Casey Hoyt - Chief Executive Officer

Doug Cooper - Beacon Securities

Okay thank you for joining us on the call, my name is Casey Hoyt and I'm the Chief Executive Officer of Patient Home Monitoring. Joining me on the call will be Todd Zehnder, Chief Strategy Officer.

Thanks for being with us today as we report solid financial results for our quarter. I'd like to start by recognizing our entire team for not only their commitment to rightsizing this business but to their dedication to our referral sources and patient families that we are so fortunate to serve.

For those of you who are new to our story Patient Home Monitoring is a company that specializes in the treatment of an aging Baby Boomer population suffering with chronic diseases. We operate in two divisions inside PHM, Apparo and Viemed.

The Apparo division specializes in offering a full line of home care products to patients suffering from a multitude of diseases such as ALS, sleep apnea, Chronic Obstructive Pulmonary Disease and CHS. These patients are burdening the healthcare system in great numbers and Apparo is strategically positioned to be the one stop shop for their home health needs.

The Viemed division is geared to treat a more high such batch of patients suffering from chronic repertory failure. The Viemed patients are the ones known inside the hospital system as the frequent fliers, and our services are geared towards preventing costly readmissions by offering a high level of patient service.

PHM is currently working through its spin out of these divisions in an effort to create two public companies of which our shareholders will own equal shares of each company. Our company has been operating as these two divisions since May of last year and we have experienced increases in sales, cash collections, expense reductions and overall efficiencies and profits.

In order to update our investors properly I'll comment on a few successes that we have seen from both sides of the company. At Viemed, we are once again seeing an increase in the active patient count since our last call.

This now marks the fifth consecutive month that we have eclipsed the previous months' sales. We have successfully increased sales and recovered 98% of the revenue from the 35% rate cut of January 2016.

Last week we trained additional members of our salesforce and therapy team. This will add six new territories to our coverage area.

This puts us way ahead of our goal of adding seven new territories in the first half of 2017. Viemed's ability to expand into new areas is proven to be swift, scalable and back to the days of our booming organic growth.

In addition we are looking ahead to embracing the changes in the U.S. Healthcare System by working on more strategic items that will give us the ability to bring in more significant numbers of patients with individual transactions.

We will continue to vet these out and will update the market at the time that we have additional detail. The top-line growth is exciting and at the same time we're keeping our eyes on our expenses, cash collection and all other details of our business.

We want to assure that we continue the trends of higher margin and cash flow going forward. Apparo has been focused as well on the large and growing market for patients with chronic and long term illnesses.

Apparo is comprised of most of the business units acquired over the last three-year period by PHM. Greg Crawford since becoming the COO in April of 2016 was given the responsibility to integrate these businesses.

His efforts have led to the successful integration of purchasing, billing and administrative functions, all which have been reflected in the improving financial position of the company since his appointment to lead operations. Further under his leadership the company acquired PRO2 in spring of last year.

PRO2 serves as a good example of a type of acquisition target Apparo will focus on for future growth. It was a small regional supplier that was acquired for $2.5 million.

Using Greg's method of integration and cost cutting the payback period for this acquisition is estimated to be under 14 months. Once again our numbers now show why we are continuing down the path of executing this spinout.

We have made some significant strides in setting up the divisions, but the work is not done yet. We will continue to work to get every dollar of value out of each size and remain confident in our process of getting the company split into two legal entities.

This process has talking a little longer than we originally estimated, but we are assuring that each side is ready to spinout its own and making sure all hurdles are cleared before moving forward. The last quarter has been one that we finally get the financial results that we have worked so far for on the last 18 months.

To provide in the review the quarter ended September 30, 2016, I’ll turn it over to Todd Zehnder.

Alright thanks Casey. In reviewing the financial results all figures are in Canadian dollars.

Fee income generated revenue of CAD$31 million for the quarter and gross margin of CAD$24 million. The revenue and gross margin are down from last year’s CAD$33 million and CAD$26 million respectively.

Important to note is that during the prior year we had a full quarter of revenue from unprofitable business that we since closed, shuttered many unprofitable product lines and received a rate cut on our ventilator products. Along those lines, our absolute gross margin was only down slightly, which shows that we have grown in the right areas and managed our cost of goods sold appropriately.

As we have previously mentioned our base business is getting stronger every quarter and we are setup to grow in the right areas. Adjusted EBITDA, which excludes depreciation, amortization, stock-based comp and change in financial derivatives, totaled $4.6 million for the quarter and we grew our cash balance organically for the first time.

We’ve reversed the trend of depleting the cash balance and feel that we are on our way to continue financial success. With all the changes made during the last year we continuously monitor our margins to assure that we are active in the correct products.

As has been the trend lately, we are continuing to grow our margin percentages. During the current quarter, we had a gross margin percentage of 78% as compared to 75%, 72% and 69% in the last three quarters.

This trend is exactly what we have been striving to achieve. We have the right product mix as a company, so now we must continue to refine our billing and collection processes and continue to monitor our G&A and work that down as efficiently as possible.

That along with continuing to evaluate the modernization of businesses and focusing on growing of new areas in businesses is our goal to optimize the overall business of PHM. Our balance sheet is liquid with approximately CAD$8 million of cash at quarter end approximately CAD$23 million of clean AR, CAD$41 million of current assets and CAD$19 million in short term liabilities.

We have managed our recent growth with utilizing capital leases where available, which in turn reduces our operating leases that we previously used in our daily business. Our long-term debt which is primarily made up of these leases is very manageable and being serviced with operating cash flow.

Our job of turning the financial picture of the company around is never done, but we are clearly excited about the turnaround that we have completed thus far. Moving on to the second quarter, we’ve provided revenue guidance in the CAD$31.5 million to CAD$32.5 million range and feel that our EBITDA will stay consistent with first quarter.

We continue to phase out certain revenue streams that have not been adding to the bottom line and replacing that top line revenue with high margin sales growth. This is the continuation of what we've been doing for the last year and we'll be a trend going forward.

The full results of the quarter are available on SEDAR and with that I'll turn the call back over to Casey.

Thanks, Todd. This March is the first time in our history that we are cash flow positive.

We've gotten our EBITDA margin up to 15% and as mentioned have consistently raised our gross margins. We're now beginning the age after the fix [ph].

We're proud of our accomplishments and committed to ongoing improvements. Our company is committed to educate, nurture and inspire our patients to live better lives.

We believe there's no other company in the country in our space that has customer service superior to us. We employ more respiratory therapists in our organization, than most hospitals in the country.

Our referral sources continue to lean on us, they count on us to offer education and resources to these patients with more complexities in the home and we consistently deliver. As we insurance ourselves in the home and become the patients first point of contact, our partners are challenging us to offer more.

This will be our core driver of growth in the future as we continue to service more disease states in the home and pilot new offerings. Our commitment to our shareholders is simple, our management team will generate profitable growth and we'll continue to achieve this by combining our years of healthcare experience and management to capitalize on the substantial opportunities that lie ahead.

This concludes our prepared remarks and we'll now open it up for further questions.

While the operator is accumulating any questions that we've we wanted to briefly touch on a couple of questions that we've received over the last few hours just to work them in. The first question that we've received several times is, in regards to the EBITDA margin that we posted of roughly 15% and should we expect that going forward?

We briefly have put out a little bit of guidance as most of you've seen that we expect the EBITDA margin to stay consistent. This quarter coming in is probably the toughest quarter from a collection standpoint in the healthcare industries, it's when deductibles season is the highest and we have factored that into our EBITDA estimates and we're still incurring some transactional cost with the related spin out but the great news is that revenue is growing and we've touched on it that the revenue that we're growing with is high margin.

So, we like the trends, we expect them to continue to go in the right direction; we haven't guided anything past second quarter and we'll provide guidance on quarters to come as they are coming due.

There was another question about Tom Price and the appeal of ObamaCare. I'd like to just comment that Tom -- that Dr.

Tom Price who is going to be the Department of -- the Head of Human Health Services, he's a champion for our industry, he's -- even before he got the appointment from the Trump administration he was very vocal about being unpleased with the competitive bidding program which we all view as a bad thing for our industry. He's been on the forefront of embracing a new program called the market price program, which will allow for more of a reasonable fair market pricing for all of our services.

You know we've also seen Tom Price in his hearings in front of Congress very frustrated with the system of -- the audit system that we all go through in this industry. You know we get -- as some of you may know, we get blanket audits on our charts whether you're doing things right or wrong and Tom Price's position is that we need to specifically go after, you know resources to go after the bad actors and the fraudulent folks rather than going after the entire country.

We're wasting a lot of dollars there, I think the main point here is that you know with the business folks that the Trump administration is putting into place like Tom Price, they're making some real common sense decisions and you know we expect to see further relief. As it relates to the appeal of ObamaCare, you know it really doesn't matter if the Democrats are in office or the Republicans are in office or if it’s ObamaCare, not for us, I mean, we are the solution, You know one way or the other if we continue going on down the path that we’re on in the U.S., you know willing to bankrupting the country, that we've got to take advantage of cost saving measures and that plays right into our hands because we're the ones in the home offering these cost effective solutions to treat these patients and keep them out of the hospital, which is where the majority of all the cost is being spent right now.

So the political environment is very positive to our position. With that operator, we'll open it up for any questions.

Hi guys, first of all terrific work, the quarter looks as you said, the first time generating cash is a great accomplishment for the company. Can you just talk about the couple of things, first of all I wanted to touch on a reminder of seasonality?

Is there any seasonality in the business? You talked about growing, but should we expect -- is there any quarters, whether it’s 3 or 4 that we'll see an increase or decrease in seasonality or is it pretty much the run rate here of call it a 120 million, 130 million of revenue and 18 million to 20 million of EBITDA, is that the sort of run rate you're on now?

No, not really Doug, the only thing that really we look out for is right now, during January and the first calendar quarter, we run into patient deductibles that can burden our bad debt a little bit, but you know as far as business flow and the volume of business that comes in the door, we really do not have a seasonality issue with seeing any dips in the business for the future.

Casey, you mentioned that the patient count is up, I think you said for the fifth month in a row, that's on the Viemed side of the business. Were there any growth metrics on the Apparo side of the business that we can point to?

You know their revenue is staying relatively flat right now, I think that what you're seeing is Greg and his team have just about finished the yeoman pact [ph] of having to shutter certain locations and product lines and so forth and they're back to growing areas that make more money. So we don't have anything that shows exact quarter-over-quarter AR, they are growing in the right area.

And just to get back to the Viemed, the six months in a row of patient growth can you quantify that versus say the first month of the month zero or one, whether you want to call it to month five. What percentage of increase are we talking about over that five-month period?

Well, we grew our active patients roughly 25% in the back half of the year. And we grew it about another 3% in January.

So I don’t have that exact five-month period Doug, but you can just say from, call it June 30 of last year to January 31 of we just finished, we’re probably roughly up 28%.

28%, okay. Moving to couple of things quickly, you talked about EBITDA flat in Q1 is that -- you’re talking margin or absolute dollars?

Absolute dollars.

Okay.

And it’s a pretty wide guess right now, because we’ve mentioned a couple of things that any transaction expenses are ebbing and flowing right now and then like we’ve said, this quarter January to March is the toughest from deductible. So we're sort of soft guiding that this is a time where we have more write-offs.

Okay. And I guess started accruing any cost associated with of the spinout of the company.

Are you -- what do you anticipate those costs to be?

Well, we are not accruing any, but we are incurring them. So most of the cost is on the frontend from just getting -- we’ve made our regulatory filings and the cost of getting all that ready.

After that the cost would just be for the calling of the meeting and the all the associated cost with that whether it would be fees regulatory agencies or training or just ancillary cost. But I think the majority of it has been incurred in the last quarter and the quarter that we're currently sitting in.

Okay. And are those material in terms of the overall costs of the company right now?

I was asked a question and [Multiple Speakers] it’s sort of hard for us for the last quarter to exactly identify the cost because, there is auditing cost and you have auditing cost with your normal yearend, but if had to handicap a number, generally, probably about CAD$0.5 million.

Okay. Got it.

Just moving on to the AR and sort of DSOs, what are the DSOs running these days and I guess clearly the bad debt expenses, percentage of revenues has come way down, which is a great work, what do you attribute that to and how low can you get it? 12.5% of revenue this quarter?

Yeah, so I think that’s going to be a pretty good number going forward. We said that in the last quarter that we felt that low double-digits was going to be roughly where we came in.

Obviously last year we had a lot of integration and billing software change and things that where we’ve got to consider those one time, but our industry is one where low double-digits is probably, especially with all of the patient piece that we do, it’s probably an industry standard. So we’d like to think that we can get it to the low double-digits and coming in way where we get this quarter, I feel like we are getting there.

So I think it’s a lot, it’s attributed to last year was such an anomaly and we have better processes in place at all the different subs and this should be where we are. The day sales outstanding roughly is 65 right now.

I think that number will continue to trend down, it got as high as 90 last year, 60 days is probably industry norm and we're getting very close to that. So I think that’s probably where we'll -- we should gravitate towards.

Okay. Final two questions, what would this breakdown in your business Medicare and I guess private insurance?

When you look at government as a total Medicare, Medicaid versus commercial and private pay, we're probably running as a total company, 55% to 60% government right now.

And what would you like to see that at, you're happy with that split or would you want to see more private commercial?

No, that's good, I mean the government is a great consistent payer. There's nothing wrong with that.

And finally, you talked about the trend, the gross margin, it's been trending higher, obviously, which they have, how much higher can you get the gross margin, I mean 78 is pretty high.

I think that they're probably getting about as high as they're going to be right now. A lot of our gross margin is a function of the products that we're selling and the ancillary costs that go with some of those products.

If we're outright purchasing versus leasing that drives our margins. So if you see our CapEx higher, and our margins increased that means things are going the right way and we're actually purchasing equipment.

But I think 80% is probably with a combined company, we should sink in around there. And that comes into play with us, we've said this on many calls over the last year, we've really refined the products that we're selling and we've culled out the low margin bad business items and while that diminishes our revenue growth, it enhances our bottom line growth and as we've said we kind of flush out the fact that we're not growing revenue, but we're growing the bottom line.

And final question is there any products that you know that could be under review for any reimbursement issues over the next 12 months or so?

Well I mean there's always products that are up for being cut, I mean I don't think we're going to get any pressure from the highest margin product which is the Viemed [ph], I mean that's me being an optimist, but we've seen Medicare kick up very aggressive 35% rate cuts last year, they were really only supposed to cut us by 20%. The breath act that is on the hill right now, that we've had a hand in helping construct, stands to give us a 20% raise.

So we get -- that's a 50-50 shot right there, but if anything, we're seeing that they're going to have to let up on what they've already cut us on. So, as it relates to other products that really -- Apparo sales, I mean, they've hit pretty much rock bottom too I mean we just saw the competitive bidding in all the rural markets get retracted because we had so many mom and pop businesses around the country that were going under as a result of the rates being too low.

So they back tracked on that and we stand to get a little bit of a refund, nothing material, not to mention those are all just signs that if anything they have pushed us as far as they possibly can and they're kind of back tracking right now.

And finally, from me as of now, when do you expect the stock to sort of split into the two companies?

That's a hard day for us the handicap. We have made the regulatory submissions and we've started volume back and forth on questions, we do know that once we get approval or preapproval from the CRA and approval from the exchange we will then call a meeting and that would trigger a 45-day clock.

So I wish I could tell you when that date's going to happen, but until we're through the review process we just can call it.

Right. Okay gentlemen, appreciate it, thank you.

Right, thanks Doug.