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Edited Transcript of NH.OQ earnings conference call or presentation 5-Nov-20 9:30pm GMT

·10 min read

Q3 2020 NantHealth Inc Earnings Call CULVER CITY Nov 6, 2020 (Thomson StreetEvents) -- Edited Transcript of NantHealth Inc earnings conference call or presentation Thursday, November 5, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Bob Petrou NantHealth, Inc. - CFO * Ronald Allen Louks NantHealth, Inc. - COO ================================================================================ Conference Call Participants ================================================================================ * Yucong Shi Cowen and Company, LLC, Research Division - Associate * Robert Jaffe ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the NantHealth 2020 Third Quarter Financial Results Conference Call. (Operator Instructions) I would now like to hand the conference over to your first speaker for today, Mr. Robert Jaffe, investor relations for NantHealth. Thank you. Please go ahead, sir. -------------------------------------------------------------------------------- Robert Jaffe, [2] -------------------------------------------------------------------------------- Welcome, everyone, and thank you for joining us today to discuss NantHealth's 2020 third quarter financial results. On the call today are Ron Louks, Chief Operating Officer; and Bob Petrou, our Chief Financial Officer. This call is being broadcast live at www.nanthealth.com. A playback will be available for 3 months on NantHealth's website. I'd like to make a cautionary statement and remind everyone that all of the information discussed on today's call is covered under the safe harbor provisions of the Litigation Reform Act. The company's discussion today will include forward-looking information reflecting management's current forecasts of certain aspects of the company's future, and actual results could differ materially from those stated or implied. In addition, during the course of this call, we may refer to non-GAAP financial measures that are not prepared in accordance with U.S. generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Investors are encouraged to review NantHealth's press release announcing its 2020 third quarter financial results for the company's reasons for including those non-GAAP financial measures in its financial results announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's earnings press release issued earlier today. In a moment, Ron will provide a brief overview of the quarter and discuss the business, followed by Bob, who will discuss the financial results in more detail. We will then open the call for questions. With that said, I will now turn the call over to Ron Louks. Ron? -------------------------------------------------------------------------------- Ronald Allen Louks, NantHealth, Inc. - COO [3] -------------------------------------------------------------------------------- Thanks, Robert. Good afternoon, everyone, and welcome to NantHealth's 2020 Third Quarter Financial Results Conference Call. We hope all of you and your families continue to be safe and well. As we previously announced, during the 2020 third quarter, we successfully completed the acquisition of OpenNMS, a leader in enterprise-grade network management. The integration of the OpenNMS business into our operations is proceeding smoothly, and we expect to see benefits and synergies of the strategic acquisition. We view OpenNMS as a strategic acquisition on multiple fronts: to provide a number of cross-marketing opportunities by leveraging NantHealth's data science and AI competencies and OpenNMS' network monitoring solutions for critical data flows. Additionally, we believe the acquisition will enable OpenNMS to substantially grow revenues by leveraging NantHealth's operation expertise and experience. Lastly, we believe the acquisition allows NantHealth to expand in industries beyond health care. Now let's briefly turn to our financial results. Total revenue for the 2020 third quarter was $18.8 million. Total software-related revenue, which included a contribution from our recently completed acquisition of OpenNMS, was $18.7 million. For both the 2020 and 2019 third quarter, gross margin was 60% of net revenue. Total operating expenses for both periods are comparable at approximately $18 million, with SG&A decreasing, investments in R&D increasing and our bottom line improving considerably. Bob will discuss our financials in more detail shortly. Now let's discuss our software and services business. In our clinical decision support product, we are expanding our client base with new clients through NantHealth's Eviti channel partner, a leading clinical solutions provider. We expanded Eviti Connect across the Medicaid population of a leading U.S. health insurance company. Of the 13 states originally announced, they've gone live in 6 states, with 5 more states to be added through Q4 and into early 2021. We released enhancements to the Eviti platform, including enhanced payer preferred drug program efficiencies to facilitate automatic activation of payer's treatment configurations on an agreed-upon date; the launch of a drug management framework which allows for multiple third-party feed integrations and enables [fine and clustered] customizations for both branded and generic drugs; and the introduction of new features that support medical office operations to track and report on adherence [and to find a specified treatment] (inaudible) time lines. We expanded API capabilities with a new service offering for providers and revenue cycle organizations to connect with payers via the NaviNet Open platform. The expanded API capabilities include an update that enables faster information retrieval and easier payer access through a secured HIPAA-compliant gateway to payers; and in workflows, including eligibility and benefits, claim status inquiry, authorizations and referrals. We launched user-centric enhancements that will provide a richer user experience in NaviNet Open. These enhancements include claim investigation e-mail notifications and self service capabilities. For sequencing and molecular analysis business, we continue to explore monetization opportunities. For an update on our newly acquired network motoring business OpenNMS, we released Meridian 2020 with new features, including time series database integration with numerous time series databases including Cortex, InfluxDB, Elasticsearch and others. Mobile OpenNMS alarms with PagerDuty platform enables users to notify on-call responders, customize alarms and synchronize incidents and acknowledgments. And support for BGP Monitoring Protocol, BMP, for monitoring Border Gateway Protocol routing information. A Fortune 500 health care IT company went into production with the OpenNMS Architecture for Learning Enabled Correlation, ALEC, AI engine, providing greater insights to the [timing] (inaudible) resolution. To sum up, our recently completed strategic acquisition of OpenNMS contributed revenue during the third quarter. We reported a solid overall financial performance with total revenue increasing, lower SG&A and an improved bottom line. We added new clients and capabilities to our Eviti business and launched enhancement to our NaviNet payer engagement solution. And with that overview of our business, I'll turn the call over to Bob to discuss the financial results in more detail. Bob? -------------------------------------------------------------------------------- Bob Petrou, NantHealth, Inc. - CFO [4] -------------------------------------------------------------------------------- Thank you, Ron. For the third quarter of 2020, total net revenue was $18.8 million. This compares with 2019 third quarter revenues of $18.6 million. SaaS revenue, which includes only our Eviti and NaviNet product lines, increased approximately 1% year-on-year. However, Q-on-Q SaaS revenue grew 5%, driven by strong growth in our Eviti product and a full quarter of AllPayer. Our Q3 acquisition of OpenNMS generated $361,000 of revenue, which was comprised of both maintenance and professional service revenue. Sequencing and molecular analysis revenue was $49,000, down from $276,000 in the third quarter of the prior year. We expect nominal revenue in the coming quarters as we continue to explore opportunities for this product. Q3 gross margin of 60% was comparable with the same quarter a year ago. Total operating expenses were flat at $18 million compared with the third quarter of the prior year. We lowered SG&A expenses by $1.3 million compared with the prior period, while we ramped up our investment in R&D expenses by $1.4 million. We continued to add new product offerings and grow our data science capability, driving for future monetization of these efforts. For the third quarter, net loss from continuing operations attributable to NantHealth significantly improved to $11 million from $16.4 million in Q3 of 2019. On a non-GAAP basis, Q3 net loss from continuing operations attributable to NantHealth was $7.2 million or $0.07 per share, down from $7.5 million or $0.07 per share for the third quarter of last year. On a year-to-date basis, non-GAAP net loss from continuing operations attributable to NantHealth decreased to $20.8 million or $0.19 per share from $23.9 million or $0.22 per share for the same prior year period. Finally, cash and cash equivalents were $25.9 million at September 30, 2020, compared with $37.5 million at the end of our second quarter. Net cash burn was approximately $11.6 million in Q3, which included the usage of funds for the OpenNMS acquisition. With that, I will now turn the call back over to Robert. -------------------------------------------------------------------------------- Robert Jaffe, [5] -------------------------------------------------------------------------------- Thanks, Bob. Operator, that completes our prepared remarks. We'd now like to open the call to questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question is from the line of Charles Rhyee of Cowen. -------------------------------------------------------------------------------- Yucong Shi, Cowen and Company, LLC, Research Division - Associate [2] -------------------------------------------------------------------------------- This is Gwen Shi on for Charles. Congrats on the quarter. Question: It seems like overall health care utilization is coming back to normal levels. And we're also hearing that oncology volumes are kind of getting back to where they were pre pandemic. How does that look among your clients? And was that a net benefit in the quarter? Have you seen a rebound there? And the other question is, given the solid growth in the quarter, how should we be thinking about 4Q revenue? And what kind of expectations do you guys have for OpenNMS to contribute in 4Q? -------------------------------------------------------------------------------- Bob Petrou, NantHealth, Inc. - CFO [3] -------------------------------------------------------------------------------- It's Bob here. I can touch on the latter question, and Ron can maybe touch on the first question. As it ties to OpenNMS and where we see them going in the short term is probably similar revenue as in Q3, $350,000-ish a quarter in the short term. We're looking to expand that and drive those synergies that Ron referenced in the past, but for right now it's probably in that $350,000 range on a quarterly basis in the short term as we get those synergies and those engagements further aligned. As for Q4, again obviously we're not really providing guidance. There's still a lot going on in -- with the pandemic and such, so I don't feel comfortable in giving an exact view, but I still think we're probably going to be in the $18 million range. As it ties to Q4, we've got upside opportunity, but there's also, as we get to the end of the year with our contracts and amortization of certain professional services, we could see an impact on that in Q4. So again, I feel comfortable in that $18 million range. And we'll work towards getting upside from there, but right now it's probably in that $18 million-ish range. -------------------------------------------------------------------------------- Yucong Shi, Cowen and Company, LLC, Research Division - Associate [4] -------------------------------------------------------------------------------- Okay, that's helpful. And I guess, just a quick follow-up kind of in line with that. I mean, would you be able to provide any thoughts about 2021 and kind of OpenNMS' contributions in 2021 at this point in terms of rough growth or margin? That would also be helpful. -------------------------------------------------------------------------------- Bob Petrou, NantHealth, Inc. - CFO [5] -------------------------------------------------------------------------------- Yes. At this time, I won't, but in the near future, we will be able to. We are working on a future view and a 2021 view. I think -- again as a basic view, before we get into optimization and ongoing synergies, I think that run rate is relevant for the base view of where we expect OpenNMS. And then again, as we further -- come further along with synergies and ultimately drive further engagements, we could see upside to that but probably, to be conservative, somewhere in that same quarterly run rate for the next 3, 4 quarters. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- And there are no further questions at this time. I would now like to turn the call back to the NantHealth management for any final comments. -------------------------------------------------------------------------------- Robert Jaffe, [7] -------------------------------------------------------------------------------- I want to thank everyone today for joining us. We look forward to sharing our progress on our next scheduled conference call. Have a great day. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. Enjoy the rest of your day. Keep safe. And you may now disconnect.