Protech Home Medical Corp. (PTQQF) CEO Greg Crawford on Q1 2021 Results - Earnings Call Transcript

Protech Home Medical Corp. (PTQQF) Q1 2021 Earnings Conference Call March 2, 2021 10:00 AM ET

Company Participants

Greg Crawford - Chairman and CEO

Hardik Mehta - CFO

Conference Call Participants

Rahul Sarugaser - Raymond James

Doug Cooper - Beacon Securities

Justin Keywood - Stiefel, GMP

Paul Stewardson - Industrial Alliance

Tania Gonsalves - Canaccord

Operator

Thank you for standing by. This is the conference operator. Welcome to the First Quarter Fiscal 2021 Financial Results Conference Call and webcast for Protech Home Medical. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there’ll be an opportunity for analysts to ask questions. [Operator Instructions]

We remind you that the 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.

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.

Before we get started, I would like to take a moment to express my sheer enthusiasm for where Protech sits as an organization as of today. It is clear to me that we are in the strongest position we have ever been in operationally, financially, and in regard to our positioning within the industry. We have readied our infrastructure platform to allow us to aggressively lather on revenue in order to scale aggressively as we seek to become a national leader in respiratory care across the United States.

For those of you new to our company, Protech specializes an end-to-end respiratory care utilizing our interconnected healthcare platform, which leverages a sophisticated technology infrastructure and strong regional distribution footprint to streamline all phases of the delivery process.

Known for our high-touch service model, ongoing patient education in the home and through our telehealth platform, we are able to operate a successful patient centric ecosystem throughout the organization. The white glove approach we provide 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 70,000 referring physicians.

On this call, I will outline our core business which continues to be robust with a focus on our record breaking first quarter fiscal 2021 results and provide you with our recently updated outlook for 2021. Significant momentum continued across the business in the first quarter driven by over 500 healthcare professionals commitment to excellence in driving superior patient care and compliance.

Our team is focused 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. The robust infrastructure we have in place today is a direct testament to the hard work of our team to craft a patient centric, scalable model, which can be leveraged in new and existing markets.

I am extremely excited to share we experienced a significant amount of growth in our recurring revenue base during the first quarter of 2021 with recurring revenue now representing over 75% of our overall revenue. This increase in our recurring revenue provides us further stability and consistency as we look to our growth outlook, business model and financial reporting.

It is also important to note, this figure does not yet include a full quarter of SleepWell, a business with a high recurring revenue base, and thus we expect this number to grow during the remainder of the year.

One of the mini tailwinds propelling our industry comes on the regulatory front, as many of you know on the call. In late October CMS the Centers for Medicare & Medicaid Services cancelled the 2021 competitive bidding program for 13 product categories. The cancellation of this program has provided us a clear margin outlook across our product mix and ensured our patient stability.

The CMS stated that the program did not achieve the expected savings, which we believe the reimbursement rates have likely near to floor and there is no Medicare reimbursement rate cut risk for the foreseeable future.

We are proud with the results displayed in the first quarter. Once again, seeing the consistency of our model in full display with EBITDA margins remaining above 22%. We have seen our business in Q2 2021 remain extremely 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 team we have first rate infrastructure and clear regulatory outlook, we are in an excellent position to add and integrate turnkey respiratory companies to our platform with ease. This gives us the opportunity to scale our model at a rapid pace, and we are truly at an inflection point, which is poised for growth.

Moreover, we have significant plans regarding our organic growth initiatives. As we match our rapid growth with the right branding message across our organization to drive brand equity in the long-term. Our company is transforming into a national home respiratory care provider in the U.S. And we must ensure our brand matches this transformation. We look forward to sharing our vision with investors in the near-term.

With that background, I’d like to hand the call over to Hardik to discuss our first quarter 2021 financial results.

Hardik Mehta

Thanks, Greg.

Yesterday evening, we announced our first quarter financial results for fiscal 2021 representing the three months ended December 31, 2020. In reviewing the first quarter of fiscal 2021 numbers, please note that all financial values are now in U.S. dollars as compared to Canadian dollars, which was used in the past and the full results are available on SEDAR. This change in currency will allow our investors to make constant currency comparisons on a go-forward basis plus removing the foreign exchange impact from our financial reporting.

Here are some key highlights. In the first quarter of fiscal 2021 Protech completed 76,691 setups or deliveries compared to 62,999 in the corresponding period last year, an increase of 22%. In the first quarter of fiscal 2021 Protech completed 34,996 respiratory resupply setups or deliveries compared to 13,439 in the corresponding period last year, an increase of 160% not factoring any acquisitions. Our same store resupply orders have grown more than 85% period-over-period, which showcases the results are our investments in a resupply program.

The company generated revenue of $22.8 million in first quarter of fiscal 2021 up 32% from first quarter of fiscal 2020. Not factoring acquisitions, the organic growth period-over-period was 11%. The company’s average recurring revenue over the last 12 months at the end of first quarter fiscal 2021 grew to 75% and is expected to further grow with addition of SleepWell.

Operating expense for the first quarter of fiscal 2021 was 50.7% compared to first quarter of fiscal 2020 of 56.2%. A substantial margin improvement resulting from scaling on our existing platform.

Adjusted EBITDA for the first quarter of fiscal 2021 was $5.1 million, compared to $3.3 million for the first quarter of fiscal 2020, representing a 53% increase year-over-year. Adjusted EBITDA margin for first quarter of fiscal 2021 increased to 22.5% compared to 19.4% for the first quarter of fiscal 2020.

Cash flow from operations for the three months ending December 2020 was $2.8 million compared to $3.6 million in the corresponding period ending December 2019. The changes were primarily due to changes in working capital period-over-period.

Current assets totaled more than $41.2 million compared to $29.5 million in net short-term liabilities, demonstrating continuing strength in our liquidity. At the end of first quarter fiscal 2021 cash balance was $23.6 million compared to $29.2 million at fiscal year-end 2020 primarily due to cash paid for acquisitions. At the end of first quarter fiscal 2021, the company has an undrawn revolving credit facility of $20 million.

We have been very pleased with our operating performance through the first quarter and see similar trends into the second quarter. With favorable market conditions, infrastructure ready to scale quickly and a flexible financial position, we are poised to have a very busy year as it relates to our M&A program and organic growth initiatives.

Broadly speaking, our market, known as the Durable Medical Equipment or DME providers, is estimated to provide $84 billion in 2028. This, underlined by the fact that over 10,000 people in the U.S. will turn 65 every day for the next 15 years and is being further advanced by the need for at-home care to alleviate stress on the traditional healthcare system.

Additionally, I'm pleased to report, we have recently completed our integration of SleepWell. As a reminder, SleepWell is a leader in sleep services in the state of Georgia, with significant penetration in the South Eastern corridor of the region. SleepWell added $10 million in revenue, $2.5 million in adjusted EBITDA and added five new locations over 15,000 patients.

In February, we acquired Mayhugh's Medical Equipment, a leader in respiratory home care services industry in the Northern Florida. Mayhugh added over 10,000 active patients and serves as our entrance into Florida, our 11th U.S. state. Mayhugh gives Protech access to Jacksonville, an attractive metro hub, in which it will leverage its existing infrastructure to create significant cross-selling and patient growth opportunities. We look forward to working on organic and inorganic opportunities to grow our presence in this attractive state.

In closing, we have an extremely active M&A pipeline and plan to continue to identify larger revenue 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 ability to quickly increase our scale. With the cash on hand and an untapped $20 million credit facility, we strongly believe in our ability to add substantial revenue at a fast pace.

Thank you. And with that update, I will turn the call back to Greg.

Greg Crawford

Thanks Hardik.

Our team continues to work extremely hard in 2021 to provide superior patient care, which is what drives our patient-centric ecosystem across the organization. Since the pandemic began, our team has been focused on finding the optimal ways to grow relationships with referral sources and we are seeing the benefits of this across the organization.

Our efforts of communicating to physicians and patients through our technology platforms has certainly paid off. We have been nimble and proactive as it comes to our approach with patients, giving us the ability to pivot 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 infrastructure platform is prime for substantial revenue growth with ongoing integration of acquired businesses, a focus for us, as we continue to produce the financial results that we had expected.

As Hardik mentioned, we acquired Mayhugh's Medical Equipment in February. Integration is well underway and we are excited to use this acquisition as a pivotal launching point for us in the Florida marketplace where we will bring our operational knowledge and acquisitive strategy to expand quickly.

The staff at Mayhugh delivers on a high-touch service model aligned with our model and is continually educating their patient base to ensure strong compliance of equipment. In addition, Mayhugh gave us the ability to immediately add over 5,000 patients from its patient base to our existing subscription-based resupply program.

As we look at our sleep business, we have seen a steady pickup into 2021 and are hopeful to see this business surpass historical levels as we move through 2021. This is a keen area of focus for us, in particular, as we see broader trends that we expect to drive substantial growth in this area. According to the American Sleep Apnea Association, sleep disorders, including sleep apnea, have become a significant health issue in the United States. It is estimated that 22 million Americans suffer from sleep apnea with 80% of the cases of moderate and severe obstructive sleep apnea undiagnosed.

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 healthcare and telehealth are vital to our overall healthcare system and we are capturing this dramatic acceleration, which is represented by our strong operating performance and solid organic growth.

It is worth noting, we expect, as the pandemic and related restrictions ease, we can achieve better organic growth rates, driven by acquiring additional sales talent across our markets. We believe that physicians are increasingly choosing to embrace the efficiencies of treating more people in the home and see this as a foundational trend in our industry.

Subsequent to the end of fiscal Q1, our revenue run rate now sits at over $100 million and I am pleased that we were able to achieve the revenue milestone significantly 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 outcome and drives patient engagement. Moreover, we can drive early interventions, reduce hospitalizations, and monitor treatment plan effectiveness, which all serves as a benefit to payers and physicians.

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 Q2 2021. Our resupply model is built on proactively interacting with our patients to ensure we are refreshing their supplies as needed.

I would now like to review with you the three components of our growth strategy. First, we are laser-focused on capturing market share, economically and profitably. Our industry growth rate is about 5% to 6% per year. However, we believe we can continue to significantly outpace 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.

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 this industry is headed.

We have made significant investments in developing these tools and we'll continue to invest in them to 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 turnkey respiratory operations that can be seamlessly integrated into our highly scalable platform. Our focus is multifaceted. We look at companies with stable revenue generation of $5 million to $20 million, consistent annual EBITDA margins between 10% to 20%-plus and large distribution volume, which can be leveraged for technology improvement.

Secondly, we are also looking for what we consider to be transformational-type acquisitions that can include multi-state operators with substantial revenue and EBITDA generation, which would meaningfully move the needle for us across the board if the right opportunity shall present itself.

We have a platform that is ready to be scaled immediately and I am very optimistic we have the ability to close impactful deals in the near to medium term in new and existing markets, given the current landscape of the home healthcare industry. We are ready to make the leap from regional to national respiratory provider and have the tools needed to execute our path forward.

On the capital markets front, we have remained very active in garnering awareness for our growing company. We have utilized our OTCQX best market listing as a springboard for dialog with U.S.-based institutional investors and have had much early success in broadening our shareholder base. We also attended one institutional investor conference to start 2021 and we'll be active in attending additional conferences as the year progresses.

Importantly, we announced we have applied to list on the NASDAQ and are on track to complete within the first half of 2021. This is a transformational move for the company as it relates to our objective of building awareness and unlocking shareholder value. Alongside this anticipated listing, we are now reporting in U.S. dollars, which we feel is an important step in the evolution of our company, and will assist investors in making the comparison on a constant currency basis. We will be very active with the investor community on both sides of the border throughout 2021 and look forward to keeping everyone updated as to conferences we will be attending.

Finally, at this time, we are confirming our recently, upwardly revised growth trajectory of $135 million run rate revenue with adjusted EBITDA margins consistently above 22% within one year; and within three to five years, over $250 million revenue with a 25%-plus adjusted EBITDA margin. Our company is at a true inflection point. We have a highly scalable model primed for rapid growth and interconnected healthcare platform allowing for strong patient engagement across the ecosystem and tremendous tailwinds propelling the industry. With all this, we could not be more excited for what the future holds for Protech and our more than 120,000 patients 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.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Rahul Sarugaser of Raymond James. Please go ahead.

Rahul Sarugaser

Morning, Greg and Hardik. Thanks so much for including us in the question queue. So my first question is really on the organic growth. So we saw, as you noted, a 5% organic growth, and if I'm not correct, it looks like much of that was driven by the material growth in respiratory equipment setups. So I just wanted to get some clarity on how we should think about organic growth going forward with this sort of a kind of a one-off blip or do you see durability in that?

Greg Crawford

So I think we did have some really good growth. Q4 tends to have a little bit more robust resupply program, especially heading into the first quarter of the year, which is the deductible season. However, having said that, there are other things that are kind of irons in the fire that we hope that it will continue to give us this kind of growth into 2021. The sleep labs are opening up, so we are hopeful with vaccine roll out and stuff.

Our revenue on the setup piece, which has been a little bit of a drag would pick up in 2021. The respiratory resupply would continue to grow if it doesn’t necessarily grow at a steep rate as it has in Q4, which is kind of cyclical. It should compensate for some of that. So to say that we would have a similar organic growth. We are certainly hopeful for that.

Rahul Sarugaser

Great, thanks.

Greg Crawford

I've also kind of piggyback off Hardik and mentioned in that the expansion of our sales force has also been significantly slowed down throughout 2020, in that as most of our sales reps have been locked out of their accounts due to the pandemic and that so we’re hoping when we get into the second half of calendar 2021, we’re able to considerably expand our sales force in that which we plan on that will drive part of our organic growth.

Rahul Sarugaser

Terrific. That is indeed very helpful. So now switching to the inorganic growth story. You clearly you've outlined what the parameters are for the target, the target businesses in your target space. Do you - are you seeing compression in the multiples? Or are you seeing that you’re able to still continue to acquire businesses that the stock of multiples from the works.

Greg Crawford

We are not necessarily seeing compressions in the multiples if something we are probably seeing some increases. Again, we've been very focused the way we approach acquisitions, we try to homegrown our deals and we've kind of continued to follow that path. We don't certainly see that there will be compressions on the multiple going forward. We do not see that. And we don’t expect that to happen.

Operator

Our next question comes from Doug Cooper of Beacon Securities. Please go ahead.

Doug Cooper

First of all, just to continue on the organic growth to 11% growth. Is it any one particular product that stood out more than others - that you see pop or oxygen? Or maybe just a bit more granularity? And what do you think is, was a key driver of organic growth in the quarter?

Greg Crawford

Resupply has definitely been one of our great force for 2020. Again, as similar to what I said earlier, some of our setups were down because of COVID situation, but then we were able to focus on to our energies on the resupply platform that we were building and harnessing some growth out of that. So that definitely contributed to that. We also had some, some good oxygen and ventilators at different points of time in 2020, also having some growth as a result of the early panic around COVID.

Doug Cooper

So you're seeing a…

Hardik Mehta

Yes, I'll also add, Doug, we've seen a really nice increase in our ventilation business in that two in calendar 2020. And then also going into 2021 here. So we're pretty excited about that. And we think that is no doubt fueled in that by the service side of the business, and that that we have for our clinical follow-up with the programs that we have in place.

Doug Cooper

Okay, great. The $135 million revenue target through within 12 months. Coupled with, I guess, the Mayhew, acquisition, you're sort of on a run rate right now last quarter annualized of around 100, growth rate as you running 10% and 11%. So it’s $110 million. So you’d need about $20 million to $25 million of revenue from acquisitions. Is that fair?

Greg Crawford

Is that target? Yes, I mean, that's about what we need in that. I mean, we think right now was the balance sheet that we have the cash, the credit line kind of our pipeline, and that that's there, and that that we think we can close, somewhere between probably $35 million and $45 million worth of revenue.

Doug Cooper

Okay. And you have got that's in the pipeline, I'm assuming in front of you.

Greg Crawford

Yes. That’s, I mean, when we classify our pipeline, those are things that we’re officially working on not just where we signed NDA is. So those are things that are actually in due diligence at some point.

Doug Cooper

Okay. You mentioned the good news, you want to sort of become a national player versus just a regional player in 11 states. Now, Jow many states would you need in your opinion to be a national player? Or is it not so much the states but covering the population? How do you define national?

Greg Crawford

Yes. So when we think national, and that I mean I think we would like to get it more half of the U.S. covered in that especially to fill in stakes around where we currently are, in that we feel there’s a lot of opportunity there now that the competitive bid program has been put on hold, especially when we get on the backside of this pandemic.

And we’re able to expand our Salesforce, which is something we’ve never had the luxury of doing. And that until the company kind of went through a transition and the turnaround, and then all of a sudden, we hit the pandemic, and that really kind of put the kind of put things on hold there and really slowed our sales efforts in that you had really kind of if you go back and look at 2019, we had grown about 9.6%. And that really happens in the second half of 2018. And then in 2020, we hit the pandemic, so but we’re still got a pretty good pace going right now.

Greg Crawford

Well, with the one of the biggest things in that for us, and that I think that could really propel us forward. And that is the Medicare competitive bid. And that's it's been put on hold for at least three years. They're having the ability to go out and not have to worry about contracts and further reimbursement cuts that bodes very well for us.

Doug Cooper

And just to be clear when you say 50% coverage is that by state by population?

Greg Crawford

By state.

Hardik Mehta

Okay. I guess, my last one, I just wanted to clarify the - in your notes and the financials, the subsequent events. The Mayhew, acquisition says the purchase price was $1.1 9 million of which 515,000 was paid in cash at closing 575 and holdbacks. That just the cash component, because the purchase price was closer to 5.8% was enough. Right.

So, of course the 5.8% was Canadian. Now we convert that into the U.S. So that's one factor. Yes, there’s just funky on the way accounting works the way we do it is kind of based off our enterprise value less all the that were assumed at closing. So the 1.1 million is more resembling of kind of purchase price less as you back.

Doug Cooper

Okay, so I'm just saying do you wish and some shares to make you as part of the closing? Or an all cash?

Hardik Mehta

No, it’s an all cash deal.

Doug Cooper

Isn’t all cash deal. So I just want to make sure I got my share count, right. Here closing period at the end of the quarter was $112.3 million. Is there been any touch the current base account as it stands today as well? Is that correct?

Hardik Mehta

Just rephrasing you're saying the reconciliation between the shares as of Q1, versus what were its right now the number of outstanding.

Doug Cooper

Correct.

Greg Crawford

Yes, there has been some water and exercise in the Q2.

Doug Cooper

To monetize that.

Greg Crawford

Yes, that’s the contributing factor.

Doug Cooper

And in the fully diluted share count, including the convertible debentures, just want to be clear. It's around $150 million. Is that correct? Between options, warrants and the convertible.

Hardik Mehta

Yes, approximately that yes.

Greg Crawford

Yes.

Operator

Our next question comes from Justin Keywood of Stiefel, GMP. Please go ahead.

Justin Keywood

And thank you for taking my call. Nice to see the margins are scale up with the higher sales in the quarter. I was hoping to get some additional color on the technology platform you mentioned and just if you're serving a large proportion of your customers through the technology platform. What exactly is this product and how do you see that contributing to organic growth going forward?

Greg Crawford

Yes. So we have different technology platforms that we use throughout the organization. We have our software in that, that runs our billing, all of our distribution, that's all interconnected. We also have different follow-up platforms that are used for our fleet and also now in our ventilation in that, that kind of automates all the follow-up programs and things like that.

So that's primary that some of the technology that we are using. We also have our telehealth platform. These really just create efficiencies throughout the organization in that, which is what's allowed us to scale quickly and then also and that has really driven a lot of this margin improvement that you've seen in that over the past, say six to eight quarters or so.

Justin Keywood

Okay. And in your pipeline for M&A, do you see any technology assets you could potentially acquire in bolstering that platform?

Hardik Mehta

We have looked at a few of those. Actually, we are in conversations with a couple of those as well. There is a play, it has to be strategic, though. It could be a combination of technology or a service provider.

Justin Keywood

Okay. And any indication on what the multiples might be for a technology asset versus the traditional lines of business you would be acquiring?

Hardik Mehta

That would be really hard to comment, but, of course, technology tends to trade at a substantially higher multiples, as you know - I'm sure, you know as an analyst. But they sort of - they don't trade in the DME multiples. Again, it comes down to whether it's a technology partner versus a service provider, which could have a different set of multiple. So it's kind of really hard to put a rate.

Justin Keywood

Understood. And then, just another question on your organic growth. I know there's been a few already, but just looking out and you mentioned the restrictions using and maybe it allows for more efficient sales processes and we have the vaccines coming online and there is also some increased investments in sales and marketing. I'm just wondering if you anticipate a transitionary period at all where the organic growth maybe moderates a bit before going back up or do you anticipate that it will remain pretty strong as it has been?

Greg Crawford

I think things will remain in that pretty close to where they are right now. And once we get on the backside of the pandemic, we think we're going to be able to scale that further. I mean, we're still seeing high demand for certain product categories in that, even throughout the pandemic. Some of that's fueled by the pandemic, some of that is just fueled in that by our availability of inventory versus some of the "smaller" mom and pops that do not have the inventory available.

Operator

Our next question comes from Paul Stewardson of Industrial Alliance. Please go ahead.

Paul Stewardson

Congrats on the quarter. I'm just calling on behalf of Chelsea Stellick. A question about - you kind of mentioned the continued SleepWell integration is positive for recurring revenue as a percentage of total. So can you give us a little more color on SleepWell recurring revenue versus Mayhugh recurring revenue? And in terms of looking at acquisitions down the road, is that something you're looking to get turnkey or more to scale up once you acquire it - sorry, excuse me, once you acquire it?

Hardik Mehta

Sure. So we are definitely not in a position to give you a very accurate response to how the recurring revenue trends. We do think that the SleepWell and Mayhugh will both add positively to the percentage. When we look at recurring revenue, we don't try to look at recurring revenue in a snapshot of time. We like to look at it, how it has evolved over a 12-month period.

So if you look at our historical disclosures, we - the last time we reported recurring revenue was back in, I think, at the end of fiscal year-end 2019. These things change over time and it takes a lot of effort - underlying effort, but they slowly and gradually change. We do expect that because we are focused on buying respiratory companies; that's our first primary focus. We are agnostic to having a particular product profile. But since we prefer respiratory companies, they tend to have a more recurring base model. So we do believe that this should evolve in a positive way going forward.

Paul Stewardson

And do you see sort of an upper limit on that, where it gets saturated? 75% is great, but can it - how much higher could it get?

Hardik Mehta

I mean, again, it depends on how much more revenue we add. If we become a $500 million revenue company and it well could be 90% of our revenue. But when you are a $100 million and growing, it's hard to put a cap. I don't think so it would be - again it - I won't put numbers and then come around and go wrong so.

Paul Stewardson

No, I understood that. That's all helpful. Thank you.

Greg Crawford

It stayed very consistent in that, around that 70% over the past eight to 12 quarters.

Hardik Mehta

Yes.

Paul Stewardson

Okay. Okay, yes, that's great. And then just finally in terms of the sleep business specifically, are there more acquisitions in that vertical, or do you - how do you see that evolving?

Hardik Mehta

Yes. We definitely see - we do see a ton of companies across the product spectrum and industry spectrum. But I would say that respiratory companies are definitely our focus. And we do have more of those in our pipeline where we are actively conversing.

Operator

Our next question comes from Tania Gonsalves of Canaccord. Please go ahead.

Tania Gonsalves

I wanted to ask about AdaptHealth's acquisition of AeroCare. Now that, that's closed, I wonder if it presents any opportunities or challenges for you guys. For instance, would they compete more broadly in certain states that you're in or as they're working on the integration, perhaps their service standards go down and it gives you the opportunity to steal some of their market share.

Greg Crawford

Yes, would be really tough to comment on that at this point. We know that for a fact and it reflects in our financials that our underlying business is very, very strong right now. We have - we compete with all the national competitors and all the smaller mom and pops and we've just really been laser-focused on providing our clinical services to our patients enrolling in our programs and physicians and that's what's been fueling our market share that we've been gaining.

Tania Gonsalves

And then I think this question was kind of asked already before, but wondering approximately how long does it take you post closing an acquisition to realize full synergies, both, from revenue to cross sales as well as cost synergies?

Greg Crawford

We typically look at it one to two full quarters and that's just depending on the transaction, not necessarily the size, but just depending if it's a distressed asset or if it's more turnkey, depends if it needs a lot of software integration too, but typically one to two full quarters.

Tania Gonsalves

Okay. And you mentioned building out the sales team now that we're coming out of the pandemic. Could you provide any color on how many sales people you currently have and where you would like to scale to?

Greg Crawford

Yes, so we approximately now in that are somewhere in the mid-40s or so in that we would definitely like to see that, in that, at least a 50% increase in that when we exit the calendar year that will really be based on the pandemic, though, and how things really start to open up within the geographical regions that we currently operate in.

Tania Gonsalves

Perfect. And, okay and then just last question from me here on the gross margin side of things. Coming out of the pandemic now I imagine the supply side of the business is easing a little bit. Do you expect any kind of gross margin expansion now that we have some clarity in terms of CMS pricing?

Hardik Mehta

We like to look at our gross margin in a historical last three, four quarters. I think if you average that out, I think that's where we expect to be. It - we might have a slight improvement, but we like to forecast based on what we have done in the last three quarters.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to Greg Crawford for any closing remarks.

Greg Crawford

Thank you, operator, and thank you all for your participation today. As always, you can find us on the web at www.protechhomemedical.com where we will be posting a transcript of this call and also our updated investor deck. On this site, you can also view some of the exciting products and developments discussed on this call. Thank you and goodbye.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.