Skylight Health Group Inc. (NASDAQ:SLHG) Q4 2021 Results Conference Call March 31, 2022 8:00 AM ET
Company Participants
Pradyum Sekar – Chief Executive Officer
Andrew Elinesky – Chief Financial Officer
Conference Call Participants
Frank Takkinen – Lake Street Capital Markets
Carl Byrnes – Northland Capital Markets
Rob Goff – Echelon
Mike Freeman – Raymond James
Gabriel Leung – Beacon Securities
Yue Ma – Research Capital Corp
Operator
Thank you, everyone, for standing by. This is the conference operator. We would like to welcome you to the Skylight Health’s Fourth Quarter and Full Year 2021 Financial Results Conference Call. The results are for the period ending December 31, 2021. As a reminder, all participants are in listen-only mode. After today’s speakers conclude the presentation portion of the call, should time permit, they will move to a question-and-answer period. [Operator Instructions]
As always, I would like to remind you that listeners are cautioned that, today’s call and the responses to any questions may contain forward-looking statements, including certain statements which concern long-term earnings objectives. These should be considered in conjunction with the Company’s cautionary statement contained in the Skylight Health’s earnings release and in the Company’s MD&A and other filings.
Forward-looking statements are subject to risks and uncertainties and assumptions; accordingly, actual performance could differ materially and undue reliance should not be placed on such statements. Skylight Health does not undertake to update any forward-looking statements except as required.
All currencies discussed on this call will be in Canadian dollars unless otherwise stated. This conference call is being recorded today, Thursday, March 31, 2022 at 8 AM and will be posted to the Skylight Health’s website within 24 hours after the conclusion of the call.
I would now like to turn the meeting over to Skylight Health’s Chief Executive Officer, Mr. Pradyum Sekar. Please go ahead.
Pradyum Sekar
Thank you, Ariel, and a good morning to everyone, and thank you for joining us today for our fourth quarter and full year conference call for the period ending December 31, 2021. With me this morning is our Chief Financial Officer, Andrew Elinesky. He will provide you with a detailed overview of our financial performance in a moment.
Skylight Health is a primary care focused organization that is committed to changing how healthcare works in the U.S. We operate a multi-state primary healthcare network comprised of practices, providing a range of services from primary care, sub-specialty, allied health and laboratory diagnostic testing. Our business model is focused on solving two major issues in U.S. healthcare.
First, providing a white knight solution to small and independent primary care practices, looking to consolidate within a highly fragmented market, and where providers and practices are eagerly looking for qualified and supported buyers. Through a national platform, we aim to bring scale, efficiency and improved revenues to these practices.
Second, we aim to realign the reimbursement model with these practices to outcome-based care, or more commonly known as value-based care contracting. Our focus with specific patient populations today, such as Medicare is to shift from a traditional fee-for-service only model that typically generates on average between a 100 to 200 per visit or $200 to $400 per year to a value-based care model, where some total cost to care programs can remunerate the provider group over $10,000 by year paid by the payers, not the patients.
This enabled the practice to receive the full health care dollar, putting the patient first and allocating expenses accordingly. Diabetes care models are designed to manage the growing cost of care, while improving on patient health outcomes. 2021 was definitely a busy year for us. Some things we’re definitely really happy about and some things that we’re definitely cognizant about moving into 2022. So, the things that we’re pleased and the things that we’re able to bring to the organization we got was a turnaround in the Skylight Health Group, positioning ourselves as a player within the primary care market in the U.S. healthcare.
We’re happy about the progress we were able to bring between 2019 to 2020 to 2021. We made significant acquisitions during the course of this time, that allowed us to recognize strong and rapid growth, the ability to recognize leaders within these organizations that have been able to come onto Skylight Health, and we have been able to leverage from their knowledge and expertise, and will be instrumental in allowing us to scale as we move forward. It’s allowed us to expand into new markets. Markets, where we believe we have density of growth, density of acquisitions, and density of the ability to bring value based care to patients.
We also saw a shift into two major exchanges, allowing Skylight to really mature into an organization but also have access to investors and an investment community that can benefit Skylight Health plan into the value based care space. We saw strong leaders join the organization from the board with the appointment of Grace Mellis and Patrick McNamee. And within the organization, from leadership down to management level, down to staff were really happy about and pleased about the growth that we’ve been able to bring, allowing us now have the infrastructure to benefit from scale and growth.
Some of the things that we are cognizant about as we as an organization look at 2021, we’re cognizant about the cost and time that it takes to make change and turnaround happen. While change takes time and does have an expense to it, we are aware that these are necessary investments that are required to build the infrastructure to manage such rapid growth. Furthermore, to lay the infrastructure for the future we’re looking to build. And I’ll be coming back to talk about these initiatives in a few moments.
So with that, I’ll turn the call over to Andrew Elinesky, who will go over our financial results in more detail.
Andrew Elinesky
Thank you, Prad. Thank you, everyone for joining us today. As usual, we appreciate it’s a busy time of year. As Prad mentioned, we’re very pleased with the Company’s achievements that we made in the year 21 was, as we always talked about, was transformed, but it truly was. And the full year and fourth quarter financial results reflected the impact of the strong and rapid growth that Prad just highlighted.
This resulted in us, making a number of acquisitions last 18 months. And as a result, we reported record quarterly revenue, quarter-over-quarter, in addition to the gross profits. This is over top of the investments and costs that we expended in the coming year and in the quarter that we are making a business development as we continue with our plan of growth by acquisitions, optimization and expansion of our book of business.
Before I dive in the numbers, I’m going to get into a couple of points I’d like to highlight and please bear with me. It’s made our financial results a bit tough to follow. But I feel it’s worth, giving a bit of background on both. Firstly, with the sale of our legacy business in mid December, our financials were recognized to reflect this sale, when you dispose of a business line such as this reporting requirements results in you, reporting this as discontinued operations or disk ops that some folks like to call it.
And instead of seeing all the assets, liabilities, revenues and costs for this line of business in the usual spot in our financials, you carve them out. You calculate any gain and loss on the sale of those net assets versus the sale price and report them as net income from discontinued operations in our income statement. You can see this number near the bottom of our income statement coming in at a gain of $5.6 million. Policies are being such an accountant, but I feel better is explaining.
As it would appear revenues were flat for the fourth quarter that first looked of our income statement when they’re actually at record levels, record for us of course. In addition, you will notice that we use a term called realized revenues in our financials, as well as our press release. This is just an additional non-GAAP measure, which combined the revenues of both the continued and discontinued operations to show how revenue performed overall when we own the two businesses at the same time.
The second item I want to take some time to explain was the refilings over prior quarters of 2021 as we discussed in our press release. This related to us, restating our revenues during the year after we changed our methodology for accounting for net revenue, and I’ll do my best to make this the last time having the kind of accounting speak, so please bear with me again. Net revenues are what we report in our financials.
And in basic terms for medical revenues, particularly fee-for-service, they’re, what is called gross charges that our medical providers charge to an insurance plan to patients, and these gross charges are paid in varying percentages. This means that, we need to calculate the discount to these charges, in order to estimate the revenues that we think we can collect. This estimated collectable amount is what we call net revenue. That is what we disclose in our financial statements.
Now, when we are looking at acquiring a medical group, one of our main areas of focus of due diligence is the quality of revenue. And we take a look at everything. We look at the mix of their charges, the procedure codes they use and bill and then how much they provide as reduction against gross revenue. With the acquisitions we made in early 2021, we are working with the local teams to better understand these and eventually refining this work.
And what we found during this process is that, two of our clinics primarily were not using a high enough percentage and effectively writing-off this balance, or the additional write off of this balance after it ended up in accounts receivable in the balance sheet 12 to 18 months later. So, what we did was increased this discount percentage, which reduced our revenue for the year by 2.1 million throughout the year, and had an equal and offsetting reduction in accounts receivable.
I don’t want to sound a different about this. I’m certainly not, no one ever likes refiling, but we follow with this adjustment being of this size and affecting the top-line, getting them refiled was the cleanest way to show this adjustment, and we make a reporting smoother in 2022, as opposed to if we cram this adjustment in just the fourth quarter statements alone, and for the next four quarters talked about adjusting the numbers for the comparatives.
Also just pointing here as well, this does not impact cash. This is essentially a swap team, revenue discount and bad debt provision or ARR balances. It doesn’t change our estimated collections. With those two points out of the way, I’ll make sure everybody’s still with me. My CEO’s still nodding. So that means I haven’t lost him. I’ll jump into reviewing the full year financials.
Please note my comparisons will be with the prior quarter of 2021 or quarters considering the continuing business did not have material revenues in 2020 and were primarily composed of corporate overhead related to running the entity when they owned just the discontinued operations, in the legacy business.
Revenue for just continuing business came in just over $27 million. And as mentioned elsewhere, realized revenues came at just under $38 million. Our gross profit came in just over $15 million for the continuing business with another increase in Q4, which came in at just over $5 million for the three months period.
In addition to the increase in the revenue and gross profit, our profit margin increased to 56.6% for the quarter and the full year average to margin of 55.6%, as we saw this percentage increase slightly but consistently over the year, which started at 55.2% in Q1. This upward trend was the result of increases in urgent care visits, including COVID testing, as well as having a full quarter of our Aspire clinic, which we acquired in late Q3, both of which offset the expected year-end seasonal decrease in December.
Our operating expenses also increased as a result of addition of the Aspire clinic, but we also saw an increase in non-cash expenses in the quarter, which primarily consisted of asset impairments and a slight increase in our share-based compensation. As a result of this overall increase in expenses, exceeding the increase in gross profit, then we reported an increase in our loss from operations in the fourth quarter of approximately $2.3 million, when compared to the prior quarter.
Moving to the outlook for 2022, we are expecting full year revenues to be in the range of $35 million to $37 million from our existing business. And it is our intention to continue to improve our gross margin to over 60% by increasing our provider utilization rates. We also anticipate our operating costs increase for the full year in 2022, considering the completion of the build out of our internal infrastructure across all of our clinics and corporate offices.
This consisted of a new way ERP, standardized payroll system and new HR system. This started in the middle of 2021, ramped up in Q4 which we have just completed in recent days. In addition with the sale of the legacy business completed in December, this allowed us to streamline the business further. And as a result, we should see a reduction in salaries and wages starting in Q2, 2022.
e also anticipate that a professional fee should be lower in this year as 2021 was one heck of a busy year, including our listing on the NASDAQ exchange, multiple financings and a significant number of acquisitions. With these increase in revenue and gross profits, in addition to the decrease in SG&A expenses, we should see improvement in our cash burn and the bottom line and make a strong push to accountability in 2022.
With that, I’ll turn it back to Prad.
Pradyum Sekar
Thanks, Andrew. So with that, I’d like to spend a little bit of time talking about our initiatives that we did last year. I think it’s relevant for everyone to be aware of what we have been spending our time doing over the past six plus months. As mentioned earlier, before handing it to Andrew, while we are pleased with the growth that we have been able to have, we are also cognizant of what it takes to build this, including the costs and the time that it takes.
As we recognize most of these costs that are required are not going to necessarily be required moving forward. And so, as part of 2021, was really on building the infrastructure, the goal for us in 2022 is now realizing the return on that investment, and a focus on our pathway to profitability this year. And that is very much what our focuses internally within the organization.
Looking at some of the practices that we’ve acquired over the course of the last 18 months, traditionally and what is common amongst these organizations, and why historically, past roll ups have not worked in this space, is recognizing the challenge in managing these disparate offices. Now while successful in their own right, most of these organizations operate on different systems, they operate under different payment models, they operate under different cultures and they operate in different plants.
As an organization that’s looking to consolidate independent primary care practices, we have to be aware of the fact that most of this is what it took to build this practice into success. And so, you want to retain the best, while still trying to benefit from economies of scale. And so for the last six plus months, while not the most exciting piece of business updates, it is very important that we spend the time to make sure that we stitch these organizations together.
And so as Andrew mentioned, some of the initiatives that were launched are really primarily focused around bringing these organizations together under one roof from a management perspective so that we can now start to impact measure and affect change. Within these changes, and with these infrastructure growth included, as Andrew mentioned, ADP and a payroll system.
Managing staff across multiple payroll times, managing staff across multiple contracts is an important aspect of retention, but also an important aspect of understanding how to grow and develop your workforce. Culture is probably one of the most important aspects for us here at Skylight and making sure that we have the appropriate systems in place for human resources to consolidate and provide the support to our local practices was our number one priority from the beginning.
Secondly, was a corporate restructuring for most of these groups and so operating under entities within the organization under each state, again, might sound complicated, but the easier way to think about this is a clean structure allows for you to have a more equitable negotiation with healthcare payers, when it comes to pair contracting. As we’ve talked about in the past, density is important for the ability to generate better contracts.
Bringing all these organizations under a single entity and a clean structure allows for us to now negotiate better contracts with payers and allows for the payers have better visibility into the performance of our providers in our organizations from quality and cost outcomes. We also can benefit from improved liability insurance costs and other costs affiliated with consolidating our corporate structures.
Hiring and recruitment is also a very important piece, as I mentioned about culture, and so launching HR systems that allow for us to minimize the need to have to duplicate on HR workforce, while using technology to improve on our recruitment tactics. So that we are always able to ensure that we have the adequate number of staff and providers, although that has always been challenging during the pandemic, but definitely systems in place that we believe will help the organization moving forward.
And last but not least, is the electronic health record system. This I have to spend a little bit of time on just to explain sort of the nuances and the detail behind the system. So within every organization, switching from a paper to an electronic health record system, you have a plethora of EHRs effectively across all these practices. If you truly want to understand patient volume, you want to understand how to drive growth, you want understand your patient, the cost of care and lay the groundwork towards value based care begins and ends in a large part with the EHR system.
We decided to pick an EHR called Athena, which was one of the industry leading systems within the U.S. market that we identified through a rigorous process. Athena is a program that is robust; however, it does take time to implement. I’m excited and proud to say that Athena has now been launched across all of our practices within the U.S. markets, now allowing us to have a centralized EHR system that gives us access into the most finite details of our business performance.
It allows us and not just us, but the practices, the providers and the patients have better interaction, better access to data, and more importantly, the ability now understand where growth can come from. Laying this infrastructure takes time and cost. Now, it’s about talking about how we generate the return on investment from this infrastructure.
So moving forward, we’re most excited about some of the initiatives that we’re going to begin to lay the groundwork on. Part of recognizing these practices and operating them independently is imperative to the success of these businesses. We recognize that while these businesses consolidate under Skylight Health entity, healthcare is local. We need to keep healthcare local, that we believe is one of the biggest differentiators between Skylight Health and many of our other consolidator competitors.
In keeping practices local, we’ve established a plan whereby through dyad relationships with our lead providers and practice managers, we’re able to have a more dynamic rollout execution model where we can still think global but act local in the way that we execute. It allows for us to be able to remain more competitive against practices, it allows for us to be able to take into account the demographic of our patients, unique to each market, and it allows for us to benefit from the type of population of patients we have when it comes to healthcare negotiations and health plan negotiations.
And that is a model that we believe now instituting will generate success for us within our existing practices, but also be an attractive model for new practices, as we look to grow the Skylight Health Network. We’re also going to look to consolidate certain aspects of business performance, including and starting with our contact center. We recognize that, many phone calls to a medical practice, as many as you might have experienced often go unanswered, and one of the most, and one of the biggest frustrations is the ability to reach your doctor’s office.
Now, when you’re working in a volume-based environment, your ability to pick up the phone translates directly in your ability to make appointments which then translates in your ability to make revenue. Centralizing a contact center allows for us to remove a lot of the pressures placed on the front desk within a medical practice and bring it back to an organization that is able to support every patient phone call. This means that, our goal at the end of the day with the contact center is to ensure that, patient first and foremost have the ability to connect with us, ask questions and be reached regarding whatever their concerns might be.
The contact center allows for tremendous growth opportunities across multiple areas, over-excited about launching this contact center here into Q2. We are also going to be looking to centralize our revenue cycle management, which is our billing function. Through billing through multiple healthcare payers, this has become one of the most administrative burdens for independent practices.
Centralizing revenue cycle management will allow us as an organization to have better access into the coding behaviors, into the coding practice, ensure compliance, and be able to maximize our ability to generate the right type of patient visits for the right type of patient encounters and ensure the right diagnosis matches that patient. The appropriate diagnosis to a patient translates directly into the revenue you earn from a healthcare payer. And this again is imperative in our ability to be able to maximize earnings from or medical practices.
Being able to utilize our practices and providers is another important aspect of where we’ll be focused moving forward here in Q2, having access to Athena and data on our practices truly allows us to understand staffing ratios and staffing models to best optimize our patient needs, whether it’s days, weeks or hours of availability, this allows for us to truly hone in on access and ensure that we have the appropriate capabilities of staff providers and systems to be able to make ourselves available to our patients.
By launching this model, we expect to start to see both improvements to the top-line in terms of increased availability to our patients, but also improve utilization of our staffing ratios and cost of sales. We are also looking at launching several marketing initiatives. Now having the infrastructure of all these systems in place, it allows for us to drive patients into a single channel and thereby lead appointment bookings directly onto the electronic health record system.
While most clinics and most practices have generated marketing through word of mouth over the years, what we have seen is that, typical investment in marketing has not been focused in areas like digital to a large extent. Launching several digital campaigns through Q1, we have already started to see a good return and a calculation of our call cost to patient acquisition and are now looking to ramp that up across all of our markets, ensuring that our practices benefit from a consistent supply of new patients, looking for providers and looking for primary care providers, that can provide quality care.
We are excited about the initiatives that we are going to be launching forward, moving forward, plus the ability for us to recognize the multiple cost synergies now that our infrastructure and investments are in place. And hence our pathway to profitability this year, we are fully confident that we are going to be able to drive to this achievement. And while the investment cost in 2021 reflects that cost of investment, we are excited again about the profitability that we look to bring and that we will drive towards this year.
Thinking a little bit about the divestiture, focusing on why the divestiture occurred was largely to put the focus back on primary care and our focus of Skylight Health. The question of how we plan to backfill the divestiture and the revenues in the divestiture, we have spoken about previously in the confidence we have had in our pipeline of acquisitions. While external factors have largely slowed our trajectory of acquisitions, we still feel highly confident and highly bullish about our ability to grow this year through acquisitions.
And in fact, we have several deals today that we are in diligence with, that we believe are material, and that will add value both in the ability to grow our company, but also expand our experience in the value-based care space. In order to finance these acquisitions, we continue conversations with investors. Mindful of the market today, these investors are having conversations regarding other forms, specifically non-diluted forms of capital that we can use to affect against these acquisitions.
And we will certainly keep shareholders up to date as we move down that path. In terms of value-based care, we already have started expanding into value-based care this year. In fact, in some extent we have expanded into contracts where right now we’re starting to see the benefits of our participation in these plans. However, we do look for further growth and we do feel confident that this year we will have some new plans in place, specifically in areas like Medicare and Medicare Advantage. We continue to progress our discussions with our payer partner.
Things have taken a little bit longer than we’ve anticipated in the timeline that we’ve given, but I do want to give the confidence that these conversations have been progressing well. And when you’re dealing with a Fortune 50 partner, things might take a little bit longer than even we expect, but that’s okay. We feel confident and the conversations are going well. And we’re hoping to have this across the finish line. So we’re able to communicate to our shareholders, the benefit that this relationship with our payer partner is going to bring in the long-term for Skylight Health, both from a contracting perspective, but also access to market and pipeline of opportunities.
While transparency is going to be key moving forward, we certainly want to recognize that as we come close to the end of Q1, to provide a little insight into how the trends we’re seeing moving into Q1 are going. Some of the things that we’re noticing is returning back to primary care. The last six months have been busy, especially as we see a massive surge in the pandemic as a result of the Omicron variants.
We’re starting to see a slowdown in shift of urgent care visits largely into COVID-19 business, and that’s industry wide. As that starts to happen, what we’re noticing is a shift of those patients are moving back to primary care, we’re seeing an increase in the number of annual bonuses that that we’re seeing. We’re seeing an increase in the number of new patients looking for primary care. This is again why we believe we’re so well positioned to be able to meet this trend.
While we see a reduction in volume and COVID-19 patients, the change in volume to primary care means that we are seeing higher acuity and higher acuity leads to higher earnings per patient visit. And so we expect this offset will be met with higher value visits overall within our practices. Furthermore, the switch to Athena requires us a little slowdown as we acquire a new system and as our providers learn a new system. Now while these trends might reflect in Q1 numbers, we do start to see a return back to our original volume as we move back into Q2 and forward.
Again, based on these trends above, we’re very excited about the future that we see ahead for Skylight, we recognize that the time is taken to build the infrastructure has led to a period of time where a growth trajectory may not have been as quick as it was before. But we want to provide confidence that we as an organization are recognizing not only what it takes to grow quickly, but how to maintain and maintain an infrastructure that’s going to be sustainable in the long-term.
We think we’re well positioned for de novo growth. We feel bullish about our acquisition pipeline. We feel confident about the conversations we’re having with value based care and value based care partners to be able to bring higher value contracts to our existing practices. And we’re focused on our existing practices, our culture, our team, and our patients. We’ll continue to keep shareholders up to date as we continue to move forward. And we look forward to a successful and strong 2022.
So with that, Ariel, I’ll turn it back to you for any questions.
Question-and-Answer Session
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Frank Takkinen of Lake Street Capital Markets. Please go ahead.
Frank Takkinen
I want to start with a follow-up to your comments around the infrastructure investments and payroll HR and EHR system. Can you just extend the thought process a little bit on how this is going to be important for transitioning to value based care as well as folding in new acquisitions into the organization?
Pradyum Sekar
I’ll start here and then pass it back to Andrew, if he wants to add anything to that. So the concept exists largely from a two facet approach. One is management of multiple practice models and when you’re de novo, you’re building a practice of the ground up, you have one system in place, as you’re building out. When you’re acquiring these practices, each of them operate under a different structure, but they also operate using different technologies and systems.
And so keep scale is the ability for us to benefit from a corporate perspective. And from a local perspective and being able to have everybody under the single system we can benefit from improved costs. But we can also benefit from improved oversight. And so, part of the facet is putting everybody under a single system of operation. That’s first and foremost, just from our perspective, basic management.
The second aspect of laying the groundwork for what we talked about in value based care just basically growth within these organizations is the ability to understand the data. And so what we have seen over the last 12 months plus before switching into a single system is we spend an awful lot of time trying to source data from different disparate organizations systems that may or may not be robust enough.
And so, when you are looking at the intelligence on the actual practice volume, the utilization rates, the billing systems, knowing all that information is imperative for us to know where we can drive more growth, where patient panel growth is important, where we can benefit from further education with our teens and providers, where we understand the cost of care of our patients.
So this is important, not just from a value-based care perspective, but clearly in value-based care, the ability to measure the cost and outcome of your patient is critical to your success under this plan. And so part of it management and part of it laying the groundwork for improved data collection and analysis, which then allows us to be a stronger player overall within the value-based care segment. Andrew, I don’t know if you want to add any more to that?
Andrew Elinesk
No, I mean, I think you’ve covered at all Prad there. Frank, did that get your answer?
Frank Takkinen
Yes, that’s helpful. And then, just my second question, you spoke to it a little bit on the seasonality expectation from Q4 to Q1, maybe also extend that thought process a little bit further into 2022, maybe thinking about first half first, second half contribution and how the transition back to primary care from urgent is going to impact the margin profile as we turn through here.
Pradyum Sekar
Thanks, Frank. I mean, it’s a good point about the seasonality. I mean seasonality expectations have changed in primary care with COVID. It used to be, pre-COVID was wintertime was a very busy time with flu season. Obviously, with flu season being drastically reduced with COVID, the timing is much different. And so, what you get now is December and January quite lower from a seasonality perspective with people on holidays and doing what they are doing as well as, possibly getting over COVID.
And so, we did see reduced volume as results in December and January. And what we expect kind of for the rest of the year is the front half to be lighter than the second half, but kind of increasing quarter-over-quarter. So, we do anticipate Q1 being the lowest of the four quarters, but increasing, starting in Q2 and onwards. And in terms of the margin, that’s also part of, what I was referring to targeting getting over 60% by the end of the year. We do anticipate that we should see an increase with that shift, basically again from quarter-to-quarter.
Operator
Our next question comes from Carl Byrnes of Northland Capital Markets. Please go ahead.
Carl Byrnes
Thanks for the question. Looking at the fourth quarter and this is relating to the reduction against gross revenue, which was 2.2 — excuse me, 2.12 for the entire restate period. If we look at the fourth quarter and we adjust for the reduction revenue, which looks like for that quarter would be around $650,000, and then there was also $1.4 million in change impairment, that’s note 6 in terms of footnotes. It looks like adjusted on a normalized basis then going forward net income for the quarter, would’ve been a loss of $6.1 million. Does that sound correct to you?
Andrew Elinesky
Carl, so your number is correct. The adjustment in Q4 was just under 650. And yes, if you back out that adjustment, we would be closer. We would be under 7, like you said there, and about 6.2, 6.1.
Carl Byrnes
Got it. Cool. And then just another follow-up. If we look at the fourth quarter top-line, you had a sequential growth of 8% from the third quarter. If we back out the contribution from Aspire, which I believe closed on or about the 16th of September in this the third quarter, and would’ve added a little more than a $100,000 in that period, and adjust obviously having the differential for having it being in the full quarter, full fourth quarter. It would imply that the organic growth in the fourth quarter. And again, there is some seasonality of course here, would be around 2%. So we annualize that, that would be 8% plus. Does that sound correct?
Andrew Elinesky
Yes, I think it’s just a little bit lower. But yes, that is the ballpark, part of that growth in that quarter. Again, you have got the mix of the seasonality, taking it down and then you have the COVID component, which took it up in October, primarily September, October. Prad mentioned here, I think he wants to jump in with his comment on, I’ll mute myself.
Pradyum Sekar
Yes, thanks Andrew. And, Carl, I think one of the ways to think about this would be that organic growth that you’re calculating, again, would be before execution of any of the organic opportunities that I earlier spoke about, largely, again, ensuring that we had all the systems in place before we’re able to start measuring and tracking those. So I anticipate moving forward that what you see there has been sort of consistent seasonality ahead of initiatives planned.
Operator
Our next question comes from Rob Goff of Echelon. Please go ahead.
Rob Goff
Good morning and thank you for taking my question. Prad, you had mentioned with respect to acquisitions, that you felt you would be in a position to fund these in a non-dilutive way. Perhaps could you talk to the perspective of lenders, with the divestiture of the legacy business? And where lenders are with respect to value based care versus primary? What are they looking for and the prospective access to credit specific to acquisitions, if you could?
Andrew Elinesky
Thanks, Rob. It’s Andrew. No, you’re highlighting what we would consider to be our preferred methodology, whether we execute on that that is up to us to fully do and perform. But what you’re talking about is exactly, our preferred strategy, the acquisitions that we are looking to mature with, shall we say. We’re looking at some different types of acquisitions next stage, compared to what we did in 2021, really, looking for ways to access quicker ways into value based care.
And so what we prefer to do is, have those acquisitions, underwritten, with some non-diluted measures, you know, maybe we mix that with equity, depending on the acquisitions, where, we’re always going to do whatever we can, but our preferred methodology would be, of course, to finance that with debt wherever possible. And to your point of the divestiture of the legacy business, that certainly makes that strategy a little bit more feasible for me. When I’m talking to folks to say, this is the background of the Company. I don’t have to get over that hurdle of discussing the legacy business in the U.S.
Rob Goff
And thank you for putting out the baseline 35 million to 37 million. Can you talk to the organic growth considered within there? Might there be opportunities for outperformance given some of the new initiatives?
Pradyum Sekar
Again, I think the answer to that, from our perspective is that is what we’re expecting. Again, many of the initiatives we’re launching were initiatives that are net new to many of the organizations that have joined telehealth network. These are initiatives both driven by what we’ve seen as demand plus what we see as sort of opportunities to maximize and capitalize on areas, where we think we can grow market share from a from a digital campaign perspective. And we started to see these results already trickle into Q1 as we started to launch them.
I think we’ll continue to see further opportunities going forward, I think the organic growth not just as in the initiatives from launching marketing campaigns and creating a centralized area for patient access, it’ll continue to come from our ability to negotiate contracts with payers and those are things that are ongoing that we feel confident we’ll be able to develop further this year. Not just from our progressing conversations with our future partner, but also with regards to other payment models that will exist within the states. And certainly, our goal will be to continue to look outperform those numbers.
Rob Goff
And one more if I may, when you look at the best practices within your portfolio of clinics. Could you talk to the margin profiles of your top performing clinics in terms of gross profit or EBITDA?
Andrew Elinesky
Happy to Rob. So top clinics what we’ve seen in terms of gross profit is obviously, the numbers that hold are 55% up or 56% of what we saw in the fourth quarter. Our top earning clinic, going to give everybody the names either, so don’t want to go to their heads necessarily, Rob.
I wouldn’t want Brad to kick me under the table there. But in terms of gross profits in 2021, what we saw from that clinic was actually over 70% and EBITDA margin of 25%. And then moving to second highest performer, it was gross profit margin of over 63%, and an EBITDA margin of 35%.
So, what we have seen with these clinics is, if you can get them to go running very efficiently and get them maximized, potential always exists there, to get your operations, to levels such as that. But, not every clinic is the same, different practices, different activities, different markets. I’m sure Prad will have some other context there, that he’ll want to throw in caveats, but that is the potential. They are the folks that do carry the numbers.
Pradyum Sekar
I mean, Rob, the answer to talk about margins again is based on services rendered, right? And typically what we have seen over the last six to eight months, and this is again, not us, but industry-wide, and you have seen this as more and more these practices have come to market and become really an area for PE is the urgent care space and high volumes, especially these areas drive high margins, because of the utilization numbers.
But in a more typical environment, utilization is typically better, margins are typically better in a primary care space when patients are generally more long-term. They come in as more, higher acuity services. They will typically have higher levels of care. And all that translates into your ability to benefit from higher coding with payers and the ability to earn in that space, especially as you move towards more of a capitated value-based care model.
So, I think that the nature of these practices and a fee-for-service model is what we see on post acquisition, but as transition and as we move into growth, those margins continue to shift. And that’s again, why it’s so important for us to have single system of operation, because we want to be able to track this and we find providers are also curious and interested in wanting to see the success of these businesses as well.
Operator
Our next question comes from Rahul Sarugaser of Raymond James. Please go ahead.
Mike Freeman
Hi, Prad. Hi, Andrew. This is Mike Freeman on for Rahul today. Thanks for taking our questions and congratulations on the year of building an integration that you have just undertaken. We recognize the challenge in it. So, my first question is what sort of news might we expect to see sort of as Skylight shifts into the value-based care, further into its value-based care practice and in part in particular, like carrying out this program with its fortune 50 partner, like what I guess sort of estimated timelines and, and sort of what sort of new flow we might be able to see around that?
Andrew Elinesky
Yes. I mean, that’s a good question, Michael. Thank you. When we look at our participation in this space, you we have always communicated this, the transition to value. It’s a transition. It’s not a switch that you flip overnight, for any organization looking to get into value. So, you are going from organizations that take no risk to where you want to take all the risk in the total cost of care.
The relationship that we are developing with the partner that we are working with the payer per partner group, and again, we are all eagerly excited to be able to communicate, but again, keep in mind these things just take time from a paperwork standpoint. But the relationship effectively translates into the ability for us to leverage several different experiences from the payer side, one is their knowledge and risk.
And so, we can fast-track our participation of the level of contracts we take from healthcare payers, because we have the experience behind Skylight through the relationship with our partner. Secondly, will be access to plans, and the ability to benefit from the plans that they have in these markets.
So, as we look to this relationship, it’s about looking at patient populations that we have within our practices today, looking at the density of those populations, looking at the type of health plans that are in those markets and the health plans that are looking to get into offering risks to providers in those markets and having discussions and conversations of those health plans to effectively win a part of their business.
And that comes down to the services you offer, that comes down to the experience that you have. And so, as we have now started it into value care, I mean, that translates into receiving small capitated amounts or care coordination, all the way to looking at generating percentage of savings that we can benefit from at the end of the year to receiving a capitated amount through the course of the year. Those are all the conversations that we will have independently, but also through this future relationship with this partner.
And this is an ongoing conversation as you look to build more relationships with more healthcare plans in the markets and start to benefit from the recruitment of those patients, and then overall the growth of these visits. And as we have seen very successfully within our peer group, the ability to maximize on these contracts comes from both internal experience as well as time and experience with these healthcare payers.
So we are still very much on-track and we still very much are focused on our strategy to run these practices well, initially then you got to have the foundation. And then while doing that, starting to position them both from a infrastructure perspective, which is what we’ve now built to now engaging in those conversations with help lines, which is what we’re now doing to then benefiting from the experience to execute against that, which is where we look to accelerate that through the relationship with our future partner.
Mike Freeman
Next question for me is looking at continuing operations only and looking at the loss from operations over the last couple of quarters, noticing that the loss from operations is scaling a little bit faster than revenue has been. Wondering, how we should think about loss from operations moving forward and how we might see this trends, mitigating and future quarters?
Pradyum Sekar
Mike, I’ll maybe start off here and then I’ll turn it back to Andrew. The way, we should be looking at this is that the expenses, as I mentioned earlier, largely in part one, due to cost of consolidation, cost of duplication and cost of infrastructure development. And that is what you see in last year’s numbers. And also, there’s a whole bunch of costs in there, that are all affiliated with just being a growing company and moving to exchanges and raising capital and making acquisitions and having a whole bunch of fees that are not affiliated directly with the operations.
So that aside, moving forward, you’ll see continued expenses into Q1, because as both Andrew and I’ve mentioned, most of the initiatives have effectively now, I believe, gone live and all gone live as of yesterday. So moving into Q2 is where we really start to see a major drop off, I think, what you should expect, and what everyone should expect to see is Skylight moving towards that profitability for this year. And that’ll move into the coming quarters as we start to wind down these investments now that they’re in place, but also benefit from the cost synergies that they create.
We’re also cognizant of being able to remain competitive in the market and making sure that we have the optimal schedules and optimal utilization rates. And that’s going to be a focus for us as well to make sure that we are meeting current market trends and putting our focus where the market is going. And with revenue growing opportunities that should further enable us to build further into beyond breakeven to profitability and moving forward stronger health plans, et cetera will help.
So, I definitely would say that the trends that we saw last year are not indicative of the trends that we should see this year and shouldn’t be seen as a run rate for the following year. It’s definitely what you see in terms of building the infrastructure. And like I said now, this is the year to realize profitability, but I’ll turn it over to Andrew.
Andrew Elinesky
I don’t know, I just, I don’t know much stuff that except to dive into numbers, like some of the what Prad said, there’s, what we’re going to see is your salaries and wages. So you’re obviously not mentioned to be consistent marketing business might see a slight increase professional fees, I’m hoping should taper off Q4 is always a very busy time. But Q1 is also busy, but Q2 and Q3 should be your lighter times. Rents going to be consistent share based compensation that should be lower. The fourth quarter had submissions to directors in lieu of cash fees, which is why that increased over the quarter.
Depreciation and amortization should be consistent, and the impairment loss, that’s the year end valuation as required, to do your annual work. And barring any change with any clinics, I wouldn’t anticipate any triggering events. So impairment losses should be reduced in Q1, if not zero. And then as Prad said, those salaries and wages and your professional fees and offset, I mean, we should see start decreasing in Q2. So that’s what I would expect to see kind of going forward. And then obviously, as we continue with our efforts to reduce them, and those are the areas that are should be reducing over the full year.
Mike Freeman
And if you will indulge just one more question, talking about the revenue guidance that you gave us just now, recognizing that this is basically your run rate from continuing operations today, but recognizing sort of the puts from or the benefits from things like COVID testing that you guys recognized in the last couple of quarters and seasonality that we should expect in the future quarters. I’m wondering, how we should think about potential M&A as it relates to your issued guidance or top-line guidance for the year?
Pradyum Sekar
Michael, the M&A is excluded from our guidance. We don’t typically — we’ve moved away from announcing otherwise we moved away from making sure that we’re not including future M&A in the guidance. So you’re right. It’s reflective of the run rate and then I think previously to Rob’s question, it’s not reflective of the initiatives that we have planned for this year, and certainly not reflective of the M&A that we have both of the pipeline and we have currently under diligence.
Mike Freeman
Perfect. Thanks very much. I’ll jump back into queue.
Operator
Our next question comes from Gabriel Leung of Beacon Securities. Please go ahead.
Gabriel Leung
Hi, Hood morning. And thanks for taking my questions. Prad just had a quick one for you first. Just in terms of the delay in finalizing the relationship with the DCE, I’m curious if that has an impact on the timelines of what you had originally planned in terms of your ability to participate, with traditional Medicare patients and whether this impacted all your ability to participate this year? Or does that sort of get pushed down to ’23?
Pradyum Sekar
Thanks Gabe for the question. So, as I think as most have seen, when we transitioned over the DCE last year, started hearing rumblings about what’s happened with the DC this year and long and behold. CMS has basically pulled the DCE now and has repositioned it into a new program called the ACO reach. I think the conversation with the payer partner, it certainly doesn’t impact our ability to participate and keep in mind the DCE or ACO, whatever acronym CMS decides to come up with next is, from an innovation standpoint is going to be largely just for the traditional Medicare lives.
It doesn’t impact our ability to participate in Medicare advantage or in any other commercial risk programs that fall outside of those relationships. And they will all be governed and watched under the, call it, relationship that we’ll have together with our partner. And so, we’re not necessarily worried about the effect and change on those things, and certainly from this year’s perspective, if we are not in DCE will be within the next plan, the following year. So, there is that delay in terms of traditional Medicare lives, but we weren’t talking about a lot of lives begin with.
So, from a contribution perspective, I think it was more the ability to say that, we have launched it versus saying that, we are in it. So, we’re still remaining committed to it rather be into the program, that’s going to be the program, that’s moving forward. It sounds like the new ACO reaching to be in the direction it’s going. But either way that’ll be communicated as we move forward. In the meantime though, like I said, we have already engaged in other value-based care models where we are starting to benefit from some increased reimbursements on cost and care coordination.
And as we continue to build on our marketing programs, we are certainly keeping a focus on sort of areas where we believe we will attribute stronger growth mainly in Medicare and certain commercial life segments, so that when we do enter that model next year, it will be with significantly greater number of patients, which will reflect in a higher return in terms of our ability to participate, plus experience this year allow us to be able to take on more risk at that point as well. So, we’re still very much on track and this change is really just kind of an opportunity for us to kind of reset, which model we are going to be participating in.
Gabriel Leung
Got you. Thanks for that. And then just on the cost side of the equation. Are you able to quantify some of the expected costs, which you talked about are expected to drop off meaningfully sort of that Q2, Q3 timeframe? Are you able to provide sort of a quantitative number around that?
Andrew Elinesk
Hi, Gabe. It’s Andrew here. In terms of fees and kind of additional salaries for the projects that we had, I would anticipate, at least $1 million if not closer to $2 million. Professional fees overall obviously is just a continued effort and reflective of kind of our current activities and what we are doing with regards to you transactions. So, the fact though that we are looking at more transformative transactions opposed to building critical mass and building a collection, by default should be more concentrated in times of period, in periods, as opposed to being consistently cut by a thousand cuts throughout the year. So, I would anticipate, we should see anywhere from $1.5 million to $2 million savings in Q2 onwards.
Gabriel Leung
Got you. And so if I look at your, what your Q4 EBITDA burn was, I think is about $5 million bucks. If I sort of chop-off 2 million so three, so get your burn down three. I’m still just trying to reconcile, how you sort of get to that breakeven the EBITDA profitability based on the current revenue guys provided for this year of $35 million to $37 million? What are some of the put to take that I might be missing in terms of how you are going to get back to that breakeven mark later this calendar year? And if you could as well, do you have guesstimate of on what your low watermark might be on the cash side of things, as you hit that breakeven mark again? Of course, this is all prior to M&A activity.
Andrew Elinesk
Gabe, I mean, the other side of this is really, our margin at the sites and ensuring that gross margin increases to go with it, right? So, we have a increase in revenues, an increase in gross profits, and then seeing a decrease in costs kind of going forward. Low watermark, it’ll be pretty low with current cash just the way it goes. But we don’t have any intention at the moment to look to source that through lines of credit or other small interest, but it would be kind of very small in my mind in terms of the next few months. No, I anticipate that we would be able to offset that with an increase of that the site’s and profitability without the site’s themselves as well as the corporate expense production.
Pradyum Sekar
Yes, Gabe, just to add to that a little bit. I mean, most of these investments that were made, not just from a systems perspective, and an implementation and professional thesis, but they come from duplication, you’ve got duplication of systems, you’ve got duplication of personnel, you’ve got duplication of interest. And so, the reality is through the course of sort of consolidation of costs, you’re looking at where these are in line. And so while Andrew mentioned sort of some targets towards whether the kind of key areas will be, from a gross profit perspective, utilization rates will make a difference, economies of scale from supplies will make a difference.
Certainly, there’ll be some impact to personnel and headcount as we start to look at some of these changes. And that’s just indicative of now looking at duplication across the board. There’ll be reductions in terms of professional fees and descriptions as we don’t need to carry some of these duplications. And this does not come back to where the revenues will be on the top-line. So again, this is this is not a model that we believe is something that we’re just going to high and dry, hoping we’re going to get. This is something that again, while might have taken a little bit longer to launch some of these systems.
And these costs we’ve always recognized are one time in nature, because they’re investment in nature. But to move back to profitability has always been our goal, has always been our commitment as a company. We’ve been there historically in the past. And so recognizing, what we need to do to build now we need to be able to show that to generate the return and that way new acquisitions as we continue to grow, we’ll be able to benefit from the same scale and experience that we’ve developed here.
So, I think more to that as we continue to execute. But as Andrew mentioned, while we recognize cash balances will be low, and it’ll be tight. It’s not our intention to just shore up the balance sheet just to have cash on the bank, we want to be able to demonstrate that we do have fiscal responsibility, and we can bring those costs down and be able to leverage if we need to some small non-dilutive securities to be able to carry it, but it is very much your intention to get to that positive profitability.
Operator
Our next question comes from Yue Ma of Research Capital Corp. Please go ahead.
Yue Ma
I have three here. First, on the revenue guidance of 35 to 37, it looks like the number was a little bit below the combined the historical revenues of all those conditions. Why is that?
Andrew Elinesky
Sorry, we’re just discussing who’s going to answer that, Toby. I’ll let Prad jump in quick and in between to give them an answer for you.
Pradyum Sekar
Toby, I think that’s, I think part of this is reflective of looking at what the numbers were look at divestiture and looking at kind of what the real outcome was, with the numbers one through nine in terms of cost and revenue implication. I think part of it is also looking at some of the accounting standards, how the restatement and we found this and these revenues are recognized and being able to measure that we’re looking at this consistently in the same way that we’ve been asked to look at this.
Internally, we feel strong, that we’re going to be able to move forward and continue to be positive, but at the same time, we want to just be and from a reporting standpoint, ensuring that we’re sort of setting this the stage here in terms of what we think we’re seeing today, and then give us an opportunity to continue to execute against our plan.
Andrew Elinesky
I think the only thing I’d add, Toby is. Again, with the earlier question about opportunities for our performance, we’re leaving ourselves a space to be talking about that. And getting to those areas of performance in the second half, as we mentioned, just may mean that, it’s not always a straight line, and we’re just leaving ourselves, the ability to execute on that and deliver that third and fourth quarter.
Yue Ma
Second question on the new ACO model, which is called ACO rich and that is to replace direct contracting, I was wondering how confident the Company is that the original DCE partner apply for this new ACO reach program and the receive approval?
Andrew Elinesky
I mean, look, this is less to do with the DCE partner and welcome to the world of CMMI, the center of Medicare and Medicaid innovation. I look, I think, as they continue to find new ways to do it, our partners been operating within these models for the last 10 plus years, and they have been outperforming their metrics each time. So, it’s not that they don’t have other models that we will be able to participate in.
And I know that, from the question, it sounds like all the focus relies on one program being sort of the ultimate determinate factor with its partner, I want to expand that and be able to articulate that the partner we are working with has multiple avenues for where we will work together on strengthening our value-based care initiatives. And whether it’s, like I said, any version of the acronyms today that is used to define traditional Medicare programs, it is by no means restricted to just one.
So again, I think, it’s certainly going to be helpful to point to one and say, yes, we are in this program, but it’s a value-based care. It’s not a singular path there. There is parallel plans, parallel programs, and it has an opportunity for us as an organization to benefit from all of those. It’s about setting ourselves up to be able to access those and succeed under those plans.
Yue Ma
Okay. Just one last question. I was wondering if Skylight ever received any interest from larger players that would’ve been interesting acquiring this company and what are managements thought on this front?
Andrew Elinesky
We are head down, Toby. We are not interested at this time. We have a ton of potential in the Company and we have done everything we have done in the past year. Not to walk away from it today. There is a reason why we invested what we did and built what we built and have a pathway forward is what we have for. Management is excited. I could speak for myself and my other co-founder cash.
We continue to support the market and we can out of black be able to participate. But at the same time, we are excited about the future. We have no reason for us to think that that needs to be a course of action for the business. And there is a ton of value to be had before that conversation even comes up. We’ll always maintain fiduciary responsibility. But like I said, we are heads down.
Operator
This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Sekar for any closing remarks.
Pradyum Sekar
Thanks, Ariel. I appreciate everybody’s time. I know we are about a minute after the call ends. But, we are hope we’re able to convey all the excitement that we have going forward and able to describe certain the missions been working on in the past several months. Transparency will be important to us.
We will continue to keep shareholders up to date. But please note that, we are very much focused on driving forward and we look forward to keeping you all aware of our progress. In the meantime, I invite you to visit our website skylighthealthgroup.com. You can get more information about our company or contact details in case you want to reach out to us.
Thank you.
Operator
This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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