with the first quarter of 2024, driven by patient day growth of 2.2%. As Chris mentioned, both same facility revenue and patient day growth included an unfavorable impact of approximately 110 basis points from the leap won the same facility revenue per patient day growth was roughly flat on a year on year basis, primarily due to the timing of supplemental EBITDA for the first quarter of 2025 was $134.2 million reflecting an adjusted EBITDA margin of 17.4%. As reflected in our prior guidance, these quarterly results included an approximate $5 million year on year EBITDA impact due to the decision to close the facility in the first quarter as a part of our ongoing portfolio management included in our results were startup losses related to new facilities, which were higher on both a year over year basis and a sequential basis, reflecting a step up in the number of newly constructed facilities. On the same facility basis, adjusted EBITDA was $191.6 million and adjusted EBITDA margin was 25.2% in the first quarter of this same facility results continued to be affected by a small group of underperforming facilities that you will recall started to have a material impact on our results near the end of the third quarter of 2024. To date, these facilities have performed in line with our expectations, while we continue to work diligently to improve performance at these facilities, we acknowledge that it will take time, and our 2025 guidance continues to reflect no material improvement at these underperforming facilities as we move throughout the continue to maintain a strong financial position, providing us the ability to make the right strategic investments to enhance our operations and support our growth strategy. As of March 31, 2025, we had $91.2 million in cash and cash equivalents, and approximately $900 million under our $1 billion revolving credit facility, with a net leverage ratio of approximately 3.2 company repurchased approximately 1.6 million shares during the first quarter for a total of $47.3 million. Moving on to our outlook for 2025, as noted in our press release, we are reaffirming our full year guidance ranges for revenue, adjusted EBITDA, and adjusted earnings per a reminder, our 2025 guidance includes the following considerations. For 2025, we expect to add between 800 and 1,000 total beds. As I just mentioned, we expected that a small subset of underperforming facilities would result in an approximate $20 million year over year headwind to our 2025 adjusted I mentioned, to date, these facilities have performed in line with our expectations and negatively impacted our same facility patient day growth by approximately 90 basis points in the first quarter. We expect to begin to comp over this headwind to volumes in the fourth quarter of continue to expect Medicaid supplemental payments to be flat to up $15 million in 2025 on a net basis, inclusive of the new Tennessee program once approved. We continue to expect $50 million to $55 million in startup losses for full year 2025, of which we anticipate approximately $15 million in the second we move to Q&A, I would like to offer some additional color on our bed additions and growth plans. Since last quarter, some of you have asked us questions about our long-term EBITDA growth guidance. So we want to take a moment to clarify some of the assumptions that are contemplated in that guidance previously announced the expected revenue growth of 7% to 9% and EBITDA growth of 8% to 10% over 2026 to 2028 is underpinned by annual bed editions of 600 to 800 beds beginning in 2026, as well as the roughly 1,600 to 1800 beds being added over 2024 and we want to highlight that most of these bed editions come in the form of brand new facilities, which on average typically ramp to run rate occupancy and even up margins within a five-year period. As a result, we expect to recognize incremental EBITDA for a majority of this cohort beyond 2028, as these beds continue to ramp to mature occupancy and margin in mind our three year outlook also contemplates the inherent uncertainty that always exists with regards to construction timing, licensing timing, and time to ramp, and we will remain cognizant of this uncertainty as we continue to execute on the largest expansion of bed capacity in our company's history over the next several our three year outlook assumes that the occupancy and EBITDA ramp for new hospitals will trend towards a five year ramp period, which is at the upper end of our historical ramp model and leaves a significant amount of inherent earnings power beyond with regards to payer rates, we included an element of conservatism in our assumptions as it relates to revenue per patient day and rate growth, given some of the uncertainty surrounding the policy and macro see embedded upside in these projections if the next few years updates from government and commercial payers more closely resembles that of the last few years versus what is currently contemplated in our three year space of new behavioural health hospitals we are currently building will provide a multi-year runway for growth, not only as occupancy ramps over the next few years, but also as we're able to add expansion beds to these facilities over we decrease the accelerated pace of bed additions in 2026 to a rate of [6800] per year, we expect startup losses to ease in the back half of 2026, helping to fuel strong and self-sustaining pre-cash flow generation as we exit this bed growth is still well above the historical pace prior to 2024, which will contribute meaningfully to our performance in the outer years, including in 2028 and that, we're ready to open the call for questions. Operator (Operator Instructions) AJ Rice, UBS. AJ Rice Hi everybody, just maybe first, there are a lot of moving parts in this year's numbers. I know you got the supplemental timing on different supplemental payment programs. You got the pacing of startup losses on the bed additions and then the annualizing of the Q4, challenges from last year start to make the cops easier later in the you just give us some perspective on how you see the progression? of EBITDA from here, maybe a little bit of more color on how to think about the seasonality of the business this year given some of those dynamics. Heather Dixon Yeah, sure. Hi, AJ, good morning. Thanks for the question. So, I'll just kind of walk through a little bit of the phasing, if we think about Q1 versus the rest of the year, you're right, there are several moving parts and we had talked about a few things that will specifically impact. One a little bit more predominantly. And if you factor those in or normalize them, then you can see the normal cadence that we would first thing I would say is, nothing's changed since, we talked last time and where we set our guidance and all of the multiple factors we went through. And I think the most obvious piece is that from a timing perspective, the Tennessee DPP is clearly going to be the biggest swing factor, thinking about the cadence throughout the balance of the year, AJ, as we look at it, depending on which quarter that will be recorded in.I mean, beyond that, there's just, a couple of other things that I would, would talk about that would really lead to the improved performance as we move throughout the year. I mean, first, Q1 had the highest level of startup costs and the lowest contribution from the new beds just because of the timing of when we added them. So that alone implies a steeper ramp as we work our way through the year, and then, as we assumed in our guidance, supplemental payments were down, year over year in had said those would be down to $10 million to $15 million and we landed sort of right in the middle of that for Q1. But we expect that those supplemental payments will actually be flat to up $15 million on a net basis for the full year. So that's a pretty big swing between Q1 and the balance of the year and as I mentioned, obviously Tennessee is the largest piece of if I think about the other swing factors from a volume perspective. We will have a growing contribution from the new beds as we move throughout the year, and then we're also going to comp over a headwind that we started to see from some of those underperforming facilities as we move into the fourth quarter of the year. So that's another piece as you think about comping last year's fourth just one more thing to point out is rates again, the timing of the supplemental payments and Medicaid mix shifts in the specialty business. We're impacting Q1 and those should start to moderate as we head into Q2 and then, further on throughout the year, and that means that low single digit rate growth for the full year, really, moves throughout the year and there where we expect it to be for the full year versus where it was for Q1, where it was slightly I think that covers the highlights, the big points again, I pointed out a lot of different moving parts with the full year guide for EBITDA on the year-end call, but I think those are the highlights and hopefully that helps. AJ Rice Yeah, that's very helpful. Maybe just my follow up question is, I know you've got a cautious view on rates this year, but, technically what you are actually seeing in your Medicaid rate updates I assume a lot of states updated January 1 and you'll have some more update July 1. And then you probably also got your Medicare rate update which we pretty much know, but if there's any variants there for you specifically and then any comment on commercial and what you're seeing there. Christopher Hunter Hey, this is Chris. I'll go ahead and take that one. I would just say overall that we continue to have very good discussions with our payer partners and you know we remain very optimistic that they're going to continue to recognize our focus on providing high quality care. I wouldn't call anything out with respect to Medicaid versus commercial or outlook, as Heather has discussed, always assumed a low single digit, same facility revenue per day growth, and historically we've talked about that in kind of a low to mid single digit range. We decided just given the noise on the policy front. That it was prudent to just incorporate a more conservative approach in our thinking about rates just given the broader environment, but there's nothing specific on the horizon that we see as concerning and I would say underlying rate growth has been relatively stable and in line with our expectation as we've, gotten into the year. AJ Rice Okay, thanks a lot. Operator Brian Tanquilut, Jefferies. Brian Tanquilut Hey, good morning, guys. Chris, maybe take a step back as I think about, obviously 2% same sort of volume performance in the quarter, despite some of the heads you're facing with the units that are dealing with the headlines. How are you thinking about what the broader demand environment looks like right now? I mean, obviously you're one of our data points and you're peer that's public, but outside of that, if you can share with us what the demand environment looks like for behavioral health today. Christopher Hunter Yeah, I would say, Brian, thanks for the question that you know our expectation is that it just continues to be consistent with what we're with what we're seeing. I mean, I think particularly given our strategy of focusing on the higher acuity patients, when you look across our various lines of business, whether it's on the acute front, CTC specialty RTC, we just continue to see, increasing demand, and I think, we've done a very good job of pointing out our commitment to have obviously invested heavily in being able to quantify outcomes and we've shared that with our peer partners and I think all of that has led to a consistent demand environment. I mean, Heather anything that that you would want to add? Heather Dixon No, I think that's right. I think, the demand environment remains and we are doing our part to meet that demand, and we're working hard to look at new facilities and bed additions where those are necessary, so nothing to add there. Brian Tanquilut Appreciate that and maybe Heather, thank you for all the color on the five year ramp to maturity. So just curious as you think about the cohort of beds added in '24 and '25, maybe even into the '26, has your view on the path to break even changed, or is it still the same you're kind of laying out that five year you kind of like ramp up to kind of mature levels of margins and occupancy. Heather Dixon Yeah, thank, thanks for the question. I, our view has not changed. Let me just walk through a little bit of how we're thinking about it and specifically how we thought about it, whenever we thought about the long term. Guide, the three year guide that put out.I mean, first of all, you mentioned the three to five year grant period that we've experienced historically, that is, that's our average. Now keep in mind there's multiple factors that impact how those rampant we've seen some really good success in recent facilities. As they've been ramping, one of the factors that impacts it pretty significantly is whether it's a bed addition to an existing facility or whether it's a newly constructed those take much longer to ramp. In our longer term guide, we have assumed a higher mix of new facilities constructed and new beds from construction than what has historically over the last few years been contemplated and what's actually played out. And so that shifts a bit towards the higher end between the three to five range, those obviously will be the higher end of that range versus so that's part of it. And you know what that means actually is that there's incremental EBITDA that's beyond 2028 because those beds, you just mentioned the years that are ramping, all of those would continue to be ramping and really hitting their stride in what we've modelled out post a couple of other things that I would think about, there's always uncertainty with construction timing, and that's not just construction, licensing timing, how long does it take to ramp, all of those different things, and we're just very cognizant of all of that uncertainty. So as we're executing and continuing to execute on what's clearly the largest expansion that the company's been in that position for the past several years and we're going to continue. We're just very cognizant of that. We want to make sure that we factor that uncertainty and appropriately into the guide. If I think about how far our outlook goes, we think about four years from now effectively will be when that outlook, when those things are actually happening, and that means that even our included in the end sort of the longer tail of that '28. We haven't even started construction on those beds yet, so we feel like it's more prudent to just assume the higher end of the ramp range between that three to five years just because it's further out into the future. And so, I talked about on the prior call that that that's some conservatism that's built hopefully that helps you understand a little bit of what we're thinking about with conservatism whenever I say that. I mean, again, what that points to is that you know the occupants in the EBITDA ramp for those hospitals, there will be certainly incremental amounts of inherent earnings that are again showing up beyond 2028 that all that said, we are still experiencing strong performance. I just mentioned that we had, some in our recent cohorts, 2023 cohorts specifically that we're watching because of where it is now and sort of the ramp. And we're seeing some really good outcome and results, but we just thought it was more prudent for the reasons I just want to assume sort of the higher end of that ramp back to your a long winded answer to your question, but back to your original point, our view hasn't shifted. We've just factored in some conservatism and hopefully that helps to understand why and how we factored it in. Brian Tanquilut No, very helpful. Thank you. Operator Whit Mayo, Leerink Partners. Whit Mayo Hey, thanks. Anything when you just look at the first quarter and your performance, was there anything better or worse in the quarter versus your original expectations? Just wondering if there was any favourability on any of the key assumptions or expense items thanks. Heather Dixon Yeah, hi. Sure, let me, I'll talk about two things. I mean, the first thing I would talk about is labor. We saw, the continuation of those favourable labor trends that we have been seeing, and our base wage inflation continued to trend lower expenses both fell year over year and sequentially, so you know that's the first thing that I would point to. The second thing I would point to are startup losses, those came in a couple of million dollars better than our expectations for the first quarter, and that's just just, all the things I just marched through in regards to construction and some of the uncertainty, that's just some timing differential, and we still expect that those will continue to, be in the range of $50 to $55 for the full year, just to be clear, but they were around $16 million in Q1, and that's a little lower than what our expectations were. But that's really the, I think the only two things that I would point out from a quarterly perspective. Whit Mayo Okay, so a couple million dollars of favourability on the expense side and you were still within the range that you targeted, is that, I mean, is that the way that you're looking at the performance? I'm just trying to figure out like how you perform versus the internal plan versus the guidance that you provided. Heather Dixon Yeah, I mean, we were up towards the higher end of our guide with -- and that is very -- I, the things I just walked through, I think specifically the startup losses, those were what contributed to us being at the high end of the guide, but we were, performing right in line with our internal plan. Whit Mayo Okay, I know this isn't a metric that you talk about, but when I look at the revenue per average CTC, it's been declining for several quarters now and just trying to maybe better understand why that metric would look like that. Heather Dixon I will start, and Chris, you may want to jump in, but from a revenue perspective for CTC, I mean, as there, the CTC businesses experienced just significant growth. I'm very pleased with the growth over the past few years. There was a lot that we could do to apply some muscle behind it and really, get the most out of that other thing that I would point out is if you look at the CTC business, we have found a very capital friendly way to add facilities to the lineup and those are effectively acquiring sub-scale sort of ramping CTC facilities that we can buy for, very good then we can put those in apply the Acadia methodology for running the operations and really ramp those pretty quickly. So as we add those in, and they are in similar in the ramp position, you'll see that those, we kind of pull down the average overall as we're ramping them. And in the first quarter we Op -- Christopher Hunter System and we've seen examples of that in the past where the populations Have been carved out on things like work requirements and I think what you're seeing in the bill appears to have some significant carveouts related, but we're just going to have to continue to work through it and obviously continue to lobby, with the broader NABH and broader industry groups. Whit Mayo Got it. And then I wanted to see if Heather had any comments on the cash flow from operations in the quarter. I think the legal expenses probably had an impact there, but were there any other sort of timing things to think through and when those were normalized? Heather Dixon Yeah, the only thing I would point to is, obviously, as we've talked about, we are clearly at the peak from a CapEx perspective as we are in the middle of the highest number of new beds that the company has experienced, both with the end of last year, the significant number of beds coming of those costs continue to flow through related to those in Q1. CapEx and cash is obviously cash-based it's not accrual. So even though we open the beds in Q4, the costs are still going to come through in Q1. So that's part of it. And, incrementally just to add on to that, obviously, we have added a large number of Beds already this year with Q1 we've added, almost 400 new beds already, so that's a piece of it as in mind that startup losses are also part of that and those are clearly at a peak in Q1 of what we expect for the full year as we've talked about. As we move through the year $50 million to $55 million for the year, but there was a predominance in Q1, and so that's also a piece of what you're seeing. You're correct, obviously the legal costs, those come through and that's part of what is coming through from a legal perspective and impacting cash flow. I think, those are the primary moving parts, hopefully that's helpful and and answers your question. Operator Andrew Mok, Barclays. Andrew Mok Hi, good morning. There's been a year over year decline in specialty revenue looks like for five quarters in a row now, which has contributed to the broader deceleration and same store revenue. Can you help us understand what's going on with that line specifically and when you expect to get back on track for growth? Thanks. Heather Dixon Yeah, I'll jump in. Hi Andrew. So a couple of things I would point to, first is we have closed some specialty facilities over the past several quarters, and obviously we closed one in one of this year and then there were a few others that we've closed over the past handful of quarters, and so that's part of what is contributing to was about 5% down in the first quarter and that's really mostly driven by the facility closures. Over the past, I would say a year and a half, we wound down for specialty facilities and that includes the one that I just mentioned in the fourth quarter. So that's part of other part is if you think about just from a revenue perspective, we have seen, some nice growth in the Medicaid specialty inpatient business. Obviously, that has a differential from just the year over year perspective on the overall revenue contribution for that depending on the type of treatment that those patients need, but really, I think it's mostly driven by the closures. Andrew Mok Got it. That's helpful. And as we contemplate the recognition of state supplementals, supplemental payments from Tennessee, is that mostly an acute inpatient item, it would hit that revenue line? Heather Dixon Yeah. Andrew Mok Okay, understood. Thank you. Thanks to all color. Operator Sarah James, Cantor Fitzgerald. Sarah James Hi guys, this is Gabby on for Sara. I just have a quick one. Could you elaborate if there was any weather impact on your facilities in the Southeastern states? One of your peers had seen that. And then maybe if you could just elaborate on how trends are going on some of the underperforming facilities spoken to last quarter. Heather Dixon Yeah, I'll start, and then Chris, if you, I'm sure you want to say some things about some of the operations of the facilities from a weather perspective, nothing material for us to call out, obviously it's seasonal and every year we see some sorts of weather in different parts of the business, but nothing I would really call out and point to. Chris, do you want to, get some color on those facilities, the underperforming facilities. Christopher Hunter Sure, and thanks for the question, Sarah. As we discussed in the prepared remarks, our '25 guidance had assumed a roughly $20 million EBITDA headwind for the full year from this group of underperforming facilities that we had first called out in the in the fourth quarter, which you're asking about. And so I would say those facilities have performed overall in line with our had a negative impact on our same facility patient growth of about 90 basis points in the first quarter, and we'd expect to begin to comp over that headwind the volumes in the fourth quarter of '25. So, the underperformances tended to be correlated more with, local media coverage that's more is obviously local rather than any news at the national level. And it's just, it's difficult to put an estimate on the timing, but we continue, as we said at the outset to be prudent and taking a more conservative approach when we set guidance, and I think this is an example of that we continue to execute and, just feel very good about the path that we're on, but nothing additional that I would call it. Sarah James Okay great thank you guys. Operator Joanna Gajuk, Bank of America. Joanna Gajuk Hi, good morning. Thanks for taking questions. So I guess first follow up on the Tennessee DPP. Did I missed, I know you said that you assume, second half of this year, but did you say how much do you expect from that program? Heather Dixon Hi there. No, we did not say how much we expect from that program in particular. We have said historically since since our earnings call for Q4, we said that we expect total supplemental payments on a net basis to be flat to up $15 million for the full year inclusive of Tennessee, but we haven't called out any numbers for Tennessee specifically or or for any other states for that matter. Joanna Gajuk Okay, and I guess would you remind us, was there any other period payments last year in '24? So when we think about the numbers flat to up 15, is there something we should adjust out from last year? Heather Dixon Yeah, that's a great question, and thanks for the reminder. We did call out last year $10 million, approximately $10 million payments that that we saw predominantly in Q1, about $7 million of those were in Q1, and then the rest were in the balance of the year, but yes, we did. Joanna Gajuk All right, thank you, if I may, another follow up on different topic on this, handful of problem facilities, so I understand you saying, things for me in line there. But is there anything you continue to do there to try to improve the situation as in like, can you give us an update on these referral sources, at which that you've had and, any traction I guess you're getting you. Christopher Hunter Yeah, I would say there's a number of things that we can continue to do. I mean, obviously we have been very deliberate about meeting with our referral sources, particularly in person, and also inviting them to these facilities as well, which we do all the time, but we've tried to be even more intentional about making that happen since the fourth obviously done everything from talent reviews and taking a look at the existing staffing, making sure that we don't have key positions that are unfilled working with our talent acquisition team very closely on then obviously working with our other corporate functions, including our quality team to make sure that we have everything in place that we need to continue to provide high quality services and so we're just, we're looking at a range of things in any given isn't one step that I would call out, but just in totality, we're just very much cognizant of making sure that we're continuing to deliver high quality care. And that we have the right staffing in place and that we're continuing to focus on the right referral sources and that we're able to provide, a great patient experience, when the opportunity avails itself and we'll continue executing on that plan. Operator This concludes our question and answer session. I'd like to turn the conference back over to Chris Hunter for any closing remarks. Christopher Hunter Thank you. In closing, I just want to again thank our committed facility leaders, clinicians, and approximately 26,000 dedicated employees across the country, who've continued to work tirelessly to meet the needs of our patients in a safe and effective are together doing incredibly important work for our patients across the country and remain committed to serving them with care, compassion, and excellence. Thank you all for being with us this morning and for your interest in Acadia. Have a great day. Operator The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Yahoo
13-05-2025
- Business
- Yahoo
Q1 2025 Harvard Bioscience Inc Earnings Call
Kathryn Flynn; Corporate Controller; Harvard Bioscience Inc Mark Frost; Interim Chief Financial Officer, Treasurer; Harvard Bioscience Inc James Green; Chairman of the Board, President, Chief Executive Officer; Harvard Bioscience Inc Bruce Jackson; Analyst; The Benchmark Company Paul Knight; Analyst; KeyBanc Operator Good day and welcome to the first quarter 2025 Harvard Bioscience Inc earnings conference call. (Operator Instructions)Please note this event is being recorded. I would now like to turn the conference over to Kathryn Flynn, the Corporate Controller. Please go ahead. Kathryn Flynn Thank you, [Betsy], and good morning everyone. Thank you for joining the Harvard Bioscience first quarter 2025 earnings conference call. Leading the call today will be Jim Green, President and Chief Executive Officer, and Mark Frost, the incoming Interim Chief Financial conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks that is posted to the investors section of our website at note that statements made in today's discussion that are not historical facts, including statements or expectations or future events or future financial performance are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1, results may differ materially from those expressed or implied. Please refer to today's press release for other disclosures on forward-looking statements. These factors and other risks and uncertainties are described in the company's filings with the Security and Exchange Bioscience assumes no obligation to update or revise any forward-looking statements publicly, and management statements are made as of today. During the call, management will also reference certain non-GAAP financial measures which can be useful in evaluating the company's operations related to our financial condition and non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release. I will now turn the call over to Mark. Mark, please go ahead. Mark Frost Thank you, morning, everyone. I'm Mark Frost, the Interim CFO for Harvard Bioscience, effective tomorrow. With us is Jennifer Cote, the current CFO for Harvard Bioscience. We'd like to thank Jen for her support of the company the last three years and her willingness to spend the last month helping me in the for those of you who are not familiar with my background, I spent the first half of my career at General Electric in a wide variety of businesses including G Capital and healthcare. After GE, I transitioned to the healthcare space and have been a public CFO at four companies, including when I worked with Jim at Analogic.I'm excited to be here and look forward to working with the team at Harvard Bioscience. I'll now move to our first quarter, 2005 results on slide 3. Now revenue at $21.8 was below $24.5 million in the prior year. This result was aligned with the higher end of our guidance communicated in March for Q1.I'll go through color on the revenue in the next slide. Gross margin was 56% versus 60.3% in 2024, and I will provide detail later as well. Now excluding a non-cash goodwill impairment charge, which I'll discuss in a expense declined $3.2 million from prior year driven by the operating actions we took in 2024, as well as further actions in the first quarter. The operating loss of $49.7 million versus $2.3 million loss in quarter Q1'24 was caused primarily by the goodwill impairment without the goodwill charge, our adjusted operating income was $0.3 million below prior years, $1.2 million, reflective of the cost actions we executed to offset anticipated lower revenue. Quarter 1 adjusted EBITDA was $0.8 million versus $1.6 million in quarter 1'24, with a major driver being lower revenue partially offset by our cost turning now to the goodwill impairment, we had noted indicators of a possible impairment as we exited 2024. Due primarily to the decrease in our market capitalization at quarter one, we performed additional impairment testing as we exited the a result, our quarter one results include a non-cash goodwill impairment charge of $48 million. Which is reflected in operating expenses. More detail is provided in the 10-Q. Now move next to slide 4 and revenue results for the quarter by product, family, and overall news in the first quarter showed an expected seasonal decline from quarter four, finishing at $21.8 million compared to $24.6 million in the prior quarter four. Year over year revenue was down from $24.5 million last year, quarter one. Now let's now break it down to look at regional starting with the Americas, revenue in the first quarter declined sequentially by 5.4% from quarter four and we're down 9.4% versus revenues in the first quarter of last year. As shown in the light blue, CMT did not see the typical quarter four seasonal bump and continued to stay slow in quarter one, which we attribute to the lack of budget clarity for academics and NIH preclinical sales declined sequentially mid single digits driven by lower CRO sales. Now moving on to Europe, overall revenue in Europe in the first quarter declined 29% sequentially, as we exited 2024 with a strong seasonal end of year bombing. Now, compared to last year Q1, Europe revenues were down 9%.Cellular and molecular sales decline sequentially and year on year, but we continue to see growth in cell-based testing are excited to see the impact of early adopters of our new MEA systems. Now our pre-clinical sales were down sequentially in quarter one, following the quarter four bump with lower CRO and academic sales but stayed relatively consistent with the middle quarters of moving to China and the Asia Pacific, overall in the first quarter, APAC revenue was sequentially up by 6.6%. Over the previous quarter, though APAC revenue was down 17%, compared to the prior year quarter one. The APAC market has been especially difficult this past one was our second sequential quarter of improvement, but we don't see this continuing quarter two given the immediate softening of revenue in China following the tariff announcements in early April. We have considered this in our guidance for quarter two. Now cellular molecular APAC products showed some minor declines in the third quarter sequentially, and year over APE=AC sales in quarter one saw sequential growth over sales in quarter four, but we're down compared to quarter one of the prior year, which is a strong quarter for shipments. I'll now move to slide 5 to discuss further financial metrics. Now looking at gross margin first, gross margin during quarter one, 2025 was 56% compared to 60.3% in quarter one, last year, we had a change in accounting methods that benefited our gross margins by 1.6 points. The gross margin decline compared to last year, quarter one was also impacted by lower absorption of fixed manufacturing overhead and nominally by if you refer to the top right graph, our adjusted EBITDA during quarter one finished at $0.8 million compared to $1.6 million in last year's first quarter. Compared to the prior year quarter one, reduced gross profit of $2.6 million was partially offset by lower operating expenses of $1.8 moving to the bottom left where we show both reported and adjusted loss earnings per share. Now as mentioned in the past, I'll remind you of the typical differences between GAAP EPS and adjusted EPS is the impact of stock compensation, amortization, and as I mentioned earlier, during quarter one, we also recorded an impairment in our goodwill balance. These differences between net income loss and adjusted EBITDA are highlighted in the reconciliation tables on slide 10 and are all non-cash moving to the bottom middle graph, cash flow from operations were $3 million during quarter one, 2025 compared to $1.4 million in quarter one, last year. The primary driver for the improved cash flow from operations was improvements in our work in capital net debt is down $1 million from quarter one, 2024 and $2.4 million from year end '24 from $33.2 million to $30.8 million. This reflects our quarterly principal payment of $1 million and improved operating cash flow. I'll now turn from our liquidity commentary to an update on our efforts to refinance our debt facility. We are making progress and we have received indications of interest from multiple are in the process of evaluating the proposals and are moving forward with the intention to close per our amendment timing. So I'll now turn it back over to Jim to discuss a new product introduction. Jim? James Green Thank you, Mark. Good morning, everybody. Mark, it's good to be back working with you again. Let's go ahead and move to slide 6 and let me update you on progress on our key new product launches in a little more new product introductions are aligned into three categories. The base business, which makes up approximately 76% of total revenue, and this is from FY24 from last year. Also, we break up, we break out and look at electroporation and bio production related systems, which is about 16% of last year's revenue, and EMEA and organoid related systems, which was about 8% of FY24 the top section of the table on this slide highlights the commercial status of two new products we consider part of our base business. We've long been a leader in implantable telemetry for pre-clinical safety and tox in 2024, we began production shipments of our new SoHo family of implanted telemetry devices which allow animal models to live in shared housing environments. Our initial launch was focused on measuring activity and temperature. In 2025, we're expanding the SoHo platform to also now cover cardiac and neuro launched these expanded capabilities at the society for Toxicology show in March, and we see strong pipeline of industrial customers and academics alike. We plan to begin production shipments in Q3. The second row of our base section is the VMR first delivery of this new system which automates it's called VivaMARS and it automates neuro behavioral monitoring systems, and the first system went to Labcorp, one of our large customers. We've been working with Labcorp to tune the system and to support the integration into their testing network. We're now in discussions with Labor to add additional the middle section of the table highlights the commercial status of our products targeted to high growth opportunities of electroporation and bioproduction. Bioproduction applications are especially attractive because consumable usage scales with our customers' production first to our BTX systems, we were pleased to see that we reached approximately $1 million in consumable revenue from our first large file production customer. Looking to 2025, this same customer is in the process of launching a second file production application in we're exploring a new opportunity with a large biotech to adopt our BTX for bio-production of a CAT therapy which they used in development of the therapy. As a result, our BTX, I guess I should say as a side, our BTX Agile Pulse is a leader in peer reviewed literature on Car-T applications in the research and discovery respect to AAA systems, also in 2024, we began shipping our new CGMP compliant amino acid analysis system to pharma companies for bio-production applications. For 2025, we're working to expand adoption of our AAA system for bioproduction the bottom section of the slide highlights our exciting new mesh EMEA organoid platform. This system is the industry's first in vitro data acquisition and analysis system capable of monitoring neuro and cardiac organoids over much longer time periods measured in months, not new system includes both instrumentation and mesh EMEA consumable chips, and it's designed to help identify new drug candidates, more likely to successfully make it through preclinical testing, which can improve yields and reduce time and reduce costs going to 2024 we initiated beta testing and also had numerous early adopters, including sites such as Stanford and the Mayo Clinic. Now recent policy changes in Washington are encouraging a move to new alternative methods called NAMs for improved efficiencies in new drug development, specifically mentioned is advancing the use of human derived new policy is driving increased interest from industrial customers and we believe presents a great opportunity for expanded adoption of our MeshMEA organoid systems for higher volume applications in both drug discovery and in safety toxicology year we see expanding adoption to more leading academic sites plus government labs in the US, the UK, and Europe. We're focusing on potential high growth industrial applications in biopharma, and finally we see growing interest for In-vitro to in In-vivo studies targeted to safety and toxicology with why don't we move to slide 8, take a look at our outlook. With uncertainty around NIH and academic research funding and the China tariff situation, we now expect second quarter revenue in the range of $18 million to $20 million and we expect gross margin to be in the 55% to 57% we're going to focus on expanding adoption of our new products while we continue to lower costs. As such, cost actions already implemented are expected to reduce operating expense by an additional $1 million a quarter starting in the second quarter you. Now I'll turn the call back over to our operator and open for questions. Thank you. Operator (Operator Instructions)Bruce Jackson, The Benchmark Company Bruce Jackson Hi, good morning. Can you tell us a little bit more about the impairment charge? Mark Frost Sure. This is Mark. I'll start and Jim may add in some points. So, it's a normal process of assessing your goodwill. You usually do it annually, but because of our drop, Bruce, in our market cap, we're forced to take further measures to evaluate the valuation of that goodwill, and there's a number of selected a DCF approach and one of the key aspects of doing that is you have to reconcile to your market cap and that in the end led to the $48 million charge, which is non-cash, Bruce but we needed to take that charge unfortunately, and it was recorded this quarter. Bruce Jackson Okay, and then, if I could ask you a little bit more about the the bioproduction business and the Car-T in particular. Is that something that's being considered for a domestic location or is it international? James Green Yeah. Hi Bruce. This is a domestic customer of ours, our BTX system and especially the agilepole system is one of the leading. It's one of the leading technologies that's used for creating a number of these new forms and new types of therapies, and Car-T is one of the leaders. And so, if you look in the peer reviewed literature, you'll see our system referenced many times throughout the industry and in academic this particular customer is an advanced biotech. They've been working on this new technology, this new Car-T related therapy, and they were using our agile pulse to create the new therapy. So, what we've done is we're working with them to to adopting the system for bioproduction of this same again it would be a new expansion for us into, again one of these advanced drugs for here designed and manufactured here in the United States and targeted to human populations and going into. I believe at this point they are they're in various various stages of the testing on humans. So again, I believe it's still in first stage, first stage clinical. Bruce Jackson Okay, and then, last question from me is on the [SNEA] product line. So we've got some cross currents here. HHS, of course, with their name, pronouncement is a positive for the space. NIH funding has been kind of unpredictable. How do you see this all netting out and what's the the inbound interest on the product given this, given that environment? James Green Well, the interest on the product came in very strong, and you even saw it last year with early adopters picking up the system, starting with academic researchers and then researchers in certain biopharma companies. But academics really led the way and with really heavy emphasis on neuro neurodevelopment and then also with as far as you know what we saw happening there was, there has been a slowing just in general with academic research and with NIH funded now it's certainly, the interest has gone up. In fact, we see the funnels growing for opportunities to place this technology into academic research sites, but it's taking longer to get through the met with the with the NIH a couple weeks ago at their facilities. And what we were told by them was that the budgets are there, but that there were a number of, there was quite a large reduction in force, but really targeted to the folks who are involved with purchasing. So it's kind of slowed up the purchasing in academics, the demand is certainly there and growing and growing big and we still see, I would say, if you look at our academic research revenues this quarter, it started late in Q4, but it's slowed down some but it's running consistent. So it's still moving along, and we think that's going to get the other big push, as you suggested with the announcement from the government, is this push toward the use of NAMs and and specifically organoids and neuro organoids in testing and development, and that's causing a lot more interest for us with the biopharma have a lot more inbound calls with even with the CROs that are much more interested in looking at this technology and knowing that the government's expecting them to start to move to some of these newer methods. So, overall you're right, this is going to be a good long term driver for us for adoption of organoids into the development cycle. Bruce Jackson Okay, great, that's it for me thank you. Operator Thanks Knight, KeyBanc Paul Knight Hi, Jim. James Green Hi, Paul. Paul Knight Thanks for the time today. The BTX technology, I think you've been talking about certainly getting traction. When will it ever be, do you think able to compete in the sector that MaxCyte participates in? James Green That's a great question. We figured certainly we could get into that level, but MaxCyte tends to focus really on high volume applications and they use a licensing structure. We felt like for us the value proposition was for us to use the razor blade method, but also to go after these early we don't have such a high cost of entry if we were as some of the biotechs and the pharma companies are exploring these new drugs. So we think that's a good space for us. If it made sense for us to go to a much higher volume, we certainly have to put some real work into the initial real value proposition for us we felt was was time to market and the ability to bridge, especially if somebody used us like in Car-T therapy, if they used us to create the drug, that now we can they can use us for the initial bioproduction and then depending on the volume needs that determines whether or not we could be the long term solution for bioproduction or either way it's a great place for us to start, and many of the biotechs, they really just need to know, can they produce the product in a GMP environment so that they can get through their preclinical phases and get through at least their early to late stages of human and then it comes down to what's the volume needs, but you've also noticed with the release of the product that's already now reaching a million dollars a year on the application that we have already up and says that we can certainly get into some reasonable reasonable size of the volume and it really just depends on the number of doses and the amount of in each dose whether or not it's required to go through a transpection and the use of electroporation or electrofusion. Paul Knight And then regarding the MeshMEA product line, the announcement seems like the NIH wants to focus on it. Would you not agree that there's no way animal testing really slows down for a long time. It'll be just a co development process. Wouldn't you agree with that? James Green Yeah, I do. I think, and if you look at where where our technology is used, we're used in the later stages, the formal stages of safety and talks, and that's when you, that's when the animals are really used for verification that it's safe and effective, and that nobody believes that's going to we do know with the new therapies for monoclonal antibodies and by the way, our BTX system is used by, one of the leaders there, Regeneron, in creating those monoclonal antibodies. So for us that's a positive thing. Now you could argue whether or not long term testing should be necessary on a drug that's like this, that is really primarily targeted late stage it makes sense that they may want to not have to take on the cost of long term effects of something of a drug that really is only used in palliative care in late stages. So, that we don't see as an issue, but for the vast majority of new drugs, they're going to be used on children and people chronically for years and do have to do, we believe you have to do the full testing, and we just can't see any real pharma company introducing a drug that where they haven't done that level of safety and to be able to correlate that back to data for for years and our systems have been used for safety and tox telemetry for many years with most of the main drugs that have come just can't see, a major pharma company saying we're now going to stop that level of testing. But we do think the move toward things like organoids might help in the use of getting the early testing so that you don't maybe have to go through large volumes of large populations of small animals to filter out in a very inefficient way and a costly once you get through that phase, there's no question we believe you have to do the safety and tox testing with implant inflammatory, and that really means using our technology. Paul Knight Mark, I just missed the first question. I think you were talking about the refinance or if you didn't, my question is, what kind of rate are you looking at somewhere around what, 12%? Mark Frost Yeah, it's going to be higher than a commercial rate. We are still in the negotiation process to finalize that, but yeah, it will be more expensive than commercial debt to answer your question. Paul Knight Okay. And what is it what kind of term is it five year out or is it payments as you go through it or what are you what what what's the structure of that? Mark Frost Yeah, we're still in the process of negotiating all that. So that kind of detail I can't really share at this point in time. We will obviously as we get closer to finalizing deals, but not at this point in time. James Green I think we do, I think it's fair to say we're going to be looking at multiple years. Mark Frost Yeah, yes. It will be four or five years out for sure. Paul Knight Okay. Alright. Thank you. Operator This concludes our question and answer session. I would like to turn the conference back over to Jim Green, CEO, for any closing remarks. James Green Well, thank you everybody for joining us today. We're certainly glad to hear the news that just came out this morning about the US and hopefully reaching some kind of an agreement with China. As China for us is, it's probably somewhere around 10% of our were coming into this thinking that we might be, we might not, we might be looking at a $2 million a quarter kind of headwind, hopefully that's not the case now. So again, this is good news for us because, we were assuming that that with the tariffs as they are, that it will certainly expected to be a real problem for us this I do think there's some good news there. But again, thank you for your time today. This ends today's presentation. I hope you'll join us again in August when we discuss the fiscal 2025 second quarter results. Thank you, and this ends the call for today. Thank you. Operator The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Sign in to access your portfolio
Yahoo
13-02-2025
- Business
- Yahoo
Q4 2024 Franklin Street Properties Corp Earnings Call
Scott H. Carter; Executive Vice President, General Counsel and Secretary of the Company.; Franklin Street Properties Corp John G Demeritt; Executive Vice President and Chief Financial Officer; Franklin Street Properties Corp George J. Carter; Chief Executive Officer; Franklin Street Properties Corp John F. Donahue; President of FSP Property Management LLC; Franklin Street Properties Corp Jeffrey B. Carter; President and Chief Investment Officer; Franklin Street Properties Corp Steven Dumanski; Analyst; Janney Montgomery Scott LLC Operator Thank you for standing by. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Franklin Street Properties Corporation, 4th quarter and full year 2024 result. (Operator Instructions) I will now turn the call over to Scott Carter, general counsel. The floor is yours. Scott H. Carter Good morning and welcome to the Franklin Street Properties 4th quarter 2024 earnings call. Joining me this morning are George Carter, our Chief Executive Officer John Demerit, our Chief Financial Officer, Jeff Carter, our President and Chief Investment Officer, and John Donahue, President of FSP Property Management. Also joining me this morning are Toby Daly and Will Fran, both executive vice Presidents of FSP Property Management. Please note that various remarks that we may make about future expectations, plans, and prospects for the company may constitute forward-looking statements for purposes of the safe harbour provisions under the Private Securities Litigation Reform Act of 1,995. Actual results. May differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the risk factors section of our annual report on Form 10K for the year end December 31, 2024. In addition, these forward-looking statements represent the company's expectations only as of today, February 12, 2025. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. Any forward-looking statements should not be relied upon as representing the company's estimates or views as of any date subsequent to today. At times during this call, we may refer to funds from operations/FFO reconciliations of FFO and other non-gap financial measures to GAAP net income are contained in yesterday's press release, which is available in the investor relations section of our website at Now I'll turn the call over to John Demeritt. John. John G Demeritt Thank you, Scott, and good morning, everyone. I'm going to give a brief overview of our 4th quarter results. Afterward, I'll pass the call to George for his thoughts. As a reminder, our comments today will refer to our earnings relief supplemental package, and 10K, which, as Scott mentioned, can be found on our website. We reported funds from operations or FFO of about $2.7 million but $0.03 per share for the fourth quarter of 24 and $13.3 million or $0.13 per share for the full year of 24. We also reported a GAAP net loss of about $8.5 million or $0.08 for the fourth quarter of 24 and a net loss of $52.7 million or $0.51 per share for the full year of 24. With that, I'll turn the call over to George. George J. Carter Thank you, John, and again, welcome to Franklin Street Properties, 4th quarter, full year 2024 earnings call. During the fourth quarter of 2024, we leased a total of approximately 252,000 square feet of office space within our approximately 4.8 million square feet directly owned property portfolio. As previously reported on October 23, 2024. Completed the sale of our last property in Atlanta, Georgia. The property known as Pershing Park Plaza sold for a gross selling price of $34 million. On October 25, 2024, we repaid approximately $27.4 million of our debt. With a portion of the debt proceeds from the Pershing Park Plaza disposition. As of October 25, 2024, and December 31, 2024, our total indebtedness was approximately 250.3 million. Equivalent to approximately $52 per square foot on our remaining approximately 4.8 million square feet directly owned property portfolio. As we begin 2025, we are seeing, at least for now, a general increase in office property activity. More employees are coming back to the office. There are clearer, longer term leasing requirements from bigger tenants. And more capital is showing an interest in potential lending and equity investing in office. If this current increase in office activity continues, it should offer FSP exploration of better and more diverse opportunities to TRY and realize what we believe to be the solid intrinsic value of our underlying real estate assets for shareholders. I will now turn the call over to John Donahue, President of our property management company, for some colour on leasing, John. John F. Donahue Thank you, George. Good morning, everyone. The FSP directly owned portfolio was approximately 70.3% leased at the end of the fourth quarter compared to 70.4% leased at the end of the third quarter and 74.0% leased at the end of calendar 2023. The decrease in leased occupancy during 2024 has been attributable to multiple property dispositions and to lease expirations. Economic occupancy of the directly owned portfolio was approximately 68.6% at the end of the fourth quarter compared to 70.1% at the end of calendar 2023. The decrease was primarily due to multiple property dispositions during the year. FSP finalized approximately 616,000 square feet of total leasing during 2024, which included approximately 252,000 square feet of total leasing during the fourth quarter. Approximately 445,000 square feet of renewals and expansions were executed in 2024 along with 171,000 square feet of new tenant leases. Leasing activity gained momentum during the 2nd half of 2024 and finished strong in the final quarter. The pipeline of leasing prospects continued to increase into the 1st quarter as the overall number of new prospects seeking at least a full floor continued to trend upward. FSB is currently tracking over 600,000 square feet of prospective new tenants. Including nearly 350,000 square feet of prospects that have identified FSP assets on their respective shortlists. In addition, FSB has been working with approximately 500,000 square feet of potential renewals and expansions. Scheduled lease expirations for Calendar 2025 total approximately 322,000 square feet. Which represents approximately 6.7% of FSP's directly owned portfolio. The new tenant pipeline combined with a modest amount of lease expirations in 2025 provides FSP with an opportunity for positive net absorption during the next 12 months, barring any surprises for the impact of potential dispositions. Thank you. I will now turn it over to Jefffrey B Carter. Jeffrey B. Carter Thank you, John, and good morning, everyone. I will provide an update on our disposition activity for the 4th quarter of 2024 and for the full year, as well as our perspective on current market conditions. In 2024, FSP completed the sale of 3 properties for total gross proceeds of approximately $100 million. During the fourth quarter of 2024 and as previously reported, we sold our Pershing Park Plaza property in Atlanta for $34 million. Since the inception of our current disposition program that began in late 2020, FSP has completed approximately $1.1 billion in gross property sales that have resulted in an approximately 75% reduction in our corporate indebtedness and underscores our focus on strengthening our balance sheet and increasing financial flexibility. While every property sale reflects unique attributes such as location, occupancy levels, tenancy, and rental rates, the sales completed to date in our disposition efforts have averaged approximately $211 per square foot. We continue to believe that our current share price does not accurately reflect the intrinsic value of our underlying real estate assets, and we will continue to seek to increase shareholder value by pursuing the sale of select properties when we believe that the short to intermediate term valuation potential has been reached. Turning to market conditions, the office sales environment within our markets remained challenged during the fourth quarter of '24 and was primarily dominated by buyers seeking distressed pricing. Liquidity in the marketplace has been constricted, with both debt and equity capital having been difficult to secure for prospective buyers and existing owners. This has been compounded by what has been soft tenant demand, elevated vacancies, and uncertainty. Despite such headwinds, there are emerging signs that 2024 may have represented a bottoming in the market with anecdotal optimism anticipating potential incremental progress in 2025 and beyond. Factors such as potential interest rate stabilization, improving liquidity conditions, employer-led initiatives to bring workers back to the office, and improving leasing conditions could drive improvements in sentiment for stronger sales conditions and will bear watching. Where non-distressed transactions are occurring in our markets, they still tend to be smaller dollar-sized deals involving high quality, well leased properties in strong locations, larger traditional institutional buyers in our markets who Favor core plus property. Where high quality value adds properties have been largely absent thus far, and we are closely monitoring these trends as conditions evolve. Proceeds from any property sales will continue to be primarily used to reduce debt, further enhancing our financial flexibility, and positioning the company to pursue any path that maximizes value for our shareholders. As previously discussed, for competitive reasons, we will not be discussing potential disposition information beyond what is included in our filings, as our primary goal is to maximize the value achieved on each sale to our shareholders and in the current environment, we have found this to be in the best interests of our stakeholders. We remain committed to working with our teams and market professionals to identify and engage credible buyers capable of closing transactions. And with that, we thank you for listening to our earnings conference call today. And now at this time we'd like to open up the call for any questions, Karen. Operator (Operator Instructions) Your first question comes from the line of Steven Dumanski from Janey. Please go ahead. Your line is open. Steven Dumanski Thank you. There was a significant uptick in leasing for the 4th quarter. A true testament to your team's diligent efforts here. Can you please expand on the robust leasing velocity for the quarter, like any information regarding which geographies and tenants contributed to this drive? That would greatly appreciate. John F. Donahue Good morning, Steven. This is John Donahue. Sure, I can give you a little bit of color on what happened as we closed out the year. We have been witnessing a steady. New tenant activity in Houston all year throughout Calendar 24. We were able to finalize some new deals. We also had several new deals in Minneapolis that we've been working on for quite a while that finally were able to get over the goal line for the year, I would say that the two strongest markets were Houston and Denver for the 4th quarter, Houston and Minneapolis. We were able to engage some tenants in Dallas for some renewals, and we're hoping to do more of that in the coming year. As far as the industries, it was diverse. We had Government healthcare, business services, energy, chemical, construction, agricultural, so diverse. The one industry that's been sort of lacking is tech. We'd like to see tech come back as well. So we're very encouraged by the trend. We're hopeful that far North Dallas will also. Gain from the current increase in activity we're seeing an uptick there and that's well needed. So yeah, the downtown markets have done better over the last 6 to 12 months and the suburban markets will continue. Steven Dumanski Thank you, that was helpful. You expressed that government as a tenant was a contributor to this growth. Just be interested to see. With Doge, would that be effective of any of your properties in terms of termination of leases or move outs or is that just more not applicable. John F. Donahue So the short answer would be that we don't expect any impact from our existing tenants, whether they be the national government, the Fed, or local government. We don't have any option. Early options to terminate, so we're not expecting any impact at all. If you look at our tenant roster, the TOP20 tenants on page 17 of the supplemental, you'll see that we do have one US government lease rolling in 13 months, and we are engaged with them for a potential renewal, which was a good indicator. So hopefully that will come to fruition, but the short answer is no, we don't expect any. George J. Carter Impact. Thank you. That's all for me. John F. Donahue Thank you. Operator That concludes our Q&A session. I will now turn the call over to George Carter for closing remarks. George J. Carter Thank you everyone for listening to our earnings call, and we look forward to updating you between now and our next earnings call and talking to you on our next earnings call. Thank you and have a great day. Operator Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect. Sign in to access your portfolio
