Good morning, everyone, and welcome to the Assure Holdings Fourth Quarter and full year 2022 Earnings Call. At this time, all participants are in a listen-only mode. There will be an opportunity to ask questions after the presentation. If you would like to ask a question, please press star one on your telephone keypad. Please note this call may be recorded. It is now my pleasure to turn today's program over to Brett Maas, Investor Relations Manager. Please go ahead.
Hello, everyone. Thank you for participating in today's conference call to discuss Assure Holdings financial results for the fourth quarter and full year 2022. On the call today are Executive Chairman and CEO, John Farlinger, and CFO, John Price. Pre-market this morning, the company issued a press release announcing its results. The release is available on the investor section of our website. Before we begin the prepared remarks, I'd like to remind you that some of the statements made will be forward-looking and are made under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected or implied due to a variety of factors.
We refer you to Assure's recent filings with the SEC, including our annual report on Form 10-K for the full year for a more detailed discussion of the risks that could impact the company's future operating results and financial condition. Also on today's call, management will reference certain non-GAAP financial measures which we believe provide useful information to investors. For a reconciliation of these non-GAAP measures, please consult the most recently filed 8-K associated with the filing of the earnings release for the year ended December 31st, 2022, which is available on SEC's website. Finally, I would like to remind everyone who dialed into the call by telephone you may want to join our webcast and this call will be recorded and made available for replay via link and on the company's website. Now I'd like to turn the call over to the Executive Chairman and CEO of Assure Holdings, John Farlinger. John.
Thank you, Brett. Hello, everyone, and thanks for joining us today. We're obviously disappointed by year-end results. However, a lot more elaboration is needed to get clarity on the position of our business at the current time. We finished 2022 with a managed case volume of 21,557, well within our guidance and expectations for between 21,000 and 22,000 managed procedures. This represents an increase of 24% in managed case volume over last year, a compelling metric to the underlying strength of our business. During 2022, we provided oversight to over 14,000 surgeries. There continues to be strong demand for our services. Intraoperative neuromonitoring is essential for invasive surgeries that place the nervous system at risk. It is a standard of care and surgeons agree it is a vital resource in the operating room.
Importantly, our business remains highly scalable with compelling unit economics despite what have been significant reimbursement challenges that are plaguing not only the intraoperative neuromonitoring industry but the larger healthcare industry in general. We're taking the actions necessary to counterbalance a challenging reimbursement landscape by exiting the shared revenue MSA model, utilizing our internal RCM function and greatly accelerating our cash collections from commercial payers, facilities and patients. Further, we are continuing to reduce our cost of delivery by leveraging our teleneurology services. On the revenue side, we made the prudent decision to implement a new accounts receivable accrual and reserve strategy during 2022. Our new accounting estimation practice reserves and writes down claims earlier in the accounts receivable aging process. This led to a much higher accounts receivable reserve in 2022 which negatively impacted our net revenue.
We recorded gross revenue of approximately $28.9 million. A bad debt charge of $17.9 million resulted in net revenues of $11 million for the year ending December 31st, 2022. A number of factors led to this reserve. During 2022, we experienced a more than 60% decrease in the Texas state arbitration rate beginning in October, which not only negatively impacted our accrual rate but also increased our accounts receivable reserve.
Additionally, collections on the COVID period during 2020, these claims were negligible, also increasing our bad debt expense all the while the company continued to experience accelerated cash receipts, collecting $21 million in 2022 compared to $13 million in 2021 and reducing our days to collect to 105 in 2022 compared to 209 in 2021. We're taking a pragmatic approach to accounts receivable reserves given the challenges associated with collecting certain receivables and the persistent industry headwinds. Using this approach, we've increased visibility and substantially reduced our risk of future write-downs for uncollectible accounts going forward.
The reimbursement environment was challenging in 2022, to say the least, and served as a significant negative factor for our financial results. It impacted our top line revenue, our profitability per case, and our margins. For federal reimbursements, time from submission to resolution continues to be extremely long. The federal No Surprises Act, which went into effect in January of 2022, was passed with the best of intentions to protect consumers and provide healthcare providers with the ability to arbitrate claims where service was performed but a fair rate was not paid.
However, implementation of the legislation has been an utter failure on the part of the federal governments as these federal agencies have faced numerous operational challenges, including a significantly higher number of claims than anticipated, which has led to lengthy times to resolve outstanding claims, and this is rampant across the entire healthcare industry. To date, we have filed nearly 400 claims under this legislation. Just last month, we had our first case adjudicated. While the results were positive, it's anecdotal until we process more cases through the federal bottleneck. While the time from submission to resolution is consistently longer than the 90 days prescribed by the legislation, seven months was what it took for our first case. We are encouraged by this first win. We expect to file an increasing number of federal arbitration cases in 2023.
The resolution of these claims in a timely manner will have an impact on future profitability and cash flow. For state reimbursements, there was a significant reduction in benchmark reimbursement rates that went into effect in October, and there have been a number of challenging technical issues surrounding the inbound filing of claims. We believe the commercial insurance companies are lobbying in certain states to secure reduced reimbursement rates, causing downward pressure on our accrual rates. The gamesmanship that surrounds provider reimbursement is a cloud over the entire industry. Just recently, one of our private equity-backed competitors was forced to shut its doors. This was a competitor that had been in business for much longer than Assure. Reimbursement environment further supports our decision to develop internal revenue cycle management resources, which continue to be critical to our business.
Smaller competitors that rely on third-party billing companies are vulnerable to the current turmoil surrounding federal and state reimbursements, primarily because they don't have a framework or the tools to analyze the data or arbitrate like we do. We have developed a more data-driven analytical approach to understanding and managing our revenue cycle and reimbursement per case. We believe that this remains a key differentiator in our business. Consistent success in arbitration is essential, and you need the data and analytics to win cases and be successful. We believe the arbitration process will ultimately lead to in-network contractual agreements with commercial insurance payers, which in turn will speed up cash flow and improve participation rates. There is the...
A strengthening case for industry consolidation in the near term. We expect to selectively pursue M&A opportunities that will help us to expand our managed case volume in 2023. 2022, we extended our geographical reach to include the state of New Jersey, which historically has had a strong reimbursement profile, being among the top five in the United States. 2023, we are looking to add business in this new market, as well as expand in high-performing markets like Texas and Colorado, where we already have a significant footprint. On the cost side, in February this year, we initiated an incremental cost reduction plan that targets a further $2 million reduction in annualized operating costs. Key elements of this plan include a reduction in salaries for current staff and a reduction in headcount.
We expect the impact of this plan will become more evident in our financial results beginning in the second quarter of fiscal 2023. This plan is in addition to the more than $4 million in salary and workforce reductions, as well as other costs, that was introduced earlier in 2022. While the industry is facing a number of challenges, we are optimistic we will overcome all these hurdles in 2023. We have a robust infrastructure of professionals, capital equipment, and processes that serve the intraoperative neuromonitoring space well, and data analytics on the back end to help us manage and improve our revenue cycle management process.
Through cost cutting and the use of analytics, we are positioned to withstand the industry challenges around reimbursement and achieve sustained profitability and cash flow from operations during the second half of 2023. We are rightsizing our business to be a self-sustaining operation. Again, intraoperative neuromonitoring is essential for invasive surgeries that place the nervous system at risk and is a vital resource in the operating room. The demand is still there. I wanna point out that notwithstanding the issues around the reserve, our total cash collected has steadily increased over the trailing six, 12 and 24 month period basis. We continue to experience strong cash collections and collected $21 million in 2022 compared to $13.4 million in 2021.
Total cash collections, including MSA collections, were $27.5 million in 2022 compared to $22.7 million in 2021. We would further benefit from in-network agreements, which we anticipate to achieve during 2023. Additionally, we are no longer supporting managed service agreements that require revenue shares with our surgeon partners, and we have exited the majority of these business agreements and expect to fully exit by the second quarter of 2023. As a result, we anticipate achieving and collecting an additional $200,000 or more of incremental cash receipts per month as a result of controlling all of that cash flow that was currently shared under MSAs. Importantly, we are driving higher participation rates, shortening our cash cycle and achieving better collections. We have built a sophisticated data-driven revenue cycle management function that is continuing to improve collections and improve our visibility into the market.
We're off to an encouraging start in 2023, with first quarter revenue collections better than our internal forecast and headed toward what we believe will be measurable improvement. The percentage of first pass payment rates has been increasing. Days to pay have been reduced, and commercial payers are paying at a higher rate versus last year. While it's still early in the year, reimbursement rates appear to be stabilizing and possibly rebounding from 2022, and we are moving closer toward receiving a fair rate for the services we provide. Looking ahead, we are focused on aligning our costs with updated management case revenue expectations and adding scale in favorable markets and fixing, controlling and reducing the cost of delivering our services. Next, John Price will walk us through the full year financials. John?
Thanks, John, and thank you everyone for joining us today. We continued to grow our procedure count, performing approximately 5,400 managed cases during the fourth quarter, an increase over the prior year's fourth quarter and bringing our total for the year to 21,557. The fourth quarter is typically a seasonally strong quarter in our business, and we experienced a more beneficial revenue mix with a higher proportion of patients utilizing more profitable commercial insurance programs relative to the proportion of facility patients. As a reminder, we exited the underperforming markets of Louisiana and Nevada during 2022. For the full year, we reported gross revenue of $28.9 million and net revenue of $11 million. Net loss was $30.7 million. Adjusted EBITDA loss was $18.5 million.
Our gross revenue was negatively impacted by implicit price concessions of $17.9 million related to aged claims and a change in accrual rates from downward pressure on reimbursement. Based on our historical experience, claims generally become uncollectible once they are aged greater than 24 months. As such, our implicit price concessions include an estimate of the likelihood that a portion of our accounts receivable may become uncollectible due to age. As John discussed, we refined our accounts receivable reserve process that now takes a more conservative approach to AR reserves. As a result, we begin to build a valuation reserve against claims earlier in the aging process. This process led to a significantly higher AR reserve in 2022, which negatively impacted our financial results and made for a challenging comparison to the prior year.
At December 31st, 2022, the total accounts receivable reserve was approximately $14 million and represents nearly 50% of our outstanding gross accounts receivable. Looking ahead, we expect a more normalized cadence to our accounts receivable reserve and are forecasting less than $2 million of reserves for the first quarter of 2023. As John mentioned, we began to experience a decline in our reimbursement rate starting in October 2022 due to a revision in the Texas state benchmark, which negatively impacted revenue by $3.7 million for the year. This led to a lower expectation in payments in our largest market and lower accrual rate, hence driving down revenue.
Cost of revenues for 2022 were $15.2 million compared to $14.3 million for 2021, an increase of 6%. Importantly though, the number of managed cases increased 24% year-over-year. Through our cost-cutting measures, benefit of scale in the business from the growth in volume and teleneurology services, we reduced our cost of delivery. In 2023, we are focused on further reducing our average cost of delivery and drive further improvement in gross margin. Operating expenses for 2022 were $23.6 million and include non-cash goodwill impairment charge of $3.5 million. Additionally, we amended the useful life of certain intangible assets, resulting in an additional $3.1 million of non-cash amortization expense. When excluding these charges, normalized operating expenses were $17 million, which is nearly flat compared to 2021.
Management will continue to evaluate our goodwill balance and anticipates a further impairment of goodwill of $1 million in the first quarter of 2023. We collected approximately $21 million of cash in 2022 compared to $13.4 million in 2021. We continue to experience improvement in our average days to collect to 105 days in 2022 from 209 days in 2021, an important operating metric when measuring revenue cycle and use of working capital. At December 31st, 2022, 86% of our outstanding accounts receivable was aged 12 months or less from date of service. In comparison, during the first quarter of 2022, just 68% of accounts receivable was part of the same category. A much larger portion of our accounts receivable are more current, which reduces our exposure and risk to future reserves. I'll pass the call back over to John Farlinger for the first quarter and full year 2023 expectations. John?
Thank you, John. This is certainly a challenging business and a challenging industry. Notwithstanding the significant impact of downward reimbursement pressures, the company does have a number of things to be positive about. Firstly, cash collections exceeded $21 million in 2022, and we expect them to be strong in 2023. Total system-wide collections were a record $27.5 million. Secondly, our plan is to be out of the MSA revenue sharing agreements by the end of the second quarter of 2023, with over 70% of the remaining MSA volume becoming wholly owned by the end of the second quarter. Thirdly, we have shut down a number of unprofitable markets which will not be a drain on cash in 2023.
Fourthly, the certainty of what we will recover on revenue being realized in the cash collections is now much more certain, and there could be upside coming out of the federal arbitration process as it starts to take effect in 2023. Fifthly, we're involved in two pieces of outstanding litigation in Louisiana during the course of 2023, with the first going to trial in July. These could have a material impact on our cash position over the balance of the year. We are finalizing our Employee Retention Credit and expect a meaningful amount to be recovered from the IRS. This is a potential seven-figure recovery and will be filed over the next 10 days. We have historically been very successful in recovering incentives and monies from the federal government over the past three years.
We will continue to focus on driving our cost of delivery to less than $1,100 per patient, including the cost of our RCM function, so that we can meet the demands of lower reimbursement. With that, I'll turn the call back over to the operator for Q&A. Thank you.
Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please hold while we poll for questions. The first question is coming from Jim Sidoti from Sidoti and Company. Jim, your line is live.
Hi, good morning. Thanks for taking the question. If you look at the $15 million of accounts receivables on the balance sheet today or, sorry, at the end of the year, you know, how confident are you that you'll be able to collect those receivables?
John Price, do you wanna answer that question?
On the call, we revised our practice of estimating the bad debt, and we've talked about this on some of the other calls over the course of 2022. Where we started to reserve accounts receivable earlier in the process, which ultimately more expense rolled through the 2022 financials. We think we're in a really good spot at this point to address the bad debt and potential write-offs as we go forward. You can see that in the forecast for Q1, we're anticipating less than $2 million of bad debt. We've really reduced our exposure on a go-forward basis.
All right. Jim,
I'm sorry. Sorry, John.
I think the key issue from our standpoint, we've significantly reduced the amount per claim that we're going to obtain here. it's, you know, you've got other data points now. You've got state arbitrations. You're probably gonna have federal claims coming through now. We've written off so much that we don't think there's a lot of downside on the accrual rates now. The only other issue is then can you collect the money on a per claim basis. We're feeling pretty good about that. In fact, there may be some upside going forward. The other thing is on our accounts receivable, there is also an MSA accounts receivable number. That is gonna go away. You know, as we've struck deals with our surgeon partners, we will take over a meaningful amount of that accounts receivable as well to collect on a go forward.
Okay. Can you talk about what you expect for procedure rates in the first quarter and then to 2023?
Yeah, I think, again, here's the one problem we have so far. We've got hundreds of claims in Q through the IDR process under the No Surprises Act. We have very little data on that. Based on the information we have, we think a commercial claim will be worth probably between $2,200 and $2,400, in some cases higher, but that's probably in the range of where we are going to settle right now, down significantly from a year ago at this time, and probably down by 50% from where we were two years ago. That's forced us to run much, much leaner. You know, John talked about where we brought the cost of delivery down. We brought it probably down by about 30%-40% or more in most states. We've shut down states where we are not making margin in attempt to, you know, conserve cash and become profitable in the very short term.
Okay. How about in terms of number of procedures? You did a little over $5 million in the fourth quarter, and that's with exiting Louisiana and Arizona. You know, how many procedures do you expect to have completed at the end of Q1, and how many for the year?
Yeah, Q1 is always our softest quarter. It is every year. You know, I think we're looking at about 15%-20% growth. That's what we're targeting this year, in terms of procedure growth.
Okay. That's for the quarter and for the year?
For the quarter, yeah, it will be similar to last year. The only thing I would say is we have the benefit of an acquisition that we made in the last day of December, adding about 1,400 surgeries annually. That will certainly help us get off to a better start and a faster start in 2023 and give us additional volume.
You know, how are you managing cash at this point? You ended the year, I believe it was under $1 million. Do you have access to a line of credit? You know, how are you funding operations?
We've pretty much been, over the last couple of months, staying roughly static on the cash position. As I mentioned, there are a couple things that we are working on. One is the stimulus program from the government, which we appear to qualify for. We've been successful in getting government funding back in the past, through the PPP loans and other methods. We're involved in two lawsuits, one of which wants to have a settlement discussion now. Obviously it's more of a challenge for growth, Jim, in having limited working capital without doing something to continue to expand our business.
Okay. Do you think with the cost-cutting initiatives that you have put in place, that you will have enough, you know, your cash flow is sufficient to sustain the current operations without any growth?
we're not gonna be able to hit our growth numbers without some additional capital, either through stimulus or equity or some additional debt on our line of credit.
Okay. Okay. I think that's it for me. Thank you.
All right.
Thank you. Once again, ladies and gentlemen, if you wish to join the Q&A queue, please press star one on your telephone keypad. The next question is coming from Bill Sutherland from Benchmark Company. Bill, your line is live.
Thanks. Good morning. Bad debt outlook, now that you've got, a much more, you know, an improved current picture, well, and also the cleanup, what should we think about as far as gross versus net revenue for the year?
John, do you wanna answer that question for our model?
Yeah. Bill, good morning. So for Q1, as we discussed on the call, it's, we're forecasting it to be less than $2 million. One of the topics we attempted to tackle with the reserves is to just push most of that bad debt, address it in 2022, so that our gross revenue and net revenue really do start to align moving forward. I think that as you take a look over 2023, we really should not have the same level of bad debt experience, obviously, that we saw in 2022.
Yep. Bill, one comment here. This was the first year where cash receipts, even before the write-downs, were approximating revenue. We're getting pretty close.
Mm-hmm.
We see that continuing in the first quarter and the second quarter this year. Jim, to your point, you know, we're gonna need to do something. In the historically, revenue has far exceeded cash flow, and that was our problem. We weren't able to collect cash on a lot of these bad debts or a lot of the AR, and hence, it became bad debt. This is the first time where cash flow is either approximating or potentially exceeding revenue, which is helping us. The other key data point is, as John pointed out, is the reduction in days to collect. From the end of 2021 to the end of 2022, we cut those days in half.
It, it went from, you know, approximately 200+ days to 105. I think the numbers were 209 to 105. You're speeding up cash flow, and that is helping from a working capital standpoint. Our challenge is, you know, our goal is to continue to grow, consolidate, and expand our business. That will be difficult to do without some additional capital. So we've either got to expedite getting the money back from the federal government, settle a lawsuit or we're gonna have to go back and raise some capital in the market.
Right. as you, kind of hear about what's going on in the industry, with the, with the MSA, negotiations at the federal level, do you sense that after this huge delay that the filed cases are gonna start to move through and be adjudicated?
Of course, we hope so. You know, we've talked to the CEOs of most of our competitors, at least the larger competitors over the last month. We're all feeling the same frustration. I think we've been filibustered at the really the rolling out of this No Surprises Act. There's been almost no claims paid to anybody. Anecdotally, our team has been working really hard on the RCM side to get claims pushed through. We did get our first claim paid. Results were pretty optimistic, but it's anecdotal information. We don't have enough data yet. At a state level, we're pretty sure what we're going to get, and it's almost working like clockwork now in the states where we are arbitrating. Bill, it's not. There isn't a certainty to that.
Mm-hmm.
The other thing I will say is the financial statements don't reflect any upside from all these claims that are in queue to be arbitrated. We believe there is some upside there, and there will be increased upside as this process starts, at least as it starts, as it's intended to be used going forward. There is some upside there. I think the feeling from the competitors that have been at this for 20 years is this is probably the toughest they've seen it right now in that period. Most are optimistic that things are going to turn as the year goes on.
Right. Last one now that you've gotten your costs on a per patient basis down to $1,100, given the reimbursement mix that you're looking at, is that a, you know, is that a decent margin at this point?
We want to go lower. We're going to strive to get this closer to $1,000. That's our goal in the first six months of this year. Won't be easy. At those numbers, I think we'll be feeling much better about the business. We've taken a number of steps in the first quarter to reduce the cost of delivery.
Mm-hmm.
Even look at the financials from 2021 to 2022, you can see our cost of delivery, certainly on a cost of goods basis, has reduced. Certainly, we made some good progress on the remote neurology side, in getting additional margin there. We will pick up additional margin by getting out of the MSA business. You know, it's gonna be several $100,000 a month, in margin that we will pick up going into Q2. I think those headwinds are gonna work well for us. The focus has got to be to continue to drive and run leaner going forward.
Yeah. Okay. Thanks for all the color, guys. Appreciate it.
All right.
Thank you. There were no other questions in queue at this time. I would now like to hand the call back to the Assure management team for closing remarks.
Thanks. John Farlinger. Obviously, myself and the team are disappointed with certainly the reserves and the challenges of the intraoperative neuromonitoring industry. At the same time, there are some tremendous data points, you know, that show that we are making significant improvement in our business. Among those, making a significant dent in reducing the days to collect, making improvements in our cash flow, improving our corporate cash flow by almost 50% over the prior year, and total cash collections continuing to improve significantly. I think we're gonna very tightly monitor the accruals going forward. We did last year. I don't think many people had visibility into the change in the arbitration rates that were gonna happen at the end of the year, nor the rapid reduction in reimbursement as we saw it from 2021 to 2022.
I think we're very optimistic now. We've hit a trough. We're stabilizing. Our first quarter 2023 numbers were actually ahead of target in terms of cash flow and improving cash flow. Wanna leave really the call with the fact that it was a tough year, but we are seeing improvement, and we're gonna continue to work to drive our costs lower and to be able to meet the challenges of a changing market. Thank you very much. Have a great day.
Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.