Q4 2019 Earnings Call
Thank you Rich and thank you for inviting me to join the incredible team here you go into your system after only a few days on the job the qualities that attracted me to the opportunity are very visible namely customer-centric company culture a strong platform for robust growth and most importantly a mutually supportive results-oriented team spirit the fourth quarter represented a strong finish to a record company a combination of top-line growth improved margins and strong cash flow has strengthened the company's financial position increased our ability to fund future growth and put us in a strong position to manage through any impact from the current Health crisis.
Starting with the Top Line net revenues for the 2019 fourth quarter of twenty one point seven million represented an increase of four point 1 million or 24% over the prior-year 4th, The integrative Therapy Services segment was the greatest contributor to this growth having increased by three point seven million or 34% topping a respectable increase in durable medical equipment Services of $491,000 or 7% integrated Therapy Services benefited from favorable Dynamics in the competitive landscape continued penetration a pain management and from an increased number of third-party payer customers, the durable medical equipment Services segment net revenue growth was led by increased sales of infusion pumps.
Higher revenues translated into both higher adjusted gross adjusted ebitda, which increased by 4.1 million or 24% to twenty one point seven million during the quarter inch tire address. Margin which grew to 24.9% during the current quarter compared to 21.3% in the prior year driven by both a favorable margin mix fixed cost coverage in operating expense Leverage.
here
Basis, we had a big Improvement in operating cash flow which totaled 13.9 million for 2019 and represented an increase of 3.2 million or 30% over the full year of 2018 this payable cash flow along with net borrowings mainly from our bank facility, totaling 4.6 million supported net capital expenditures of 19.6 million Capital expenditures were primarily comprised of increases in our infusion pump flea which increased our revenue-generating capacity.
Financial position also improved during the year as of December 31st, 2018 are ratio of funded debt to adjusted ebitda decrease to 2.1 times versus two point four or five two point four or five times at the end of 2018 our total available liquidity, which total 20.9 million as of December 31st, consisted of two point six million of cash off 9.9 million of a in availability on our revolving line of credit and 8.4 million available under an open capital expenditure facility and amount that is believed to be sufficient to fund our current goal plans and our operating needs.
With that, I'll turn it back to Rich.
Thanks, Mary. We'd previously communicated twenty twenty targets of $89 million-plus and revenue $22 million-plus and adjusted ebitda and sixteen point five million of cash from operations wage is far too early to know when impact the coronavirus will have on our business, but to date the impact has been minimal and we are actively engaged in business continuity preparations designed to keep our operations up and running. We cannot however of what disruptions might occur within the US Healthcare System and what additional steps we might need to take. Although it's still early. There are a couple of things we do know, we do know that our DMV services platform in particularly the truck rental business generally sees increased customer demand during years with higher than normal flu conditions, and we will do our utmost to be responsive to requests to come in while maintaining our Readiness on the IPS platform.
We know we will need to continue developing and executing workarounds in our normal business processes as some clinics and hospitals restrict non-essential Personnel from entering their facilities. We also know the amount of elective surgeries will decrease as hospitals Reserve all of their resources for handling code 19 cases while we know there'll be more challenges ahead. We don't believe our core oncology service and the life life-saving treatment to facilitates is like life dramatically impacted still we don't know and it's too early to know if circumstances will allow us to support our numbers moving forward. Our current focuses are making sure our team is safe and providing uninterrupted service to our patients and customers we are concerned about it preparing for things that we can control to that end. We have temporarily added to our pump Fleet and pre-positioned devices to allow us to deploy pumps into either platform at a moment's notice wage. We have proactively ship reserves Reserve quantities of supplies to our most at-risk customers and a significant part of our Workforce has been working from home since last week. We have provided additional personal protective equipment.
for our operations team and each
Today we take further steps and Leanne additional plans for dealing with future potential disruptions moving forward. I I have complete confidence in the management team that we built over the last couple of years will enable us to manage our grown improve operational efficiencies and expand into new i t s and DMV therapies while delivering industry-leading customer service as we grow our existing therapies and pursue New Opportunities. We were leveraging infrastructure to drive increased efficiencies and higher net operating Returns, the success of entry system is and always has been due to the hard work of the most dedicated team I've ever had the pleasure of working with faith. The reason why we provide an industry-leading service to our patients and partners and I greatly appreciate their ongoing efforts. And with that being said, I'm happy to answer any questions.
We will now begin the question-and-answer session to ask a question may press star then one on your telephone keypad. If you're using the speaker phone, please pick up your handset before pressing the keys to bring all your questions, please press * then two at this time. We will pause momentarily to assemble our roster.
The first question today comes from Brooks O'Neil with Lake three capital, please. Go ahead.
Yes, thank you and good morning. I have a couple of questions. I was hoping you might just talk a little bit about whether you expect to see ongoing benefit in the oncology Business from The to sort of unusual factors that contributed so much to growth in 2019.
Sure. So we we definitely will there's still some customers and some market share that we're going to gain this year without a doubt and there's also a lot of customers that although we we had them sign on at the end of last year the Rev really just come in until later. So we should see that Revenue coming in in in to 20 20 in addition to the market share gains that we believe will still still get
Great, and then secondly, obviously you're having tremendous success in the painting business. If I was listening correctly, you expect continued strong growth in that business. Can you just describe what you think are the factors that are driving that growth now sure so in in 2019 the business doubled we expect it to happen again in 2020. I think what's driving the growth is that you know, the service that the the pain management team has built over the last four or five years has really been perfected. They've done a phenomenal job it taking you know r i t s platform concept and tweaking a little bit for that market specifically and now they're able to go after competitive accounts where the service just blows away anything that's in the market it is without a doubt the gold standard for for from a service standpoint in that in that Market at a competitive price and the services are offering hospitals and the doctors wage.
quickly the information and data we're able to get
Their own patients the patient care itself is really just second to none and ultimately that's why we're winning accounts and the team is doing a phenomenal job getting some market share in that in that in that thoughts.
Great. I just want to follow on with that a little bit and I apologize. You know, I'm relatively new to the story here. But could you just describe what you see as the core elements of your IPS platform and why you think it's so leveraging able as you think about additional markets obviously, like the negative pressure wound care Market sure. So the it s platform and its core Israeli a service wrapped around a device. So that divorce can be an infusion pump. It can be a negative pressure vacuum. It can be a ventilator a compression device. It really doesn't matter. It's almost device-agnostic in the service that's wrapped around is everything from biomedical services to to clean fifteen and in provide maintenance on the on the devices and repair them are clinical support team that truly sets the gold standard from a from a telephone support staff standpoint dead.
Our third party payer contracts or the 650 agreements we have in place allows us to leverage those within the itcs platform. So when you wrap all that around the device, it's really unique most distribution companies most manufacturers. They're really good at getting the device from there. To the loading dock of their customer which is usually the clinic or the hospital we do that as well cuz we have two months. But once you once you go from there to the patient's home Israeli where that i t s platform kicks in so with negative pressure just like oncology and Pain Management the patient goes home. We triage problems over the phone. We get the device back. We clean it maintained it were able to build their insurance company on their behalf. So when you wrap all that around that device that's really kind of the secret sauce and if you system has and what you need and why card came to us is is good and great as they are it all things that they do this this this, you know Clinic to Clinic to the patient's home is really difficult thing to manage and wage.
I'm thirty-three years, you know figuring it out and perfecting it with our oncology platform to start then with pain management over the last four or five years and now negative pressure.
Right. That's very helpful. I'll just ask one more then. I'll step out. Can you describe obviously you describe the negative pressure wound Market as a very large Market six hundred million dollars. Can you put it in any perspective the contribution you think that can make to you in terms of Revenue and maybe profitability and why I ask why you see it. It's such a big opportunity. Thanks a lot. Thanks for us. So it's it's still a little bit early to see exact to be able to see the future and exactly what the revenue will be. You know, we've we've had the conversation with our partner about it, you know, the market is $600 and it doesn't take a big percentage of the market to really change things for us from a revenue perspective. I mean 50% is an additional 30 million revenue for an eighty million dollar company. It's significant. It's still kind of early but you know what we see so far is that team is out there and they're winning accounts and and we put our first patient on actual birth.
last week, so we're starting to
On board more and more patients every day. We're seeing some success from a competitive standpoint in the market and I think it's going to it'll it'll have a little contribution at the end of this year but similar oncology, it takes a while for them to hit after you sign on accounts and set on patients, but we really expect it to take off and in 2021 and Beyond so as we get more visibility into the numbers that we see the update in market share gains will will share those with you when we have
Great. I lied. I do have one more quick question. If I understand it correctly is that you think you can add on this negative pressure business office with relatively minor additional personnel and expense. Could you just describe that briefly as well?
Sure, so, you know because of the infrastructure we have built our revenue cycle team is is there and and robust clinical team our Bio Med team, you know, we think we can we can walk ins and marketer and negative pressure and and add a sales rep maybe a couple of people in the back end but we don't really have to beef up our clinical team or a Bio Med team significantly right now. As long as more Revenue fours in we will but we have such a foundation that's so scalable on the IPS platform. That's where we gain leverage, you know, if we went out and got fifty million dollars in in negative pressure to Thursday. We wouldn't have to go higher three hundred people the number the number of people we'd have to have would be minimal and that's really where we get our Leverage.
Fantastic. Thank you very much and keep up all the good work. Thanks.
The next question comes from Douglas wife's with DSW investment, please. Go ahead.
Hey congrats on a good quarter. Could you just talk a little bit more about Golden nineteen? And if you're doing anything differently, are you building up some additional cash in case there's a. Where you are non-operational? Thanks. Yeah, so we're the team has done a phenomenal job in the last couple of weeks off this this kind of came out of left field. We really responded. Well, we have implemented a lot of things not just you know, not just to make sure our business is running but first and foremost to keep our team safe Thursday, we got we were able to get about 85% of our office Workforce to work from home with laptops and and systems and that is up and running our operations team internally warehouse and biomed who are really critical to our to our business and providing the service to our customers and ultimately our patients. They're donning pp&e. We have you know, distancing requirements from you know, the operations team and Thursday.
That's the entire leadership team is really responded. Well, and we're doing everything we can as far as building up cash or we're going to make sure that you know, we're not foolhardy here with with money and and just kind of watch things off. But as I said in my statement, you know so far we've seen no disruption of our business. We haven't seen a lack of patience or customers closing, you know, quarter-to-date. We we've been we're right on track from where we took what we thought we would do. So has a, you know yesterday March eighteen everything was going according to plan. We don't know what tomorrow will bring we don't know what today, you know, this afternoon will bring but we've plan for everything we will be dynamic in the team absolutely has the capability where we're small and Nimble enough to be dynamic and adjust to anything that's thrown at us. But we really have a great plan in place too long to manage pretty much anything that can get that could happen and we're prepared, you know, worst case scenario. We'll we'll see what happens. I don't want to speculate on what's up what may or may not happen, but I do know that we're going to control
in control and where
Paired for anything and you know, we'll see what happens. How much liquidity do you have if you needed it?
You know if you did, yeah, I think very very yeah when I said in my remarks is that our liquidity is 20 over twenty million coming from a revolving line of credit or cash end of the year. It's about the same now and uh a a Capital Equipment line that we have That's not including the Capital Equipment Line and Luke appointment line.
That includes the Capital Equipment line. Yeah, it's by eight million the Capital Equipment like we have available but twelve million plus and 8 million cap equipment line. Yeah, but we we can we haven't used that cable equipment line phone number. So we have some room on it just for with our existing expenditures that we have already made. Okay. Got it. All right. Thanks. Thanks. Our next question comes from Aaron Warwick with e s Capital please. Go ahead.
Hey guys, next quarter impressive beer. I think you kind of answered my first question in your response to your response is already looks like you were on track for the previous guidance. I understand you, you know, being hesitant to fully reaffirm that with situational coping nineteen, but I did want to ask about that sounds like you could potentially have some things in place to mitigate any damage. You might see on the it s side from that with the Dural durable medical equipment. Is that accurate you might have some opportunities there.
Yeah, sure on the DMV side. You know, if you if you think of the flu is a virus to write every year during the season we see an uptick in in rentals on that side business, you know hospitals in home infusion companies. They just see greater demand. They don't necessarily want to buy the devices early and sit on them for nine months a year. So they'll come to us and rent them for three to six months. So we have a little bit of that already taken as hospitals and and states and local agencies start the gear up for what may happen. So we definitely see some upside there. I don't think it's, you know, multiple millions of dollars, but there is definitely swap Center.
Okay, thank you and then talk a little bit more about Cardinal Health. It's impressive partner there. What what do you see there in terms of leveraging, you know their Network to expand beyond the negative pressure?
Yeah, so so right now, you know, obviously negative pressure is is officially launched. We have our patients on like I mentioned and it's starting to grow every day. I think that there's we right now are exploring opportunities to layer in additional therapies into either platform t s and that's whether it's through a partnership and acquisition, you know, there's all kinds of different options out there. Uh, you know, we would love life partner with Cardinal or or any company of of their size and stature for sure but there's multiple options out there for us and if it happens to be Cardinal that's fantastic. If if somebody else then I you know, we're doing we're going to make that decision based off of you know, where we can gain leverage where we can generate significant revenue and capture market share and and gain some operating leverage as well.
Sure makes sense as well on that side with Cardinal you've mentioned before.
You mentioned even today that they had approached you and now you're saying that you already getting some of the patients started. I'm assuming there must be some what I would call a low-hanging fruit there. You know, since they approached wage. Is that kind of what you're seeing that they're geared up and ready to go on that front. Yeah. So there there's some patients I think and not patients but the customers and clinics that are ready to go between them, you know, the system relationships relationships and hospitals as well as the Cardone relationships. We're going to leverage those and it will be some low-hanging fruit to kick us off and then, you know, we'll see how it goes. You know, once we get through that portion but yeah, we're we're getting patients on pretty quick because the line group
All right. Final question though. You guys pretty well like 24.8 or 24.9% on adjusted ebitda for the quarter. You've said about the 25% being your goal. It looks like that could increase significantly given the leverage that you got on the it s side expanding now and does it with with Cardinal and so forth. Are you guys thinking there?
Yeah, so there's definitely an opportunity to grow those margins, especially if we had Therapies in the i t s platform. Danny is a little bit lower margins so that if we grow on that wage and I'll page through the it s side it'll it won't it'll slow down a little bit if most of the majority of the growth like the negative pressure of the next therapies. We layer in r n i t s sure we absolutely reject the margins to expand as we gain Leverage.
Thank you guys. Appreciate it. Stay safe. Thanks, Adam. Thank you. You too.
Again, if you have a question, please press * then 1 the next question comes from roaming the whole trial with that color Capitol, please go ahead good morning off on a fantastic year. So previously you've talked about the unit economics on infusion pumps. And if I remember correctly sort of nine months off a revenue basis is is the payback and and if I'm understanding it correctly an infusion pump cost about $1,500 and was wondering if one reaffirm or took my understanding is that and if you could maybe expand and and share what the unit economics are on the negative pressure device.
Sure. So on the on the pump side, especially in oncology and pain the pumps. You're right 1500 is probably a good average. There's some that a little more some a little less depending on the device wage. The payback is around seven or eight months on those devices. Sometimes 6 depending on the pump on the negative pressure side the devices mortgage the devices, you know, basically double a pump but the reimbursement we expect to be about double. So again, we just put our first patient on last week. So it's going to take a while for us to see what the reimbursement is but not expect those devices to pay themselves off in five to six months because the the reimbursement is much higher than pump reimbursement fantastic. And and is it the same model that you ultimately would be for initially by the device you carried on your balance sheet and so it's the first part of that question then the second is my understanding is Jeff.
maintain infusion pumps the effect
Is useful life of the pump is ten to fifteen years from what what is what is the projected useful life of negative Palm device? Yeah. So useful life is a little bit less, you know, we need a little more experience to kind of learn for ourselves where it'll be I don't think it'll be you know, ten plus years, but it'll be long enough that you know off or the vacuum will do just what a pump does and effectively turn into an ATM machine down the road for us. We just don't have our own experience yet and I would hate to say, you know, what a manufacturer tells us cuz you never know but I would expect with our Bio Med team and and they're just extraordinary capabilities to keep devices running repair them clean them maintain them that that will get quite a few years on these devices off and Remy. I forgot what was the what was the first first similar to infusion pump to you? Will you will buy these and these? Oh, yeah, your balance sheets vs Cardinals or exact same
We're going to buy them from Cardinal. They'll sit on our balance sheet and and they'll be our devices and then on cash money for next year. So, you know, you guys are producing a good amount of cash and you know this year they went it largely went to expanding the pump Fleet and wage, you know capturing that that marketer and that's all things we want to do. So over the next year as we buy these pumps infusion pumps and wage pressure devices. Do you have some sort of
Like is all the cash from operations going to get consumed in that some sort of guidance some hate to use that word. But some sort of roadmap rather to how God uses of of cash generation over the next year. Sure. So, you know as you guys have seen in eighteen, we were really aggressive on the buyback front cuz that was the best the best use of the cash in New Jersey. You're absolutely right. We invested in the fleet to fuel the growth for 2019 and even into twenty-twenty. I think this year we do expect obviously to grow so they'll be some cash used for that if negative pressure takes off. That's probably where the rest of the money will go and I hope that's that's the case. We also are looking at you know with everything going on in the market and our current stock price that you know or BuyBacks right now because we believe we're so undervalued but the circumstances outside of our control is that something that we want to invest in sure we're going to look at that, you know, probably we're going to wait till the Cove in nineteen stuff. We can kind of see the other side of that dead.
You know, and and I think the good news is the team is really really position as well that we come out of the the other side of this the the the world we currently live in. I think we're going to be much stronger company in a much time a team and uh, I think that allows you to different things but on the other side of that, you know, when we know when we know what we know at that point, we're going to look at BuyBacks will look at fueling negative pressure off in addition to pain management growth and buying devices if they're small Acquisitions we want to make so I don't think anything is off the table. But if I had to guess it would be stock BuyBacks and and fueling growth or negative pressures where most of the cash, you know, I'd wholeheartedly agree with that and I would Echo, you know husband the cash until until there's Clarity on how this plays out and them, you know, I'm sure you'll have multiple options to the play, but that's it for me. Thank you guys. All right. Thanks roaming.
There appears to be no further questions conclude our question-and-answer session. I would like to turn the conference back over to Richard.
The Oreo for any closing remarks? Thank you during this extraordinary time. We will continue to adapt our operations for the health and well-being of our employees are patients that are Partners. We've take every necessary step to do everything that we can to continue to protect the safety of our patients and minimize treatment disruption. I want to thank you for participating on today's call, and I look forward to talking with you again, when we report our 2018 first quarter results. I hope you and your family your main safe during these challenging times and thank you and have a great day.