By Steven Ralston, CFA
TSX:NHC.TO
Nobilis Health Corp. (TSX:NHC.TO), formerly Northstar Healthcare Inc., pre-announced estimated sales for the fourth quarter ending December 31, 2014. Fourth quarter’s sales are estimated to be $39.2 million, up approximately 109% versus $13.5 million reported in the comparable period ending December 31, 2013. Fourth quarter revenue significantly exceeded management’s forecasts of $30 million. The top-line growth was primarily driven by effective marketing programs, especially campaigns for NueStep and CuraSpine. Management anticipates generating revenues of $205 million and EBITDA of $41 million during 2015, which include the integration and consolidation of Athas, along with rolling out marketing programs in several cities.
Nobilis Health acquired Athas Health LLC, a Dallas-based healthcare marketing company servicing seven states, namely Texas, Arizona, Florida, Michigan, Minnesota, New Jersey and Tennessee. Athas' CEO, Christopher Lloyd became the CEO of the combined entity and Dr. Donald Kramer continues to be Chairman of the Board.
The key aspect of the acquisition is that the marketing effort for Nobilis Health has been assigned to the marketing staff of Athas Health, which not only has lower cost than the legacy marketing department at Nobilis Health, but also higher effectiveness. In part this is due to the more direct and more efficient operational structure where every lead/call from the advertising campaigns is directly funneled to in-house patient coordinators rather than being first handled by less-knowledgeable call center operators. After collecting detailed information regarding the potential patient’s symptoms and history, the patient coordinators educate them on their available treatment options and coordinate their needs with physicians and facilities, both in- and out-of-network. The patient coordinators are especially knowledgeable of the company’s branded programs (e.g. AccuraScope of North American Spine, Omega of Migraine Treatment Centers of America and now NueStep and CuraSpine with the marketing teams being fully integrated). In addition, patient coordinators assist with insurance questions and help schedule travel for the procedures. On average, there are 15 interactions between the patient coordinator and a patient before and after a procedure.
Historically, approximately 50% of the cost of a procedure is captured by Athas for having directed a patient to a facility (hospital or ambulatory surgical center). The remaining 50% is retained by the hospital/ASC, which pays professional fees to surgeons/anesthetists while retaining a fee for use of the facility.
Athas’ revenue for 2014 is estimated to be approximately $40 million, a 39% increase from the $28.6 million generated in 2013. Therefore, in 2015 at least $40 million is expected to be captured by Nobilis Health through the acquisition of Athas. In addition, management anticipates that the surgical facilities of Nobilis Health will receive a large share (approximately 70%) of the leads from Athas, especially in Texas and Arizona, providing $33 million in top-line synergies. Therefore, the revenue base of Nobilis Health should expand by approximately $72 million through the acquisition of Athas Health.
The acquisition of Athas Health closed on November 28, 2014. The payment was structured with $3 million in cash, a $12 million promissory note by Nobilis to the sellers, the issuance 6,666,666 shares of Nobilis stock at closing and the issuance of an additional 4,666,666 shares of Nobilis stock over the next two years (2,333,333 shares on November 28, 2015 and 2,333,333 shares on November 28, 2016).
Management’s primary focus is to increase net patient revenues and EBITDA through scaling direct-to-consumer marketing programs in the Houston, Dallas and Scottsdale markets, along with completing selective acquisitions.
Finally, the process to list on the NYSE is underway with Form 10-12G having been filed with the SEC. Management anticipates the listing to occur during the first quarter of 2015.
We maintain our Outperform rating for Nobilis Health and significantly raise our price target to $5.50, which is based on price-to-sales (P/S) and enterprise value-to-EBITDA (EV/EBITDA) valuation methodologies.
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