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Patient Home Monitoring (V.PHM): Out of the storm and into the light

Gaalen Engen Gaalen Engen, .
7 Comments| August 26, 2015

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Click to enlarge

Patient Home Monitoring (TSX: V.PHM, Forum) has earned more than its share publicity lately and the spotlight pulled focus from the company’s aims, achievements and objectives going forward. In this clouded atmosphere, SP plummeted from $1.36 to $0.58 in a little over a month. Soft summer market, sure, but skittish bag holders and hungry shorts hammered the hell out of the company’s market cap.

Click to enlargeThe story of Michael Dalsin and Roger Greene’s share transfer became the only story when there was so much more to talk about. As I said in an earlier article, the company was in a tempest in a tea pot of its own making and the media and the investment community were getting caught up in the storm. Okay, so the D/G fiasco happened, but what’s happening with the company now and what’s next? I spoke on the phone with Edward Brann, M&A Banker for PHM, to find out.

First things first, I wanted to put this one to bed because some worried investors and a fair share of shorts were afraid/predicting that something akin to the way Roger and Michael transferred their shares to the Healthcare Fund was bound to happen again. Despite the fact that no credible management team would ever intentionally repeat something that would submarine their market cap, I went for assurances that investors in PHM wouldn’t be left in the dark again. So what would Michael and David like to say to shareholders and what are the key learning points that PHM came away with from this PR nightmare?

EB: I can tell you that when Michael and Roger moved a portion of their shares over to the Fund, they certainly didn’t anticipate this happening. They are still shareholders and as such, they are just as unhappy about the events following the incident as the other investors. Going forward, the key will be clear market communication. You are really going to hear our commitment to that clarity and transparency moving ahead.

Click to enlargeThere, now on to other matters more material to the company’s present state and future potential. Casey Hoyt is in the driver’s seat now and has been since the middle of July. Casey, behind the success of Sleep Management which PHM had acquired back in June, would use his honed management skills and deep sector experience to take PHM to the next level. So just what has Casey been up to since he took over the reins as CEO at PHM?

EB: Keep in mind that Casey has only been in the role for about forty days, but he’s already done a great job at getting out to see all the existing PHM locations. He will be focusing on the organic growth opportunities within these locations, specifically integrating each of these business lines. Previously PHM was only integrating some back office operations such as accounting, some of the HR functions and really using the database as a way of generating cross-selling organic growth. Casey has seen some real opportunities to improve organically, revenue and bottom line, through integration measures, as well as leveraging their (Sleep Management) sales force and their products into the rest of the PHM locations.

Click to enlargeHoyt makes up part of a dynamic duo at PHM with Sleep Management co-founder, Mike Moore, carrying out the role of President. Whereas Moore will oversee clinical and sales infrastructure and keep his finger on the pulse of the healthcare industry, Hoyt will work on recruiting, motivating and managing the people behind the products and services PHM provides.

The company is also busy in other areas with a normal course issuer bid in the offing calculated to repurchase and cancel up to 14.51 million shares before August 7, 2016 with the hope of taking 5% of the common shares off the market, boosting EPS. On top of this, the M&A team is hard at work, renegotiating four outstanding LOIs to mostly cash transactions which would prevent further dilution of the stock.

This is all well and good showing progress and growth, but just what is all this activity doing for the bottom line? PHM’s quarter ended a while back and I am sure investors are curious to see where the numbers are landing, so I asked Edward when we can expect results from the latest quarter and what could we expect in the way of revenues.

EB: They should be out before the end of this month. It will be another record quarter in terms of revenue, another record quarter in terms of EBIDTA and Q4 is looking on par as the 10th consecutive revenue record EBIDTA. As Casey and Mike have ramped up their growth, their competitive advantage is that they don’t have brick and mortar locations – they deploy effective sales teams into strategic markets. And that means their costs aren’t capitalized, they’re expensed, so in Q4 you’re going to see some additional expenses around $2.0 to $3.0 million. However, still a record quarter, but if you’re looking at true PHM margins really Q1 is going to be the breakout quarter.

So money is coming through the door, considering this cash flow, what do you estimate revenue guidance for fiscal 2015?

EB: We can reach a $200.0 million revenue run rate for the end of the calendar year. Let me illustrate the path, PHM is currently at $116.0 million plus $62.0 million coming from these outstanding LOIs and $13.0 million coming from organic growth just out of the Sleep Management acquisition. That means we just have to close those LOIs and bring in another $9.0 million.

Now these LOIs have been outstanding for a while, but we put them off to do this management deal which was very important as it brought the third growth prong to PHM. Previously it was the acquisition and the resulting cross-selling growth. That was a growth dependent on acquisitions which gave us new databases to cross-sell into, but once you’ve done your cross-selling, the growth is done – it’s a one-time pop. What Sleep Management brought was a management team that for the last three years, each year had grown at one hundred percent – without financing, without acquisitions. That’s the all-important organic growth factor that we had been missing so far and having that addition creates a new PHM with even more possibilities.

Okay, I’ll buy that in a perfect world, but the world is far from perfect. Time for some hard reality: What do you consider to be your biggest challenges in bringing PHM’s lofty goals to fruition?

EB: On the acquisition front, I can tell you that a lot of the sellers value their shares, not at the market price, but at $2-$3 dollar. The reason for this is they look into their database and see the cross-selling potential. They understand there is a way to monetize it that they don’t currently offer, so realizing the potential increase in revenue and earnings, they build in a $2-$3 dollar valuation. So going back and renegotiating for cash can be a bit challenging. Not impossible, it’s going to take a little time, but we’re in the process of doing that.

For Casey, he’s in the process of scaling his operations and really applying it nationally. Getting involved in all these business lines over the next couple of months is going to be crucial

Now that Casey and Mike are doing the driving, how are Michael and Roger going to remain involved in PHM, what is it that they will be focusing on?

EB: Michael and Roger’s role and ownership is identical to what it was before this fiasco. I don’t see why their role is any different than it used to be and in fact I know many shareholders insist that it’s the same as it used to be.

As far as the senior listing is concerned Michael and Roger are key to getting this complete. We are waiting on our Auditors on the exchange. We were hoping to have that done in August, but we were held up by some of the red tape. However, we anticipate that happening sometime in the coming weeks.

Now that the share price has done its tumble, what would you say would be the key factors for traders to consider ‘now’ to be the perfect time to snatch up PHM stock?

Click to enlargeEB: Certainly on a run rate basis, it’s clear that we’re under-valued based on market comps. What traders should understand is that PHM now has three forms of increasing shareholder value. There’s the EPS growth through acquisition, there’s the resulting cross-selling growth, and there’s an effective management team in place with a great record for organic growth. In the long term, I think those three factors are going to be increasing revenue and ultimately shareholder value, along with $56.0 million in cash and operators who are committed to limiting dilution. I think these are all great points to consider.

You know, in the short term, considering current prices, I wouldn’t be surprised if we were approached by buyout groups.

In the end, I think Casey is in the process of putting together some stronger projections for 2016 EBIDTA, expected run rate and as he gets more into these business plans, we’re going to be coming out with more and more good news. Also, PHM will ultimately be a blend. Previously it was around twenty/twenty-five percent EBIDTA margins. Certainly a large part of our business now is in the thirty/thirty-five percent EBIDTA margins. So, overall EBIDTA margins will be increasing.

PHM is finally out of the gate and has hit the ground running. I think investors are going to see a lot of positive action over the next 12 months that will create a surge in shareholder value. Yes, there was a bump in the road, but I see this as a long term winner with a unique opportunity. Those who are able to focus on what’s happening now and how the company is building, will probably see it the same way I do. However, don’t take my word for it, as always, do your due diligence.

Incidentally, shares were up again today by 4.84% to $0.65 per share.

Click to enlarge

Currently there are 290.8m outstanding shares with a market cap of $189 million.

FULL DISCLOSURE: Patient Home Monitoring is a Stockhouse Publishing client.


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Comments

I have been watching this for a while and they keep issuing more and more shares, so it seems the revenue overall increases but the revenues per share is not increasing at the same rate. A penny stock with over 300 million shares outstanding???
(0)
November 3, 2015

If they are serious, they'd move them back or to another fund if it can be done with the approval of exchange(s).
(0)
September 2, 2015

the sooner phm disassociates itself from stockhouse (spamscamhouse) the easier it will be to gain back some of it's credibility. the whole phm board is a friggin joke and total disservice to the company imho
(921)
August 30, 2015

Great interview. It was a long chain of events that eventually caused the collapse. The globe and mail article was the knock down punch at the end. However, what surprised me the most was the timing, PHM had been notorious for timing news at the right moment but this time they got sloppy and paid for it (literally). In the long term, this will be a distant memory. Great business model with a bright future ahead.
(0)
August 26, 2015

Gaalen, Nicely written article Sir! Well balanced and a pleasure to read. Cheers!
(0)
August 26, 2015

I have to say, that was a good interview. A little mix of both positives and negatives. Even if they did lose a couple LIO's over the cash, it might time to get house efficiencies together and concentrate on the organic. Show the results and all will be forgiven. I like the buy out part! $2.00 per share sounds good.
(0)
August 26, 2015

Excellent article and interview. Now if only the lemmings that fell over themselves to dump their shares and tank the stock had read this sort of information that explains in detail the current situation, maybe the share price would never have dropped below $1. It certainly should be back above that level soon.
(0)
August 26, 2015

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