February 26, 2018
CRH Medical Corp
Q4/17 Preview: focusing on 2018 outlook, noting mix and reimbursement impact
Our view: CRH will report Q4/17 results on March 5th after market close. The conference call will take place the following morning at 11am EST (dial-in details below). We believe focus will remain on the payor mix in the quarter and how that feeds into management's 2018 outlook following the reimbursement changes.
Key points:
Expect revenue of $28.2MM vs. $28.1MM consensus. Management has indicated that the seasonal increase in the proportion of commercial payors would be less pronounced between Q3/17 and Q4/17 than historical periods. Consistent with this guidance, our estimates are based on a 160bp increase (vs. +360bp in 2016) in the proportion of commercial cases to 63% (vs. 68% in 2016). We forecast revenue of $28.2MM vs. consensus of $28.1MM and $25.8MM in Q4/16. Additionally, we project Anesthesia Management (CRH-AM) revenues of $25.3MM vs. $23.0MM in Q4/16.
Forecast EBITDA to SH of $9.7MM vs. $9.3MM consensus. We forecast EBITDA to SH of $9.7MM vs. $9.3MM consensus and $10.3MM in Q4/16. We also anticipate ~60K procedures in Q4/17 and average revenue per procedure of $422. Our projected average revenue per procedure is a slight increase over the print in the past two quarters ($417), but well below the $511 rev/procedure in Q4/16.
Reporting Q4/17 on March 5th after market close, conference call March 6th at 11am EST. Dial-in is 1-800-319-4610.
What to watch for on the call. Following the payor mix headwinds the company faced in 2017, we believe investors will be looking for management's commentary surrounding the payor mix outlook for 2018 (i.e. will the unfavourable shift continue, subside or reverse?). Additionally, while we expect acquisitions to continue, we will look to assess the potential impact CMS cuts may have on the pace of acquisitions moving forward. On that note, we do hope management remains selective so as to avoid adding providers with a high proportion of non-commercial payors.
Our thoughts on 2018. Our thesis on the company remains intact and we maintain our $4.50/sh target. Two important drivers behind operations should remain in focus in 2018 - the proportion of commercial cases, which we assume remains flat between 2017/18 at ~62%, and secondly, the commercial rate per procedure, which we assume ticks $0.25 lower each quarter from our $80.35 rate per unit estimate in Q4/17. The sensitivity of EBITDA to SH to these metrics is provided in Exhibits 4 & 5 of this report. We continue to view valuation as attractive given a 12% FCF yield and net debt/EBITDA to SH of ~1.4x