Q3 2020 Reliq Health Technologies Inc Earnings Call
VANCOUVER Jul 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Reliq Health Technologies Inc earnings conference call or presentation Friday, May 29, 2020 at 1:00:00pm GMT
TEXT version of Transcript
* Lisa Crossley
Reliq Health Technologies Inc. - CEO & Director
Lisa Crossley, Reliq Health Technologies Inc. - CEO & Director 
(technical difficulty) Reliq Health Technologies Corporate Update. Today is May 29, 2020. My name is Lisa Crossley, and I'm the CEO of Reliq Health Technologies.
Before we get into today's webinar, I would remind you that this presentation may contain forward-looking statements, so please familiarize yourself with this disclaimer prior to interpreting any of the opinions or results that are presented during this webinar. For those of you who are joining us for the first time, Reliq Health Technologies is a health care technology company headquartered here in Hamilton, Ontario, Canada, but we also have U.S. offices in Florida and Texas. And our primary market is in the United States.
For this webinar, we will initially be going through some highlights from the Q3 fiscal year 2020 financials. So that's from January 1 to March 31, 2020. I'll provide a little bit of insight from our perspective on the impact of the novel coronavirus pandemic that we're all facing globally and its impact on the health care market in general and also, more specifically, on our business. I'll provide a high-level overview of our near-term pipeline and then a review of our care management center support services. We formally referred to this center as our call center. And I know there's a little bit of confusion around what we offer through that center, which we now refer to as a care management center to help with clarity. And then we'll just briefly address the date for the webinar that will come up in the fall to review the annual audited financial statements.
For the Q3 fiscal 2020 financials, again, January 1, to March 31, 2020. The highlights of this quarter is a busy quarter for Reliq. Certainly, you'll see that if you read the highlights section of the MD&A, the Management Discussion and Analysis, statements that were submitted along with the quarterly financials on SEDAR. Revenue for this quarter was a little over $450,000 compared to just under $100,000 for Q3 2019 fiscal 2019. So that's over 350% increase in revenue relative to the same quarter last year, and it's a 14% increase over the last quarter. The key to remember there is that this is despite a massive disruption to the health care market that was caused by the global pandemic, which was declared in March 2020. It really did start affecting our clients as early as February and late February and early March.
The loss for the quarter was $2.9 million compared to $4 million for the previous quarter as our expenses decreased by 40%. Going forward, we expect that significant revenue growth will occur but not with a constant increase in expenses. So there is not a direct buy between expenses and revenue. Rather, the more patients we onboard onto the platform, the more clients we have, the lower things like server costs become as a percentage of our total and expenses in gross -- the less they factor into our gross margin, in our EBITDA margin. So -- and we aren't expecting significant increases in expenses going forward, although we certainly are expecting significant revenue.
During the quarter ended March 31, 2020, and subsequent, the company received gross proceeds of just over $1.25 million from option exercises by employees and consultants. And we received in April the $200,000 final settlement payment from the former employees and their associates against them. We launched litigation in 2019 and concluded it by a mediation in July of 2019. So -- and that matter is officially completely behind.
In terms of capital needs, I know this is always a matter of concern for shareholders and, certainly, it's something that management is always very conscious of. The company does not expect the need to raise funds to reach profitability this calendar year, and that is despite the current market conditions and the global pandemic, which we'll discuss in a little bit more detail going forward but on the whole is something that has positively impacted our business much as that's a little distasteful to kind of say in those bold terms.
The company has assets with a fair market value of over $2.4 million, and those would be monitoring devices which we can sell at a profit independent of our software subscriptions at any point if we need to finance operations. Currently, we are providing those as part of our software subscription. So that's where you're seeing the sales of those devices as we are deploying to our clients. But we can certainly look at using those as an asset on their own going forward should there ever be a cash need.
The other thing to note about our inventory is that it is -- does represent a significant competitive advantage for the company given that, under the circumstances we're all currently facing, there have been some significant manufacturing challenges for products coming out of China, which is most medical devices. And so having those devices in the inventory has been something that has been a real competitive differentiator for us relative to other monitoring companies in the market.
So in terms of the impact of the pandemic, so health care in the time of COVID, what we initially saw as a company was that there is an overall slowdown in the health care market beginning in late February, early March as the impact of the pandemic clinically started to become something more imminent and as the clinicians became more and more aware of what the pandemic was going to involve. So what we found was that many clinicians temporarily closed their offices. In some cases, those physicians redeployed to hospitals and to ICUs to provide more sophisticated care where experienced physicians might be lacking, also to long-term care facilities and grow familiar with some of the really significant challenges that have been faced by the long-term care market over the last few months. And in some cases, some of these physicians actually redeployed to other states where there was a greater need. We also found that many home health agencies were prohibited from visiting clients. So that all created an initial slowdown in the market beginning in March.
And the [associate] and health care community at the time was that this was a temporary issue, that immediate temporary lockdown a few weeks to maybe a month or 2 would allow the health care system to weather the storm and then we would be out of it and go back to business as usual. Obviously, it's become clear to all of us that the world is going to have to live with the novel coronavirus much longer than we'd hoped. And really, that we are at a point where going back to normal is only going to be possible if there's a dramatic new treatment option that's identified or a vaccine is developed.
And so what our health care customers have concluded is that this is something that's going to require a fundamental and lasting change in health care delivery. So while the focus was initially on telemedicine, just making sure that patients who had urgent needs could connect with the doctor virtually, could get prescriptions renewed or have their tonsillitis diagnosed, that focus from the health care providers is now shifting to identifying and implementing solutions that address the long-term health care needs of their patient population.
So what that's really translated to is something that I hear a lot of analysts refer to as the future is now. Given the potential for a second wave of cases later this year, health care providers are now actively looking for ways that they can continue to consistently and continuously proactively engage with their most vulnerable patients and provide ongoing care and monitoring for them without having to bring those patients into the office or sending them into a long-term care facility given the significant concerns both on the patient side and on their family side about that kind of an environment and what it potentially represents under the current pandemic conditions.
So these are patients who are primarily elderly individuals with chronic conditions who require a high level of ongoing consistent monitoring and management. And in order to do that, you need a lot more of a just telemedicine. And so what we found, in addition, is that a lot of clinicians have dramatically reduced the number of visits or at least billable visits that they're currently conducting. A lot of patients have canceled in-person visits because of the pandemic and many patients have just kind of elected to postpone health care in general until the pandemic has passed.
So certainly, here in Ontario, we've seen many, many physicians have their billable claims, their billable services reduced by a majority by close to 90%. So there's a huge loss of income there. And as a result, clinicians are obviously primarily focused on providing a new model for health care that allows patients to continue to receive high-quality care outside of an acute care or office setting. But they also, realistically, in order to keep their own businesses going, need to be looking at new revenue streams and ways to deliver care while still qualifying for reimbursement such that their practices can survive. And our iUGO Care Remote Patient Monitoring, Chronic Care Management, Principal Care Management and Behavioral Health Integration solutions are the perfect solution to those 2 unmet needs in the market. They allow patients to see that high-quality care at home preventing them from being exposed to the virus in a clinic or long-term care setting. And it also allows the clinicians to bill for new services that are being delivered to the patient so they can generate significant new revenues. As a result, we've seen a really significant increase in the market pull for our products over the last few months.
Just to give you a sense of how the market overall in health care is doing. In terms of comparables, and this is from an article published on cnbc.com a little less than a week ago. As you can see, the S&P 500 dropped 13% over the period from February 20 to May 22, 2020. During that same time period, Teladoc, which is telemedicine platform; Livongo, which is a diabetes management solution; and One Medical, which is, again, kind of a health coaching platform, all increased by a significant amount in terms of their share price. So what we see in the market is that analysts and investors are really recognizing that health care technology is at a very different point than it was 3 months ago. There's suddenly significantly more market pull for those technologies. And some of the more well-known stocks are already seeing a recognition of that in the stock market. But it's a trend that, overall, will ultimately benefit every company that's in the health care technology and virtual care space.
So the closest comparable to Reliq is this company, Livongo. They're a diabetes management solution provider. They started in 2014, so 2 years before I joined Reliq and the company pivoted from mobile device management to health care and, specifically, virtual care. Livongo operates in an adjacent market to Reliq. So they sell a high-cost, high-touch, a lot of personal interaction with their employees’ platform. So they have low EBITDA margins as a result. So their product is targeted towards large employers who self-fund their own health plan, so the large employers like United Airlines who choose to have their own health plan rather than using a third-party health insurer like Aetna, will essentially put aside a big chunk of money, and that will go to finance their employees' health plans. These are the plans that -- or the clients, rather, that Livingo targets.
Reliq has always been focused on the much larger but also much more cost-sensitive Medicare and Medicaid-funded community care market. So when we focus on that community care market, we not only are selling a product that fits within their price points and is eligible for Medicare and Medicaid reimbursement, but also that works within the constraints of communities, so working with providers who might be in communities that have a very low income level, that have very limited infrastructure, that have no internet access. And so we have a platform that fits very, very well within that particular target market.
The other differentiator between iUGO and Livongo, they are focused very much on diabetes, obviously, whereas our iUGO Care platform is intended as a broad chronic condition-management platform. So we work with patients with diabetes, hypertension, chronic obstructive pulmonary disease, congestive heart failure, kidney disease. We also do a lot in mental health as well as in something that's similar to mental health but a little bit more complex, which is behavioral health. So we certainly have, in our own adjacent market, a very compelling offering.
If you look at their most recent financials, Livongo has a market cap of, currently, as of today -- or yesterday, rather, USD 5.7 billion. Their trailing revenues for their past fiscal year, which I believe is calendar 2019, they had revenues of USD 170 million and an EBITDA of minus USD 20 million. And that's where you can see a big difference in their operating model from Reliq's, where we are a low touch, lower cost but low-touch solutions such that we can achieve more compelling EBITDA margins. Analysts have been unequivocal in their predictions that there will be a dramatic and sustained increase in the acceptance and adoption of virtual care solutions because of the current pandemic. And so while Reliq is technically 2 years behind companies -- a company such as Livongo that launched in 2014, we are seeing such significant pull in the market for our platform that we really do see ourselves catching up rather quickly.
So to that end, let's go through very high level our pipeline through fiscal year 2021, so the upcoming fiscal year. So we get a lot of questions about our clients and how they're made up. We are trying to provide some details here that will hopefully clarify that for our shareholders. Essentially, we are working with Medicaid and Medicare as our payers. In some cases, we are working exclusively with Medicaid patients. In some cases, we work exclusively with Medicare patients. And then in some instances, we'll have patients who are either what we call dual listed. They qualify for both Medicaid and Medicare, or we'll be working with organizations that treat and serve patients who are either on Medicaid or on Medicare. And we're really agnostic to that. The platform works and is -- fits their reimbursement codes under both Medicaid and Medicare. So we can work with a whole range of providers and patients.
So within our current pipeline, we have over 100 home health agencies, over 1,000 physician practices. And I'll just note here that generally, we're not selling to individual physician practices. So where it might be 1,000 physician practices, that might only be a small handful of actual clients that we're working with. So we work with large groups of physician practices. So they're independent physician associations, accountable care organizations, managed care organizations, et cetera, that have large groups of physicians that they're -- essentially, there's one umbrella organization. And that's the client for us is that umbrella organization. So for us, each client typically represents hundreds of providers and tens of thousands of patients. But the average number of patients per physician that have qualified for our services would be more realistically around 500, whereas, obviously, when we've announced some contracts recently, you can see that one client gives us significantly more than 500 patients when we're working with these larger groups and organizations.
We also work with insurance, some insurance companies and some long-term care facilities, skilled nursing facilities. So overall, in the pipeline, we currently have more than 1,300 providers and over 500,000 patients. So -- and it's a pretty significant pipeline. You can see that there are definitely price differentials between the different client bases. And you can probably infer from this that physician practices are our primary target. Although, we certainly are very loyal to the home health agencies, which is where we really started with our business and cut our teeth. But as the business has evolved and we started to attract larger clients, these tend to be more around physician practices. And as I said, these larger physician groups.
So the average price per patient for a health agency or the skilled nursing facility is in -- the insurers is around $25 per patient per month. But for the physician practices, it's closer to $40 to $65 per patient per month. So this translates to pretty significant annual revenues. And what we're really trying to show with this pipeline slide is that these are clients are we either have already announced and already have under contract or that we have a very high probability to close by the end of Q1 fiscal 2021. So within the next few months, we should be able to report on some of these new clients that are in the pipeline as they become official clients and as contracts are signed. So certainly, we'll be communicating regularly with our shareholders and the market about progress with that pipeline.
Our care management center, I know we've had a lot of questions about this. And so I'm going to sort of skip to the bottom line before I get into the details and say that the call center is not what you think of when you think of, say, Microsoft call center. You as a patient or user can't call the call center say, I forgot my password or I don't know how to log on or I can't figure out how to open word. That's not what our call center does. It's not a general health line. It's not a software technical service line. So we've actually renamed it to try to provide better clarity as a care management center. So what we really do in that facility in Florida is provide patient care management services. We bill clients for the patient care management services. These are in addition to the monthly software-as-a-service subscription fees. So everything that we do in that call center is billable, every service we provide, and it is a high-margin business. So that -- those call center services are quite a lucrative component of our business.
So what the call -- care management center does in terms of providing patient care management services is essentially with physician practices and their Medicare patients. The care management center acts as an extension of the physician's office. And we have qualified medical assistants at the call center who provides services for which we receive payment. And what the staff there do, a lot of their time is spent actually not on the phone. They update patients' electronic records. They review care plans. They communicate with the physicians' offices, and they make calls to patients to provide education, so teach them more about their diabetes and how to better manage it and to ensure compliance with prescribed therapies. So are you taking your medication, your blood sugar or blood pressure or spirometry, which is a measure of lung function. Results suggest that you haven't been complying. You're not using your steroid inhaler. You haven't been taking your blood pressure meds or you're eating a lot of sugar. So there's that kind of interactive component. Typically, for each patient that's between 20 and 90 minutes a month of interaction, the non face-to-face interaction or care that's delivered by our health care professionals at the care management center.
So it's outbound calls to the patients. It's not a center where patients can call in and kind of ask a lot of questions. That's what the physician's office is there for. So if the patient has questions, they can speak to their care provider. Our call center does outreach on behalf of the physician's office under billing codes for chronic care management, behavioral integration, remote patient monitoring, all of that. So I'll just repeat again that it's not a call center in a conventional sense. It's not tech support. It's not a general health line. It has a very specific, very high level function. And it's a critical component of what the physician practice is offering to their patients in terms of managing their chronic condition.
So care management, in general, and that includes all of the different, so remote patient monitoring, chronic care management, complex chronic care management, behavioral health integration and principal care management, which is for specialists caring for a patient who has one particular disease state, which might be cancer, for example. There are a whole bunch of CMS, center for Medicare and Medicaid services, codes, billing codes that are available for these different services that are provided by the physician and using our platform.
So I listed the billing codes as well as the reimbursement that the physician would qualify per patient per month in this table. Sort of the typical minimum monthly usage would be these first 5 billing codes and then a billing code for Behavioral Health Integration Care Management. Together, those billing codes would give a physician practice a minimum total potential reimbursement monthly of $315. So it's an additional incremental revenue per patient per month of $315 for the physician practice. But if the physician practice wants to provide more complex care management, which is the CLCM care management codes or the complex CCM care management codes, there is additional incremental revenue that's available by leveraging those codes.
So it is definitely a significant new revenue stream for a lot of these physician practices. And it's also just a real benefit to the patient because all of these services that are covered under these codes really ensure that these chronic disease patients have frequent consistent touch points with a member of their care team. And they're consistently, on a daily basis, monitored using our software and whatever medical devices are relevant to their clinical condition. So there's no risk that, that patient is going to fall through the cracks, that there won't be an alert issued if the patient suddenly -- condition suddenly destabilizes. And certainly, in the time of COVID-19, if clinicians should choose to do so, they would also be able to monitor things like the patient's temperature and their blood oxygenation with the pulse oximeter. So you can see if a patient who's debating between whether or not they have a cold or the flu or COVID, you're able to track those key metrics that tell you that patient needs to come into an acute care setting and be seen before they really start to be compensated.
So our fees, so this is not what the Centers for Medicare & Medicaid services will reimburse for a given service. These are the fees that we, as a company, charge our clients for care management services. These fees, as I mentioned previously, are in addition to the monthly software fees. So we charge a specific subscription fee per patient per month depending on what modules the patient will be in. And that's our software-as-a-service component. In addition to that, we charge for care management services that we provide through the care management center. And to give you a sense of some of the services that we can provide, we can onboard, and that's a onetime fee that's covered under the RPM billing codes. And it's a service that we eventually break even on.
For just our platform, as you see here, there's a range between $15 and $50. So those are our base software-as-a-service fee. And our gross margins on those are over 80%. Once we -- as I have said many times before, once we hit our strides, we hit critical mass, which we expect will happen in the next fiscal year in terms of the number of patients and then the gross margins. We believe that will become quite compelling.
And then our care management or Chronic Care Management services, so that's, that non face-to-face care, those interactions over the phone or by video conference with patients to provide coaching, ensure compliance with medication regimens and to provide some accountability around they're using their monitoring devices. Those have margins in excess of 50%. And again, it is an economies-of-scale business. So the more patients we onboard, the higher those margins will get. And if we provide a iUGO Plus Care management, then we are looking at gross margins well over 60%. And again, all of this is something that improves with scale. So as we move through fiscal year 2021 and are able to start reporting on some of these key quantitative metrics, it will become clear the impact that, that scale has on the overall margins. So PMPM is termly used in the states to mean per member per month, but we refer to it as patient month. So for whatever reason, that's the convention in the states but it's just per patient per month.
So the last thing I'll touch on is our quarterly financials, which is what we're talking about today, and these are prepared by management, and they are not reviewed by the auditors. But our annual financials are obviously audited by KPMG, our audit partner. Our audited financials for fiscal year 2020 are -- must be filed by October 28, 2020. Obviously, our goal is to file before the deadline. So the webinar to discuss the results of the annual audited financials will be scheduled on or before October 29, 2020. We do expect to have some significant updates to provide to the market before October. And as those occur, we will obviously provide disclosures through press releases but also schedule additional webinars to provide more clarity as some of that news becomes public.
So I'll leave you with the message that while the global pandemic has certainly not been an easy or fun ride for anyone, and it certainly presented some significant challenges to our clients, overall, the impact on our business is very positive. So not to sound heartless or mercenary but, really, I'm backed by analysts all over the world in this. The pandemic has really advanced the state of health care technology by at least a decade, if not, more. So the appetite for, the enthusiasm for and the acceptance of virtual Care Technologies has accelerated significantly. And we've definitely seen that the clients that are approaching us have much more of a sense of urgency now. And we're tending to see much larger organizations, health care organizations coming to us. So I think it's a positive thing, not just for the business but for patients and for clinicians in general. We've always said that virtual care is the best way to deliver consistent ongoing proactive care to the patients who are the biggest drain on the system, those chronic care patients who represent 20% of the population but 80% of our health care spending. The best way to reduce health care spending for these patients is not to prevent them from coming into the office. It's to keep them healthy, so to manage their chronic conditions on a daily basis so that they have better health outcomes, they feel more of a sense of ownership and engagement in the management of their own conditions. And as a result, they get better quality of life, and they have fewer complications that require acute interventions, which is where you start to see the costs really go up.
And so I really believe that virtual care has the potential to provide better quality of life for these patients over the long term and to keep these patients healthy and at home for longer. And as we've seen over the last few months, home is definitely the safest care setting. So the more that care shifts to adopt technology that enables patients to stay home but still receive high-quality care and consistent monitoring and interaction with their care team, the better off the health care systems will be overall. And certainly, the better off those patients and their families and loved ones will be.
So I think we are part of something that we, at Reliq, our team feels very passionate about and very good about the contributions that we have been able to make through the pandemic and even more so about the contributions we'll be able to make going forward as we see this fundamental shift in health care delivery. And we want to thank our shareholders for being a part of this -- a part of what we're doing and the contributions that we're making, part of being the -- part of the solution to the challenges posed by the pandemic. And we're looking forward to hopefully moving forward with more control, more -- fewer losses to the pandemic. We certainly have been impressed by what the health care organizations and governments have done to try to protect patients. And we're very proud to have been able to be a part of that.
So we look forward to the coming year, and we are certainly keeping very, very busy, but we will keep our shareholders updated of new developments, either both through news releases and webinars. And we look forward to continuing those conversations. Thank you very much for joining us today, and goodbye.