© 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.
Thank you for standing by. This is the conference operator. Welcome to the Fourth Quarter and Audited Full Year Fiscal 2020 Earnings and Corporate Update Conference Call for Protech Home Medical. [Operator Instructions] The conference is being recorded. [Operator Instructions] We remind you that remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reader advisory at the bottom of the company's results news release as well as MD&A, which you can find on the website and on SEDAR. The company's actual performance could differ materially from these statements. At this point, I would like to turn the call over to Chairman and Chief Executive Officer, Greg Crawford.
Thank you, operator, and thank you all for joining us today on the call. My name is Greg Crawford, and I'm the Chairman and Chief Executive Officer of Protech Home Medical. Joining me today is Hardik Mehta, our Chief Financial Officer. For those of you on the call who may be new to Protech, let me provide a brief introduction. Protech Home Medical is a national leader in the home medical equipment industry, specializing in end-to-end respiratory care. Protech's interconnected health care platform leverages a sophisticated technology infrastructure and strong regional distribution footprint to streamline all phases of the delivery process. Coupled with a high-touch service model, ongoing patient education in the home and through our telehealth platform, Protech is able to operate a successful patient-centric ecosystem throughout the organization. This white glove approach resonates with any physician seeking to improve clinical efficiency without sacrificing patient care and has been instrumental in fueling physician referral recruitment for Protech over the last several years. Protech operates out of 49 locations and 11 states across the midwest, southeast and east coast regions, completing hundreds of thousands of deliveries each year to more than 120,000 active patients with over 17,000 referring physicians. On this call, I will provide a regulatory update; outline our core business, which continues to be very robust; review our continued organizational progress in 2020 with a focus on our record-breaking full year results; and provide you with our recently updated outlook for 2021. Before I begin discussing what was truly a historic year for Protech, let me first take a moment to provide my utmost gratitude for the dedication, valor and professionalism displayed by our entire team consisting of over 400 health care professionals during a challenging 2020. Our team continues to focus on providing a better quality of life for our patients, and we continue to prioritize the safety and well-being of our team members and our patients. It is the incredible efforts of these individuals that have put Protech in the strongest financial position to date with an incredible foundation to build upon for 2021. On the regulatory front, in late October, the CMS, Centers for Medicare & Medicaid Services, canceled the 2021 competitive bidding program for 13 product categories. The cancellation of this program provided Protech a clear margin outlook across our product mix and ensured our patient base stability. The decision will help to ensure that there are no unnecessary barriers to the quality of care for patients, such as access to home respiratory products, durable medical equipment and other needed supplies. It is evident, now more than ever before, that home-based care for the growing population of elderly Americans is crucial. And reducing the burden on hospitals, nursing homes and other senior living facilities is imperative to the health care ecosystem. Additionally, the CMS stated that the program did not achieve the expected savings, which we believe means the reimbursement rates have likely near to floor and there is no Medicare reimbursement rate cut risk for the foreseeable future. As our results show, momentum continued in the fourth quarter, with Protech hitting $5.9 million in adjusted EBITDA and reaching a 22% adjusted EBITDA margin. We have seen our business in fiscal Q 2021 remain robust and continue to be in a position to accelerate our growth trajectory over the near and medium term as we look to further our long-term acquisition strategy. With the improving organic growth being derived from our first rate infrastructure and extraordinary financial flexibility, we are confident the future is very bright for Protech, and we will not be stagnant in capitalizing on the tailwinds propelling our industry. With that background, I'd like to hand the call over to Hardik to discuss our fourth quarter audited full year 2020 financial results.
Thanks, Greg. Before I begin, I would like to take a moment to comment on the delay we experienced in filing our fiscal year-end financials at the end of last week, which we were extremely disappointed in doing. Rest assured, we are having commenced discussions with our auditors to better understand the nature of their delay in ensuring that it does not happen again. We sincerely apologize for the inconvenience this caused to all our investors and the many recent analysts that follow our company. Yesterday, we announced our fourth quarter and audited full year financial results for fiscal 2020 for the 3 months and 12 months ended September 30, 2020. In reviewing the fourth quarter and full year fiscal 2020 numbers, please note that all financial values are in Canadian dollars and the full results are available on SEDAR. Here are some key highlights. In the fourth quarter of fiscal 2020, Protech completed 68,909 setups or deliveries compared to 53,386 in the corresponding period last year, an increase of 29%. In the fourth quarter of fiscal 2020, Protech completed 19,613 respiratory resupply setups or deliveries compared to 12,727 in the corresponding period last year, an increase of 54%. The revenue for Q4 2020 was $25 million compared to $19.5 million for Q4 2019, representing a 28% increase in revenue year-over-year. Compared to Q3 2020, the company experienced strong organic growth of 3%, excluding new acquisitions in the fourth quarter. However, the reported Canadian dollar revenue amount was slightly offset by a weakening of the U.S. dollar related to the Canadian dollar. Additionally, from the previously issued guidance, $1.6 million revenue was reclassified as other income as per the company's auditor request. Full year revenue for fiscal 2020 was $97.8 million compared to $80.9 million for the fiscal 2019, representing a 21% increase in revenue year-over-year. Adjusted EBITDA for fourth quarter of fiscal 2020 was $5.9 million compared to $3.5 million for the fourth quarter of fiscal 2019, representing a 69% increase year-over-year. Adjusted EBITDA margins for the fourth quarter of fiscal 2020 increased to 23.7% compared to 18% for the fourth quarter of 2019. Adjusted EBITDA for fiscal 2020 was $20.8 million compared to $14.8 million for the fiscal 2019, an increase of 41%. Adjusted margin increased to 21% for fiscal 2020 from 18.3% for fiscal 2019. Medical equipment additions for fiscal 2020 was at 11% of net revenue compared to 14% of fiscal 2019, highlighting our efforts to increase utilization and yield on our assets. Cash flow from operations for the 12 months ending September 2020 was $17.6 million compared to $11.1 million in the corresponding period ending September 2019. Current assets totaled more than $60.4 million compared to $32.5 million in net short-term liabilities, demonstrating continuing strength in our liquidity. At the end of fourth quarter fiscal 2020, cash balance was $38.9 million compared to $12.9 million at fiscal year-end 2019. At the end of fourth quarter of fiscal 2020, the company has undrawn revolving credit facility of USD 20 million. We continue to be active acquirers in 2020, ramping up our M&A program in the second half of the year after closing a successful bought deal offering in June. We continue to be focused on business that offer turnkey respiratory solutions that symbiotically fit into the Protech model, where we can harness our existing infrastructure to effectively capture meaningful post-integration synergies. To that end, let me summarize our closed acquisitions in 2020 and recently announced entrance into Florida. In August, we closed on Health Technology Resources, a leader in respiratory home care in the state of Illinois with $5.5 million in revenue, adjusted EBITDA of approximately $1.65 million and over 3,000 patients. HTR presented us with the opportunity to pick up a new insurance contract for the state of Illinois as well as allowed us to expand into Chicago area, an attractive metro hub where we it has created numerous cross-selling and patient growth opportunities for us. We have completed the full integration of HTR at this time. In October, we closed on Sleepwell, a leader in sleep services in the state of Georgia with significant penetration in southern-eastern corridor of the region. Sleepwell added $13 million in revenue, adjusted EBITDA of approximately $3.25 million, net income of approximately $2.5 million, 5 new locations and over 15,000 patients. Sleepwell is highly concentrated on sleep therapy with a very strong resupply business, which we have begun to build upon by utilizing our technology to win subscription resupply platform to foster additional revenue opportunities. Our model will sell to significantly reduce fulfillment errors and increase overall volumes. Our understanding and utilization of significant workflow processes will drive operational efficiencies, and we will be a major contributor to accelerate growth for the future. Currently, Protech derives $25 million from its resupply subscription model and anticipates that growing to over $30 million with Sleepwell fully integrated. At this point, we are near full integration of Sleepwell. As we have moved into 2021, we have remained active as indicated by the recent closing announcement of Mayhugh Medical Equipment. Mayhugh represents our entrance into Florida and will begin to build our presence in this new geography by organically leveraging our existing infrastructure and looking for additional synergistic opportunities. Mayhugh has revenue of $7 million and $1.2 million of adjusted EBITDA. We will also boost our patient count by over 10,000 and add over 5,000 patients for its patient base to our subscription-based resupply program, which we expect would drive strong revenue synergies. Post integration, it is expected that Mayhugh will increase Protech's adjusted EBITDA by $1.4 million to $1.8 million. In closing, we have an extremely active M&A pipeline and plan to continue to identify opportunities that deliver financial results in accordance with our disciplined capital allocation strategy, furthering our strategic goals and are more confident than ever in our market position and our ability to quickly increase our scale. We continue to see ample tailwinds at the company level from increased demand from the business, and we are picking up on a significant acceleration in the need for in-home care. This presents us with a significant opportunity to seize market share, and we have all the tools needed to do so aggressively on a go-forward basis. Thank you. And with that update, I will turn the call back to Greg.
Thanks, Hardik. I am very proud of the accomplishments of our team during 2020, who went above and beyond in providing superior patient care, which is what drives our organization at its core. We have been able to adapt to the daily needs of our patients, in large part due to our investments over the past few years in cloud-based technology across our back office and patient-facing functions. Our telehealth platform has led to increased patient compliance, increased ease of training and an acceleration of patient onboarding. The strength of Protech's model lies in our commitment to technology. Over the last several years, we have spent significant financial resources, modernizing our existing systems to create a sophisticated, interconnected infrastructure that is completely technology-driven. We continue to see that in-home health care and telehealth are vital to our overall health care system, and we are capturing this dramatic acceleration, which is represented by a record-breaking year with strong operating performance and solid organic growth. Subsequent to year-end, our revenue run rate now sits at over $125 million, and I am pleased that we were able to achieve the revenue milestone significant earlier than forecasted. Now I want to take a moment to explain in a little more depth what we are doing differently and why we have been able to achieve the results we have and why we continue to be so excited about the future. We continue to successfully deploy a highly-scalable connected healthcare platform focused on organic sales generation, accretive acquisitions with efficient capital deployment, targeted margin expansion and cash generation. This model also encourages compliance, improved outcomes and drives engagement with patients. Moreover, we can drive early interventions, reduce hospitalizations and monitor treatment plan effectiveness, which all serves as a benefit to the payers. Additionally, Protech uses unique, efficient delivery cost models and technology to change the way in which home medical equipment is delivered to the growing aging U.S. population. This segment of the market, known as the durable medical equipment or DME providers, is estimated to approximately $60 billion. This is underlined by the fact that over 10,000 people in the U.S. turn 65 every day for the next 15 years. This is our core market. We have continued to experience increased patient demand for respiratory equipment, including ventilators and oxygen concentrators as well as our CPAP resupply and other supplies business, which remains extremely healthy into 2021. Our resupply model is built on proactively interacting with our patients to ensure we are refreshing their supplies as needed. We cannot predict the duration of the COVID-19 crisis, but we have ensured our inventory levels are well aligned with the increased demand, and we are well prepared to seize on any future increase in demand should it occur. There are very few companies like Protech that have the balance sheet, scale and competitive advantages that we have, including those from technology and logistics to benefit from such structural changes that have come from previous reimbursement cuts and now the COVID-19 pandemic. I would now like to review with you the 3 components of our growth strategy. First, we are laser-focused on capturing market share economically and profitably. Our industry growth rate is about 3% to 5% per year. However, we believe we can continue to achieve well more than double the industry growth rate by focusing on significantly increasing our market share in key target regions within the markets we serve as well as opening up new markets. To this point, as Hardik mentioned, we have closed on Mayhugh's Medical Equipment. Mayhugh's represents our entrance into Florida, and we will quickly begin to scale our exposure in the state organically whilst looking at additional acquisition opportunities on an ongoing basis. Secondly, we continue to lead the industry in technology deployment and our use of data mining tools to drive efficiencies and profitability. An example would be our robust subscription-based model for resupply, which provides meaningful revenue synergies for us on the acquisition front. A patient's ability to order a piece of equipment, a service call or other ancillary option via the touch of a button is where the industry is headed. We have made significant investments in developing these tools, and we'll continue to invest in them, continue to maintain our technological advantages over our competitors. Providing exceptional service to our patients through technology will continue to separate us from our competitors who are simply unable to implement technology-based solutions due to their lack of scale and financial capabilities. The third component of our growth strategy is acquisitions. With our robust balance sheet, we have the ability to pull the trigger when the right opportunity presents itself and expect to see a dramatic increase in our acquisition program, with a focus on potentially larger acquisitions in both geographies where we currently operate as well as opening new markets. In terms of our acquisition strategy, we are looking for companies with stable generation of revenue of $5 million to $20 million; consistent annual EBITDA margins between 10% to 20% plus; and large distribution volumes, which can be leveraged for technology improvement. Furthermore, we are also looking for what we consider to be transformational-type acquisitions that can meaningfully move the needle for us across the board if the right opportunity shall present itself. I'm very optimistic we have the ability to close impactful deals in the near to medium term. And given the current landscape of the home health care industry, our well-defined, three-pronged strategy and financial position, we will continue to propel our company towards sustained financial growth and continued profitability. On the capital markets front, we have had a busy year, including accomplishing many milestones. Firstly, we listed on the OTCQX best market in June, which provided us efficient, cost-effective access to the U.S. capital markets. In August, we obtained our DTC eligibility to create a seamless process of trading and enhanced liquidity of the company's common shares in the United States over time. On the heels of our OTCQX listing and DTC eligibility, we were active in opening the dialogue with U.S. investors as we attended 6 investor conferences to close out 2020, and we're very excited to see the level of interest from quality institutional investors. We have also remained active in Canada, holding virtual investor roadshows. And I am thrilled to announce the addition of 3 new research analysts covering Protech, including Raymond James, Echelon Wealth and Leede Jones Gable. Most recently, we announced we have applied to list on the NASDAQ and believe this represents the culmination of our team's hard work and the patience of our loyal shareholder base. We believe this will be the tipping point of our company's exposure in North America and are thrilled to make this important step as a company. We will be very active with the investor community on both sides of the borders through 2021 and look forward to keeping everyone updated as to conferences we will be attending. Finally, at this time, we are once again revising our growth trajectory upwards. We now estimate within 1 year $175 million in run rate revenue, with adjusted EBITDA margins above 22%. And within 3 to 5 years, over $300 million in revenue with 25% plus adjusted EBITDA margins. Although there is still much work to be done to realize all of our goals, we are extremely excited with where our company sits as of today and see on a daily basis, the tremendous opportunity that exists to further our footprint, unlock operational efficiencies and drive patient satisfaction. With continued execution, we believe we can lower operational costs by offering a better patient experience for our more than 120,000 patients that we care for. Once again, I would like to take a moment to thank the entire Protech team for its tireless efforts and its stakeholders for all their continued support.
[Operator Instructions] Our first question comes from Doug Cooper of Beacon Securities.
Congratulations on a successful year. Can you just confirm what you just said? I'm not sure I missed the time line. You said that your target's $175 million in revenue with the EBITDA margin above 22%. What's the timeline on that?
A run rate and that within 1 year.
Run rate sort of with like 12 months from today, is that right?
$175 million. Yes, yes. Headed into 2022.
Okay. So that assumes -- I would assume some acquisitions, right?
Absolutely, yes. We're -- with our robust pipeline we have now in that -- in the balance sheet, we believe that we could seize upon those opportunities and really grow exponentially this year.
Okay. Just on the acquisition side, you mentioned you sort of target -- your sweet spot, if you will, is sort of between 5 and 10 -- excuse me, between $5 million and $20 million of revenue outside of any potential transformational. We know from the landscape in the U.S. in the DME market, there's probably hundreds or thousands of companies that fit in that space. I'm just trying to put things in perspective of the DME space in general and where you stand in it. If you take a look at AdaptHealth obviously now and Aprea potentially going public here, both of those are multimillion -- excuse me, multibillion revenue companies, they need bigger numbers to move the needle, much like you guys need sort of an increasing numbers to move their needle. How many companies do you think are in your category of above USD 100 million in revenue?
Yes. So to our knowledge in that if you take out kind of the top 5, 6 providers, which would all be over probably $600 million, say, probably less than 10. I mean we think we could potentially be in the top 5 from kind of our market research out there, especially for companies that are in the space that we're in, being home respiratory services. So somewhere in that 5 to 10 range is our estimation.
Right. And based on the numbers that you put out in the press release today on the back of the acquisition in Florida, and congratulations on closing that, based on the close of today, you're in the neighborhood of trading just under 8x this year's EBITDA versus -- what do you think you obviously paid in and around for the Florida one today? Is that the type of multiple you think you can continue to arbitrage?
This is Hardik here. We do believe that we can continue to get deals here in the 4 to 6.5 EBITDA range. As far as the arbitrage goes, as you can see from a valuation point of view, we still think we are about 30%, 45% discount to what our peers are being trading at. So I think there's definitely a future opportunity from an ARPU standpoint of view. But even at taking our current valuation, there is still enough arbitrage to continue doing what we are doing.
Okay. And my last one, Florida, a new state for you. Obviously, an aging population base in Florida. How much opportunity do you see in that state to leverage off of the little one you just made?
Yes. So speaking to the owner throughout the transaction in that, he's not had the financial resources to invest in expanding throughout the state in that. So -- but we've got a clear plan at this point in that, that we're going to execute on in that and take advantage of these opportunities and that to be able to expand, especially throughout the Central Florida and Northern Florida just to get started. So we feel like we've pretty much got the whole state open to us at this point.
Great. That's it for me. Congratulations.
Thank you.
[Operator Instructions] Our next question comes from Stefan Quenneville of Echelon Capital Markets.
I also appreciate the shout out in your prepared remarks. I had a question also about the industry dynamics. Obviously, the big national players have been in some activity there. What are those -- what does that mean for you guys? Does it provide any opportunities or threats to your current business? And also, what do you think it's signaling about the strength in the industry? Are these the big deal between AeroCare and AdaptHealth and then taking on some meaningful debt to do that? Does that signal that they're much more comfortable with the reimbursement dynamics in the industry? Or any other thoughts you might have?
Yes. I mean as far as the reimbursement in that, we feel that, that's really big for our company in that. We really -- also feel that it's gone unrecognized, and that really in the share price when we announced that to really derisk us from the foreseeable future for future cuts, and that is a really big thing. It's also going to allow us to expand in that without having to worry about Medicare contracts for those product categories in that, that were all removed, which was virtually all of Protech's revenue. So that's another a clear path that we have forward once we get beyond this pandemic and we're able to expand our sales force. We believe that the door is wide open for us for organic opportunities.
Stefan, was there another question in the beginning of your comment?
Yes. Well, I was just wondering if there's any opportunities that arise. Obviously, with 2 big players emerging like that, there's obviously going to be some synergies and maybe some disruption to their business that they try and integrate in such a big deal. Does that provide you guys with any opportunities? And then I just had another question not related to that, about your resupply business. Could you just give us some meat around what your base resupply business looks like in terms of frequency of reordering on an annual basis and maybe ticket size, average ticket size? And how that compares to the recent acquisitions you've made? And sort of what kind of parameters for improvement on those numbers could you be looking at once they get integrated?
Sure. So on the opportunity as a merger of -- or the acquisition of AeroCare by Adapt, I think it does open up some opportunity for us. We don't know, of course, what their strategy in terms of acquisition is. We would think that given the combined entity size, they might not look at certain acquisitions that could be very attractive to us from a size point of view. So from that perspective, we feel we could benefit from there -- that -- apart from that as an overall company and their operations. We don't see how that would affect us in one way or another. As far as the resupply, the frequency is usually once a quarter, so 4x a year. That's if a compliant patient wants to order in a really just way, that's usually what the frequency is. Most insurance companies will reimburse for that particular life cycle or ordering cycle. And as far as tickets go, we usually don't share that micro level metrics. That has some industry competitive value to it. So we don't prefer sharing that.
Our next question comes from Michael Freeman of Raymond James.
This is in lieu of Rahul being here. My first question is wondering about integration time lines. I'm curious how you are seeing your speed to integrate newly acquired companies change from acquisition to acquisition and how you might be improving some new companies to new company?
Yes. So as far as our integration time line in that, we're still on track with that 1 to 2 quarters, as we've previously stated. We've actually added resources in that along those lines to make sure that we can continue that pace in that of integrating these companies. We're -- we firmly believe in our capabilities of integration in that. That's been part of the turnaround story here, is really building an infrastructure in that, that will allow us and that to quickly integrate companies that we acquire.
And I'll just add to Greg, there are certain elements that gets integrated extremely quickly, and there are some that would be spread across the couple of quarters that Greg mentioned. So there are things that get onto our platform extremely quickly post acquisition.
I see. And how would you view the recent Florida transaction? Would this be a quick integration or a 1 to 2 quarters?
Yes, I would think the Florida one would be somewhere in between there and that probably one full quarter to maybe going a little bit into the second quarter. As Hardik mentioned in that, some things happen quickly in that, such as accounting and finance and human resource purchasing, all the kind of what we quote as the low-hanging fruit of compliance and things. I mean that all relatively happens in the first 30 to 45 days, some of it sooner. When we get into switching over to one database or getting the resupply patients onto our platform in that, those are the things that tend to take a little bit longer. But probably, this one will fall right in the middle there.
Got you. Excellent. That's really helpful. My second question is you mentioned you guys are on the lookout for transformational-type acquisitions beyond the sort of acquisitions that you've been doing like the one you did today. What do you think about when you say the word transformational when it comes to an acquisition?
Yes, so when we're talking transformational, probably talking something above $25 million or something, definitely probably closer to $50 million plus. There are companies out there like that. And that's what we look at as transformational, a company that's in multiple states, multiple locations.
Our next question comes from Dick Ryan of Clear Securities.
Greg, I want to try the filing delay with the NASDAQ uplisting. Are there any implications with the application given the delay?
The delay with -- I'm sorry, I couldn't hear the first part of your question.
Are there any implications with your NASDAQ application due to the delay in filing that you had last week?
No.
Okay. And when -- can you give a potential time line for the uplisting kind of ballpark? What you might be expecting there?
Yes, we think it's going to be in the first half of the year here, likely sooner in that should everything align and we get our forms in. We checked most of the boxes and that needed to be checked. We've added a Board member. We have a few other things, administrative-type things that have to be done. So once we get in the queue with NASDAQ, it should happen pretty quickly in that. That's -- we had announced a couple of weeks ago, and that we fully anticipate it's going to be in the first half of 2021, if not sooner.
Okay. Okay. And once that's accomplished, and the next audited cycle, you have a much shorter time line to report. What -- is the capabilities of your current auditors able to meet that new -- the new time lines as you see them?
Sure. So at this point, we will still be considered as a dual listing inside of NASDAQ. And for those reasons, we would be still subjected to our Canadian filing time line. But if that changes to 90 days for some other reasons, we will definitely be positioned to do that.
Okay. Great. How much is mobility a part of the story now? And if it's -- if that's -- obviously, with the focus on respiratory side, if mobility becomes a smaller and smaller segment, what are the options for that business if were -- maybe it stays strategic, I'm not sure.
Yes. I mean right now, it's a very small percentage of the overall revenue. It's probably under 8% now considering the most recent transaction, but that's still a very robust business for us as far as profitability, and we are looking to expand that business in that we've actually just put some new processes in place and things and a lot of some different resources there to actually try to grow that side of the business.
This concludes the question-and-answer session. I would like to turn the conference back over to Greg Crawford for any closing remarks.
Thank you, operator, and thank you all for your participation today. As always, you can find us on the web at www.protechhomemedical, where we will be posting a transcript of this call and also our updated investor deck. On the site, you can also view some of the exciting products and developments discussed on this call. Thank you, and have a great day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.