2018 CC comments on possible acquisitions and VA contracts These are extracts from all CCs since 2018 Q1 regarding possible acquisitions and VA contracts. A good read because it takes you through the thinking as it has evolved over time. Clearly, intervening events have affected Management - pandemic highs and lows, the need for virtual care models, pandemic driven lockdowns at VA hospitals, weather events - hurricanes, blackouts, vaccinations, equipment recalls, contact tracing, PPE and vent shortages, changes in administration. The flavor of the direction of management thinking comes through.
2018 Q1
Nick Corcoran:
... what do you see in terms of the pipeline for acquisitions? I know you’ve talked in the past about the pediatric vents.
Casey Hoyt:
Yes. I mean, in the past couple of months, we’ve put the pediatric vent acquisition somewhat on the back burner. I mean, one of the main strategies behind acquiring the pediatric vent companies was to really get a new strategy to get into network with more payers, and as our network development team has really kind of been blossoming, they’re more confident in the strategies that they’ve been currently using versus having to lean on acquiring a pediatric vent company just to get that competitive edge. From a clinical standpoint, a pediatric vent program is underway with our clinicians to start to develop to where we can treat more kids inside of our circle, but the need for us to acquire somebody is kind of—it’s been put on the back burner, I would say.
It’s not completely dead, but look, another thing to keep in mind, Nick, is we were never going to be in this position of just acquiring a number of different pediatric vent companies. There might be a time down the road when we get acquisitive. The pediatric vent company was more of a strategic fit for us that we’re figuring out other ways to kind of skin that cat here internally. But there could be a VieMed junior or something there down the road, but we don’t see that as a near-term strategy right now.
2018 Q2
Doug Cooper
You had talked about in the past trying to work some relationship with big payers, and maybe you can just touch on—I think you had mentioned in the past, the VA or veterans—with the veterans. Any movement on those two fronts?
Casey Hoyt:
Yes. On both fronts, there’s a lot of activity. I mean, the new contracts are—it’s kind of like step one into building the relationship to getting to the bigger shared savings contracts that I’ve spoken about in the past. We’ve still got a handful of our four or five payers that have been going on the discussion for the past year and a half that are interested in doing shared savings programs.
We’re not there yet, unfortunately same administrative hurdles to report there, but the good news is our efforts, and getting these contracts are generating more just standard contracts around the country, increasing our conversion rates of how many new orders we can now take, where we were previously denying. We’ve been able to really move the needle with converting more business with those new payers, if you will.
On the VA front, we are very active right now. We’re kind of in the process with, I guess, getting through their red tape if you will, to be able to take business, but we’re getting very close with that. We have some other balls in the air as well, strategies in place to penetrate that market. We remain very committed and excited about the VA opportunity, as it will diversify us from payer, from Medicare, to tap into a new payer source.
Then, really, at the end of the day, the patients that just are needing us right now that have no solution, it’s just exciting for us to work on because we’re going to fill a void that they need.
Christopher Olin:
Then, speaking about the long-term here, should we take the cash buildup as a signal that maybe your cash flow is running ahead of your ability to reinvest it, or is this more of a quarter-to-quarter fluctuation?
Todd Zehnder:
Well, this quarter was a little bit of an anomaly, like I spoke about in my prepared remarks, because we had the Medicare issue that was lingering and we got all that money unfrozen. It’s hard for us to say if we’re going to be able to reinvest all of it because it all depends on our growth rate. I mean, last year was a good proxy; we grew 42% and we reinvested most of the cash. As you get bigger, it’s hard to grow the same percentages, which will yield a cash buildup, which is a great result, but you may have heard Casey speak about it at the end, we’re still looking at new areas, new ways to grow faster organically, which would take more capital, and/or looking at redeploying that cash in any other way that could build shareholder value. The number one thing that comes to our mind is an acquisition.
While we’ve always been an organic company, we’re hitting a point in our lifecycle where we’re growing really fast and our balance sheet is getting to a point where we need to start seriously evaluating cash utilization. We as a Board and Management team are looking at all of our options pretty diligently right now.
Christopher Olin:
...in terms of acquisition targets, I know you’ve talked about before, acquiring a relatively small acquisition in the pediatric space. Is that kind of still the main option you’re looking at?
Todd Zehnder:
It’s one of the options. I mean, we’re looking at, I guess, three different options, if you will. The pediatrics is one, and another was looking at another vent company that might be a quality provider, and then the third would just be a more strategic, complementary bolt-on acquisition, if you will, to what we’re already doing.
All of those balls are in the air right now, we’re just kind of—just going through to see what’s going to bring the best value for the shareholders. Chris, we’re by no means far along in any of those processes. We will obviously disclose if we get to a point. What we’re not going to do is acquire just to acquire, but like Casey mentioned, we’ve got a few different strategic reasons to be looking at some of these companies. Just rest assured, we’re working that at the same time as growing organically.
Casey Hoyt:
Thanks, Todd. Our history has proven that we have a recipe to expand our footprint at a high growth rate. Our results demonstrate our ability to capture market share in an efficient manner. We are leveraging our expertise and lean, scalable business model to stay on our growth trajectory. We have a nice pipeline of sales and existing referral sources that stands to increase as we work to get our game-changing results out to our physicians on the KPMG study. This data gives us a huge head start on our competition before we publish final results for the industry to have.
Our team will not be resting during the back half of this year. As we continue to grow cash, our thoughts shift to prudent capital allocation by way of organic growth or finding strategic acquisitions here in the coming quarters. Our company has always had a track record of delivering on multiple fronts. We remain committed to putting the patient first by delivering the highest quality of care in the DME sector.
As we continue to grow cash, our thoughts shift to prudent capital allocation by way of organic growth or finding strategic acquisitions here in the coming quarters. Our company has always had a track record of delivering on multiple fronts.
2018 Q3
Casey Hoyt
While the majority of our folks continued down the path of organically growing our footprint and continuing to get to the 95% of the Medicare patients that need us, myself, Todd, Mike and the rest of our executive team are really focused on additional incremental ways of growing our business in 2019, such as through acquisitions and getting another large payer on board.
The VA remains on the top of the priority list as the largest payer that needs VieMed. We have market data that shows an additional 500,000 patients inside of their system that qualify for our therapy but have no way of getting it. Our pursuit will remain relentless until we have a way of getting our care to these military veterans.
Brooks O’Neil
Casey, on the VA opportunity. Obviously, that's a huge number in relation to your current patient population. What do you believe are the key items that the VA needs to open the door to VieMed in servicing veterans?
Casey Hoyt:
Yes, the strategy is two-pronged. You have to come from the—work from the top and start at the bottom as well. When you're in there talking to the case manager, similar to the way that we talk to case managers at any hospital, Brooks, they understand the machine, they understand the benefits of therapy, but they just don't have a way of ordering it inside of their system. So, when you have to go work on getting a code for treating COPD patients with a ventilator, then you have to start from the top, and start from the top with a vendor relations department, and then you go on down to talking to the chiefs, Medical Officers and making sure that they understand the therapy and agree with it.
Having the KPMG data and report really has already started to help fast track some of these conversations and meetings. We have a team built out that work in both from the top and the bottom right now, and we feel confident that it's not if; it's just when. So, we're going to get to those patients. There's too many people inside of the system that really need us. I mean, COPD is 15% more prevalent than the Medicare population and we’re—again, we're guesstimating that there's 500,000 patients that actually qualify for our therapy, and right now, they're being mistreated. They're being put on a BiPAP and then they're circling back through the prosthetics department, which is the sleep apnea division, so there's a lot of folks that are in need and there's nobody more motivated to do it really than these case managers because they're the ones that are getting burdened with all of these readmissions, so they're graciously helping us try to navigate the waters.
2018 Q4
Brooks O’Neil
Obviously, you talked about the cash and some of things you’re doing with the cash, but cash continues to build. Would you anticipate looking at any inorganic growth opportunities during 2019, or do you think the use of cash will continue to be in the areas you’ve used historically?
Casey Hoyt:
Well, I mean we definitely—our first thing that we want to do with our cash is go out and buy more vents. We are looking at a lot of other strategic acquisitions right now that would make sense in adjacent markets. I can’t say if it’s going to be a 2019 event or not, we kind of have to wait for our due diligence process to work itself out, but it’s something that we definitely are focused on. We want to find something that really complements our infrastructure of having the RTs in the home, something that our folks are going to be good at selling; there’s many different types of wearable devices and things and product lines that we’re vetting right now that would be good fits for us to offer to our patients; we’re just not ready to talk about them just yet, Brooks.
Brooks O’Neil:
No, that’s fine. I’ll ask just one last one and I appreciate all the time. I think you mentioned progress with the VA, but I’m just curious in a more global sense if you have any comments about the opportunity you see with the VA?
Casey Hoyt:
Yes, I mean it’s very early. We mentioned some small wins. It’s literally like we just have less than 10 patients that have just come on board, but the good news is with four different facilities and the better
news is that we’re finding out how to conduct business inside of the VA. We spent all of last year getting certified and working through the red tape of being a certified provider to the VA. We’re past that, and what we’re finding out now is that really we can use our existing sales force to get in there and get some onesie, twosie types of sales very similar to the way that we get business right now from a normal facility; it’s just an education process for the clinicians, which is what we’re good at, which KPMG helps with. The VA, for whatever reason, is just a little bit behind the rest of the clinical community it seems like, so it’s our job to just make sure that they know that noninvasive vents can be put on COPD patients and we’ve got data and even further clinical data being developed right now to support our case. We’re optimistic about where we sit right now and hopefully we have some more material numbers to talk about in the next call.
Doug Cooper:
Okay, finally just a couple things and maybe Casey on the VA. Can you just remind us how many patients are in the VA that could be applicable for your therapy?
Casey Hoyt:
We don’t have an exact number on the COPD patients in there Doug, but I know there’s 9 million patients that are inside of the VA system, so when it gets down to how many COPDers, that’s that number that we’re missing, but we’ve always kind of just pulled off a swag that anywhere between 200,000 and 600,000 of our patients are probably inside of the VA that need it. I mean for sure we can see it with our boots on the ground that they have problem right now with these patients going in and out of the hospital being placed in BiPAP and really being incorrectly treated and it’s just a revolving door of admissions.
We can see the problem; there’s not much parking spots in the parking lot. We have a solution for their parking problems, and we just have to get out there and communicate it and make sure that the clinicians know that this service is available for them.