Skylight Health’s new acquisition gets thumbs up at Raymond James

Rahul Sarugaser, analyst with Raymond James Limited, believes Skylight Health Group (Skylight Health
Group Stock Quote, Chart, News, Analysts, Financials CSE:SLHG) is still in a position to outperform expectations over the next 12-18 months.

On Wednesday, the analyst maintained his “Outperform 2” rating on the stock, which he describes as a “security is expected to appreciate or outperform the S&P 500 over the next 12-18 months.”

Sarugaser’s latest update comes after Skylight Health Group, which operates a multi-state primary care health network comprised of clinics providing a range of services from primary care, sub-specialty, allied health, and laboratory/diagnostic testing acquired ACO Partners LLC, which is a step toward Skylight getting into the value-based care market, where providers are rewarded for keeping patients healthy and lowering unnecessary health costs instead of volume of services. Crucially, it provides Skylight with access to the Medicare Shared Savings Program offered by the Centers for Medicare and Medicaid Services as of January 1, 2022.

“Acquiring an ACO, which ties provider reimbursements to quality metrics and reductions in the cost of care, enables SLHG to share in the savings it achieves for Medicare: up to 40% for single-sided risk; up to 75% for full risk,” Sarugaser said. “With 76,000 patients currently under care through its network of 55 clinics—~10,000 of which are Medicare patients—this is SLHG's first step into managed care.”

After posting $5 million in revenue in the first quarter of 2021, Sarugaser projects Skylight to more than double that mark in Q2 2021 and beyond, with projections starting at $11 million in revenue in this quarter, and continuing to grow to a forecasted $16 million in the final quarter of 2022.
From a ratio perspective, the company’s EBITDA is projected to get out of the red, jumping from a loss of $2 million to $1 million ahead by December, with the EV/Revenue expected at around 6.0x by year-end and 4.3x to end 2022, with Sarugaser forecasting the EV/EBITDA to spike to 290.4x in 2021 before coming down to 32.4x in 2022.

The acquisition is the latest piece of news in a busy period for Skylight, though Skylight Health CEO Prad Sekar is pleased with this next phase of the company’s growth.

“We are very excited for this foundational step at Skylight,” Sekar said in the company’s July 14 press release. “Having our own ACO means a number of key benefits that include gaining direct access to key quality and cost data on our Medicare patients that allows us to maximize opportunities under the MSSP. We retain the full dollar by contracting directly with CMS on traditional Medicare which means more capital to directly invest in programs that can maximize patient outcomes.”

Accountable care organizations are a significant part of the shifting healthcare provider market. In 2019, ACO’s saved Medicare nearly $1.2 billion while maintaining a high level of care quality as measured by long standing program metrics. ACO’s allow access to key data points including cost and quality data that can help providers understand how to maximize health outcomes and cost of care.

In addition to ACO Partners, Skylight Health Group also announced the acquisition of Doctors Center Inc., a Florida-based primary care group, on June 24, on top of having been selected as a clinical site for a research trial investigating ADG20’s capability to help prevent COVID-19. The company has also made a significant hire, bringing in Dr. Kit Brekhus as the new Chief Medical Officer on
July 7. Dr. Brekhus brings more than 25 years of industry experience as both a clinician and owner-operator of a family practice and full-service urgent care center.

“I’m excited to join the Skylight team. I want to thank Dr. (Georges) Feghali for the foundation he has built and the executive team at Skylight for their leadership. They’ve created something very special at Skylight Health,” said Dr. Brekhus in a July 7 press release. “My entire career has been focused on advancing primary care, building large, clinically integrated networks of providers, and working directly with payors and plan sponsors in creating value-based programs; programs that truly make a difference in people’s lives. I’m looking forward to getting out to our offices soon; to meeting our providers, getting to know our team members, and continuing the work, already underway, of creating value for the people we serve.”

Sarugaser sees the move to acquire ACO Partners as a sign that Skylight is in position to foster a more
organic growth cycle going forward.

“While today's announcement implies the potential for a relatively nominal +2%-4% in incremental 2022 revenue, we focus on the fact that SLHG's management is meeting its strategic and operational targets,” he said. “To date, we have seen them execute well on their inorganic growth story—accumulating 55 clinics and 76,000 patients in two years—and now we see SLHG's management translating inorganic growth into organic growth by stepping into managed care.”

Skylight closed Wednesday up four cents to $3.93.