Q3 2020 CRH Medical Corp Earnings Call

Good morning, ladies and gentlemen, and welcome to the CRH Medical Corporation Q3 results Conference call. At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for the operator.

This call is being recorded on Friday November 13, 2020, I would now like to turn the conference over to Richard Fair. Please go ahead.

Thank you operator, and good morning, everyone I'm joined today by for CEO Dr. Kishore Romani.

President next year, each anesthesia krieger and their price.

<unk> President of course for development Tom Sanders.

Before we start I'd like to remind everyone that certain statements you share today constitute forward looking statements that day.

And the meaning of the applicable security laws.

For important assumptions destinations and cautionary statements about forward looking information and the risk of debt.

Gerard business, please refer to the cash your niche.

Okay.

During this call we discuss non-GAAP.

<unk> is an occasional book performance.

Okay switching I imagine its discussion.

Anything else that's.

That's very much ended September thirtyth for the reconciliation of non-GAAP measures to reported GAAP measures.

These documents are available on SEDAR and Edgar.

The Investor section of our website, but I'll turn it over to the Doctor to share every month.

Thank you Richard Thank you also to everyone on the call for joining us to discuss CRH is third quarter 2020 years old.

Before we dive into our financial and operational performance for the quarter I'd like to again, thank our team for their continued dedication to delivering outstanding patient care. During this call that 19 pandemic.

The protocols that we an art agency partners have implemented have allowed us to be effective at preventing the spread.

Section, among our providers and sports stuff as well for patients that we serve.

The executive team that you'll hear from this morning has been working remotely since March from continues to work for you said, we did push ahead on several strategic price.

No. Although our businesses continue to experience from continued excuse me to experience negative impact from Koby 19 in the third quarter, primarily in the first few weeks for the quarter, we experienced solid recovery relative to the financial.

Performance that we book reported in second quarter, when the disruption from COVID-19 was at its greatest at that point.

Our adjusted your revenue grew 125% from the second quarter of 2020, while our Regan segment saw sales growth of 104 per se relative to the second quarter.

We remain hopeful that we can continue to sustain or even improve on this level of performance, but lets be some more cautious given the recent rise in COVID-19 cases, as we approach now the winter months.

I'd like to provide for one.

We didn't update around the three primary pillars of our business strategy first with respect to our rate strategy. We remain in active dialogue on multiple fronts as we look to more fully optimized for commercial case mix.

Confident that we can continue to reduce our non contracted case volumes as we leverage our expanded scale, our exceptional service capabilities and our commitment to patient outcomes.

And although profit Nineteena somewhat hindered our progress from 2020 comes from we believe that continuing this effort will drive long term revenue and profit visibility for the company and its shareholders.

Second after.

After temporarily pausing or acquisition related capital spend earlier this year due to the impact of over 19, we have extended the business development momentum that we started in June in fact since June eight we've announced five majority acquisition and two de Novo expansions and with the acquisitions, bringing nearly $12 million net revenues are each day.

For our anesthesia business.

We remain in active discussions with a number of potential acquisition targets engine over partners and we're hopeful that we can continue to report on BD momentum in the fourth quarter and beyond provided of course that we don't experience the type of disruptions from Colby that we saw earlier in the year.

And then lastly, we are focused on re accelerating the growth in our Regan segment, we believe the addressable market for our product is sizeable exceeding $100 million annually and we believe that a regan is it best in class product. We're pleased to see a strong sequential rebound in sales relative to our second quarter results. Despite his experience.

Some of the earlier negative headwinds from Cowen and Tom centers will talk a little bit more about or weaken strategy during his commentary so.

So in short not out of the woods yet of course, it with respect to cogan, but we've seen steady recovery as we progressed through the second and third quarters of this year and our team is working hard to execute against our strategy within this challenging operating backdrop.

I'll now turn the call over to Jay Krieger, Who's the President of CRH Agency.

Thanks to shore good morning, everyone and thank you for joining us on today's call.

I'd like to provide some highlights for the Mcg segment during the third quarter.

Our third quarter anesthesia, <unk> $28 million from roughly flat.

For 2019 levels. This is in spite of coated negative impact net to shorten mentioned, we did see a nice recovery relative to the second quarter 2020.

Adjusted your revenues increased 125% on a 119% improvement in case volumes.

Segment generated an adjusted operating EBITDA of $12 million, which is a drop of 7.5 per cent when compared to the third quarter of my team.

But represents a strong 297% increase compared to the second quarter 2020 levels assets.

That's the share noted we've completed a number of business development activities, including three acquisition. The one started up joint venture during the third quarter alone.

We now provide anesthesia services that 66 locations across 13 states, which is up from the 62 assets sees that we provided services for at the end of the second quarter.

Lastly, I'd note that all of our facilities are currently open and remain operational.

I'll now turn the call over to Tom Sanders, who oversees our Reagan business segments Tom.

Thanks, Thank you Jay as to share noted earlier, although koby continued to negatively impact or Reagan sales, particularly early in the quarter third quarter Reagan sales total 2.4 million a drop of just 3.4% versus third quarter of 2019, we're pleased to see strong sequential rebound and they'll Reagan sales, which more than.

Doubled over our second quarter 2020 levels.

Your Reagan sales rebound is an indication that the resilience of our partner gas for all enterology groups as they restore their normal clinic volumes.

Well to the importance of our Reagan treatment.

Or reagan treatment device for their patience.

During the past quarter. The series for Reagan team continued to make progress in three key initiatives number one we signed agreements with two partner practices, which marks milestones in the development of our turnkey Siri to Reagan treatment ancillary service line, we're actively testing our new platform offerings under this program as part of the pilots which are launching this month.

For to the development of our digital strategy and supporting platform continues to evolve and we're preparing to implement programs to drive new patient awareness for creating demand for our practice partners and number three our CRM infrastructure development continues to be a focus to support our 2021 growth in key initiatives, we've been very encouraged by.

The continued interest in theory in the series for Reagan system as well as the early interest in our new ancillary and digital programs as we execute on the above initiatives. We remain confident that CRH, a reagan is well positioned for the growth in this sizable market opportunity I. Appreciate your time. This morning, I'll now turn the call over to Richard Bear our Chief financial.

Officer.

Thank you Tom we reported consolidated third quarter revenues of 30.3 million a decrease of 0.2 per cent versus the third quarter of 2020 as cobot continued to weigh on our business primarily in the early part of the quarter and seizure revenue per case as reported was to 98 during the third quarter, we know.

After adjusting for point 8 billion in negative free period adjustments.

Third quarter revenue per case.

Would've been approximately 306.

So we are pleased with the stability in our revenue per case, we've seen through the first three quarters of 2020.

Total adjusted operating EBITDA for the quarter total debt to total.

1.8 million compared.

Compared to 13.1 million in the third quarter of 2019.

[music].

Adjusted operating EBITDA to buildable to shareholders. During the quarter was 8 million compared to 9.4 million to the third quarter of 2020.

We finished the quarter with five point, knowing the cash and cash equivalents and 75 million and notes payable.

As of September Thirtyth, 2020, we had 275 million.

On our credit facility.

As a reminder, the facility includes 125 million and committed.

Now I'll turn the call over to its too short for closing comments.

[noise]. Thank you Richard.

So before we finish our prepared remarks, let me just expand on a couple of topics that we highlighted earlier in the call.

First with theirs with respect to our payer strategy as you recall on our second quarter call. Our non contracted case mix was down to approximately 16% of our second quarter total capex.

For the third quarter, our non contracted case mix stayed relatively consistent with our second quarter. We remain in constructive discussions on this front and continue to believe that our patience and persistence here can drive or non contracted case mix into the single digits. We believe that that will have a positive impact on revenue per case and this effort should serve to improve both revenue and profit disability.

Second given the impact that cobalt has had on the timing of our rate strategy, coupled with the still unresolved potential for volume disruptions due to the pandemic.

We will continue to refrain from providing a precise estimate for where we will be in terms of revenue per case to finish the year, but we're encouraged by the stability that we've already seen in this metric for through the first three quarters of 2020, and we're hopeful that we'll continue the progress that we've made and for.

Finally.

We are constructive on the potential for additional BD transactions in the fourth quarter and beyond but consistent with our previous commentary or 2020 acquisition related capital spend which totaled 19 million. During the first three quarters may not reach the levels that we've enjoyed historically, which is simply a function of coking related pause in our transactions earlier in the year.

So with that Oh.

I'd like to turn back to the operator for questions.

[noise]. Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone, you'll hear a threed home profit acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the pulling process. Please press star.

Our full flight to if you're using a speaker phone. Please lift the handset before pressing any Q1 moment for your first question.

Okay. Your first question comes from Richard close of Canaccord. Richard Please go ahead.

Great or first question I guess is directed.

Towards Com can you go into those initiatives again, maybe in a little bit more detail. There I think some of that's new to us. So if you could go through that that would be great.

Yeah, I can touch on a little bit and as I mentioned, it's early and price. It's really early in the process, but I mean really the metrics and milestones are focused on improving diagnosis symptom identification patient converge and patient engagement will be the pilots, we kind of measure.

Against that and we'll have more to reported I mean as you can probably appreciate the agreements right now are confidential with each of the parties, but those are the kind of the pillars that we're driving and reporting on and we've done preliminary analysis. So we feel really confident that that will be able to drive patient treatment volume so with some of the initiatives.

Okay, and then the digital is that different than the pipes or for.

Component of the pilots what does.

It there's a component of that that sits in the pilot in itself Theres also a separate initiatives.

That are being driven as well so it's kind of two part.

Okay and is that a function of just you know.

With respect to co bid you guys are out in the field, so you're doing to virtually is that thesis.

Thesis.

No. It's really more it's more of a digital kind of marketing basically digital marketing and web strategy to supplement the platform.

And an end to drive and educate patients and the medical community. So it's not really related to virtual visits.

Okay, Great that's helpful to.

Sure I was wondering if you could just help us with.

You know volumes for case, you know cases.

Maybe how it progressed through the third quarter, but really more importantly.

For what you're seeing in October and November I know you guys don't give guidance, but obviously.

There's UBS.

Flare ups here across the whole U.S. it seems on the coal bed.

Yeah, I'm not sure you know it doesn't seem like a patient is necessarily being impacted but I just wanted to get your thoughts on current trends.

Sure Richard Good morning. Thanks, Thanks for the question, but let me just start first by amplifying a little bit of what Tom just said about Oregon.

Part of the shifting our strategy there is to take a more active role in helping our gastroenterologist partners identify patients for treatment of them right and then helping them put together a process within their office to be able to get these patients scheduled in treaty. We're finding that you guys are very receptive to our assistance on that regard.

We've actually formalized some of these programs to.

Make them I guess as my it's automatic as possible and so we're looking forward to rolling that out with some good initial feedback.

Shifting to your question with regard to volumes yeah.

Yes earlier on in the third quarter, we still continue to see a part of the ramp up in recovery both at the agencies as well as the clinics affecting both our average endoscopy volumes as well as our reading product sales volume, but then within relatively short order I would say certainly by by August.

We were operating pretty much at at our full expected volumes and that has continued to persist through September tobar.

Even through this past week.

And then with regards to <unk> in.

In fact to the pandemic you know one of the things I think that we should all be cognizant of is that over the past six or seven months.

Through the some of the worst of the pandemic.

Outpatient care environments, particularly agencies really demonstrated the ability to be able to process patient in high volumes through these acute care settings safely.

Safely without high risks of transmission. So long as we were from a hearing to safety protocols using proper protective equipment, which we now have available and protocols that we now have experience and so we're pretty optimistic about about.

What things would look like if we had to go through that type of a period again and I think that nationally we see recognition that there's no need to sort of shut down these environments in the same way that they did in in March and April that they care can actually be provided safely in our certainly in our operating environment.

Okay. Thank you for 'em I'll jump back in the queue. Thanks.

Mm.

Your next question comes from David Martin from Bloom.

Bloom Burton David Please go ahead.

Hi, Good morning. This is Antonio on the line for Dave on just one question for me wondering if there are any expense reductions that you've implemented during coal bed that you expect will persist beyond the pandemic.

No Hey, Antonio Richard I will take that will take that question no. Most of the expense reductions that we that we initially initiated as a result of coated.

Impacted Q2, when we as we enter Q as as reported Q3 and enter Q for.

We are operating as if we did prior to Kobe.

Okay. Thanks.

Your next question comes from Stephen quite from National Bank Financial Stephen. Please go ahead.

Hey, guys. Thanks for taking my question I'm, just calling in for Andy I just have one quick one here do you guys see any impact from the proposed CMS changes for next year. Thanks.

I don't think that we are aware certainly that that there are a number of proposed changes to both procedural lists fees as well as primary care fees I think that it's still a point of contention for just about every specialty in medicine are out there and we know that very active in robot.

Dialogue continues some of which we are participating and and so.

A long answer just to tell you that it's still early but were hopeful that much of that will be redacted, alright, I mean retracted excuse me.

Ladies and gentlemen, as a reminder, a should you have a question. Please press star followed by one.

Okay. It appears there are no further oh actually we have a follow up question from Richard close.

From Canaccord Richard Please go ahead.

Right with respect to acquisitions from the pipeline to sharp Wonder if you could maybe dive in a little bit the for their sometimes when you get the election is.

And there are no possible change that but its duration.

<unk> that you know it affects timing of acquisitions. So you know any thoughts with respect to the pipeline and any changes would be great.

Yeah, I think both as I enjoy indicated we think that the pipeline remains very active we had good dialogue and good discussions in some late stages a day on several deals.

But your your your point's a good one around the election and sort of potential for any changes we have heard from a number of groups UBS.

About their concern around change in tax rate, specifically capital gains tax rates and and whether that means we can move some deals up into this year versus next year remains to be seen but at least those discussions.

It started.

Okay. Thank you.

[noise] [noise] there are no further questions at this time. Please proceed.

Thanks.

Well that concludes our conference call as you see that a we're pleased with the results that we've been able to deliver in the third quarter. We look forward to executing on our plan for the fourth quarter again on behalf of myself and my team and thank everybody for the time on this call.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.