CRH Medical Corp
Q2 2019 Earnings Call Transcript

Published: 5 Aug 2019

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the CRH Medical second quarter 2019 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions].I would now like to turn the conference over to Richard Bear, Chief Financial Officer. Please go ahead.

[Richard Bear:]

Thank you operator and good morning everyone. I am joined today by our CEO, Dr. Tushar Ramani and the President of CRH Anesthesia, Jay Kreger.Before we start, I would like to remind everyone that certain statements you will hear today constitute forward-looking statements within the meaning of the 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 three and six months ended June 30, 2019.During this call will discuss non-GAAP financial measures as indicators of our performance. You can refer to them through our Management's Discussion and Analysis for the three and six 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 G.I. to refer to gastroenterologist. 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.

[Tushar Ramani:]

Thank you Richard. Thank you also to everyone on this morning's call for your interest in CRH. I would like to start with just a quick recap of my time here so far, a little over 90 days now. So I have taken time to assess our current operations and understand our opportunity. I have met with CRH O'Regan and our Anesthesia team. I have had important discussions with several our G.I. partners across the country and have attended the International DDW conference where we would interact like with the G.I. community, including current and prospective CRH customers.And additionally, I have had the opportunity to meet or speak with many of our key shareholders as well. And all my work thus far, confirms for me that CRH enjoys a great reputation and customer satisfaction in both our current business lines that there worthy growth opportunities in leveraging the work done thus far in both of them and that our position in the G.I. community has set us up well to add to the ways that we serve our G.I. partners and customers in the further.Now much of this time was also spent strategizing with the leadership here on identifying and developing three 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 the 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 leader of the most effective treatment, the time is right for us in making significant and renewed effort to educate the medical and patient community that hemorrhoids are eminently treatable and that gastroenterologists should be the one 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 in order of magnitude greater than what we have created so far.The second line is anaesthesia for endoscopy which is our largest segment and one where the G.I. community already recognizes CRH as the far and away market leader in terms of clinical and business management. We have demonstrated continued success of this and we see a long run was in M&A opportunities. We have also got some plans here that will help us expand our opportunity set and help us engage with a wider group of G.I. practices.And then we see a third segment forming 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 G.I. community. This is till in the conceptual stage but my earlier conversations lead us 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 G.I. practices can't or won't fully invest in themselves.Now regarding our 2019 second quarter results, we were 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 are not satisfied that we have optimize the opportunities that come from our market leadership in the G.I. support space. As I suggested above, 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 up first to Jay and then to Richard to review the second quarter in more detail.

[Jay Kreger:]

Thank you Tushar. Our anaesthesia 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 one transaction in the quarter. With this transaction, we expanded our footprint in Georgia, acquiring 55% of a group running two locations. So in the first two quarters, we have now completed three 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 fourth quarter. We still expect 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 line of sight to meeting our goal. In fact, we have more groups at a meaningful deal stage than was ever had and therefore we remain optimistic about this year as well as any future runway.We are now probably serving 52 ambulatory surgical centers and 333,000 patients each year. This national footprint and scale has 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 outcome.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 against any national standard. Finally, the recognition we are gaining as a provider of choice in G.I. and 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 will now turn it back to Richard for his commentary.

[Richard Bear:]

Thank you Jay. I would like to start by reminding everyone that beginning December 31, 2018 and on a retrospective basis, our finance 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 218. Sales of the O'Regan system during the second quarter were $2.5 million compared to $2.7 million for the same period in 2018.Total adjusted operating EBITDA for the quarter was $13.3 million. Total adjusted operating EBTIDA margin for the quarter was 44%. Adjusted operating EBITDA attributable to shareholders was $9.7 million for the three months ended June 30, 2019.For the three 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 six 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 has an interest rate of LIBOR plus 225 basis points.I will now turn it back to Tushar for his closing comments and questions.

[Tushar Ramani:]

Thanks Richard. I just want to thank our hardworking team here at CRH for another quarter and I want to reiterate that we remain very optimistic about our future here at CRH.With that, we will open it up to questions.

[Operator:]

[Operator Instructions]. And the first question comes from Tania Gonsalves with Cormack Securities. Please go ahead.

[Tania Gonsalves:]

Good morning gentleman. Just a couple of questions for 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 that $35 million of deployment which is great. Is there any reasoning why the first half of the year was so slow as it was? I know the summer tends to be the busiest in terms of acquisition activity and we have only got two months left. So what makes you so sure that you are going to hit that $35 million deployment forecast?

[Jay Kreger:]

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

[Tania Gonsalves:]

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

[Tushar Ramani:]

Tania, it's Tushar. I will take that and thanks for that question. So surprised billing, it's a little bit murky, right. And really ultimately, it depends on where any successful legislation ends up setting the reference level payment for the non-contracted services. And we saw that there was a Senate proposal that was clearly too low and that didn't get advanced and it seems some provider proposed level that I think better reflect the cost of providing services. We know that the House is looking at something that's arbitration base for these reference levels. But then the White House has already stated that they were close to an arbitration based solution.So I don't know that there is a real consensus there and there is a lot that remains to be seen in what ultimately happens. But I guess, regardless, if it's passed in some form, we think there is going to be an increase in the level of work and the cost that CRH and others have to incur to get our claims paid or repaid, I guess, at acceptable levels for these non-contracted charges. There is just going to be a more rounded effort to do that.But we think that at our size that we can withstand those cost and now at our scale, our breadth and volume, we believe, has economic benefit in payor contracting. And so now we are going to actively look at ways that we can engage with payors to access upper tier contract rates for our services that are more commensurate, I think, with an organization that I think for our current size and quality now. And the benefit of this should be that we will reduce our not-contracted exposure or out of network exposure without impact to profitability and also without impact to our ability to attract quality providers.If you think about that, a lot of the smaller G.I. practices that are not affiliated with us, they are going to see substantial reductions in their [indiscernible] for the non-contracted cases. And they will not have, I think, the experience, the size or market influence to get the kind of rates that we will be able achieve here. And so maybe one interesting byproduct of all this is, especially given our current drive to get more contracted, is the fact that G.I. practices maybe even more willing to transact with CRH as they see their own anesthesia revenues decline.So, long answer, but I think the summary to your question is that, there will be some impact but we will be able to change ways that we do our business and ultimately with maybe a favorable result. And at end, it may ultimately end up improving our anesthesia business opportunities.

[Tania Gonsalves:]

Great explanation. 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 into possible examples of these ancillary services?

[Tushar Ramani:]

Yes. I just thought about that as I was getting prepared this conference call. I think that in the interest of just market competitiveness as well as trying to avoid maybe incorrect investor speculation, it would be probably best that we wait until we are further along on some of these.

[Tania Gonsalves:]

Okay. That's fair. That's all for me. Thank you so much.

[Operator:]

The next question comes from Lennox Gibbs with TD Securities. Please go ahead.

[Lennox Gibbs:]

Good morning. Thank you. I am hoping that you can share your latest intelligence on the colonoscopy market, specifically latest data with respect to growth rate in the number of colonoscopy procedures? And also the kind of momentum that you are seeing with respect to MAC penetration, whether or not we will be continuing to see growing MAC penetration into those colonoscopy procedures? That's the first question.

[Jay Kreger:]

Hi Lennox, it's Jay. Thanks for the question. With regards to the second part of that, there is still no new data as far as from a national scale of where a standard of care is adopting MAC. However, we are seeing regional pockets and I think we have touched on this before, but regional pockets that are increasing the use of propofol and picking it up, more so we are talking about the West Coast, of course. And so we continue to see anecdotal evidence of like nominal increases while we don't have any national data to prove that out. But like I said, anecdotally, everything looks positive.As part as volume of colonoscopy, 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 is actually a shortage of doctors or it seems to be to treat the patient load that is out there, which tells me that colonoscopies are not shrinking. And while, you may recall, we talked about the last quarter that the American Cancer Society has put new guidance out that 45 was maybe the 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 by age 50 at the least.

[Lennox Gibbs:]

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 was last seen reported around two, three years ago?

[Jay Kreger:]

None that I see.

[Lennox Gibbs:]

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

[Richard Bear:]

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

[Tushar Ramani:]

I think we are diversified enough now throughout the country and throughout multiple sizes and types of practices that we pretty much experience the same tailwinds that the G.I. industry does.

[Lennox Gibbs:]

But it doesn't seem to, I mean we are 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. Maybe just help me understand that. Do you believe that you actually lagging --

[Jay Kreger:]

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

[Lennox Gibbs:]

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

[Jay Kreger:]

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

[Lennox Gibbs:]

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?

[Jay Kreger:]

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.

[Tushar Ramani:]

I think said another way, Lennox, as Jay stated, many our practices are recruiting new doctors. So we have the opportunity to continue to grow and hopefully that organic growth percent that we have seen historically.

[Lennox Gibbs:]

Okay. I will move on. Just with respect to the ancillary services that you referenced in your 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 timeline 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 remind me if you said it was in the context of G.I.?

[Tushar Ramani:]

Yes. Lennox, this is Tushar. It will be in the context of G.I. It's unlikely to be something new. We think that maybe the most optimal way to do this will be to take some thing that's a tried-and-true service or offering for patients that's currently out there but maybe not being done to the level that G.I. could or should do it. We will help them do it better happen much like we did with anesthesia. As far as specifics or timeline, though, I think that we are not prepared to do that yet.

[Lennox Gibbs:]

Okay. All right. Thank you very much.

[Operator:]

Our next question comes from Noel Atkinson with Clarus Securities. Please go ahead.

[Noel Atkinson:]

Hi. Good morning. Thanks for taking my call. The first thing, I was wondering if you could talk about the 2020 proposal for the Medicare Physician Fee Schedule and sort of any positive, negative impact you see on CRH? And specifically like, they talk about CRNAs now being able to do some assessments on patients that previously physicians were able to do only?

[Tushar Ramani:]

Yes. Noel, just our quick run through, it just came out. We didn't see anything in there that impacted our services. Rates are stable as we expect them to be from now on in terms of the CMS rates. They did several years of study and adjustment in the last few years and we think that this is a settled issue.With regards to the CRNAs and assessments, it will not change our practice or our overall economics in any way. It might improve some of the efficiency on the ground but I don't think that that's a material gain for us.

[Noel Atkinson:]

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

[Richard Bear:]

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

[Noel Atkinson:]

Okay. Great. So in terms in-network or non-contracted discussion, just following up on a prior question, have you seen historical precedents in either your business area or as 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?

[Tushar Ramani:]

Historical precedence?

[Noel Atkinson:]

Yes. Like within the other business lines in the U.S. where folks that as they gain scale were able to go to a higher tier payments? And then as they were shifted to in-network, they were able to offset any associated price decline.

[Tushar Ramani:]

Absolutely. That's one of the benefits of scale at healthcare organization is that you have a different level of discussion with payors. If I am an independent, small single practice, negotiating with a payor, I don't have the leverage or the experience to demonstrate the quality of care that we provide and systems that we have to backup that quality of care which allows me to ask for higher rate. I mean that's a sort of tried-and-true model.

[Noel Atkinson:]

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

[Tushar Ramani:]

Exactly.

[Noel Atkinson:]

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?

[Richard Bear:]

No other terms were changed. It was really extension out of convenience so we wouldn't have to classify it as current in this quarter's financials. So we will be working over the next couple of months prior to the Q3 financial release to secure a new and improved, more competitive credit facility.

[Noel Atkinson:]

Great.

[Richard Bear:]

I am not just speaking of what we hope to accomplish. The process is pretty far along. We expect to decide on a bank by the end of this month.

[Noel Atkinson:]

Okay. And then finally, as we are talk about this non-contracted payment sort of things, can you talk at all about the percentage change in commercial cases that are in-network now, as of Q2 this year versus the prior year period?

[Jay Kreger:]

Yes. As you know, we do not disclose the percentage of in-contract versus out-of-contract. I think the message that, the comment that Tushar made to an earlier question, is the really 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.

[Noel Atkinson:]

Okay. Great. Thanks very much for taking the call.

[Operator:]

Our next question comes from Richard Close with Canaccord Genuity. Please go ahead. Richard Close with Canaccord Genuity?

[Richard Close:]

Yes. Thanks. Just a follow-up on 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 were you have some size there. Are you really able to negotiate rates on a national level? Do you do you have the scale? Or just any thoughts in and around that that you can provide?

[Tushar Ramani:]

So some of our early conversation here, I think, give us confidence that we will be able to do that. There are not just for payors. There are many, many smaller payors that are regional. And those cases certainly we will be able to bring a level of sophistication to the contracted process that's better than individual practices. And some of the larger national payors, well, four or five of them, we think we are now, maybe we weren't a year or two ago, but we are now at a point where we can have those conversations.

[Richard Close:]

Okay. That's helpful. Thanks. And then Jay, may be on the acquisition pipeline, could you go into maybe a little bit more detail 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 are seeing?

[Jay Kreger:]

Yes. Thanks Richard. I think as far as states that we go to, there will definitely be new states that we enter into and I think that's really just more a matter of being out there and people knowing who we are and reaching more people. As I was mentioning, our line of sight, the way we just added to our pipeline, we have got people at different stages with different models, both 100% as well as joint ventures.The two that we announced most recently were, of course, joint ventures whereas last year I think three of the five were 100%. I see that remaining, it will be a mix based on the goal that our physician partners are trying to achieve, where they are within their practice lifecycle. So I continue to see that as a mixed bag, so to speak.The space we go into would be opportunistic because as Tushar touched on, our national scale allows us to be successful in every state so long as they have adopted MAC as the standard of care. As far different models and we haven't about this a lot but I think some of the larger platform plays that will want our services will be an opportunity for us in the future where maybe it hasn't in the past because we stuck with an acquisition only model. And so again the larger we get and have more resources, we are able to serve more through without a one-size-fits-all business model.

[Richard Close:]

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

[Jay Kreger:]

Yes. The ramp up on the current one has been much shorter just because it was a smaller practice and therefore we believe that we will transact in Q4.

[Richard Close:]

Okay. And I guess my final question here would be on O'Regan. I guess that decreased 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 all? Any timeline with respect to return to growth there?

[Tushar Ramani:]

Richard, it's Tushar. We have got a couple of initiatives underway right now. And we will be able what the effect of these initiative are going forward. So we have renewed our focus on that business with a number of things. We are going to increase and we expect that this will increase sales soon and then over time in more sustainable manner and early indications that could positive for us. We are leveraging the G.I. communities' increasing awareness of the need to treat the hemorrhoids. G.I. literature is actually independently supporting this. And so there is a tailwind for us. The time just seems absolutely right to be leaning into this right now. We are also supporting the development of training curriculum for G.I. fellowship programs that's actually not part of the G.I. core training to identify and treat hemorrhoids. Given the current academic focus on it, it seems like that's something that we should develop and that obviously will be beneficial to us as well. We have got some additional practice support initiatives. We have a higher emphasis on retraining physicians where usage may have decreased. And then resource-wise, we are looking at internally what's the 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 a continual contact that this market seems to require in order to maintain the growth in usage volumes. So a lot of stuff that we are attacking, all different angles, but I think that ultimately w will all be successful in helping us achieve growth. As I said before, I think this is a full order of magnitude opportunity.

[Richard Close:]

Okay. Thank you.

[Operator:]

Our next question comes from Doug Cooper with Beacon Securities. Please go ahead.

[Doug Cooper:]

Hi. Good morning. I just want to stick on the O'Regan for a second. Can you just maybe talk about how big an opportunity do you think is there? Is it possible to type of what percentage of the markets, hemorrhoids market is serving today and what you think it could get up to with better education of the G.I.?

[Tushar Ramani:]

Sure. Well, if you look at what the headline opportunity is, literature now or at least the recent literature seems to support that there is about 1.5 million newly diagnosed hemorrhoids just in the employer insured market alone. There is probably another 1.5 million or so in Medicare and non-employer insured market. And so you are talking about 1.5 million to three million new hemorrhoids patients per year. And rubber band ligation turns out is probably be most effective, safest, fastest, probably lowest cost treatment available.So you have to believe that the lion share of those patient should be treated or could be treated with rubber band ligation. Then within the ligation space, we believe there's really only one player. The O'Regan device or the O'Regan system has been now use over a million times and we have 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. We would just roll out what our device cost is by and sort of multiplied by the number of patients. And it is well north of a couple of hundred million.

[Doug Cooper:]

So can you just remind us, the sales, is that one use? One use and then they have to re-buy it? One use per patient?

[Tushar Ramani:]

Correct. And typically patient has three hemorrhoidal veins and so usually all three of those need to get treated.

[Doug Cooper:]

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

[Richard Bear:]

Yes. Good question. So first off, we did acquire the remaining 49% of Arapahoe in early April. So we had the benefit of owning that entire piece business for the entire quarter, which had no impact on revenue or expenses because it's already consolidated but did impact shareholder EBITDA and lowered non-controlling interest EBITDA. In addition to that, we talked earlier in this call about growth rate, the different growth rates in different markets. We are seeing some of our strongest growth rates have markets that are 1005 owned. Large markets, 100% owned. Or markets that we own even greater than 51% and more in the 65% range are where we are seeing our largest growth rates. So it makes sense to us that shareholder EBITDA came in at those levels.

[Doug Cooper:]

Okay. You bought back just under 500,000 shares at an average price of CAD3.82. Stock currently trading below that level. So obviously if you thought it was good value in the last quarter and now the company, by my calculations, is probably at its cheapest level. May be I will have to go back and check my numbers but it is trading about 6.5 times trailing 12 month EBITDA, by my calculations. Will the company continue to be active on the buyback?

[Richard Bear:]

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

[Doug Cooper:]

All right. Okay. That's it from me. Everything else has been asked. Thanks very much.

[Richard Bear:]

Thanks Doug.

[Operator:]

The next question comes from Doug Miehm with RBC Capital Markets. Please go ahead.

[Doug Miehm:]

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

[Tushar Ramani:]

Sure Doug. So a couple of the things that we look at, anesthesia was a fairly widely adopted service and so our model was to do ancillary acquisition. And then we have added to that some de novo businesses. I think in some of the ancillaries that we are looking at is less complete. And so in many cases, these will be new services that we would bring to practices. How we go about initiating a service or a new line remains to be seen whether we do a buy and build scenario or rather we try and bring an extra piece and start at scratch, I don't think we have decided that yet.

[Doug Miehm:]

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

[Tushar Ramani:]

I would estimate less because I don't think that we will doing ancillary acquisition and using capital the same way that we are within anesthesia.

[Doug Miehm:]

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

[Tushar Ramani:]

It might. That is one of several things that we are looking at. I hesitate to get too much more specific here.

[Doug Miehm:]

Yes. That's fine. Thanks very much.

[Operator:]

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

[Richard Bear:]

Yes. So I 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 the call in November. So everybody have a great summer.

[Tushar Ramani:]

Thank you all.

[Jay Kreger:]

Thank you.

[Operator:]

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