Bloomington company wins $491M federal contract to supply medical devices

Agiliti Inc. has had a big part in managing and maintaining the nation's emergency supply of respiratory medical devices during the pandemic. The Bloomington-based company now has a $491 million, long-term contract to continue the work.

It is an important deal for the nation's emergency response capability, but also for Agiliti's finances. Just under 10% of Agiliti's total revenue comes from the contract with the U.S. Department of Health and Human Services.

"We performed, I would say, flawlessly in that COVID period, not just standing it up, but deploying it, supporting it in the field and now recovering those devices," said Tom Leonard, chief executive of Agiliti, in an interview. "And we're proud to continue to serve the federal government and excited by the new long-term contract as we aim to continue that vital support."

The contract signed last week is the latest milestone since Agiliti's initial public offering in 2021, one that has allowed the company to increase its value at a time when many companies that went public during the pandemic have not fared as well.

Prior to 2020, Agiliti had some contracts to manage medical equipment for the government. When the pandemic hit, it won an emergency contract with HHS and the assistant secretary of preparedness and response to manage, maintain and deploy the ventilator and powered-air purifying respirator systems from the outset of the pandemic.

That contract has had several short-term extensions while the government opened and completed the bid process for the longer-term deal. Delays such as a bidder's appeals made the process longer.

Leonard was confident Agiliti would win the long-term contract based on its prior performance. He is familiar with the process of government contracts, but the delay in the award was a concern for investors and clouded some of Agiliti's business forecasting.

For example, the headline to Morgan Stanley analyst Drew Ranieri's investors note after Agiliti's third-quarter results was: "Guidance once again at the mercy of HHS contract timing."

Despite the delay, Ranieri was still bullish on Agiliti, maintaining a buy rating.

"We continue to see Agiliti as well-positioned to maintain steady growth driven by organic and external drivers such as new customer expansion, share-of-wallet penetration, and tuck-in M&A that overlaps with and extends the existing business," Ranieri wrote.

So finalizing the long-term contract was a relief.

"It's more about the benefit it gives to employees ... knowing that they've got more longer-term visibility," he said, "and then really removes the overhang for investors."

While working out details for the government contract, Agiliti made progress in other areas of its business. Hospitals and health care systems operate with very low margins. Agiliti will manage their devices, often freeing up capital that comes with owning too much equipment and also reducing maintenance costs.

Many hospitals are still financially challenged as they emerge from COVID-19, Leonard said.

While Agiliti benefited during the pandemic with higher urgent orders from hospitals, analysts note that the company's non-government clients also are moving back toward long-term contracts.

"We help ensure that they have access to the devices that they need to provide patient care at the lowest total cost," Leonard said.

Another milestone since going public: Helped by two complementary acquisitions — a $425 million deal for Northfield Medical in March 2021 and a $230 million deal for Sizewise in September 2021 — the company crossed over the $1 billion mark for annual revenue.

Sizewise makes and rents specialty hospital beds and Northfield Medical is a provider of surgical equipment repair services.

"They're both fully integrated at this point," Tom Leonard said of the acquisitions. "And it's a large part of our commercial success that we're seeing with our customers."

For the year ended Dec. 31, 2021, the company had revenue of $1 billion, up 34% from the prior year. The company earned $24 million, or 19 cents a share, in 2021 after recording net losses in four of the previous five years. Adjusted net income was 99 cents a share.

Agiliti has said it expects to report revenue this year in the range of $1.1 billion to $1.2 billion and adjusted EPS in the range of 83 to 88 cents a share.

Many of the 600 companies that went public through traditional IPOs during the 2020 and 2021 boom in listings have done poorly, with one in four trading below $2, according to a Wall Street Journal story.

Agiliti is one of the exceptions. The company raised $390 million when shares were priced at $14 in its April 2021 IPO. Today, its shares are trading around $16.50 — and have traded as high as $24.67.

Among the eight Minnesota companies that completed IPOs in 2021, three have lost more than 65% of their value — Bright Health Group, Miromatrix Medical and Fresh Vine Wine. Agiliti is the only one of the eight whose shares are trading above their offering price.