Thank you everyone for standing by. Conference operator, we would like to welcome you to the Skylight Health Q4 and Full Year 2021 Financial Results Conference Call. The results are for the period ending December 31st, 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'll move on to a question and answer period. If you would wish to ask a question, you may queue at any time by pressing star then one on your telephone keypad. You'll hear a tone acknowledging your request. To withdraw your question, star then two. Should you need assistance during the conference call, you may signal an operator by pressing star and zero.
As always, 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 statements contained in the Skylight Health 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 intend 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 31st, 2022, at 8:00 A.M., and will be posted to skylighthealthgroup.com a few 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.
Thank you, Ariel, and a good morning to everyone, and thank you for joining us for our Q4 and full year conference call for the period ending December 31st, 2021. As our Chief Financial Officer, Andrew Elinesky, will provide you with a more 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 health network comprised of practices providing a range of services from primary care, subspecialty, allied health, and lab. 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. 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 fee-for-service only model that typically generates on average between 100-200 per visit or $200-$400 per year. To a value-based care model, where some full risk total cost of care program can remunerate the provider group over $10,000 per year, paid by the payers, not the patients. This enables the practice to receive the full healthcare dollar, putting the patient first and allocating expenses accordingly. Value-based care is designed to manage the growing cost of care while improving patient health outcomes. 2021 was...
Some things we're definitely happy about and some things that we're definitely cognizant about moving into 2022. The things that we're pleased and the things that we're able to bring to the organization was a turnaround of 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 recruit 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 helping us to scale as we move forward.
It's allowed us to expand into new 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 from 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. Within the organization, from leadership down to management level, down to staff, we're really happy about and pleased about the growth that we've been able to bring, allowing us to 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. Some 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. I'll be coming back to initiatives in a few moments. With that, I'll turn the call over to Andrew Elinesky, who will go over our financial results in more detail.
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 are very pleased
The year 2021 was, you know, as we always talk about, transformed, but it truly was. The full year and Q4 financial results reflected the impact of the strong and rapid growth that Prad just highlighted. This resulted in us making a number of acquisitions in the last 18 months. As a result, we reported record quarterly revenue quarter-over-quarter, in addition to the gross profits. This is on top of the investments and costs that we expended in the year and in the quarter that we are making in business development as we continue with our plan of growth via acquisitions, optimization, and expansion of our book of business.
Before I dive into numbers, I'm gonna get into a couple of points I'd like to 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 result in you reporting this as discontinued operations or disc ops, as some folks like to call it.
Instead of seeing all the assets, 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 in the statement coming in a gain of $5.6 million. Apologies for being such an accountant, but I feel it bears explaining as it would appear our revenues were flat for the Q4 at first look of our income statement when they're actually at record levels. Record for us, of course. In addition, you will have noticed that we use a term called realized revenues in our press release.
This is just a non-GAAP measure, which combines the revenues of both the continuing and discontinued operations 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 in 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. I'll do my best to make this the last dive into kind of accounting speak, so please bear with me again. Net revenues are what we report in our financials. In the basic terms for medical revenues, particularly fee-for-service, they are what is called gross charges that our medical providers charge to an insurance plan and to patients. These gross charges are paid in varying percentages.
This means that we need to calculate a discount to these charges in order to estimate the revenues that we think we can collect. This estimated collectible amount is what we call net revenue disclosed in our financial statements. Now, when we're looking at acquiring a medical group, one of our main areas of focus of due diligence is the quality of revenue. 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 a 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.
What we found during this process that 2 of our clinics primarily were not using a high enough percentage, effectively writing off this balance, the additional write-off of this balance ended up in accounts receivable in the balance sheet, you know, 12 to 18 months later. What we did was increase 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 indifferent about this. I'm certainly not. No one ever likes refilings.
We followed this adjustment being of this size and affecting the top line, getting them refiled was the cleanest way to show this adjustment and will make our reporting smoother in 2022, as opposed if we cram this adjustment in just the Q4 alone, Q4 statements alone and for the next, you know, Q4 , talked about adjusting the numbers for the comparatives. Also, just pointing out as well, this does not impact cash. This is essentially a swap between revenue discount and bad debt provision on our AR balances. It doesn't change our estimated collections. Points out of the way. I'll make sure everybody's still with me. My CEO is still nodding, so that means I haven't lost him. I'll jump into reviewing the full year.
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 at just over $27 million. As mentioned elsewhere, realized revenues came in just under $38 million. Our gross profit came in at just over $50 million for the continuing business with another increase which came in at just over $5 million for the three-month period. In addition to the increase in the revenue and gross profit, our profit margin increased to 56.6% for the quarter. We averaged a margin of 55.6%.
We saw this percentage increase slightly but consistently over the year. We 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, 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, net loss from operations in the Q4 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-$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. 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 ERP standardized payroll system and a new HR system which ramped up in Q4 of 2021, 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. We also anticipate that our professional fees should be lower in this year as 2021 was one heck of a busy year, including our listing of multiple financings and a significant number of acquisitions. Some revenue and gross profits in addition to the decrease in SG&A expenses, we should see an improvement in our cash burn and the bottom line and make a strong push to profitability in 2022. With that, I'll turn it back to Prad.
Thanks, Andrew. So with that, I'd like to spend a little bit of time on initiatives that we did last year. I think it's relevant for everyone to be aware of what we've been spending our time doing over the past six-plus months. As mentioned earlier before handing it to Andrew, you know, while we're pleased with the growth that we've been able to have, we're 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 gonna necessarily be required moving forward. 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.
That is very much what our focus is 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 among 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 in different plans. 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. You wanna retain the best while still trying to benefit from economies of scale.
Over the last six-plus months, while not the most exciting updates, it is very important that we spend the time to make sure that we stitch these organizations together. As Andrew mentioned, some of the initiatives that were launched were 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. These changes and with these infrastructure growth included, as Andrew mentioned, ADP and a payroll system. Managing staff across multiple payroll types and multiple contracts is an important aspect of retention, but also an important aspect of understanding and developing 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. 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 equitable negotiation with healthcare payers when it comes to payer contracts. We've talked about in the past, density is an important 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 to have better visibility into the performance of our providers and 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. 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're able to ensure that we have the adequate numbers. That has always been challenging during the pandemic, but definitely systems in place that we believe will help the organization moving forward.
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. Within every organization, switching from a paper record system to EHRs effectively across all these practices. If you truly wanna understand patient volume, you wanna understand how to drive growth, you wanna understand your patients, the cost of care, and lay the groundwork towards value-based care, it 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, 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 finest details of our business performance. It does, but the practices, the providers and the patients have better interaction, better access to data, and more importantly, the ability to 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. Moving forward, we're most excited about some of the initiatives that we're gonna begin to lay the groundwork on. Part of recognizing these practices and operating them independently is imperative to the success. 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. Locally, 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, market and allows for us to benefit from the type of population of patients we have when it comes to healthcare negotiations and health plan negotiations.
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 gonna look at aspects of business performance, including and starting with our contact center. We recognize that many phone calls to a medical practice, as many of you might have experienced, often go unanswered. 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 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 patients, first and foremost, have the ability to connect and be reached regarding whatever their concerns might be. The contact center allows for tremendous growth opportunities across multiple areas, but we're excited about launching this contact center here into Q2. We're also gonna 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 code practices, 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 translates directly into the revenue you earn from a healthcare payer. This, again, is imperative in our ability to be able to maximize earnings from our 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 optimum needs, whether it's days, weeks of availability.
This allows us to ensure that we have the appropriate capabilities, providers, and system to be able to make ourselves available to our patients. By launching this model, we see improvements to the top line in terms of increased availability to our patients, but also improved utilization of our staffing ratios and cost of sales. We're also looking at launching several marketing initiatives. Now having the infrastructure of all these systems in place, it allows us to drive patients into a single channel and thereby lead appointment booking to 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've already started to see a good return and a calculation of our cost to patient acquisition. 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're excited about the initiatives that we're gonna be launching forward moving forward, plus the ability for us to recognize the multiple costs of infrastructure and investments that are in place and hence our path to profitability this year. We are fully confident that we're gonna be able to drive to this achievement. While the investment cost in 2021 reflects that cost of investment, profitability that we look to bring and that we will drive towards this year. Speaking 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 at Skylight Health. The question of how we plan to backfill the divestiture and the revenues from the divestiture we've spoken about previously with the confidence we've had in our pipeline of acquisitions. While external factors have largely slowed our trajectory, we feel highly confident and highly bullish about our ability to grow this year through acquisitions. In fact, several deals to date that we are in diligence with that we believe are material and that will add value both in the ability to grow our company and 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-dilutive forms of capital that we can use to effect against these acquisitions. We'll 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 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 and we do 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 wanna give the confidence that these conversations have been progressing well. When you're dealing with a Fortune 50 partner, things might take a little bit longer than even we expect. That's okay.
We feel confident and the conversations are going well, and we're hoping to have this across 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 market and pipeline of opportunities. While transparency is gonna be key moving forward, we certainly wanna recognize that as we come close to the end of Q1 to provide a little insight into seeing moving into Q1 ongoing. Some of the things that we're noticing is a return back to primary care. The last six months have been busy, especially surge in the pandemic as a result of the Omicron variant. We're starting to see a slowdown in shift of urgent care visits, largely attributed to COVID-19 visits, and that's industry-wide.
As that starts to happen, what we're noticing is a shift as those patients are moving back to primary care. We're seeing an increase in the number of annual wellness visits that we're seeing and 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. Patients, that change means that we are seeing higher acuity, and higher acuity leads to higher earnings per patient visit. We expect this offset will be met with higher value visits overall within our practices. We're seeing now as we acquire a new system and as our providers learn. Now, while reflecting Q1 numbers, we do start to see a return to our original volume as we move back into Q2 and forward.
Again, these trends above, we're very excited about the future that we see ahead for Skylight. We recognize that the time it's taken to build the infrastructure has led to a peak 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 an infrastructure that's gonna be sustainable in the long term. We feel bullish about our acquisition pipeline. We feel confident about the conversations we're having with value-based care partners to be able to bring higher value contracts to our existing practices. 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 with successful and strong 2022. With that, Ariel, I'll turn it back to you for any questions.
Thank you. We will now begin the question-and-answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing. To withdraw your question, please press star then two. We will join the queue. Question comes from Takkinen of Lake Street Capital Markets. Please go ahead.
Hey, Prad. Hey, Andrew. Thanks for taking my questions. I wanted to start with a follow-up to your comments around the infrastructure investments and payroll and EHR system. Can you just extend the thought process a little bit on how this is gonna be important for transitioning to value-based care as well as acquisitions into the organization?
Hey, Frank. Thanks for that. I'll start here and then maybe pass it back to Andrew if he wants to add anything to that. The concept, you know, from a two-facet approach, one is management of multiple practice models. When you're de novo, you know, you're building a practice from the ground up. You have one system in place. When you're acquiring these practices, each of them operate under a different structure, but they also operate using to reach scale is for us to benefit. From a local perspective, in being able to have everybody under the single system, we can benefit from improved costs, but we can also benefit from improved oversight. 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 in laying the groundwork for what we talk about in value-based care, just basically growth within these organizations, is the ability to understand the data. What we have seen over the last 12 months plus into a single system is we spend an awful lot of time data from different disparate organization systems that may or may not be robust enough. When you're looking at the intelligence on the actual practice, the 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 path from further education with our teams and providers, where we understand the cost of care of our patients.
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 these plans. Part of IT management, 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 wanna add any more to that.
No, I don't think you've covered it all, Prad. Frank, I don't know, did that get your answer?
Yep, that's helpful. Just my second question. You spoke to it a little bit, seasonality expectation from Q4 to Q1. Maybe also extend that thought process a little bit further into 2022, maybe thinking about first half versus second half contribution and how the transition back to primary care from urgent is going to impact the margin profile as we come through here.
It's a good point about the seasonality. I mean, seasonality expectations have changed in primary care with COVID. Used to be, you know, pre-COVID, wintertime was obviously with flu season being drastically reduced with COVID, the timing is much different. What you get now is December, January, quite, you know, quite lower from a seasonality perspective with people on holidays and doing what they're doing as well as, you know, possibly getting over COVID. We did see reduced volume as a result in December and January, and what we expect kind of for the rest of the year, you know, the front half to be lighter than the second half, but quarter-over-quarter.
We do anticipate Q1 being the lowest of the Q4 , but you know, increasing starting in Q2 and onwards. In terms of the margin, you know, that's also part of what I was referring to, getting, you know, targeting getting over 60% by the end of the year. You know, we do anticipate that we should see an increase with that shift, you know, basically, you know, again, from quarter to quarter.
Perfect. I'll stop there and thanks for all the color. Appreciate the update.
Thanks, Frank.
Our next question comes from Carl Byrnes, Capital Markets. Go ahead.
Looking at the Q4 , this is relating to the reduction against gross revenue, which was 2.12% for the entire restate period. If we look at the Q4 and we adjust for the reduction in revenue, which looks like for that quarter would be around CAD 650,000 , and then there was also CAD 1.4 million in change impairment, that's note six in terms of footnotes. It looks like adjusted on a normalized basis then going forward, net income for the quarter would have been a loss of CAD 6.1 million. Does that sound correct to you?
Carl, yeah, so your number is correct. The adjustment in Q4, you know, was just under $650. Yes, if you back out that adjustment, you know, we would be in, you know, under $7 like you said there. Yeah, about 0.1.
Got it. Cool. Just another follow-up. If we look at the Q4 top line, you had a sequential growth of 8% from the Q3 . If we back out the contribution from the Aspire, which I believe closed on or about the September 16th in the Q3 and would have added a little more than $100,000 in that, and then adjust and obviously having the differential for having it be in the full quarter, full Q4 , it would imply the organic growth in the Q4 , and again, there's some seasonality, of course, here, would be around 2%. If we annualize that would be 8%, correct?
Yeah. Look, I think it's just a little bit lower. But yes, you're correct, you know, that is the ballpark. You know, part of that, though, that part of that growth in that quarter, again, you've got the mix of the seasonality taking it down, and then you have the COVID component which took it up in October, November, October. Prad's motion here, I think he wants to jump in with his comment. I'll mute myself.
Yeah. Thanks, Andrew. 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 we spoke about largely, again, ensuring that we had all the systems in place before we were able to start measuring and tracking this. I anticipate moving forward that what you see there has been sort of consistent seasonality ahead of initiatives planned.
Got it. Thanks. Great.
Our next question comes from Rob Goff of Echelon. Please go ahead.
Good morning, and thank you for taking my questions. Prad, you had mentioned with respect to acquisitions that you felt you would be in a position 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 in prospective access to credit specific to acquisitions, if you could?
Thanks, Rob. It's Andrew. Yeah, no, you know, you're highlighting, you know, what we would consider to be our preferred methodology to execute on that. That is up to us to fully do and perform. What you're talking about is exactly our preferred strategy. The acquisitions that we are looking to, you know, mature with, shall we say, you know, we're looking at, you know, some different types of acquisitions next stage compared to what we did in 2021. Really, you know, looking for ways to access, you know, quicker ways into value-based care. What we would prefer to do is, you know, have those acquisitions underwritten, you know, with some non-dilutive measures. You know, maybe we mix that with equity depending on the acquisitions.
We're, you know, we're always gonna do whatever we can. Our preferred methodology would be, of course, to finance that with debt wherever possible. To your point, of the divestiture of the Legacy business, it certainly makes that strategy a little bit more feasible for me. You know, when I'm talking to folks, you know, to say, "Hey, you know, 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.
Thank you. The baseline, you know, CAD 35 million-CAD 37 million, can you talk to the organic growth considered within there? Might there be opportunities for outperformance given some of the new initiatives?
Yeah. Hey, Rob. I think the answer to that from our perspective is that is what we're doing. Again, many of the initiatives we're launching were initiatives that are net new to many of the organizations that have joined Skylight Health 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 campaign perspective. Those 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 is 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, things that are ongoing that we feel confident we'll hear, not just from our, you know, progressing conversations with our future partner, but also with regards to other payments that will exist within these states. Certainly our goal will be to continue to look to outperform those numbers.
Thank you. One more for me. When you look at the within your portfolio of clinics, could you talk to the margin profiles of your top performing clinics in terms of gross profit or EBITDA?
Yeah, happy to, Rob. So, you know, top clinics, you know, what we've seen in terms of gross profit is obviously, you know, the numbers that hold at 55% up or 56% up that we saw in the Q4 . Our top earning clinic. I'm not gonna give everybody the names either, so don't want it to go to their heads necessarily, Rob. From that position, I wouldn't want Prad to kick me under the table there. In terms of gross profit, you know, in 2021, you know, what we saw from that clinic was actually over 70%, and an EBITDA margin of 25%.
The second highest performer was gross profit margin of over and an EBITDA margin of 35%. You know, what we have seen with these clinics is, you know, if you can get them to be running very efficiently and get them maximized, potential always exists there to get your operations to levels such as that. You know, not every clinic is the same. This is different activities, different markets. You know, I'm sure Prad will have some other context he'll wanna throw in and caveats, but you know, that is the potential. They're the folks that do carry the numbers.
Yeah. I mean, Rob, the answer to talk about margins again is based on services rendered, right? Typically what we've seen over the last six, again, not us, but industry wide, and you've seen this as more and more of these practices have come to market to 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. In a more typical environment, utilization is typically better, margins are typically better in a primary care space when patients more long-term, they come in with more higher acuity services.
They will typically have higher levels of care, and all that translates into your ability to benefit from, you know, 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. I think that the nature of these practices in a fee-for-service model is what we see position. As we transition and as we move into growth, those margins continue to shift. That's again why it's so important for us to have a single system of operation because we wanna 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.
Very good. Thank you.
Our next question comes from Rahul Sarugaser of Raymond James. Please go ahead.
Hi, Prad, hey, Andrew. This is Mike Freeman on for Rahul today. Thanks for taking our questions, and congratulations on the year of building and integration that you just undertaken. We recognize the challenge in it. 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 particular, like carrying out this program with its Fortune 50 partner. Like what sort of estimated timelines and sort of what sort of news flow we might be able to see.
Yeah. I mean, that's a good question, Michael. Thank you. When we look at our participation in the space, you know, we've 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. You're going from organizations that take no risk to where you wanna take all the risk in the total cost of care. You know, the relationship that we're working with the payer partner group, and again, we're all eagerly excited to be able to communicate, but things just take time from a paperwork standpoint.
The relationship plays 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 relationships with our partner. Secondly, will be access to plans and the ability to benefit from the plans that they have in these markets.
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 risk to providers in those markets, and having discussions and conversations with health plans to effectively, you know, win a part of their business. That comes down to the services you offer, the experience that you have. As we have now started to get 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 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. 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 business. As we've 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. You know, we're still very much on track, and we still very much are focused on these practices well initially. That you gotta have the foundation.
While doing that, starting to position them both from an infrastructure perspective, which is what we've now built, to now engaging in those conversations with health plans, 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.
Okay, thanks, Prad. That’s helpful. Question for me is, looking at continuing operations only and looking at the loss from operations over the last couple of years, noticing that the loss from operations is scaling a little bit faster than revenue has been. Wondering how we should think about moving forward and how we might see this trend sort of mitigating in future quarters.
Yeah, perfect. Michael, 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, you know, the expenses, as I mentioned earlier, largely in part due to cost of duplication and cost of structure development. That is what you see in last year's numbers. Also there's a whole bunch of costs in there that are all unaffiliated, which is 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 operation. You know, that aside, moving forward, you'll see continued expenses into Q1 because as both Andrew and I have effectively now, I believe, gone live as of yesterday.
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 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 gonna be a focus for us as well, to make sure that, you know, trends and putting our focus where the market is going. With revenue growing opportunities, that should further enable us to build further into, you know, beyond break even to profitability and moving forward, stronger health plans, et cetera, will help.
I definitely would say that, you know, 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. I'll turn it over to Andrew.
Yeah, I don't have much else to add except to dive into numbers. Like, you know, similar to what Prad said, there is, you know, what we're gonna see is your salaries and wages. Your office and admin should be consistent. Marketing and business development might see a slight increase. Professional fees year-end is always a very busy time, but Q1 is also busy, but Q2 and Q3 should be your lighter times. You know, rent's gonna be consistent. Share-based compensation, that should be lower. The Q4 had some issuance to directors in lieu of cash fees, which is why that increased over the quarter. Depreciation and impairment loss, you know, that's the year-end valuation as required to do your annual work.
You know, barring any change with any clinics, I wouldn't anticipate any triggering events. You know, impairment losses should be reduced in Q1, if not zero. As your other professional fees and office and admin, we should see it start decreasing in Q2. That's what I would expect to see kind of going forward. Obviously as we continue with, you know, our efforts to reduce that, those are the areas that should be reducing over the full year.
All right. Thank you. Thank you very much. If you will, 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, you know, so the puts from or the, you know, the benefits from things like as 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. Thanks.
Yeah, Michael, the M&A is excluded from typically. We've moved away from announcing LOIs. We've moved away from making sure that, you know, we're not including future M&A in the guidance. You're right, 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 in the pipeline and we have currently under diligence.
Perfect. Thanks very much. I'll jump back in the queue.
Thanks, Michael.
Our next question comes from Gabriel, Beacon Securities. Please go ahead.
Hi, good morning, and thanks for taking my questions. Prad, just 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 any impact on the timelines that originally planned in terms of your ability to participate patients and whether this impacted at all your ability to participate this year or does that sort of get pushed down to 2023?
Thanks, Gabe, for the question. So as I think as most have seen, you know, when we transitioned over to the DCE last year, you know, started hearing rumblings about what happened with the DCE this year. CMS has basically pulled the DCE now and has repositioned it into a new program called the ACO Reach. I think, with the, you know, it doesn't impact our ability to participate whatever acronym CMS decides to come up with next is going to be largely just for the traditional Medicare line's ability to participate in Medicare Advantage or any other commercial risk programs that fall outside of those relationships. They will all be governed that we'll have together with our partner.
We're not necessarily worried if from this year's perspective, if we're not in the DCE, we'll be within the next plan the following year. You know, from a contribution perspective, say that we have launched it versus saying that, you know, we are in it. Yeah, 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 Reach seems to be the direction it's going. Either way that'll be communicated, and in the meantime we're already engaged in other value-based care models where we're starting to benefit from some increased reimbursements on costs and care coordination.
We continue to build on our marketing programs as areas where we believe will attribute stronger growth, namely in Medicare and certain commercialized segments that when we do enter that model next year, it will be patient, which is a higher return in terms of our ability as well. You know, this change is really just kind of an opportunity for us to kind of reset which model we're gonna be participating in.
Got it. Just on the cost side of the equation, are you able to quantify the expected costs which as you talked about are expected to drop off meaningfully sort of in that Q2, Q3 timeframe? Are you able to provide sort of you know, a quant, a quantitative number around that?
Yeah, Gabe, it's Andrew here. You know, in terms of fees and kind of additional salaries for the projects that we had, you know, I would anticipate at least CAD 1 million or 2 million. The professional fee is just a continued effort and reflective of kind of our current activities to transactions. The fact that we are looking at more transactions as opposed to building critical mass, you know, by default concentrated in time periods as opposed to being consistently cut by a thousand cuts throughout the year. You know, I would anticipate we should see one of these in Q2 onwards.
Gotcha. If I look at your Q4, the burn was about $5 million. You know, sort of chop off $2 million from this, you know, get your burn down to three. I'm still just trying to reconcile, you know, how you sort of get to the EBITDA for this year of 35-37. You know, what are some of the puts and takes that I might be missing in terms of how you're gonna get back to that break-even mark this calendar year? If you could as well, do you have a gauge on what's your thinking as you hit that break-even mark again, of course, any M&A activity.
Yeah, Gabe, I mean, the other side of this is, you know, our margin at the sites, and ensuring that gross margin increases to go increase in revenues, increase in gross profit, and then, you know, seeing the decrease in cost kinda going forward. Low watermark, you know, returning cash as it goes. But you know, we don't have any intention at the moment, you know, to look to source that through, you know, lines of credit or other, you know, other small interest, but it would be, you know, kind of very small in my mind in terms of the next few months.
Yeah, just offset that with an increase at the sites and profitability at the sites as well, the corporate expense reduction.
Yeah. Gabe, just to add to that a little bit, I mean, most of these investments that were made, you know, not just from a systems perspective and an implementation and professional fees perspective, but they come from duplication. We've got duplication of systems. We've got duplication of interest. And so, you know, 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, you know, the kind of the from a gross profit perspective, utilization rates will make a difference. Economies of scale from suppliers will make some impact to look at some of these changes.
That's just indicative of now there'll be a reduction in terms of professional fees and prescriptions as we don't need to carry some of these duplications. This does not, you know, come back. Again, this is not a model something that we're. This is something that, again, while it might have taken a little bit longer to launch some of these systems and, you know, these costs we've always recognized are one time in nature because they're investment in nature. To move back to profitability has always been our goal, and it's always been our commitment as a company.
We've been there historically in the past, and so recognizing, you know, we need to show that it generates the return and new acquisitions as we continue to grow will be able to benefit from the same scale and experience that we've developed here. You know, I think more to that as we continue to execute. As Andrew mentioned, you know, while we recognize cash balances will be low, it'll be, you know, it's not our intention to just, you know, solely to have cash in the bank. We wanna be able to demonstrate that, you know, we do have fiscal responsibility and we can bring those costs down and be able to leverage if we need to some security here in a very mature.
Gotcha.
Our next question, Toby Ma of Research Capital Corp. Please go ahead.
Hey, morning, Prad. Thanks for taking my questions. I have three here. First, on the revenue guidance of CAD 35-CAD 37. It looks like the number was a little bit below the combined historical revenues of why is that?
Sorry, we're just discussing who's gonna answer that, Toby. I'll, you know, let Prad jump in quick. I think that's what he looks for here.
Okay. Toby, I think part of this is reflective of looking at what those were with the domestic share and looking at kind of what the real outcome was with the numbers once they're done in terms of cost and revenue implications. I think part of it is also looking at some of the accounting standards that we use, some of these revenues are recognized, and we're looking at this consistently in the same way that we've been asked to look at this. Internally, you know, we feel strongly that we're gonna be able to move forward and continue to get past it.
At the same time, we wanna just be on from a reporting standpoint, ensuring that we're sort of setting 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 plans.
Okay. Okay.
Toby is, you know, again, with, you know, the earlier question about, you know, opportunities for, you know, outperformance, you know, we're leaving ourselves a space to be talking about that. You know, getting to those areas of performance in the second half, as we mentioned, you know, just may mean that, you know, it's the line, and we're just leaving ourselves the, you know, the ability to execute on that and deliver in the third and Q4 .
Okay. Appreciate that. Second question, on the new ACO model, which is called ACO Reach, and that is to replace direct contracting. I was wondering how confident the company is that the regional DCE partner would apply for this new ACO Reach program and then receive approval.
Yeah. I mean, look, this is less to do with the DCE partner and welcome to the world of CMMI, the Center for Medicare and Medicaid Innovation. Look, I think as they continue to find new ways to do it, our partner's been operating within these models for five-plus years and they've been outperforming their metrics each time. You know, it's not that they don't have other models that we'll be able to participate in. I know that, you know, the question lies on one program being sort of the ultimate determining factor with this partner. I wanna expand that and be able to articulate that the partner we're working with has multiple avenues for where we will work together on strengthening our value-based care initiatives.
Whether it's, like I said, any version of the acronym today that is used to define traditional Medicare programs, it is by no means restricted to just one. Again, I think, you know, it's helpful to point to one and say, yes, we're in this program. You know, the value-based care is not a singular path. There's parallel plans, parallel programs, and it's, you know, it has an opportunity for us as an organization to, you know, benefit from all of those. It's about setting ourselves up to be able to act.
Okay. Just one last question. I was wondering if Skylight had ever received any interest from larger players that would have been interested in acquiring this company, and what are management's thoughts on this front?
We're heads down, [Toby]. We're not interested at this time. We have a ton of potential in the company, and we've done everything we've done in the past. Walk away from it today. There's a reason why we invested what we did and built what we built and have a pathway forward is what we have. We're, you know, management's excited for myself and my other co-founder, Kash. We continue to support the market and we can out of the black be able to participate. But at the same time, it's, you know, we're 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's a ton of value to be had before that conversation even comes up.
Okay.
you know, we'll always maintain fiduciary responsibility. Like I said, we're heads down.
Okay, thank you. I hope that
This concludes the question and answer session. I would like to turn the conference back over to Mr. Sekar for any closing remarks.
Thanks, Ariel. I appreciate everybody's time. I know we're about a minute after the call ends, but we hope we're able to convey all the excitement that we have going forward and able to describe some of the missions past several months, which will be important to us. We'll continue to keep shareholders up to date, but please note that, you know, 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, where you can get more information about our company or contact details in case you wanna reach out to us. Thank you.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.