Beacon August 10, 2023 Doug Cooper| dcooper@beaconsecuritiesBelow is a well written report from Beacon. I just read the facts, nothing else counts.
• Viemed reported (yet) another record quarterly sales result. Headline Q2 results were revenue/EBITDA of $43.3m/$9.8m (22.6% margin).
• Note that Q2 only included one-month of contribution from its acquisition of Home Medical Products (HMP), which was $2.5 million of revenue. Consequently, on a proforma basis, we believe revenue/EBITDA was ~$48m/$11m.
• Adjusted gross margin (adding back amortization) was 71.6%, essentially flat on a y/y basis.
• As with prior quarters, we note that the key performance indicators again hit an alltime high
. a) Revenue All-Time High: $43.3 million
b) Significant Organic Growth: 30% y/y, 9.3% q/q. Excluding the impact of HMP, organic growth was 23% y/y and 3% q/q. Note that HMP has had its own historical organic growth rate of ~20% over the past 3 years
c) Record Vent Patients: 10,005, +13% y/y and 7% q/q. HMP contributed to this growth as it had ~340 vent patients in its patient mix.
d) Record Revenue Diversification: Non-vent revenue was 40% of total revenue and higher on a proforma basis. As a point of reference, non-vent revenue was 20% of total revenues in Q1/FY21.
e) Record revenue per active vent patient: $17,916 versus $15,348 last year (+17%) and was +5.5% sequentially. Such rev/active vent patient growth is specifically due to its non-vent revenue as noted above. In particular, non-vent revenue per vent patient was +50% on a y/y basis to an annualized level of $7,284.
• We believe it is worth highlighting that its non-vent revenue (ie. predominantly sleep, oxygen and staffing) was $17.6 million versus $10.6 million last year (+66%). Excluding the $2.5 million contribution from HPM (assuming all non-vent), the organic growth of its non-vent revenue segments was 42% with sleep and oxygen growing at an organic clip of ~56%.
• Viemed appears to be firing on all cylinders both on its core vent business and now its sleep/oxygen/staffing segments. The integration of HMP and its cross selling opportunities (particularly with HPM selling vents) should lead to even faster growth. Furthermore, with its first acquisition under its belt (and proving very accretive) and the company still retaining an excellent balance sheet ($10 million in cash and $47 million of credit availability), more M&A is certainly in the offing.
• In summary, Viemed:
a) Showed very strong organic growth in the quarter;
b) Guided to continued strong (40% headline with 20% organic) in coming quarters with $50 million expected for Q3 revenue;
c) Expects EBITDA margin expansion in coming quarters due to scale and inherent seasonality of the business. Q2/FY23 EBITDA margin was 22.6%, the strongest margin in almost 2 years;
d) After closing of acquisition, VMD’s balance sheet still massively under-levered which can fuel further acquisitions. With the balance sheets of AHCO – US, NR and OMI-US, NR, the competition for acquisitions is likely significantly lower than it was a few years ago;
e) Expects continued benign regulatory environment (no competitive bid program in 2024 or 2025), which ensures excellent visibility on re-imbursement.
• The valuation of VMD (as well as respiratory companies in general) continues to befuddle us. The stock trades 7x LQA proforma EBITDA and 5.5x our FY24 forecast for a company that is growing 20%+. Such a forward multiple is less than half of its historical average. For a company that is growing, has a strong margin profile, a strong balance sheet and competes in a recession resilient industry, we believe such a multiple is significantly mispricing the company.
• No change to our forecast. Maintain Buy and C$19.75 TP