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Edited Transcript of CRH.TO earnings conference call or presentation 2-May-19 3:00pm GMT

Q1 2019 CRH Medical Corp Earnings Call

VANCOUVER May 13, 2019 (Thomson StreetEvents) -- Edited Transcript of CRH Medical Corp earnings conference call or presentation Thursday, May 2, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James T. Kreger

CRH Medical Corporation - President of CRH Anesthesia Management

* Richard K. Bear

CRH Medical Corporation - CFO & Corporate Secretary

* Tushar M. Ramani

CRH Medical Corporation - CEO & Director

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Conference Call Participants

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* David C. Martin

Bloom Burton & Co., Research Division - MD & Head of Equity Research

* Endri Leno

National Bank Financial, Inc., Research Division - Associate

* Lennox Gibbs

TD Securities Equity Research - Research Analyst

* Noel John Atkinson

Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation

* Richard Collamer Close

Canaccord Genuity Limited, Research Division - MD & Senior Analyst

* Tania Rae Gonsalves

Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the CRH Medical First Quarter 2019 Results Conference Call. (Operator Instructions).

I would now like to turn conference over to Richard Bear, CFO. Please go ahead, sir.

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [2]

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Thank you, operator, and good morning, everyone. I'm joined today by our new CEO, Dr. Tushar Ramani; and the President of CRH Anesthesia, Jay Kreger.

Before we start, I'd like to remind everyone that certain statements you will hear today constitute forward-looking statements within the meaning of applicable securities laws. For important assumptions, definitions and cautionary statements about forward-looking information and the risks inherent to our business, please refer to the cautionary notes in our 10-Q for the month ended -- for the quarter ended March 31, 2019.

During this call, we will discuss non-GAAP measures as indicators of our performance. You can refer to our management's discussion and analysis for the 3 months ended March 31, 2019 for reconciliations of non-GAAP measures to reported GAAP measures. These documents are available on SEDAR, EDGAR and on the Investor Section of our website. In addition, please note that we use the abbreviation GI to refer to gastroenterologists. Finally, please be advised that our reporting and functional currency is in U.S. dollars and that all dollar figures referenced today are in U.S. dollars.

With that, I'd like to welcome and introduce our new CEO, Dr. Tushar Ramani.

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [3]

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Thank you, Richard. Good morning all. I'm pleased to have this opportunity to introduce myself and address everyone now that I've been appointed as CEO of CRH Medical Corporation. With my background, you'll find that I bring to this role a genuine empathy for clinical professionals, a strong focus on business development, customer service and accountability, allowing me to fully represent the various stakeholders in our company.

More specifically, I'm a former anesthesiologist and a co-founder and leader of Anesthetix, a national provider of comprehensive anesthesiology solutions for hospitals and surgery centers. As well, I've led and developed several other health care companies, some in anesthesia, some without, including a full service health care staffing firm and an anesthesia revenue cycle management company.

And now I'm on to CRH, where I'm humbled to lead what I've seen to be a highly skilled and motivated team of professionals and administrators. And thanks to their dedication, we enjoy a well-earned reputation in our industry for high quality customer care and reliability and we're eager now to leverage that reputation for the enormous market opportunity ahead of us and to deliver maximum value to our customers and shareholders alike.

I share the Board's and management's commitment to continuous improvement in all aspects of our business. We will continue to invest in our people, knowing that personal accountability and integrity are the anchors of our culture, and we'll continue to manage our capital and finances in the best interest of our shareholders.

Best of all, as a supplier of critical and valuable services to gastroenterologists and their patients, CRH -- we have earned a cherished and unique relationship with our GI community and CRH will strive to be even more so the trustworthy and sought after partner that our customers and patients have always relied on. I believe that CRH is well positioned to rapidly grow its footprint in its core services even as we look to expand its offerings and be more useful and more valuable to this specialized market.

Now, regarding our 2019 Q1 results. We're very pleased with the steady double digit revenue growth coupled with adjusted shareholder EBITDA of $8.8 million. This shows that our model continues to deliver on its potential and validate our acquisition and operational strategies. CRH is well positioned now to grow its current model, expand its offerings, and continue to deliver strong financial results.

I will hand it off now first to Jay and then to Richard to review the first quarter in detail.

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [4]

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Thank you, Tushar. The first quarter of 2019 ended with substantial year-over-year gains for total revenues and adjusted operating and shareholder EBITDA. Our anesthesia revenue grew nearly 21% over the same period from 2018. This growth was mainly due to 2018 acquisitions that we completed throughout the year along with our first acquisition of 2019 that was announced earlier in the quarter.

We are now serving 47 ASCs and 320,000 patients annually, which does not include our MAC development program currently in North Carolina that was initiated last year. We remain confident and look forward to the continued expansion of our anesthesia footprint this year and beyond. The pipeline is strong, with our business development team and myself having active discussions with GI groups all over the country. We'll continue to capitalize on these opportunities, utilizing all of our resources, including our O'Regan account team and help the GI community realize the optimized value that CRH provides to their anesthesia businesses.

To reiterate, the O'Regan relationships and our reputation within the GI community will continue to help drive our anesthesia business, and more specifically, our acquisition and development pipeline. Our operation team continues to streamline our integration process and ensure that our anesthesia providers are second to none. CRH has now gained a national reputation across the provider network, which assists our ongoing recruitment efforts and puts a premium focus on safety and patient satisfaction. Meanwhile, our industry-leading financial performance continues to be our competitive advantage and sets us apart from other ancillary partners.

As I mentioned on our last call when we discussed our year-end results, we expect to spend $35 million on acquisitions this year. We will rely on both our O'Regan customers and our existing anesthesia physician partners as catalysts for this growth. We believe that our position as the GI anesthesia partner of choice will only continue to flourish.

I will now turn it back to Richard for his commentary.

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [5]

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Thank you, Jay. I'd like to start by reminding everyone that beginning December 31, 2018 and on a retrospective basis, our financial reports are being prepared in accordance with U.S. GAAP. We also report consolidated financial statements, which means that our financial statements include those of the subsidiaries in which we hold a controlling interest such as the anesthesia practices we own or in which we hold majority interest. This practice is in keeping with current accounting standards.

During the first quarter of 2019, we reported total revenue of $29.1 million, an 18% increase compared to the first quarter of 2018. Anesthesia revenue grew 20.7% -- it grew 20.7% to $26.7 million. During the first quarter of 2019, we provided services to 77,501 patients, which represents a 34% increase compared to the same period in 2018.

Sales of the O'Regan system during first quarter were $2.4 million compared to $2.5 million for the same period in 2018. Total adjusted operating EBITDA for the first quarter was $13.1 million. The operating EBITDA margin for the quarter was 45%. Operating EBITDA margin was 48% for the anesthesia segment and 57% for the product segment. Adjusted operating EBITDA attributable to our shareholders was $8.8 million.

For the 3 months ended March 31, 2019, net cash flow from operating activities was $12.4 million and free cash flow, defined as net cash flow from operating activities less distributions and noncontrolling interest, was $8.3 million. As of March 31, 2019, we had $5.6 million in cash and $12.3 million in working capital. Our acquisitions continue to be financed through internally generated cash flows along with our $100 million credit facility, which currently has an interest rate of LIBOR plus 250 basis points. At quarter end, we had $36 million available on our credit facility to fund future growth.

I now give it back to Tushar.

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [6]

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Thank you, Richard. Again, I would just like to say that how excited I am to be here and how optimistic I am about the future of CRH.

And I think with that, we'll just open it for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Lennox Gibbs of TD Securities.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [2]

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So my first question is for Dr. Ramani. Can you speak more specifically about areas of CRH's business in which you see yourself being most hands-on and in which you think you're likely to bring the greatest value?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [3]

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Sure, Lennox. Thanks for your question. I think the greatest thing that I bring to CRH is my physician sensibility. And so developing relationships with our key customer market, gastroenterologists, as well as our anesthesiology providers should allow us to strengthen those bonds as well as, as we seek extend them, allow us hopefully a better entree and a peer-to-peer level of relationship.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [4]

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Okay. Perhaps the same question in a different way. What are your top 3 priorities? If we look through the balance of 2019, what are your top 3 priorities for that period?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [5]

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Well, I think our priorities will be first to set and understand exactly the level of opportunity we have in our core business. And next will be to identify accelerators that we can use to -- again, to leverage the relationships that we have spent all this time developing.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [6]

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Okay. And then just secondly with respect to growth, can you speak to the organic headwinds you're experiencing in the established practices? I think there was mention in the MD&A of CRNA costs. And also give us a sense as to how much you expect contract migration to cost you in 2019.

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [7]

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Lennox, it's Richard. I will attack a couple of those. So organic growth continues to be in that 1% to 3% range. Revenue attributable to organic growth in Q1 compared to Q1 2018 was close to $1 million. So organic growth continues. We continued to reduce our overall cost per case. I think the cost per case is down a couple of dollars when compared to the same period in 2019 (sic) [2018]. And in terms of revenue per case, the revenue per case reported for Q1 is $344. That's been impacted positively by some accrual true-ups. But we are still expecting case -- revenue per case in that $340 range for 2019.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [8]

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And then specifically CRNA costs, in which regions are your experiencing sort of labor inflation there? And again, the contract migration, I know for 2018 you said you expected a 5% hit. What do you expect for'19?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [9]

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Lennox, this is Jay. I'll address the CRNA cost. You mentioned that it's regional in nature, but I think we have -- we've taken that into account. And as we increase utilization through organic growth, we offset that cost increase. And so it's not material at this point, we don't expect it to be. From a contract standpoint, I'll let Richard...

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [10]

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Yes, from a contract standpoint -- I mean, if you look at some of -- you look at 2015, 2016 and a large part of the 2017, those have gone through from noncontracted to contracted probably to the extent that they're going to. So the contract changes we'll see will be primarily of the 2018 activity, but that will be offset by new acquisitions that come in noncontracted in 2019. So we believe that we will -- that levels that we've reported for 2019, the $340 per case, which is really the seasonally adjusted Q4 numbers -- Q4 2018 numbers adjusted for the commercial payer mix. And so they will remain steady through 2019.

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Operator [11]

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The next question comes from Noel Atkinson of Clarus Securities.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [12]

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First off, the procedure volume, we actually thought it was pretty strong in Q1. Are you seeing any sort of positive benefits from the move to more in-network agreements last year sort of smoothing out some of the historical seasonality in Q1?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [13]

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Noel, it's Jay. The network -- in-network has no impact on case volume or patient volume.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [14]

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Okay. Could you tell us a little bit more about the Arapahoe minority interest acquisition in terms of EBITDA, multiple? What the motivation was there for the sale, that sort of thing?

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [15]

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Absolutely. Last year, we actually proactively made a decision to solicit certain partners that we had who might be willing to sell additional interest up to and including 100% ownership by CRH. Obviously, we're very bullish on the business. The valuation of the transaction for the 49% was done consistent with how we valued the original transaction, yet adjusted for CMS code changes.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [16]

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Okay. And then do you folks have any change to your acquisition outlook for 2019? Are you still looking at sort of a similar rate of acquisition activity as in the last few years?

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [17]

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On the year end call, we actually gave guidance of $35 million, and that remains the number for this year for acquisitions. We've also mentioned that we have -- our development pipeline is growing, which will lead to future transactions in 2020 and beyond.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [18]

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Do you see that -- the minority interest purchase as a part of that $35 million?

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [19]

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Yes.

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Operator [20]

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The next question comes from Tania Gonsalves, who is with Cormark Securities.

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Tania Rae Gonsalves, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [21]

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So firstly, just on the collections. You noted significant collections in April. Does this all relate to payers having now properly updated their systems with the new codes? Or is this just the backlog from high volumes in Q4? We've been waiting for those DSOs to normalize for a year now. And while I know Q1 is seasonally higher, can we expect these levels to start trending downward beginning in Q2?

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [22]

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Yes. Thank you Tania for the question. Yes, April was a very strong collections month and if we reported monthly [C] days outstanding less in April than they currently are and we expect that to continue. There is a backlog of some outstanding claims primarily because of the code changes, the interpretation of when somebody comes in for a screening that turns into a diagnostic and then the rebilling of those. Our goal is to maximize our collections. So we're not going to close out claims just to decrease our days outstanding. We want to work those claims as long as possible to ensure maximum collectability. But that being said, we will see the days -- we expect to see the days outstanding decrease through 2019 at least compared to 2018.

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Tania Rae Gonsalves, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [23]

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And then following the acquisition of ACA earlier this year, I noted that the annual procedures you referenced were 316,000 I believe. When you reported Q1 results, though, those jumped to 320,000 even though there was no M&A between that period. And I'm wondering if that 4,000 of extra procedural volume relates to GAA maybe, considering we saw that big -- that revaluation of the earnout. Has it just been performance of GAA or was there something else blended across the...

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [24]

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It was overall. So when we -- when that ACA press release went out on January 2, we had not closed out December yet so did not have final year-end numbers. So with final year-end numbers, we're able to true-up what the annual case volume is. And that's why it went from the 316,000 to 320,000.

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Tania Rae Gonsalves, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [25]

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Got you. Okay. And then lastly for Dr. Ramani. I have a couple of questions for him just because we haven't spoken yet. I'm wondering if there's any -- because he did spend some time at TeamHealth, which runs quite a similar business, are there any specific strategies or topics that you used there to grow their revenue that are transferable to CRH you think?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [26]

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Well, Tania, I think -- firstly, I appreciate the question and thank you. I think the TeamHealth business is actually distinct from this one. In this one, it's primarily outpatient focus, primarily single specialty, sort of rapid turnover anesthesia services in a non-acute care setting, right. And the strategy is different as well. Here we're developing partnerships and joint ventures, and in some cases, outright acquisitions from established services that our GI partners have developed, as well as a medical product strategy that helps drive those relationships and sales as well.

So again, just 2 different businesses. The commonalities I guess are the types of professionals that we work with. And then to the degree that there was a greater organic strategy, displacement sales at TeamHealth, we don't have that here as much. It's more of an acquisition plan.

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Tania Rae Gonsalves, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [27]

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Okay. And then lastly as well, you might not have a proper idea about this yet, but you did spend some time at a private equity firm. I'm wondering what your thoughts are on maybe if the stock market is not giving CRH what it wants, are you open to perhaps taking this platform private?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [28]

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Tania, I'm quite comfortable managing this company both in a public venue as well as a private venue. I think we have to do what's best for the shareholders and -- depending on whatever the circumstances might be.

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Operator [29]

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The next question comes from Richard Close, who is with Canaccord Genuity.

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Richard Collamer Close, Canaccord Genuity Limited, Research Division - MD & Senior Analyst [30]

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Welcome, Dr. Ramani. So obviously, very impressed and interested in your background and you just received a question in and around that a little bit. But I'm curious how maybe your past history, various positions portends for the future growth strategies for the companies -- or for CRH. You mentioned expansion of the breadth of services, but didn't really provide much detail there. Can you go into maybe your thoughts in terms of expanding the breadth of services at the company?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [31]

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Richard, thank you. I appreciate the query there. I would say that in time I will be able to answer your question. I think that right now I'm getting my arms around things and we're assessing what the landscape looks like. But for now, let me just say that our plans are to continue to maximize the opportunities that present themselves.

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Richard Collamer Close, Canaccord Genuity Limited, Research Division - MD & Senior Analyst [32]

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Okay. So we'll wait and -- wait to hear some more there. Maybe a higher level question. I'm just curious. What was your thought process in terms of what attracted you to CRH? Did you know them before? How did you come to discovering the company and what you believed was most attractive in terms of the opportunity going forward?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [33]

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Sure. First, I will say that, yes, I've been aware of CRH for a number of years just because of its adjacency to my original business and profession. And I've always admired the business plan because it's a particular segment of our space that has sort of built-in accelerators with colonoscopies being an increasingly important and increasingly valued screening tool as well as ultimately a therapeutic tool. And then the margins that are available in this type of business are attractive that allow you to develop the business in so many ways. So that was attractive to me as well.

Then when I specifically looked at it most recently, the fact that it has 2 service lines already which are each probably $1 billion to $2 billion market spaces, where we essentially still just have a drop in the bucket that just represents such a significant opportunity for some good business development that was pretty attractive for me.

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Richard Collamer Close, Canaccord Genuity Limited, Research Division - MD & Senior Analyst [34]

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Okay. I guess my next question might be for Jay here. So Jay, you've thrown out the $35 million in acquisition spend for 2019. You just did the 49% remaining on Arapahoe and the other transaction earlier in the year. Do you think you need to -- I mean, we're already here in May. Do you need to ratchet up here in order to hit that target? I mean, what would be -- how should we think about the timing of transactions as we look at the rest of the year?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [35]

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Thanks, Richard. A fair question. If you look back historically at our transactions, the majority of them have taken place in the second and third quarters. While I realize the second quarter is 1/3 over, I think you'll find that to be the case again this year with the third quarter especially being the strongest, which I think it has been if you were to go back and count all the dollars spent. I'm not sure what you mean by ratchet up, but I can assure you we're all hands-on-deck to maximize the opportunities that are out there to make sure they get closed this year.

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Richard Collamer Close, Canaccord Genuity Limited, Research Division - MD & Senior Analyst [36]

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Well, your confidence level in terms of being able to spend that $35 million, that hasn't changed at all since the last call?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [37]

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I am quite confident it has not changed.

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Richard Collamer Close, Canaccord Genuity Limited, Research Division - MD & Senior Analyst [38]

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Okay, great. And my final question. I guess this was hit on a little bit earlier. But Richard, can you go over the change in the earnout valuation there? Just what's the background on that?

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [39]

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Yes. At the end of each period we look at the historical and expected performance of GAA up through May 31, 2019, which is the end of the measurement period and adjust the earnout relative to that analysis. GAA -- it's obvious it's beating our estimates for Q1, which increased our estimates for April and May that resulted in the earnout being revalued to $4.34 million, which is a $1.4 million increase from where it's at -- where it was at, at 12/31. And that $1.4 million rose through finance charges in our financial statements. The measurement -- like I said, the measurement period, May 31, we'll provide the seller a reconciliation and expect 45 to 60 days after that, so early Q3 to finalize that payout.

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Richard Collamer Close, Canaccord Genuity Limited, Research Division - MD & Senior Analyst [40]

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Okay. And I guess I do have one final one. There was the recommendation to get colonoscopies -- I think it was 45 years old or what not. That was a change to recommend getting it at an earlier age. Have you guys seen any impact with respect to that in your practices in terms of higher demand?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [41]

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Yes, Richard, that was brought out by the American Cancer Society as opposed to the College of Gastroenterologists. At this point, I think other than driving some awareness we have not seen any material change or uptick from that recommendation. We don't expect...

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Richard Collamer Close, Canaccord Genuity Limited, Research Division - MD & Senior Analyst [42]

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Congratulations again.

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Operator [43]

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The next question comes from David Martin, who is with Bloom Burton.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [44]

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I guess my first question will be for Dr. Ramani as well. You mentioned you are positioned to provide a better entree, more peer-to-peer. I'm wondering do you have a lot of contacts in the GI ASC universe right now that maybe CRH didn't previously?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [45]

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I'm sure that there's a significant amount of overlap in our contacts, but there are probably a handful that I can make introductions more readily than what we've achieved before.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [46]

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Okay. On the M&A front, I'm wondering -- the last 2 M&As have seemed to be more of 100% ownership than some of the ones done in the previous years. Are you leaning more towards that 100% ownership? Is that your choice? Is it the seller's choice? I'm wondering why that seems to be happening. Or is it just a blip?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [47]

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Yes. David, it's Jay. I can say that it has 100% been the physician's choice. I think we've noted before that physicians all sell for different reasons and the amounts that they sell are for different reasons. Some of that may be just based on the profile of the practice and may be because of where their practices are located. I think -- as we've noted before, the CMS coding change in 2017 made some doctors look at their anesthesia business, and so some -- it was a risk mitigation strategy to sell. And so they may have wanted to sell more and that accounted for why -- I think 3 of the last 6 transactions were 100%. I do not believe that that is an ongoing -- based on what I know of the pipeline, I don't think it's an ongoing trend. I think it's just -- it's hit and miss.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [48]

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Okay. Are you seeing trends in the space -- prices increasing for assets, competition increasing? Or is it pretty much the same as it's always been?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [49]

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Same as it's always been, where we continue to have these effective multiples of 4 to 5. In fact, when the deals get too rich like that, we'd walk away from them.

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David C. Martin, Bloom Burton & Co., Research Division - MD & Head of Equity Research [50]

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Okay. And last question. Amongst your current clients, are any of them planning to build and open new clinics this year?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [51]

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So when we look at organic growth, that comes from many different directions. It comes from new doctors being added to the practice and can come from new centers being opened. But it's really driven more by the number of doctors, not how many clinics or rooms they have opened.

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [52]

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But David, there would be some coming on, but as we spoke previously, that would be in that -- that would already be included in that 1% to 3% organic guidance that we provided.

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Operator [53]

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The next question comes from Endri Leno, who is with National Bank.

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Endri Leno, National Bank Financial, Inc., Research Division - Associate [54]

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A couple for me. First, I just wanted to touch a little bit on the debt. You had a relatively large debt payment in the quarter and I was wondering how do you see that going forward? I mean, can we expect a little bit of a repayment on the credit facility? And what would be your optimal or target debt ratio?

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [55]

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So in terms of the debt payment, so as you recall, we have a $100 million credit facility, $25 million term, $75 million revolver. We use the revolver just like people use their personal line of credit. When we have excess cash, we put it against the revolver because we can re-borrow on it at any time.

So we're trying to manage our cash balances really just to make sure that we have enough for working capital, because it's difficult to get banks these days to pay you 5% on your savings. So we'd rather knock off interest expense off our books.

In terms of where we're comfortable in terms of debt-to-EBITDA, I mean we're sub 2 today. With the types of acquisitions that we're doing, accretive, strong margin profiles -- if we did a chunk of acquisitions in a given quarter, we could expect that to creep up, but it would slowly retrace because then we'd have the benefit of that EBITDA. So I'm not concerned about the structure of the current debt facility limiting our ability to grow.

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Endri Leno, National Bank Financial, Inc., Research Division - Associate [56]

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Got it. Great. Thank you. And the next question, perhaps for Dr. Ramani, and you alluded a little bit to CRH having 2 -- well, segments that they do, but they both have $1 billion to $2 billion potential. And we've seen and we can see acquisitions and growth in the service segment. I mean, what -- if you can talk a little bit to the opportunities on the product segment?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [57]

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I can, Endri. Specifically, I was referring when I talked about the market size on the hemorrhoid treatment side. There have been recent estimates that the current state of hemorrhoid treatment represents upwards of $2 billion in expense for treatment. And we obviously have a very, very, very small share of that, yet we have the gold standard for treatment. So I think that represents an enormous opportunity for us to educate the market and continue to gain our share of that market.

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Operator [58]

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This concludes the question-and-answer session. I would now like to turn the conference back over to Tushar Ramani for any closing remarks.

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [59]

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Thank you. Well, again, I'll just say if it's not clear, I'm really excited to take advantage of the opportunities that we have in front of us here and I look forward to having more of these discussions with you in more detail in the future. Thank you again, all, for attending.

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [60]

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Thank you, everyone.

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [61]

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Thank you.

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Operator [62]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.