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Edited Transcript of CRH.TO earnings conference call or presentation 1-Aug-19 1:00pm GMT

Q2 2019 CRH Medical Corp Earnings Call

VANCOUVER Aug 10, 2019 (Thomson StreetEvents) -- Edited Transcript of CRH Medical Corp earnings conference call or presentation Thursday, August 1, 2019 at 1:00:00pm 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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* Doug Cooper

Beacon Securities Limited, Research Division - MD and Head of Research

* Douglas Miehm

RBC Capital Markets, LLC, Research Division - Analyst

* 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 Corp., 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 Second Quarter 2019 Results Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Richard Bear, Chief Financial Officer. Please go ahead.

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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 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 security 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 3 and 6 months ended June 30, 2019.

During this call, we will discuss non-GAAP financial measures as indicators of our performance. You can refer to our management's discussion and analysis for the 3 and 6 months ended June 30, 2019, for reconciliations of non-GAAP measures to reported GAAP measures. These documents are available on SEDAR, EDGAR and the Investors 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 the U.S. dollar and that all dollar figures referenced today are in U.S. dollars.

With that, I will now leave you with our CEO, Dr. Tushar Ramani.

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

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Thank you, Richard. Thank you also to everyone on this morning's call for your interest in CRH. I'd like start with just a quick recap of my time here so far, a little over 90 days now. So I'm taking time to assess our current operations and understand our opportunities. I've met with O'Regan, with [CRH] O'Regan and our anesthesia team. I've had important discussions with several of our GI partners across the country, and I have attended the international DDW conference, where I was able to interact live with the GI community, including current and prospective CRH customers.

And additionally, I've had the opportunity to meet or speak with many of our key shareholders as well. And all the work thus far in terms for me that CRH enjoys a great reputation and customer satisfaction in both our current business lines. That there are worthy growth opportunities in leveraging the work done thus far in both of them and that our positioning in the GI community has set us up well to add to the way that we serve our GI partners and customers in the future.

Now much of this time was also spent strategizing the leadership here on identifying and developing 3 material growth opportunities. We think that one of these is already in-house, namely the O'Regan System, for band ligation of hemorrhoids. As I mentioned on this call last quarter, the treatment of hemorrhoids is starting to get significant attention as an important but neglected and undertreated medical condition. As the leader of the most effective treatment, the time is right for us in making significant and renewed efforts to educate the medical and patient community that hemorrhoids are eminently treatable and that gastroenterologists should be the ones to do it, and that the O'Regan System is the safest, fastest, easiest way for them to do so. We think the ultimate opportunity here could be an order of magnitude greater than what we've created so far.

The second one is anesthesia for endoscopy, which is our largest segment, and one where the GI community have already recognized the CRH as the far and away market leader in terms of clinical and business management. We've demonstrated continued success of this, and we see a long runway and M&A opportunities. We've also got some plans here that will help us expand our opportunity set and help us engage with a wider group of GI practices.

And then we see a third segment following. The ancillary for where CRH will be able to, in a similar way to our anesthesia offering, bring or optimize certain ancillary lines of patient care to the GI community. This is still in the conceptual stage, but at my earlier conversations, we like to believe that there could be a receptive market out there for a company with a strong expertise in managing clinical and business aspects of certain patient care offerings that many GI practices can't or won't fully invest in themselves.

Now regarding our 2019 second quarter results. We are pleased overall with the substantial year-over-year gains for total revenues, coupled with the adjusted shareholder EBITDA of $9.7 million. We are proud of these results in that the continued double-digit level of growth quarter after quarter continues to substantiate our business model. But we're not satisfied that we've optimized the opportunities that come from our market leadership in the GI support space. I'd like to gest in about, CRH will now be actively working to find new strategies, which will help further accelerate our growth and continue to drive shareholder value.

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

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

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Thank you, Tushar. Our anesthesia revenue grew $28 million for the first quarter and to $55.7 million year-to-date, representing increases of 14% and 17%, respectively, over 2018. Our growth continues to be driven by our acquisition strategy, which included 1 transaction in the quarter. In this transaction, we expanded our footprint in Georgia, acquiring 55% of a group running in 2 locations. Through the first 2 quarters, we've now concluded 3 transactions, not including the subsequent Florida acquisition that was completed and announced in July. Including that transaction, CRH has now spent $11.4 million on acquisitions year-to-date, which still does not include our MAC development program in North Carolina, which we expect to transact in the fourth quarter.

We still expect to hit our previously stated spend target of $35 million. While the timing of our transactions is behind pace, our funnel continues to widen, and we have a line of sight to meeting our goal. In fact, we have more groups at a meaningful deal base than we've ever had and, therefore, remain optimistic about this year as well as any future runway. We are now probably serving 52 ambulatory surgery centers and have 333,000 patients each year.

This national footprint and scale is coincided with the ongoing development of our operations team as we systematize our organization. This starts with recruiting and attracting only the best anesthesia providers, which results in one of our other differentiators, our quality of service and outcomes. Our documentation practices and subsequent reporting ensures that we are not only maximizing our reimbursement, but that we also have insight into the outcomes that we are delivering around the country. Our vast footprint further allows us to benchmark within our organization as well as against any national standards. Finally, the recognition we are gaining as a provider of choice in GI anesthesia will ultimately be the catalyst for our future growth, both for anesthesia as well as with our O'Regan customers, which do overlap.

I'll 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 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 anesthesia practices that we own, or in which we hold a majority interest. This practice is in keeping with our current accounting standards.

During the second quarter of 2019, we reported total revenue of $30.5 million, a 12% increase compared to the second quarter of 2018. Anesthesia revenue for the quarter grew nearly 14% year-over-year to $28 million. During the second quarter of 2019, we provided services to 84,656 patient cases, which is a 27% increase over the same period in 2018. Sales of the O'Regan System during the second quarter were $2.5 million compared to $2.7 million from the same period in 2018.

Total adjusted operating EBITDA for the quarter was $13.3 million. Total adjusted operating EBITDA margin for the quarter was 44%. Adjusted operating EBITDA attributable to shareholders was $9.7 million for the 3 months ended June 30, 2019. For the 3 months ended June 30, 2019, net cash flow from operating activities was $9.6 million and free cash flow, defined as net cash flow from operations less distributions to noncontrolling interest, was $5.4 million. Free cash flow for the 6 months ended June 30, 2019, was $13.8 million. As of June 30, 2019, we had $2.6 million in cash, $14 million in working capital and $33 million available on our credit facility. Our acquisitions continue to be financed through these internally generated cash flows along with the $100 million credit facility, which currently at an interest rate of LIBOR plus 325 basis points.

I will now leave it -- I will now turn it back to Tushar for his closing comments and questions.

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

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Thanks, Richard. I just want to -- I'd like to thank our hardworking team here at CRH for another good quarter. And I want to reiterate that we are -- remain very optimistic about our future here at CRH.

With that, we'll open up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Tania Gonsalves with Cormark Securities.

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Tania Rae Gonsalves, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [2]

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Just a couple of questions from me. It was a pretty good quarter. It seems like just on the M&A front, you touched on the fact that your pipeline is still looking good. You reiterated about $35 million of deployment, which is great. Is there any reason why the first half of the year was so -- as slow as it was? I know the summer tends to be the biggest in terms of acquisition activity, and we've only got 2 months left. So what makes you so sure that you are going to hit that $35 million deployment forecast?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [3]

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Tania, thanks for the question. As I think you touched on it, historically, the second and third quarters are always the busiest of the year. And not only closing deals but also getting deals set up to close. So I think, as I mentioned, we've got a line of sight of what we expect to close here near the end of this quarter, third or early in the fourth.

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Tania Rae Gonsalves, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [4]

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Okay. Perfect. And then secondly, there's been a big push to introduce legislation that would enterprise billing in the U.S. What, if any, impact will this new legislation have on your anesthesia business?

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

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Tania, it's Tushar. I'll take that, and thanks for that question. So with enterprise billing, it's a little bit murky, right? And it really ultimately depends on where the -- any successful legislation ends up setting the reference level payments to these noncontracted services. And we saw that the kind of proposal knows clearly too well in the second of the event, that the future provider propose levels that can better reflect the cost of providing services. We know that the House is looking at something that's arbitration dates for these reference payment levels. But then the White House has already stated that they are opposed to have arbitration-based solution.

So I don't know that there's a real consensus there, and there's a lot that remains to be seen and what ultimately happens. But I guess, regardless, if it's passed in some form, we think that there's going to be an increasing level of work and the costs that CRH and others have to incur to get our claims paid or repaid, I guess, at acceptable levels for these noncontracted charges, which is going to be more rounded effort to do that.

But we think that at our size that we can expand those costs. And now at our scale, our breadth and volume, we believe has an economic benefit in payer contracting. And so now we're going to actively look at ways that we can engage with payers to access upper tier contract rates for our services that are more commensurate, I think, with the -- with an organization that's our current size and quality now. And the benefit this of this should be that we'll reduce our noncontracted exposure or out-of-network exposure without impacting the profitability and also without impacting our ability to attract quality providers.

If you think about that, a lot of the smaller GI practices that are not affiliated with us, they're going to see substantial reductions in their [activities] noncontracted activities . And they will not have, I think, the experience, the size or the market influence to get the kind of rates that we'll be able to do -- that we'll be able to achieve there. And so maybe one interesting byproduct of all this is, especially given our current drive to get more contract, is that these affected GI practices maybe even more willing to transact with CRH as they see on their own anesthesia revenues decline.

So long answer, but I think the summary to your question is that, yes, there will be some impact, but we'll be able to change the way that we do our business and ultimately with a maybe more favorable result. And at the end, it may ultimately end up improving our anesthesia business opportunities.

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Tania Rae Gonsalves, Cormark Securities Inc., Research Division - Analyst of Institutional Equity Research [6]

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All right. I appreciate that. And then finally, you mentioned -- you touched on some ancillary lines of business that you could move into as your third growth strategy. Are you able at this time to provide any more color and give possible examples of these ancillary services?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [7]

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Yes. I got a thought about that as I was getting prepared for this conference call. And still that I needed the market competitiveness as well as trying to avoid maybe incorrect investor speculation, it's probably best that we wait until further along this.

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Operator [8]

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The next question comes from Lennox Gibbs with TD Securities.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [9]

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Can you -- I'm hoping that you can share your latest leader intelligence on the colonoscopy market, specifically, the latest data with respect to growth rate and the number of colonoscopy procedures and also the kind of momentum that you're seeing with respect to MAC penetration, whether or not you're continuing to see growing MAC penetration into those colonoscopy procedures. That's the first question.

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [10]

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Lennox, it's Jay. Thanks for the question. With regards to the second part of that, there's still no new data as far as from a national scale of where the standard of care is adopting MAC. However, we are still seeing regional pockets. And I think we've touched on this before, but regional pockets that are increasing the use of [football] and picking it up, and also we're talking about the West Coast, of course. And so we continue to see anecdotal evidence of nominal increases, while we don't have any national data to prove that out. But like I say, anecdotally, everything looks positive.

As far as volume of colonoscopies, every single physician and again, this is anecdotal, but every physician I speak to on a daily basis is looking to recruit new doctors. And there's actually a shortage of doctors who were seem to treat the patients that is out there, which tells me that colonoscopies are not shrinking.

And while the -- as you may recall, we talked about last quarter with the American Cancer Society of putting a new guidance out that 45 was made as the new age for starting colonoscopies. That hasn't been adopted by the other associations. But I think the awareness that it brings does enlighten people that colonoscopy is something that they should be doing at some point in about age 50 or at least.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [11]

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Okay. Is there any reason to believe that the growth rate in the number of colonoscopy procedures is any different from the sort of high single digit, low double digit, that we'd last seen reported around 2, 3 years ago?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [12]

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None that I've seen.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [13]

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Okay. How does your own organic growth in procedural volume compared to market growth?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [14]

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Our organic growth rate, we probably guided, that is around 1% to 3%. We're on the -- so far in 2019, that we're on the upper end of that. And we see that's fairly consistent with what we're seeing in GI endoscopic ASCs and the due diligence work that we do. How that compares to other ASCs? I wouldn't be able to comment on.

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [15]

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I think we're diversified enough now throughout the country and throughout multiple sizes and types of practices that we pretty much experience the same tailwinds that the GI industries have.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [16]

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But it doesn't seem to -- I mean, we're talking low single digits versus high single digits as the reported numbers for the number of -- in terms of procedural volume growth, it doesn't look like a match. Just help me understand that.

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [17]

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High single-digit growth in colonoscopy versus lower single-digit growth in cases, is that's the question?

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [18]

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That's the question. Are you keeping up to overall market growth?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [19]

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So Lennox, keep in mind, we're working within a practice. So for instance, if a practice has 10 physicians, those physicians will maintain a patient roster that they're seeing every 5 years or what have you, they're going to grow through new patients only based on their capacity. Our existing practices will only grow if they add doctors. And as I mentioned, we're trying to recruit doctors to meet that demand. So I think what we've got is the higher visits are coming in by way of even new practices or practices that are growing at a higher rate. And while our overall average, maybe 3% for instance, we've got groups that are growing faster than others because they're recruiting doctors. That's what's feeding the higher numbers that you're seeing.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [20]

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Right. So therefore, it's possible then that overall the ASCs that you serve are not necessarily matching overall market growth in terms of colonoscopy procedures. Is that a fair comment?

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [21]

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I don't agree with that actually because I think the growth is coming from new practices as opposed to organic growth within the existing practice.

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [22]

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I think that's another way, Lennox. As Jay stated, many of our practices are recruiting new doctors. So we have the opportunity to continue to grow and hopefully increase that organic growth percentage that we've seen historically.

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Lennox Gibbs, TD Securities Equity Research - Research Analyst [23]

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Okay. I'll move on. Just with respect to the ancillary services that you referenced in the introductory remarks, I noted that you don't want to disclose what they are at this time. But can you give us a sense as to the time line in which you could see actually launching into some of these ancillary services? And perhaps give us a sense as well as to whether or not this is a new therapeutic area that you might be referencing or if -- I'll remind you, as you said, it was in the context of GI.

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [24]

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Yes. Lennox, this is Tushar. It will be in the context of GI. It's unlikely to be something new. We think that the most optimal way to do this will be to put something that's been the [tried-and-true] service or offering for patients that currently is out there but maybe it's not being done to the level that GIs could or should do it will happen better, much like we did with anesthesia. As far as where will the first time line go, I think that we're not prepared to do that yet.

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Operator [25]

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Our next question comes from Noel Atkinson with Clarus Securities.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [26]

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On the first thing, I was wondering if you could talk about the 2020 proposals for the Medicare physician fee schedule and sort of any positive, negative impact you see on CRH? And specifically, they talk about CRNAs now being able to do some assessments on patients that previously physicians were able to do only.

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [27]

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Yes, Noel. Just a quick run-through on it. It just came out. We didn't see anything in that, that impacted our services. Rates are stable as we expect them to be from now on in terms of the rates. They did several years of studying adjustments in the last few years, and we think that we should settle the issues. With regards to the CRNAs and assessments, it will not change our practice for our overall economics in any way. It might improve some of the efficiency on the ground, but I don't think that, that will change that.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [28]

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Okay. Great. Can you also remind us about sort of Q3, Q4 seasonality and whether you expect it to be any different this year versus prior years?

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [29]

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Yes. I'll take that question. We haven't seen anything in Q1 or Q2 that suggests that seasonality, both in terms of volume of patients and payer mix, will be any different in Q3 and Q4 than it has been in previous years.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [30]

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Great. So in terms of sort of in-network or noncontracted discussion, just following up on a prior question. Have you seen the historical precedents in either your business area or sort of a similar practice area in U.S. medicine, where there would be the opportunity to move to higher tier payments and to be able to sort of offset this as you go in network?

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

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Historical precedence?

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [32]

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No, with the other business lines in the U.S., where folks that as they gain scale were able to go to higher tier payments. And then as they shifted to in network, they were able to offset any associated price decline.

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

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Absolutely. That's the one of the benefits of scale at health care organization is that we've had a different level of discussion with payers. Regarding independent small single practice, negotiating with a payer, I don't have the leverage or the experience to demonstrate the quality of care that we provide would like and the systems that we have to back up that quality of care, which allows me to ask for a higher rate and that's sort of driving true model.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [34]

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And that's something that you folks achieve for example, at TeamHealth in the past?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [35]

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Exactly.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [36]

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Okay. Perfect. And then also, the credit facility was extended from June 2020 to August 2020. Was there any reason for that and were any other terms changed?

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [37]

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No other terms were changed. There was really extension out of convenience. So we wouldn't have to classify it as current in this quarter's financials. So we'll be working over the next couple of months prior to the Q3 financial release to secure a new and improved, more competitive credit facility. And I'm not speaking of what we hope to accomplish. The process is pretty far along, and we expect to decide on a bank by the end of this month.

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Noel John Atkinson, Clarus Securities Inc., Research Division - VP & Research Analyst of Growth and Innovation [38]

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Okay. And then finally, can you just -- there was -- since we're talking about this sort of noncontracted payments or a sort of thing, can you talk about the percentage change in commercial cases that are in network now in -- as of Q2 this year versus the prior year period?

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

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Yes. No, we do not disclose the percentage of in-contracts versus out of contracts. I think the message that Tushar comments that you have made to an earlier question is really the important pieces that we believe now with our scale and with the expertise that Tushar brings to the organization that we can accelerate -- have the ability to accelerate that transition without any impact on our revenue per case.

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Operator [40]

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Our next question comes from Richard Close with Canaccord Genuity.

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Richard Collamer Close, Canaccord Genuity Corp., Research Division - MD & Senior Analyst [41]

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Just a follow-up on the getting scale and negotiating better rates for yourself. As I think about you guys, your practices are not concentrated necessarily in one area, although you do have some spots like Atlanta where you have some size there. Are you really able to negotiate rates on a national level? Do you have the scale? Or do you -- just any thoughts in and around that, that you can provide.

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [42]

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So some of our early conversations here, I think, give us confidence that we'll be able to do that. There are not just for players -- payers, excuse me. There are many, many smaller payers that are regional. And in those cases certainly, we'll be able to bring a level of sophistication to the contracting process that's better than individual practices. And for the larger national payers, 4 or 5 of them, that we're now, maybe we weren't a year or 2 ago, but we're now at a point where we can have this [cases].

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Richard Collamer Close, Canaccord Genuity Corp., Research Division - MD & Senior Analyst [43]

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Okay. That's helpful. And then, Jay, maybe on the acquisition pipeline, could you go into maybe a little bit more details with respect to -- do you see new states in there? Are these trending towards more 100% ownership or co-ownership models? Thoughts maybe around details on the acquisition opportunities that you're seeing.

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [44]

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Yes. Thanks, Richard. I think as far as the states that we go to, there will definitely be a new state that we enter into. And I think that's really just more a matter of us being out there, and people know who we are and reaching more people. As I was mentioning, our line of sight. The way we use that for our pipeline, we've got people at different stages with different models, both 100% as well as joint ventures. The 2 that we announced most recently were, of course, with joint ventures whereas last year, I think, 3 of the 5 were 100%. I see that remaining. It will be a mix based on the goals that our physician partners are trying to achieve where they are within their practice life cycles. I continue to see that as a mixed bag, so to speak. The space we're going through would be opportunistic because Tushar, touched on our national scale, allows us to be successful in every state but as long as they have adopted MAC and the standard of care.

As far as different models, and we haven't talked about this a lot, but I think some of the larger platform plays that we'll run our services, there will be an opportunity for us in the future where maybe it hasn't in the past because we expect with an acquisition-only model. And so again, the larger we get and have more resources, we're able to serve more routes without a one-size-fits-all business model.

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Richard Collamer Close, Canaccord Genuity Corp., Research Division - MD & Senior Analyst [45]

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Okay. And with respect to the de novo program, I think you have an option on the one that you started last October, if I'm not mistaken. What's the thoughts on the time line of bringing that into the ownership status? I think you -- it was 18 months or 16 months, 17 months, something like that from the start until you actually exercised your option.

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [46]

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Yes. The ramp-up on the current lines has been much shorter just because it was a smaller practice. And therefore, we believe it will transact in Q4.

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Richard Collamer Close, Canaccord Genuity Corp., Research Division - MD & Senior Analyst [47]

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Okay. And I guess, my final question here would be on O'Regan. I guess that decrease year-over-year in the second quarter, you talked about it being a growth area. Any thoughts on -- does O'Regan return to like the 10% growth level? Any time line with respect to a return to growth there?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [48]

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Yes, Richard, Tushar here. We've got a couple of initiatives underway right now, and we'll be able to see the effect of the initiatives there going forward, but we need our focus on that business with a number of things. We're going to increase our -- and we expect that this will increase sales soon, and then over time, in a more sustainable manner, and early indications that could positive for us. We're leveraging the GI communities increasing awareness of the need to treat the hemorrhoids. GI literature is actually independently supporting this, and it's a tailwind for us. It is trying to seem absolutely right to be winning into this right now. We're also supporting the development of training curriculum for GI fellowship programs. It's actually not part of the GI core training to identify and treat hemorrhoids.

Given the current academic focus on it, it seems like that's something that should develop, and that obviously will be beneficial to us as well. We've got some additional practice support initiatives. We have a higher emphasis on retraining physicians where usage may have decreased. And then resource-wise, we're looking at internally to see optimal efficacy of the current team and sales size that we have. And we wanted to figure out what's the best way to deliver sort of to continue the contact that this market seems to require in order to maintain the growth in these volumes. A lot of stuff that we're attacking all different angles, but I think this is ultimately successful in helping us achieve growth. As I said before, I think this is a full order of magnitude opportunity.

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Operator [49]

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Our next question comes from Doug Cooper with Beacon Securities.

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Doug Cooper, Beacon Securities Limited, Research Division - MD and Head of Research [50]

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Just wanted to stick on the O'Regan for a second. Can you just maybe talk about how big an opportunity you think is there? Is it possible to talk about what percentage of the market -- hemorrhoid market is serving today and what you think it could get up to with better education of the GIs?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [51]

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Well, if you look at what the headline opportunity is, the literature now -- recent literature seems that there's about 1.5 million newly diagnosed hemorrhoid patients just in the employer-insured market alone. There's probably another 1.5 million or so in the Medicare and non-employee insured market. And so you're talking about 1.5 million to 3 million new hemorrhoid patients per year.

And rubber band ligation, as soon as out, is probably the most effective basis practice, probably lowest cost treatment available. So you have to believe that the lion's share of those patients should be treated or could be treated with rubber band ligation.

Then within the ligation space, we believe there's really only 1 player. The O'Regan device or the O'Regan System is -- has been now used over 1 million times and has been -- and we've trained over 3,000 gastroenterologists. So it's the largest installed device certainly. And we currently do about $10 million in sales into that market to just roll out with our large cost is by and sort of multiply by the number of patients, well north of a couple of hundred million.

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Doug Cooper, Beacon Securities Limited, Research Division - MD and Head of Research [52]

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So can you just remind us the sales? Is it one use? One use and then have to rebar? One use per patient?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [53]

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Correct. And if the patient has 3 hemorrhoidal veins and so usually, all 3 of those need to get treated.

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Doug Cooper, Beacon Securities Limited, Research Division - MD and Head of Research [54]

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Okay. Moving on, just on the shareholder EBITDA, $9.7 million versus $8.7 million in the prior quarter. I guess the -- can you just talk about why the -- I mean, partly, it was driven by the purchase of the 100% of the anesthesia practice in April. But is there something else going on to drive the shareholder EBITDA higher, like, I would say, 100% own practices doing better than the other ones?

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

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Yes. Good question. So first off, we did acquire the remaining 49% of the Arapahoe in early April. So we had the benefit of owning that entire piece of business for the entire quarter, which had no impact on revenue or expenses because it's already consolidated, but did impact shareholders EBITDA and lower noncontrolled interest EBITDA. In addition to that, we talked earlier in this call about growth rates and different growth rates at different markets. We're seeing some of our strongest growth rates at markets that are 100% owned, large markets 100% owned or markets that we own even greater than 51% and more than 65% range are where we've seen our larger growth rate. So it makes sense to us that shareholder EBITDA came in at those levels.

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Doug Cooper, Beacon Securities Limited, Research Division - MD and Head of Research [56]

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Okay. You bought back just under 400 maybe -- just under 500,000 shares at an average price of CAD 3.82 and the stock currently trading below that level. So obviously, you thought it was good value in the last quarter. And now the company, by my calculation, is probably trading at its cheapest level. Maybe you wanted to go back and check the numbers, but it's trading about 6.5x trailing 12-month EBITDA, by my calculations. Will the company continue to be active on the buyback?

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [57]

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Yes. We're continuing to be active on our normal-course issuer bid. And we would continue to acquire shares at these levels like we did at the higher levels you noted earlier in that question.

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Operator [58]

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Next question comes from Doug Miehm with RBC Capital Markets.

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Douglas Miehm, RBC Capital Markets, LLC, Research Division - Analyst [59]

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Yes. Just a couple of related questions as it relates to potential ancillary business. I'm just wondering what the potential CapEx rollout costs, notionally, might be? Are they significant or are they next to nothing? And a related question, do you need to license products or technology to roll out this type of new business?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [60]

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Sure, Doug. So a couple of the things that I would note, I think, anesthesia was a fairly, widely adopted service and so our model there was to ancillary acquisition, and then we've added to that from the overall business. I think in some of the ancillaries that we're looking at is less complete, and so in many cases, these are the resources that we were doing to access. How we go about initiating base service where a new line remains to be seen, whether we do a buy and build scenario or whether we try and bring an extra piece and start it from scratch, I don't think we've decided that yet.

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Douglas Miehm, RBC Capital Markets, LLC, Research Division - Analyst [61]

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But are we talking about the same sort of CapEx that would be involved in the GI side of your business, the anesthesiology or something that's materially more or less?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [62]

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I would estimate less because I don't think that we'll be doing the -- some new acquisitions and moving capital the same way that we are doing in the GI side.

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Douglas Miehm, RBC Capital Markets, LLC, Research Division - Analyst [63]

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And these new services, do they require a new technology that needs to be licensed?

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [64]

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It might. That is one of several things that we're looking at so, yes, I should have time to get much more to consider here.

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Operator [65]

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This concludes the question-and-answer session. I'd like to turn the conference back over to Richard Bear for any closing remarks.

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Richard K. Bear, CRH Medical Corporation - CFO & Corporate Secretary [66]

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Yes. So just want to say thanks, everyone, for attending our Q2 conference call. We look forward to discussions in the future and our upcoming Q3 conference call in November. So maybe have a great summer.

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Tushar M. Ramani, CRH Medical Corporation - CEO & Director [67]

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Thank you all.

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James T. Kreger, CRH Medical Corporation - President of CRH Anesthesia Management [68]

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Thank you.

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Operator [69]

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