Beacon Raised Target to $18 Canadian from $15.75: BEACON
March 8, 2023 Doug Cooper| dcooper@beaconsecurities.ca
Viemed Healthcare (VMD – T) )Strong Organic Growth Profile Potentially to be Supercharged Through M&A. Raise Target Price
• Viemed recently reported another record quarterly results. Headline Q4 results were revenue/EBITDA of $37.5m/$9.3m with $139m/$30m for the year. • For the quarter, revenue was in the mid-point of management’s guidance with EBITDA far above expectations with a margin expansion of ~500 basis points sequentially driven by incremental sales growth and an actual reduction in SG&A by $0.5m. • Last quarter, we noted that the key performance indicators had hit an all-time high. That momentum continued with the Q4 results: a) Core Revenue (ex COVID) All-Time High: $37.5 million b) Significant Organic Growth: 30% y/y, 5% q/q. Q1/FY23 revenue guidance range of $38-$39m (27% y/y) c) Record Vent Patients: 9,306, +11% y/y d) Record Revenue Diversification: Non-vent revenue was 34.4% of total revenue. As a point of reference, non-vent revenue was 20% of total revenues in Q1/FY21 e) Record revenue per active vent patient: $16,124 versus $15.212 last year (+6%) and was +3% sequentially. Such rev/active vent patient growth is specifically due to its non-vent revenue as noted above. We want to highlight as well that these rev/patient results are PRIOR to the CPI-price adjustment that went into effect January 1. Coupled with the continued diversification, rev/patient should continue to expand. • In addition to these positive KPIs, Viemed still has an excellent balance sheet with $17 million in cash even after buying back an additional 120,000 shares during the quarter at an average price of $5.89. During FY22, the company bought back 1.8 million shares. Furthermore, during Q4, VMD repaid its remaining debt (~$4m mortgage on its HQ land/building). The company is now entirely debt free. • Annual results are always a good time for reflection and taking stock as to how a company has performed over time. For VMD, such analysis reveals how successful the company has been since it started trading on a stand-alone basis in 2018. Since 2017 (ie last 5 years), VMD has: a) Growth: Revenue has increased 3-fold or a 24% CAGR from $47m in 2017 to $137m (core revenues) in 2022. This is all organic growth. b) Diversification: in 2017, revenue was essentially 100% driven by its vent business. While the company has tripled its vent patient count over this 5-year period from 3,600 to 9.306, its revenue per patient has grown from $11,100 to $16,124 (+45%). c) Debt Free from Strong Cash Flows: As the company’s capital assets (ie. vents, CPAPs, land/building) have tripled to ~$70m (from $21m in 2017), its balance sheet is pristine with $17m in cash and no debt (nor any capital leases) versus $5m in cash as of Dec 31, 2017 when it also had $5m in finance leases. Such growth has been driven by the strong operating cash flow as the company has issued no equity during this period and, in fact, has bought back ~5% of the company. In other words, over the past 5 years, the company has generated enough cash to increase its capital assets by $60m and its net cash position by $17m for a total of $77m with no equity dilution. • Just Getting Started? One could argue this is actually the case. A total installed base of ~100,000 total patients (from all vendors) still represents less than 10% of the applicable market. We believe that through a number of clinical studies that demonstrated both the efficacy of NIV therapy as well as its cost saving to the healthcare systems, referring physicians are becoming more comfortable and thus the number of patients could accelerate meaningfully. Furthermore, over the past few years, VMD has focused on its diversification strategy which is paying clear dividends as noted above. Finally, the company is likely to make an acquisition for the first time in its history, likely to expand its geographic footprint. An M&A strategy to augment its 20-30% organic growth could act as catalyst to the share price. Consider if it were to buy a company with $30+ million in revenue at a 20% EBITDA margin through the use of its untapped $90m credit facility. We believe such an accretive transaction could be worth C$2 to the share price alone. • Introducing FY24 Forecast and Raising Target Price: We have made small tweaks to our FY23 forecast (revenue down slightly with EBITDA up slightly). For FY24, we are modeling $195m in revenue with $50m in EBITDA. • Maintain buy and while rolling our valuation forward to our FY24 estimates. A 10x multiple on our $50m EBITDA forecast results in our new target price of C$18.00 (was C$15.75).