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Welcome to the Quarterly Conference Call for Patient Home Monitoring. This call is being recorded. Please note that remarks in this conference call may provide certain information regarding our expectations, future plans and intentions that may constitute forward-looking statements within the meaning of applicable securities laws. I would refer you to our most recently filed management's discussion and analysis and annual information form, which includes a summary of the significant assumptions underlying such forward-looking statements and certain risk and factors that could affect our future performance and our ability to deliver on these forward-looking statements. The first quarter earnings release, the related financial statements and the management's discussion and analysis are available on SEDAR as well as Investor Relations section of the company's website at phmcompanies.com/investors.At this point, I'd like to turn the call over to the Chief Executive Officer and Chairman, Greg Crawford.
Thank you for joining us on the call. My name is Greg Crawford, and I'm the Chief Executive Officer and Chairman of Patient Home Monitoring. Joining me on the call today will be Hardik Mehta, our Chief Financial Officer. I'd like to start this call by going through our corporate strategy and business today, before getting into the details of the first quarter financials and an update on our M&A pipeline. For those of you new to the story, Patient Home Monitoring provides a diverse offering of home medical equipment and services for treating patients in the United States with chronic disease.Today, the company has 5 key product categories: respiratory; oxygen; medical supplies; power mobility; and Coumadin home monitoring. We operate in 13 states across the Midwest and the East Coast and complete hundreds of thousands of deliveries a year to our more than 75,000 active patients. Our growth strategy is focused on utilizing technology to make life easier for the patient, the physician and improve healthcare outcomes.Today, for example, if a patient needs respiratory equipment, a patient drives to a location to pick up the equipment and receives in-person training. If the patient has trouble with the device, either someone provides on-site assistance or they have to come back to our physical location. We think we can use technology to reduce or eliminate these friction points, resulting in more successful treatment and management of these chronic conditions. By combining telemedicine and advanced distribution technologies, we believe we can make treatment much easier on the overall health system, and as a result, significantly differentiate our service offering from the other smaller regional competitors who lack the size and scale to utilize similar technologies. Once complete, we expect our new competitive advantage to fuel recurring, strong organic growth rates.To execute on our strategy, we need to fill in our geographic footprint across our existing territories and increase our distribution volume for our technology investments to be accretive. As a result, we are focused on acquisitions and the aggregation of equipment delivery volume across key markets. While acquisitions are certainly expected to increase revenue, and through our proven integration process have post-acquisition profit growth. That's really a byproduct of our strategy of getting to the size where we can capitalize on our technology-focused vision for long-term organic growth. As a reminder to our shareholders, PHM completed the corporate spinoff on December 21, 2017. At that point, the entire board composition changed and we were, finally, able to start taking the helm on this new strategy. It's been 3 months, and in the last 3 months, we've completed a successful pilot program of our telemedicine plans that solve beneficial outcomes for our patients and a significant increase in the time efficiency of our respiratory therapists. With that background, I'd like to introduce our shareholders to our new Chief Financial Officer, Hardik Mehta. Hardik has worked as a finance professional and an investment banker at investment banking and advisory firm, Silverstone Capital Advisors, for nearly 10 years. He has significant acquisition, transaction finance, accounting and negotiating experience. He has also been an adviser on more than 30 M&A funding transactions, including buy-side transactions, in which he oversaw quality of earnings analysis, due diligence and post-transaction integration planning. He is a great asset to our team.With that introduction, I would like to turn the call over to Hardik to review the first quarter financial results.
Thank you, Greg. I'm happy to be here and be part of PHM team. In reviewing the financial results of our first fiscal quarter ending December 31, 2017, all figures are in Canadian dollars and the full results are available on SEDAR.First quarter of 2018, we generated revenue of $18.5 million as compared to first quarter 2017 revenues of $18.7 million. Revenue from rental equipment and home monitoring increased year-over-year by $271,000. Adjusted EBITDA, which excludes depreciation, amortization, stock-based compensation, spinoff accounting and changes in financial derivatives totaled $1.5 million compared to first quarter 2017 adjusted EBITDA of $1.4 million.In respect to our balance sheet, the company ended the quarter with just over $3 million in cash and an increase in inventory of approximately $340,000. Current assets totaled more than $23 million, total assets are $49 million compared to just under $28 million in current and long-term liabilities. Our long-term debt, consisting primarily of capital issues, is readily serviceable with operating cash flow. Our total debt picture also includes public debentures maturing at the end of 2019. In respect to capital investments, we continue to finance equipment purchases with leases from our major vendors, and we believe we will be able to fund our future growth using the same credit resources. Additionally, we are also aggressively pursuing other lending and financing relationships to provide growth capital and capital for acquisitions. We are in discussion with several U.S. health care specialty lenders to secure debt term and expect to be able to secure a line of credit in conjunction with our first acquisition. I know there have been questions about bad debt, its allocation and the potential of future charges to earnings. I want to assure our shareholders that my first priority in taking this new position was to perform a full review of our revenue and accounts receivable reserves to ensure financial statements are presented in a manner that robustly reflects our business. We have full confidence in our accounts receivable, and we will continue to evaluate our result accounting on a quarterly basis.Let me take a quick step back to discuss revenue and associated reserve accounting. Not all patient intakes, which include the physician forms and documentations are initially accurately submitted by the hospitals and practitioners. Some of our locations perform better than others in following up and securing the necessary documents to create a billing that will seamlessly lead to payments by the insurance and customers. But as a whole, we, nevertheless, do a satisfactory job of collecting for services rendered. Our efficiencies in the areas of billing and cash collections continue to improve, and our collection rates are at all-time high. That said, there is still room for improvement and that improvement should reduce our reserve levels for bad debt and go directly to improve profits. This will be my focus for the coming months, and I'm confident we will see gradual improvement.Moving into second quarter ending March 31, 2018, our guidance is that revenue will increase from $18.5 million in the first quarter to 18.7 -- to $19 million. We also expected to see adjusted EBITDA increase from 8.2% to more than 10% in our second fiscal quarter. Our EBITDA increase is a result of increasing revenue and the spinoff transaction being in the rearview mirror.We also anticipate that this will be the first quarter for spinoff of financial results improving quarter-over-quarter, a trend we are targeting for the full year. This guidance also contemplates a neutral Canadian dollar during the current quarter, but the recent volatility makes this difficult to estimate. In general, we are pleased with USD revenue and adjusted EBITDA growth expected this quarter. I believe it's also important to inform shareholders of the seasonality aspect of this business. In the United States, health care deductibles reset on January 1. PHM has, for the last 5 years, adopted successful strategies to maximize cash collections for this occurrence. As a result, we expect, in the second fiscal quarter for cash to slightly decrease and accounts receivable to increase. There will be a true-up in the third quarter covering April to May when the cash collection will increase and our receivables will decrease.To summarize, our balance sheet continues to be strong. Our receivables are clean and valued correctly. We believe we can secure debt capital as needed for acquisition. As such, we remain highly optimistic regarding our ability to continue to grow and excel.With that update, I'll turn the call back to Greg. Thank you.
Thank you, Hardik. As I mentioned, a key driver of our strategy is acquiring strategic businesses for their distribution volume and geographic fit. Our team here has decades of experience in integration, including the integration of all the acquired PHM subsidiaries and turning PHM around from losing money to making money. We are confident we can quickly integrate a business into our processes and achieve post-acquisition profit growth. Mark Greenberg, a Director on the board and Principal at Silverstone Advisors, which has completed hundreds of M&A transactions, has been working with me and the M&A team driving deal flow.We are focused on acquisition targets that fit strict parameters for our long-term goals. All of our targets are located in the Midwest or East Coast region, with the product mix weighted towards respiratory, the ideal targets are between $4 million to $12 million in revenue, with EBITDA margins between 5% and 10% preacquisition. We know these businesses well and are very confident that we can be quickly integrated for post-acquisition EBITDA improvement. There are more than 6,000 providers nationally, and most regional markets have between 5 and 10 providers. We are confident we can find the target that fits our metrics at favorable pricing. Today, we have dozens of deals under NDA and continue to work towards the execution of a letter of intent with a strategic business that meets our criteria.Additionally, we are actively working to bolster Mark and our M&A team with new hires that will focus on driving more deal flow and enhancing our process. By building up our M&A team, we believe we can improve our acquisition pace and find the most accretive pricing for deals. We will keep our shareholders up-to-date on our progress.With that update, I once again, want to thank all of our shareholders for being on the call and being patient during the new board's transition after the spinoff.With the first quarter financial results release, our positive guidance for the quarter we're in and our strong pipeline of acquisition targets, we are hitting the ground running. We look forward to our acquisition being down over the coming quarters of financial results and to continue to communicate with our retail and institutional shareholders, the progress we're making towards our goals of revenue growth, profit growth, successful acquisitions and technology utilization. This concludes our prepared remarks, and we will now take the opportunity to respond to commonly received shareholder questions.
The first question we received asked about whether we have sufficient cash to complete acquisitions and whether we have access to debt capital?
Sure. At the end of Q1, we had more than $3 million cash on hand. We also had $20 million in unleveraged inventory and receivables. And today, we have no senior secured debt in place. I am confident we can secure a $7.5 million line of credit from a U.S. healthcare specialty bank. We expect to be able to purchase companies for half of revenue or less, therefore, with $7.5 million of debt capital, we would be able to acquire, at least, $15 million in revenue and utilize the acquisition's targets cash flow and additional inventory and receivable amounts to service the debt and increase our debt facility. This would result in revenue of just under $100 million.
The next question asked, when we anticipate the first acquisition will be completed and how many deals the management team anticipates completing in calendar year 2018?
I'll answer that question for the M&A team. They've been in discussion and due diligence with several business owners. As I mentioned earlier, I believe with our current array of NDAs, term sheets and the discussion I have had with some of the sellers, we can anticipate our first letter of intent being executed soon. Although it's always difficult to predict the actions of a seller, I still believe the team can complete 2 to 3 acquisitions by the end of the calendar year, with an estimated increase in annualized revenue of between $8 million and $20 million.Over the past 3 months, they've been developing a pipeline funnel of deal flow. While that has taken time, the team is expanding and once the first deal is in hand, future deal flow should move at a faster pace.
Our next question asked for an update on our website, IR deck and name change.
Sure. I am happy to report that we are in the final stages of completing our new investor website around our name change. I think it's important that our name not only reflect our corporate strategy but also signifies that this is a new team with a new path forward. Additionally, we will be releasing a new investor deck once the website is complete.
Our final question asked, what are the company's plans for attracting more institutional shareholders?
This is a great question, and it's been a 3-step process. Our first step was solidifying our management team, which was completed with bringing on Hardik as Chief Financial Officer. With that complete, we are in the process of rebranding our business with our new name that better reflects our growth strategy. The final step will be traveling to Canada to meet with both existing and new institutional shareholders. We expect that with our size, track record and strategy, that we will be successful in attracting interest.That concludes today's calls. Thank you for -- everyone, for joining. We will continue to hold regular quarterly conference calls to update our shareholders on our progress. If you have additional questions or feel like your question wasn't answered, please contact us and we will get back to you as soon as possible. Thank you.
Thank you.