Patient Home Monitoring Corp. (OTCPK:PHMZF) Q2 2016 Earnings Conference Call May 26, 2016 4:00 PM ET
Casey Hoyt – Chief Executive Officer
Todd Zehnder – Vice President-Finance
Russell Stanley – Mackie Research Capital
Ladies and gentlemen, welcome to the PHM Quarterly Conference Call. I would like to turn the call over to Casey Hoyt. Please go ahead sir.
Thank you for joining us on the call. My name is Casey Hoyt and I am the Chief Executive Officer of Patient Home Monitoring. Joining me on the call will be Todd Zehnder, VP of Finance, reviewing the financials for the quarter ending March 31, 2016.
Let me begin with an overview of PHM. PHM is a multi-skilled clinical services company, providing specialized care to rapidly growing segment of the U.S. population. Patients come to us with a wide variety of chronic illnesses that range from chronic obstructive pulmonary disorder, congestive heart failure to neuromuscular disease. We provide home sleep testing that goes to adjust patients that may have sleep apnea. A comorbidity of such illness is diabetes, hypertension and CHF.
Our respiratory services such as oxygen, nebulizers, ventilators, and sleep therapy maybe found in our home medical equipment business lines. Our complex rehab business addresses the neuromuscular disease population, giving those patients the ability to have the mobility they need to be active members of their communities and to increase their quality of life.
We offer a unique service called PARCC, post acute respiratory care collaborative care that helps advanced stage COPD patients breathe easier, carefully contributing to the reduction of readmission rates. Our original company provides a unique home coumadin testing program that offers physicians and patients the most supportive compliance program in the industry.
Most of PHM’s patients are on the baby boomer generation that represents 75 million Americans with multiple chronic illnesses. These patients consume significant healthcare services as they age. 11,000 of these baby boomers are charting 65 every day, which is hosting the U.S. to embrace more cost efficient home-based programs like those that PHM offers.
Last quarter was a reset quarter for us. We experienced and adapted to changes and reimbursement in our high margin non-invasive ventilation product line. PHM has used this as an opportunity to increase its sales volume in this sector while smaller independent businesses are exiting the unique market segment. An example of our success is the most recently announced acquisition of our bolt-on at the Midwest area complementing the patient age territory.
Additionally, we have identified another opportunity whereby with no capital, we’re reviewing charts on a number of patients that could one day become NIV patients to PHM, very early but nevertheless potential great fees for the business here. In the last quarter, we also finalized our plan for restructuring. This is on track and we anticipate the last activities to be completed by the end of this year.
Centralization and business integration efforts are underway and is already yielding benefits through our creation of task forces that have the focus on the job at hand. The first and most important is converting our receivables into cash. In performing our step by step reviews, we came to the decision to close down Logimedix, which is a business that provided special programs for Medicare Part B programs to pharmacies across the U.S.
This was not a core business unit and it was a distraction from higher margin faster growing product lines. This has caused our second quarter financials to be negatively impacted. For the long-term, it is the right business decision. Our focus remains on the development and the preservation of our physician relationships nationwide that lead to the treatment of their patients inside the home. The impact of restructuring and the impact of the reimbursement changes has currently been felt and while the majority of it is behind us, we still have much opportunity to capture through the efforts of our integration.
Looking forward, we expect to once again build consecutive quarters of record revenue and EBITDA growth. However, it will come from a different strategy, one that is primarily organic. PHM continues to have a two prong growth strategy. The first prong is organic growth through geographic and product expansion along with selling additional services through our existing patient database. And the second prong continues to be on the strategic acquisition front, the majority from now on being more bolt-on in nature.
On the organic growth front, we are focusing on geographic growth, what was the strategy we have used at BioMed. We continue to identify areas around the country, where the services we offer are in high demand with limited competition. We have a cost centric approach to launching in the new area. As revenues grow, we also grow our footprint. While there is a small initial investment in cash flow to launch a new geography within a few quarters, we turn cash flow positive in that same geographic location.
On the acquisition and additional services prong, PHM continues to work with and evaluate companies to acquire favorable prices for their patient databases and technical expertise. The acquisitions were exploring a generally small asset purchases in our existing geographies, whereas small investment has equipped in profitable return. This year-to-date, we have closed one acquisition and are in active negotiations with others. We are well positioned both operationally and financially for growth over the coming quarters with a vision to be the leader in providing hospital quality care inside the patient’s home. As such that the current PHM platform is strong, well capitalized and has the platform for growth.
To provide an overview of the quarter ending March 31, 2016, I’m going to turn it over to Todd Zehnder. Todd?
All right, thanks, Casey. In reviewing the financial results, all figures are going to be reported in Canadian dollars. The quarter ended March 31, 2016 was PHM’s second fiscal quarter. We generated revenue of approximately $34 million for the second fiscal quarter. In terms on year-over-year growth, PHM generated an increase of about 159% in revenue for the quarter.
Adjusted EBITDA, which excludes the depreciation and amortization, stock-based comp and changes in financial derivatives, totaled negative $4.7 million for the quarter. We incurred a large loss for the ongoing closing of Logimedix during the quarter of which a large portion impacted EBITDA; the majority of those items were in our bad debt expense and other expense line items.
Additional pressure on our bottom line came from higher SG&A expenses versus prior quarters. The primary drivers of these costs are in the bad debt expense as well as salaries and professional fees. As we have indicated in prior calls, there is a large push to integrate the various businesses that have been rolled up over the last few years, and much of that work has begun over the last couple of quarters. With that project, there are additional G&A costs to perform these tasks.
Additionally, as we have worked through some of these items, it has been determined that part of our AR needs to be written off as we have become more diligent in our collection efforts including our denied and audited claims. As we work through the remaining processes, we will collect to write-off more of these items. And as Casey mentioned, we have an active task force that is all about collecting our outstanding AR.
We expect that this will yield more cash in the door, but could also come with more bad debt expenses we saw this quarter. It is also important to note that as macro tailwinds in the healthcare market push healthcare costs on to the patient through raising deductibles, PHM periodically will update its bad debt expense to accurately report revenue and cash flow. On the wages front, we are in the process of assessing all costs of all business units and coming up with a plan to decrease that line item over time. The fix is have to come first and we continue to work that process.
PHM has a solid balance sheet with approximately $16 million in cash at quarter-end over $61 million of total current assets and $35 million of short-term liabilities. Of those short-term liabilities, we settled approximately $12 million of that amount after quarter-end through the issuance of stock in settling the deferred purchase price related to our Patient-Aids acquisition. We have the cash we need to continue to execute our business and potentially make small tuck-in asset acquisitions like we did in the current quarter.
[Indiscernible] cash flow, our management team focuses on cash flow generated directly from operations excluding adjustments made for IFRS requirements and stock-based comp. Year-to-date, cash flow generated from operations was $11.1 million, an increase of 72% compared to the previous year-to-date 2015. The full results of our Q2 are available on SEDAR. And with that, I’ll turn the call back to Casey.
Thank you, Todd. We are very optimistic about the future. We continue to see our total sales volume increase after taking into account the effects of the NIV cuts and Logimedix. And we have made the necessary changes to adapt and grow in our market. There are several exciting growth opportunities in our existing business division we are working to capture. And there are new product lines we are testing in beta markets to determine whether we should invest in the national rollout. We continue to see acquisition opportunities available for purchase at favorable prices that have a quick return on cash invested. I’m especially looking forward to the upcoming quarters to show investors the success we’re having after our last quarter reset.
Also we’ve heard your calls for a better communication channel are simply more communications as to the work that is being done here. I pass Jay Hoffman, Chief Strategy Officer, to be the primary contact for the investor community. With this change, a better connection to the senior staff, better guidance and an insight as to the activities and regular updates through press releases that will highlight important hires will be done. As a quick note, we will be presenting at the Paradigm Capital Healthcare Conference in Montreal, Canada in June.
Let me end this portion of the call with these thoughts. My passion for this company grows stronger with each day. Our company culture and our management team are embracing our changes. We continue to help each other around the country as we develop and implement our best practices. These are very exciting times for PHM. We are perfectly positioned to be one of the most premier healthcare companies in the nation and one of the fastest growing marketplaces. I’m very much looking forward to the day we often look back and reflect on our accomplishment.
With that being said I think that covers what we wanted to communicate to our shareholders. Now we can open it up for questions. Thank you very much.
[Operator Instructions] And your first question comes from the line of Russell Stanley [Mackie Research Capital]. Please proceed with your questions.
Good afternoon guys.
Hey, Russ, how are you doing?
Good. Just, I guess I’ll start on gross margins, actually saw some sequential improvement in the quarter despite the reimbursement rate cuts to the non-invasive events. Just wondering, can you provide some color I guess on what’s driving that.
Yes, Russ. Looking at it sequentially, our margins went from about 65% in the first quarter to about 69% this quarter. And like you mentioned that’s in the phase of having the vent cuts aheadofthis quarter. And what’s really driving that is, as we mentioned to investment community over the last couple of quarters, we’re really – through our integration effort, taking a look at all businesses and products being sold, and we’re really to focus on the highest margin product.
So two things this quarter, one, without shutting down Logimedix and not having that revenue stream which is a low margin business, that’s going to help the overall corporate profile. And then what started really in kind of the late fourth quarter early first quarter for us was trying to phase out we refer to as vent metal some of the very low margin products such as wheelchairs or walkers or commode, those type items, and really focusing on our best products, which is the respiratory line for the most part. You’re seeing the impact of that even in the phase of the vent cutthat we took this quarter. So we’re pretty happy about that.
That’s great. And then just I guess a question on your outlook for the second half of the year with reference to the – to your update provided in late March, has your outlook changed in terms of your expectation for top line growth in Q3 and Q4?
I mean, Russ, we’re executing as planned. We predict that you’re going to see a spike in sales or reduction in expenses and an increase in margins here in the upcoming quarters. We’re not done yet unfortunately, but we’re still feeling some of the positive effects of our integration here in this quarter.
Great. And then just one more if I could sneak it in and go, I’ll get back in the queue. With respect to the integration efforts, I know it’s an ongoing process, but if I understood, you’re right Casey, are you kind of expecting to be done or really close to done at the end of the fiscal year. Is that correct?
Yes, that’s correct.
That’s great guys, thanks. I’ll get back in the queue.
And there are no further audio questions at this time.
Okay. We appreciate everybody joining us today and we look forward to talking to you guys one on one. Thanks for your time.
Ladies and gentlemen, that does conclude today’s conference call. In our list of qualified callers, if you have any further questions, please e-mail them to firstname.lastname@example.org. We thank you for your participation and you may now disconnect your lines.
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