© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the quarterly conference call for Protech Home Medical Corp.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 include a summary of the significant assumptions underlying such forward-looking statements and certain risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements.The first (sic) [ third ] quarter earnings release, the related financial statements and the management's discussion and analysis are available on SEDAR as well as the investor relations section of the company's website at protechmedical.com (sic) [ protechhomemedical.com ].At this point, I would like to turn the conference over to the Chief Executive Officer and Chairman, Mr. Greg Crawford. Please go ahead, sir.
Thank you for joining us on the call.I am Greg Crawford, Chief Executive Officer and Chairman of Protech Home Medical. Joining me on the call today will be Hardik Mehta, our Chief Financial Officer.Before getting into the details of the third quarter financials, I think it's important to spend a few moments revisiting our management team's revised corporate strategy as was previously articulated at the time of the plan of arrangement earlier this year.For those investors that are new to Protech Home Medical. Protech Home Medical provides a diverse offering of home medical equipment and services for treating patients in the United States with chronic disease. The company provides a range of products, including respiratory, oxygen, various medical supplies, power mobility and Coumadin home monitoring. We operate in 13 states across the Midwest and the East Coast, completing hundreds of thousands of deliveries each year to our more than 75,000 active patient customers. The market in which we operate, known as the durable medical equipment market, is approaching $60 billion and continues to grow year-over-year given the aging demographics in the United States.Our growth strategy incorporates 3 main components, the first of which is aimed at increasing our utilization of technology to make life easier for the patients, the physicians; and to improve health care outcomes. Today, for example, if a patient needs respiratory equipment, the patient would typically have to drive to a location to pick up the equipment and receive some level of in-person training. If the patient has any issues operating the device, a technician would typically have to drive to the patient or the patient would be required to return to the location where they acquired the device. These customer points of friction can largely be eliminated by leveraging technology to provide patients with automated-ordering online or telephonic platforms to assist with operational and training issues. Such use of technology in our business will not only result in more successful treatment and management of our patients. It will also allow us to do so at a higher margin yield per patient.The second component of our strategy is to simply capture more market share of the growing durable medical equipment market. While we expect the aging population in the U.S. to create modest organic growth in of itself of approximately 4% to 5%, by implementing the technology initiatives that I have previously articulated and by focusing our efforts in certain key regional markets and capturing upwards of 70% market share in those defined markets, I believe our annual organic growth can approach 10% or greater without significant patient acquisition cost.The final component of our strategy is to acquire durable medical equipment businesses in order to add to our patient distribution volume and capture hard dollar synergies relating to stand-alone administrative expenses and back-office costs, all of which are relatively material expenses for acquisition target profiles. As I have previously stated, our focus is on acquiring companies in geographies where we are already active in order to continue to build on our regional market domination. And we will be principally targeting tuck-in acquisition opportunities where we can reliably attain near-immediate post-acquisition value arbitrage by means of vertical integration, more favorable equipment and supply vendor spend and sales and product line expansions. We have recently reorganized our business development efforts to materially increase our acquisition target pipeline and to be able to more efficiently react to opportunities with a high level of certainty to close on deals that meet our acquisition target criteria. The day-to-day targeting effort will be led by Will Childers, our Vice President of Business Development, with an investment committee consisting of our CFO, our Board of Directors and myself. While I do not intend to waver on our acquisition target criteria and will only pull the trigger where it makes absolute sense to do so, I believe that we will have the ability to close on at least 2 acquisitions before calendar year-end.I would like now to review some of the achievements that we have made over the last quarter. Our primary goal, of course, was to improve on our financial performance. And I am proud to have achieved quarterly increases in both net revenue and EBITDA while incrementally improving our balance sheet with a stronger cash position. Overall, I am pleased with our financial results, which have incrementally improved quarter-over-quarter and which, I believe, show our shareholders a fair more accurate picture of our underlying business than what has been historically displayed.Some facts. Third quarter revenue increased to $19.7 million, an increase of 5.3% compared to second quarter. During the first fiscal quarter, which was the first quarter under current management's direction, we were able to complete key projects which focused on unifying PHM locations in respect to strategy, vision, expectation, best practices and culture. These efforts played a large part in our third quarter revenue growth and profitability.Our Q3 adjusted EBITDA increased to $3.6 million, with adjusted EBITDA margins increasing from 8.2% in Q1 to 12% in Q2 and to 18.3% in Q3, a margin increase of more than 52.5% quarter-to-quarter.We feel exceptionally good about the quarter-over-quarter improvements, which are the result of continuing enterprise-wide improvements in our intake processes and billing and collections, which we will no doubt continue to see improve and I believe is characteristically incremental thus far. We have cause to believe that revenues will continue to improve quarter-over-quarter as customer demand consolidates in favor of more robustly resourced providers such as PHM which is well positioned in each of its regional markets to capitalize on opportunities to acquire market share from smaller businesses either competitively or by means of acquisition.At this point, I'd like to turn the call over to Hardik Mehta, our Chief Financial Officer, to get into some additional details regarding our financial performance over the last quarter.
Thank you, Greg.In reviewing the financial results for the third fiscal quarter ending June 30, 2018, note that all figures are in Canadian dollars. And the full results are available on SEDAR.The company generated revenue of $19.7 million compared to second quarter 2018 revenues of $18.7 million. Adjusted EBITDA, which excludes stock-based compensation and onetime spinoff transaction expenses in addition to noncash charges for changes in financial derivatives, totaled $3.6 million compared to second quarter 2018 adjusted EBITDA of $2.2 million.With respect to our balance sheet, the company ended the quarter with nearly $4.4 million in cash, an increase of almost $391,000 compared to the previous quarter.Current assets total approximately $22.1 million compared to just under $18.6 million in current liabilities, resulting in a healthy current ratio of 1.19:1.On the operational side, our billing efficiencies of -- our efficiencies in billing and cash collection continues to improve, and collection rates are at our all-time high and much improved over the last 3 quarters. Our year-to-date bad debt expense is around 9.8%. That said, we continue to believe there is still some room for small marginal improvement on our collection rate, which should improve earnings on a dollar-for-dollar basis. This continues to be a focus, and I'm confident we will see some incremental improvement in this regard over the next few quarters.In regards to accounts receivable, as stated on our previous second quarter earnings call, we still believe that our AR is valued appropriately, if not conservatively. Going into the last quarter of fiscal year 2018, I feel reasonably confident that our AR balance will not be subjected to any write-down in the fourth quarter.Finally, from a capitalization perspective, we continue to finance major equipment purchases with leases from major vendors. And we believe that we will be able to fund our future growth using the same financial instruments.To summarize. Our balance sheet continues to be strong. Our accounts receivable are valued conservatively, and as such, we remain highly optimistic regarding our ability to continue to grow accretively.With that, I'll hand over the call back to Greg. Thank you.
Thank you, Hardik.With that overview, I'd like to provide our shareholders with our views on our upcoming quarter. We believe that we will be on track to exceed our annual revenue guidance of $75 million. We also believe that we will continue to increase and exceed our year-to-date adjusted EBITDA margins. We also believe that we will achieve continued margin improvements through operational excellence and resource improvements and rationalization.In concluding this call, I want to convey to our shareholders my commitment to our strong and diversified business, which I believe will continue to experience improved financial performance through the implementation of our 3-component strategy that I outlined earlier: incorporating the use of technology, continued organic growth and targeted acquisitions. It is worth noting that it has only been 8 months since the current management team has been in place. And in the short 6 months of reported results, we have demonstrated an ability to grow revenue and meet profit guidance targets and fully expect that trend to continue on a go-forward basis. As shareholders understand our value proposition and business model and witness our continued financial performance, we believe we will begin to attract more institutional shareholders and will begin to see our overall valuation increase from its current position.I once again want to thank all of you for being on the call. With our third quarter of financial results released and our positive guidance for another quarter of revenue and profit growth, I feel we are moving in the right direction. We look forward to continuing to demonstrate improving financial results. And we'll continue to communicate with our retail and institutional shareholders the progress we're making towards achieving our goals by sharing with you only those achievements we feel are meaningful in nature.Finally, I want to thank the entire Protech team for the hard work that they have put into achieving these meaningful results, more to come.This concludes our prepared remarks, and we will now open the call up to questions. Thank you.
[Operator Instructions] We will now take our first question from Mr. Doug Cooper of Beacon Securities.
First of all, just on the growth side. Obviously, the Canadian dollar has an impact on your revenue because you report in Canadian, but your business is in the U.S. So it looks like the Canadian dollar weakened by about 2% sequentially, so that would imply sort of 3% growth in U.S. dollar terms or 12% annualized, almost double or triple the industry growth rate. Can -- you mentioned, I think, Greg, that you think you can do 10%. Is that -- the number that I just referred to, is that -- can you maybe walk us through what is driving growth, what products? And how can you continue to outpace the industry? What's your -- what do you think there?
Yes. The 10% would be the higher end of our growth if all of our components would come into play there. What's driving our growth is our higher-margin products right now, which would be our respiratory line, the robust respiratory program that we have. That includes oxygen, our resupply business for our sleep apnea products and the other ancillary products.
Right. And maybe just on that, I was just going to say the respiratory, as you said -- excuse me. As you have in the MD&A, the respiratory resupply business was up, it looks like, 21% year-over-year. Can you just talk about what the potential of that business is? And I guess that ties into your technology strategy. And what the incremental margin -- least contribution margin is on that?
Sure. I'll let -- Hardik has been working very diligently on our resupply program and watching the numbers, so I'm going to let Hardik answer that question for us.
Right. So Doug, the potential for resupply, yes, for lack of a better word, I will say it's like a maintenance program. Once we get a patient on our PAP, they continuously order their resupply every quarter every year. And as we increase our patient base through organic growth, we will continue to see more patients on a recurring revenue, though it's a sale product. But it's kind of a recurring revenue because they take this every so often. And then we are also working diligently on increasing our total spend per patient by training on our marketing programs and our -- and then the third component that we are working on, on the resupply is reaching directly to our patients via live calls versus automated calls. And through all these 3 efforts, we see more spend per dollar per patient and an increased number of patient from our actual database which are more compliant and reordering resupply more frequently.
Okay. The company has worked hard over the past several quarters in bringing down their overhead costs, but do you feel the platform is in place now, without adding a lot of incremental costs, such that increased revenue, incremental revenue can drop at a higher margin to EBITDA?
100%. We worked really hard over the last 2 quarters to put the platform we have put in place. We call it an investment of human resources right now. We think we can funnel at least 8% to 10% more of revenue through the same cost structure, which could add much more -- which will have more dollars drop to the bottom relatively.
Right, right, right. And finally, I guess, for me. There has been a lot of -- there's been some talk about a competitive bidding process in the U.S. And maybe that's taken a hiatus. Can you talk about the impact that would have on your business in terms of maybe the margin or the average cost per product that you're selling and the incremental margin? I'm assuming that's a positive, when you stop the competitive bidding process.
Yes, Doug, I think it's a positive in the way that we don't have to have any concern around not being issued contracts and things. With -- the bidding program was to open in early 2018 to rebid for 2019. Now the entire program has been put on hold. They're coming up with a blended rate that will be issued for all areas. And we believe that will have some small incremental increase in our business, but I think just the concern of not having to submit contracts and worry that we're going to get those, that's the biggest thing that's came off for us. So -- and that will also open up some new markets for us and some new product categories in that, that we're in current markets where we maybe don't have contracts. And I think what Hardik was referring to get -- with the current cost structures, to get a 8% to 10% increase in revenue; and that we have all that in place. And we should be able to execute on some of that once the new billing terms and things take place in January.
All right. You said you're in 13 states now. And maybe as you look to grow, when you're moving, is there states that you would like to move into? And can you do that organically, or would that be more through acquisitions?
We can do both, yes.
Yes.
Yes. I mean, primarily in that -- in any states that we're bordering, we typically have the majority of the insurance contracts. It is much easier, through an acquisition, to get into a state. They typically may have all the contracts. And we may, if we wish to open, have 80%. And that's what we have on a national basis.
So to sum -- I think, put differently, it's easy for us to grow organically where we already are in place. And then before going into a brand-new state, we will most likely look for an acquisition as an approach...
Okay. So the states you're in, the 13 states you're in, you feel there's still quite a bit of organic growth opportunities within those.
Absolutely, yes.
Yes.
Yes. There are still a lot of major cities that we're -- are close by the next regional city that we're not in, in a lot of those states.
That concludes today's questions-and-answers session. I'd like to now hand the conference back to our hosts.
Well, that's ends our prepared remarks for the third quarter earnings call. We look forward to the next call in Q4.Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.