Trophy Investing Recommendation
eWellness’ Digital Therapeutics Disruptive to Physical Therapy Industry
By Michael Markowski, July 12, 2016
The eWellness Healthcare Corporation, (OTCQB: EWLL) (the ”Company”), has emerged to digitally disrupt the brick and mortar physical therapist industry. The Company’s digital products and technology have put it into the position to soon be recognized by investors as a first-mover company in digital therapeutics. Significantly, eWellness is also the first to enable physical therapists to offer digital treatments that are insurance reimbursable. The week ended July 11, 2016 the share price of eWellness fell to a new 52-week low. For these reasons Trophy Investing has initiated coverage and eWellness has been added to the Trophy Investing recommended list.
Besides disrupting the brick and mortar physical therapy industry the Company is positioned to capitalize from the rapidly changing demographics for and the growth of the physical therapy industry. The aging baby boomer population and the changes by doctors as reported by Amn Healthcare pertaining to when a patient should have hip and knee replacements has resulted in both skyrocketing. Predictions abound regarding the current shortage of physical therapists, and the increasing shortage predicted for the foreseeable future. See “Physical Therapists in Short Supply”. The chart below depicts that the combined number of hip and knee replacements has been growing briskly since 2005 and will reach four million per annum by 2030.
Following a preliminary analysis of the eWellness PHZIO product offering, my conclusion is that the Company is a bona fide digital disruptor. The Company’s model will soon seriously disrupt the brick and mortar physical therapy industry. The four minute-+ video below entitled, “Digital disruptor companies have the potential to get to $10 billion valuations quickly”, explains the process that digital disruptors must undergo to succeed — including UBER. (A $10,000 investment into UBER in 2010 was valued for $105 million in 2015.) Should the eWellness PHZIO product gain traction upon its Q4 2016 commercial launch, its share price and valuation has the potential to increase exponentially.
The Company’s launch of its PHZIO digital therapeutic treatment and monitoring systems in the fourth quarter of 2016 will be of great benefit to physical therapists and their patients:
- The ability for patients to receive physical therapy remotely will eliminate the costs and time required for visits to brick-and-mortar facilities. PHZIO will also reduce the time spent for a patient to fully recover because patient protocol adherence and compliance rates are 20% higher than industry standards;
- Physical therapists will be able to significantly increase the number of patients that they see per day. This will result in a significant increase in their incomes. Physical therapists who must obtain doctorate degrees are among the lowest paid health care professionals in the U.S. at a median annual salary of $85,000 per annum.
The Company’s initial PHZIO home physical therapy exercise platform has been designed to disrupt the $30 billion physical therapy and the $8 billion corporate wellness industries. PHZIO re-defines the way physical therapy can be delivered. PHZIO is the first real-time remotely monitored one-to-many physical therapy platform for home use. As a result of the real-time patient monitoring feature, the PHZIO platform is insurance reimbursable by payers such as Anthem Blue Cross and Blue Shield. The Company’s platform is HIPAA compliant.
PHZIO is a revolutionary Physical Therapy Delivery System:
Value Proposition
Through its PHZIO digital technology platform, eWellness provides a physical therapist (PT) the ability to scale their practices to substantially increase their take home pay. The Company’s digital platform enables a PT to grow beyond the limits of a brick and mortar physical therapy practice? Prior to PHZIO physical therapists could not scale their practices because the traditional office treatments were relegated to one-on-one sessions. Additionally, industry profits per visit have steadily decreased by 27% since 2006 because of: (i) declining insurance reimbursements; (ii) growth constraints; and (iii) increased regulatory costs. For these reasons the PTs who will soon become licensees of the PHZIO digital platform have an inherent competitive advantage over those who are not licensees.
PHZIO’s Value Proposition for Physical Therapy Practice (PTP) Licensees:
- Enables PTP to increase the number of patient visits to at least 25 per day.
- Enables PTP to increase quality of care.
- Increases PTP revenue per square foot.
- Increases revenue of PTP’s PTs.
- Reduces PTP’s costs and expenses.
Intellectual Property
An exclusive, perpetual license has been obtained by eWellness for its video management and streaming platform. The platform records and stores each and every remote physical therapy video session to provide the backup for insurance reimbursement. The platform enables the PT to have simultaneous two-way video interaction with a patient. The Company has produced a proprietary portfolio of videos that cover more than 160 exercises.
Communications between patients and the PT are conducted via texting and video messaging. The photograph of the man exercising below is an excerpt from one of the Company’s proprietary exercise routine videos. The photograph in the upper right corner is that of a woman mimicking the routine while watching the video from her home, while the physical therapist — depicted in the lower right corner — monitors the female patient’s exercise routine from his office in real-time.
Management
The Company has two highly experienced and well-known physical therapists on its team. They are Darwin Fogt and Daniel Mills. These two seasoned physical therapists should enable the Company to gain traction to recruit PTs during the fourth quarter of 2016 when the Company is expected to officially launch its PHZIO digital platform.
CEO, Darwin Fogt, possesses vast experience and is an accomplished Physical Therapist:
- Founded Evolution Physical Therapy, a state-of-the-art clinic in Los Angeles
- Licensed Physical Therapist in New York and California
- Specializes in neurological rehabilitation, orthopedic and sports medicine
- Active in community outreach and educational programs in conjunction with the Los Angeles Clippers
Chairman of Advisory Board, Daniel Mills, MPT, is a well-known Utah-based practicing physical therapist ("PT"), and Vice President of the Private Practice Section of the American Physical Therapy Association ("APTA"). Mr. Mills is the Company’s national spokesperson to the APTA membership and other groups within the industry.
The APTA is an individual membership professional organization representing more than 93,000 member physical therapists (PTs), physical therapist assistants (PTAs), and students of physical therapy. APTA seeks to improve the health and quality of life of individuals in society by advancing the physical therapist practice, education, and research, and by increasing awareness and understanding of physical therapy's role in the nation's health care system.
Summary Projections
According to what has been filed with the SEC, the Company’s plan over the next three to five years is to grow its base of digital PTs to 2,600. This would represent less than 2% of all of the 225,000 practicing PT’s in the U.S. Assuming that the Company can meet its recruitment goals for new PT licensees, it is projecting that it could potentially generate:
- A minimum of 8.1 million PHZIO sessions annually;
- $111 million in annual revenue for eWellness;
- Pre-tax profit margins of 82.90%; and
- Annualized EBITA of $99 million.
Financials Summary
The final aspects of a company that I examine are its financial statements. I waste no time on this activity until a company’s revenue, business model, and management have passed muster. I have consistently found the balance sheets of development-stage companies to be upside down. I cannot recall a single instance of a development-stage company having anything close to pristine financial statements. Using financial statements as the primary screen to detect promising development-stage companies is an exercise in futility. Further, I much prefer a company having negative financial statements, especially losses and a negative net worth or book value, over one that has not had a significant amount of capital previously invested. Why? There is great value in an entrepreneurial business having spent money and time to make mistakes prior to my having found them.
The financial statements of eWellness are no different than a majority of the previous development-stage companies that I have examined. Based on their financials filed with the SEC for the quarter ended March 31, 2016, to a casual observer it would appear that the company is on the verge of going out of business. The Company reported an operating loss of $350,000. However, the Company’s negative cash flow from operations for the quarter was only $28,000. The Company’s negative net worth or the amount of its liabilities, which exceeded its assets, was approximately $1.7 million. Approximately half of this amount, or $800,000, was attributable to accrued salaries that were owed to its officers and directors. For a company that has published projections for gross margins nearing 90% and EBITA of $100 million by 2020 the burn rate and negative net worth are fairly innocuous.
The price of eWellness shares has been very volatile for 2016, ranging from a high of $4.00 earlier in the year to a low of below $1.00 in July 2016. The volatility that the shares have experienced is common because the shares trade on the obscure OTCQB exchange. Experience dictates that I can unequivocally state, the best opportunities for an investor to make ten times their money over periods of five years, or less, can be found among those companies having shares trading on the OTCQB and the other off-the-beaten-path exchanges. This assumes that the investor follow a strict discipline of utilizing price limits to acquire the shares. Trophy Investing provides an initial suggested buy limit price upon its recommending shares of any company. Based on changes to the company’s fundamentals, the buy limit share price is raised or lowered by Trophy Investing.
In addition to small and micro-cap companies being subject to the obscure exchanges the overall relative valuations of their share prices are at their lowest that I have seen in the 40 years. This rare phenomenon has occurred from the SEC’s implementing of the Dodd Frank Act in 2012. Dodd Frank has created a divergence in the share prices of large and small companies. The 4-minute video below entitled, “Trophy Investing’s Search for the Best 100 Micro-cap Stocks” explains the divergence and the reasons this provides a once in a lifetime opportunity for investors to purchase the shares of small companies at absurdly low prices to populate a portfolio that could multiply in value very quickly.