Right-Sized and Ready to Grow!
Protech Home Medical is the successful transformation of Patient Home Monitoring after the recently completed corporate spinoff.
We operate in a highly fragmented market with more than 6,000 providers across the United States. We estimate the top five providers make up less than X% of the total market size, as small, regional providers still have the biggest foothold nationally. We think we can take over our regional markets by using technology that makes disease management easier for the patient, the physician, and has better healthcare outcomes than the traditional model, it also has nice benefit of improved profit margins.
We are investing in three types of technologies that will improve our competitive advantage, our patient care, and our profit margin. First is utilizing telemedicine for remote training and patient follow up. While we have a remarkably high compliance rate, on average above 70%, we think that can increase by making ongoing training and patient follow up easier on the patient. Almost all incompliant patients are a result of improper equipment use, which we would be able to address faster, easier, and more cost effectively than our competition on a telemedicine platform. We think this will further reduce hospital readmissions, and because we offer a fully diversified product offering, we can be the reliable singular choice for regional hospitals and physician groups...
We are also focused on using to technology to increase the speed of our equipment and supply delivery. Other competitors can take days or weeks to set-up a patient on their necessary equipment after placing the order, receiving the shipment, then physically delivering the equipment to the patient or asking the patient to come to a retail location. We believe we can displace this established process with automated ordering, drop shipping equipment, and remotely training the patient. Across every other market, brick and mortar locations are disappearing and being replaced by online purchasing and quick delivery. We think we can the first mover to bring this business model to the chronic disease management industry. This way the patient gets serviced faster, and more efficiently than any other regional player.
As an added benefit, distribution costs are currently more than 17% of revenue and represent our biggest single expense category outside of cost of goods. We think we can significantly reduce this amount, which would drop straight to the bottom line, by using an Amazon style warehousing and distribution model. For us to see these savings, we need to achieve scale in across our existing geographies – we estimate at $200M in revenue we can really start to centralize our warehousing efforts and realize both the savings and expected growth in pushing out our competition.
Lastly, we see a significant and unrealized opportunity in the market in tracking our medical equipment. As patients pass away, we retain ownership over the medical equipment and have the opportunity to clean, refurbish, and place that equipment with a new patient. This is really focused on our intensive respiratory and oxygen services. We estimate today, our equipment recapture rate is less than 30% of eligible equipment. This is another significant opportunity for margin improvement as we eliminate the cost of goods on a new recurring revenue patient.
We think in our current market, once these technology advancements are fully developed and rolled out across all our locations we can operate a $200M revenue business with EBITDA margins more than 20%, and have annual organic growth of more than 20%. We expect the natural demographics of an aging population combined with longer life expectancy to contribute 6% to 8% organic growth and we think that by improving our patient outcomes, reducing barriers for the patients and physicians, and by continuing to be a diversified provider that can be a one-stop shop for hospitals and physician groups, we can significantly amplify our growth and push out the smaller providers who don’t have the size to invest in technology and compete with our offering.
In terms of timing, while there are some investments we can make today, and we have started, our focus is on fully automating distribution and communication with patients, physicians, and our support staff. For us to see the full benefits, especially with delivery automation and asset tracking, we need to exceed $150M in sales to have the scale to make these investments accretive. That’s why we are pursuing an M&A strategy, which has the added benefit of accretive revenue and profit growth, as a way to get the size and patient density to fully automate our processes. I expect this year you will see EBITDA increase every quarter, moving from today at approximately 10% to 15% within the next year, inclusive of our technology investments. As we pass $200M in sales, we think we can see our profit margins exceed 20%.
In terms of organic growth, it’s going to come from the advances on our telemedicine and streamlined care technology and distribution automation. While there are some things we can do today to start that process, what we really need is greater geographic distribution for some of the bigger automation plays to make sense. But as we start to get past $150M mark getting to $200M in revenue we expect to see significant and continued organic growth at around 20% per year. Obviously, we expect to have organic growth over the next year, we think at least 6%, but whether that will be closer to 8% or 15% we’ll be able to better able to gauge over the coming quarters. Also unlike cross-selling which is a one time benefit, we think by focusing on the quality of services and technology driven competitive advantage we can achieve compounding growth and really push out the smaller regional players who don’t have the size and scale to match our technology focused care.
Looking to the future, if we can close an acquisition every quarter, we should exceed $100M in revenue within a year with the potential to be closer to $125M and so I think we can quickly get this company to $200M and greater, at which point we may consider a Nasdaq listing and other opportunities. We’ll also have a significant amount of cash flow to pursue larger acquisitions in new geographies with our established infrastructure.