NantHealth, Inc. Common Stock (NH) Q4 2020 Earnings Call Transcript

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NantHealth, Inc. Common Stock (NH)
Q4 2020 Earnings Call
Feb 25, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the NantHealth 2020 fourth-quarter and full-year financial results conference call. [Operator instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host today, Mr. Robert Jaffe, investor relations officer, NantHealth.

Sir, the floor is yours.

Robert Jaffe -- Investor Relations Officer

Welcome, everyone, and thank you for joining us today to discuss NantHealth's 2020 fourth-quarter financial results. On the call today are Ron Louks, chief operating officer; Bob Petrou, our chief financial officer; and Steve Benz, senior vice president, machine learning and research. This call is being broadcast live at www.NantHealth.com. A playback will be available for three months on NantHealth's website.

I would like to make the cautionary statement and remind everyone that all of the information discussed on today's call is covered under the safe harbor provisions of the Litigation Reform Act. The company's discussion today will include forward-looking information, reflecting management's current forecast of certain aspects of the company's future, and actual results could differ materially from those stated or implied. In addition, during the course of this call, we may refer to non-GAAP financial measures that are not prepared in accordance with U.S. generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies.

Investors are encouraged to review NantHealth's press release announcing its full 2020 fourth-quarter and full-year financial results for the company's reasons for including those non-GAAP financial measures in its financial results announcement. The reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is also contained in the company's earnings press release issued earlier today. In a moment, Ron will provide a brief overview of the quarter and discuss the business, followed by Bob, who will discuss the financial results in more detail. We will then open the call for questions.

With that said, I will now turn the call over to Ron Louks. Ron?

Ron Louks -- Chief Operating Officer

Thanks, Robert. Good afternoon, everyone, and welcome to NantHealth's 2020 fourth-quarter and full-year financial results conference call. We hope all of you and your families continue to be safe and well. I'm pleased with our achievements over the past year, especially given the challenges of operating the business while managing through COVID-19.

We expanded and diversified our software portfolio and services offerings with the recent acquisition of OpenNMS. We believe OpenNMS provides a number of cross-marketing opportunities and will allow us to expand in industries beyond healthcare. We streamlined our business and improved our capital structure with the divestiture of our Connected Care business for more than $47 million. We continue to invest in our data solutions capabilities, and we delivered expanded capabilities on our NaviNet and Eviti SaaS products.

In addition, as part of our NantHealth Cares initiative, we supported healthcare providers and medical staff by offering, at no cost for the entire month of May, our NaviNet AllPayer platform to providers. Even with a month of free access, AllPayer revenues grew in 2020 and added more than 1,500 providers to its network. Now, let's briefly turn to our 2020 fourth-quarter financial results. Total revenue was $18.6 million.

Gross margin was 61% of net revenue, the highest in our company's history. We lowered SG&A expenses, and we increased our investment in R&D. Bob will discuss our financials in more detail shortly. Now, let's discuss our software and services business.

Our Eviti business signed a renewal agreement with a Maryland-based health plan for an additional three years and expanded products and services within the plan. We continued to expand Eviti Connect across the Medicaid population of a leading U.S. health insurance company. Of the 13 states originally announced, eight states have gone live for the fourth quarter of 2020.

And we launched Eviti Connect 8.2, which included a major expansion of our Treatment Warning and Deviation feature that results in significant savings in delivery of care and Smart Justifications. Turning to payer engagement. We signed a three-year renewal agreement for NaviNet Open with one of the nation's leading Medicaid managed care organizations, strengthening the nearly 20-year partnership. We launched a collaboration with Sesame, Inc.

that enables NaviNet providers to utilize Sesame's payment tools. We introduced new network analytics solutions, which focus on providing our health plan partners with actionable insights in their providers' NaviNet activity. And we enhanced Open Authorizations, which more seamlessly inform providers on where and how to request service approval from their patient's health plans. Turning to our recently acquired network monitoring business, OpenNMS.

We deployed our flows and streaming analytics solutions at a Fortune 500 energy company, decommissioning and replacing their existing solution. We released OpenNMS Horizon 27.0, which introduces digital experience monitoring and support for OpenConfig. And finally, an update on precision medicine and artificial intelligence business. In December, we presented significant treatment insights at the 2020 San Antonio Breast Cancer Symposium around the adoption of trastuzumab biosimilars in the treatment of HER2-positive breast cancer and the potential clinical and cost benefits of biosimilars.

In November, NantHealth, along with our sister company, ImmunityBio, announced the publication in Nature's Scientific Reports of a study that revealed RNA sequencing is not only viable but may also provide significant clinical value in analyzing a cancer patient's specific disease biology to enable an optimized treatment decision with a higher likelihood of success. And in October, NantHealth, along with ImmunityBio and NantOmics, presented results at the 2020 American Association for Cancer Research Virtual Special Conference on the use of deep-learning models in providing significant risk assessment of survival in pancreatic cancer patients, holding promise as a prognostic technology. To sum up, despite COVID '19, we achieved a number of strategic goals, including extending and diversifying our software portfolio and services offerings with the acquisition of OpenNMS and streamlining our business and improving our capital structure with the divestiture of our Connected Care business. We continue to invest in our data solutions and AI capabilities, and we expanded our offering of NaviNet and Eviti SaaS products.

And we reported solid overall financial performance with gross margin increasing to 61% in the fourth quarter. With that overview of the business, I'll turn the call over to Bob to discuss the financial results in more detail. Bob?

Bob Petrou -- Chief Financial Officer

Thank you, Rob. Revenue for the fourth quarter increased to $18.64 million from $18.56 million in the prior-year fourth quarter. The slightly higher revenues were largely attributable to our OpenNMS business, which we acquired in the third quarter of 2020. Total software-related revenues for the fourth quarter increased by 1% to $18.6 million from $18.4 million in last year's fourth quarter.

Revenue for the full year declined to $73.2 million from $77.4 million in 2019. This was primarily due to the divestiture [Inaudible] reduction in our GPS business. However, total software-related revenues for 2020 increased to $73 million from $72.8 million in 2019. Gross profit for the fourth quarter grew to $11.4 million or 61% revenue, a solid increase from $10.8 million or 58% of revenue for the same quarter of the prior year.

For 2020 full year, gross profit grew to $43.9 million or 60% of revenue from $43.3 million or 56% of total revenue in 2019. The gross margin improvement was primarily due to the changes in product mix, specifically the continued growth of our software-related business, and associated reduction in GPS activity. Q4 total operating expenses increased 6% to $18.2 million from $17.2 million in the prior year, driven by new costs associated with OpenNMS, as well as our ongoing investments in our other assets. For the full-year 2020, total operating expenses decreased by $7.5 million, representing a 10% improvement from the year previous.

For the 2020 fourth quarter, net loss from continuing operations attributable to NantHealth was $20.1 million or $0.18 per share compared with $13.2 million or $0.12 per share in the prior-year fourth quarter. Excluding the Allscripts booking commitment of $8.1 million in Q4, net loss from continuing operations attributable to NantHealth was $12 million compared with $12.8 million in the prior-year fourth quarter. For the full-year 2020, net loss from continuing operations attributable to NantHealth was $88.3 million, which included a $28.2 million writedown related to NantOmics and an $11.2 million charge related to an Allscripts booking commitment. This compares with net loss from continuing operations attributable to NantHealth for 2019 of $65.4 million.

Excluding the NantOmics writedown and the Allscripts booking commitments, which are non-cash charges, net loss from continuing operations attributable to NantHealth was $48.9 million. On a non-GAAP basis, net loss from continuing operations attributable to NantHealth in Q4 was $6.2 million or $0.06 per share, compared with $5.7 million or $0.05 per share for the fourth quarter of last year. For the 2020 full year, non-GAAP net loss from continuing operations attributable to NantHealth improved to $27 million or $0.24 per share from $30.1 million or $0.27 per share in 2019, representing an 11% improvement year over year. Finally, cash and cash equivalents were $22.8 million at December 31, 2020, compared with $25.9 million at the end of our third quarter.

Net usage of cash was $3.1 million. If excluding our ongoing interest payments due in December, cash flow would have been approximately neutral in the quarter. Additionally, in Q4, we renewed our letter of credit and increased funds available to draw on to $125 million. We continue to have adequate sources of funding to ensure investments in our operations.

With that, I will now turn the call back over to Robert.

Robert Jaffe -- Investor Relations Officer

Thanks, Bob. Operator, that concludes our prepared remarks. We'd now like to open the call to questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] I see no one in the queue. I'll turn the call back over to Robert for any closing remarks.

Robert Jaffe -- Investor Relations Officer

Thanks, operator. Folks, thanks for joining us today. We look forward to sharing our progress on our next scheduled conference call. Thank you again for joining us today.

That concludes the call.

Operator

[Operator signoff]

Duration: 13 minutes

Call participants:

Robert Jaffe -- Investor Relations Officer

Ron Louks -- Chief Operating Officer

Bob Petrou -- Chief Financial Officer

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