Protech Home Medical has issued a couple of press releases over the past two weeks with updates regarding the impact of the ongoing COVID-19 pandemic on its business in the United States. These releases have strengthened our conviction that PTQ is one of the best investment opportunities in the current business environment.
As indicated on its first business update on March 18, Protech is part of a critical infrastructure industry. Thus operations have largely continued at a normal - or in some cases accelerated - pace. PTQ’sposition in the healthcare system offers hospitals the ability to free up capacity by sending patients home for health care needs when possible. While Protech is not selling directly to hospitals, it is using its referral network and existing patient base to expedite the shift from hospital to home care for patients unaffected by COVID-19. To meet this influx in demand, Protech has accelerated its purchases of respiratory equipment in particular, with no issues in receiving orders despite indicated shortages of ventilators in the United States. On April 13, another press release indicated that the uptick in demand had continued, and we believe that demand for some products may be up over 30% vs. last year (offset by declines in some business like sleep labs). To support the expanded inventory purchases, PTQ received a C$1.5M grant as part of the CARES Act Provider Relief Fund. In the same time frame, the Centers for Medicare and Medicaid Services (CMS) removed non-invasive ventilators from the 2021 Competitive Bidding Program to facilitate patient access. These products were to be included in the bidding program for the firsttime after this past year’s hiatus, and the addition would have pressured margins on those products. Ventilators in total account for17% of Protech’s revenues. The vast majority of these revenues are from non-invasive ventilators, though Medicare/Medicaid is not the only payor.
On April 20, the series of positive press releases continued with the announcement of receipt of C$5.97M under the Payroll Protection Program administered by the U.S. Small Business Administration. The loan has a two-year term and bears interest payable at 1% annually after 6 months. Most importantly, the loan is forgiven if the proceeds are used to cover payroll, rent and utilities in the following 8-week period. As a result, management anticipates full loan forgiveness, and these funds cover roughly half of the quarterly SG&A expenses.
In essence, PTQ has received $7.5M in cash injections over the past two weeks, on top of its existing cash of $8.4M at the end of Q1. We also believe it is a possibility that health care businesses obtain