Beacon Raised Viemed to $15.75 from $12.50 Canadian. Viemed Healthcare (VMD – T) )Key Performance Indicators At All-Time Highs • Viemed reported its Q2/FY22. Headline results were revenue/EBITDA of $33.3m/$6.5m. While revenue was better than management’s guidance, EBITDA missed expectations, primarily due to a hiring spree that will likely pay dividends in the coming quarters. • Despite the lower-than-expected quarterly EBITDA as noted above (more below), in our view, the key performance indicators (KPIs) of the company were at all-time highs with significant momentum behind them, which should indicate that growth will continue. In particular: a) Core Revenue (ex COVID) All-Time High: $31.1 million b) Significant Organic Growth: 26% y/y, 10% q/q. Q3 guidance of 7.2% (29% annualized) c) Record Vent Patients: 8,837, +5% q/q d) Record Revenue Diversification: Non-vent revenue was 31.4% of total revenue. Vent revenue was 80% of total revenues in Q1/FY21 e) Record revenue per active vent patient: $15,350 versus $13,270 last year (+16%). Such rev/active vent patient is specifically due to its non-vent revenue as noted above. • In addition to these positive KPIs, Viemed still has an excellent balance sheet with $21 million in cash even after buying back 1.35 million shares (~3.5% of the company) at an average price of $5.20 (C$6.75). • The one issue in the quarter, which the market is focused on today, is EBITDA margin, which fell to 19.3% from 21.5% last quarter. The drop in EBITDA was entirely due to an increase in its SG&A and specifically to an increase in its fulltime staff. Q2 SG&A was $17m, +10% versus $15.3m in Q1. Of that 10% sequential increase, 8% was due to an increase in the number of employees (715 versus 662) with the remaining 2% due to other inflationary pressures (ie. fuel). • Nevertheless, we believe the EBITDA “miss” will turn out to be a good thing as VMD has increased its infrastructure to support the growth that it is clearly seeing. For example, assuming the projected 25-30% revenue growth continues, we believe corporate hiring and thus SG&A will stabilize. Therefore, we believe we will see in the coming quarters (eg. Q2/FY23), revenue of $43m, adjusted gross margin of ~71% and SG&A of ~$20m, implying a $10m EBITDA quarter or a $40m EBITDA run-rate early in FY23. In other words, through growth in scale in the coming quarters, we believe VMD will return to its historical ~22% margin. • Aside from its robust organic growth story, VMD has hired an M&A team who were previously at LHC Group (who was acquired by United Health, UNH:US, NR) and who led 100 transactions valued at $1.9 billion. Mr. Freeman and Mr. Trahan have started to put together the M&A plan at Viemed. This will be a first for Viemed, who has relied solely on organic growth plan and which has been very successful and which will have doubled the company’s revenue between FY19-FY23e ($80m - $166m). • Given the positive KPIs and outlook, we have raised our FY22 and FY23 forecasts. In particular, we have raised our vent patient forecast as well as our revenue/active vent patient. For FY22, we now model rev/EBITDA of $138m/$30.8m (versus $126.3m/$31.1m) and $166m/$40.6m for FY23 (versus $140.9m/$36m). Note that our model does not include any acquisitions. • We remain bullish of healthcare service companies given the positive macro backdrop (aging population, lessening supply chain issues, positive regulatory environment, CPI re-imbursement increases) as well as their below historically average trading multiples. While shares of VMD were +50% in July, the stock is down 15% today on the weaker than expected EBITDA. It now trades at 7.7x and 5.9x our Fy22 and FY23 forecasts versus an historical range of 8-12x. • Maintain buy and raise target to C$15.75 (was C$12.50) based on 12x our upwardly revised FY23 EBITDA forecast.