About 7 months ago I wrote about Viemed.
After a big bounce from the covid lows, shares are down 15-20% since I posted. Follow my ideas at your own risk.
And here is the performance of other things you could have purchased if you followed all the smartest accounts on Twitter. If your timeframe is 6 months, you probably are reading the wrong blog.
Although I’ve sent out a few updates on Viemed on the monthly updates, I think Viemed warrants some additional conversation.
VMD Adds Value to Stakeholders
Service to Patients
The high touch service model makes them very valuable to patients. The use of ventilators can be overwhelming, confusing and hard to keep up with. Recall that the vent patients are likely elderly and the use of a ventilator may not be the only treatment they are receiving. Having respiratory therapists (RTs) in the home with the patient increases compliance. The RTs are available around the clock to assist patients. The RTs are their to educate patients and build a trusting relationship. They are the first point of contact and face of Viemed for the patient.
Extending patient life
Proper patient education and compliance leads to higher quality of life. The patient also uses VMD products (likely a ventilator) longer. Use of non-invasive ventilators has been proven to extend patient life. A few years ago they stated that the average time the patients use a ventilator is 17 months. They have released data that every 6 patients they get on a vent saves a life.
Treating patients at home rather than at hospital removes cost from the healthcare system. Treating patients at home where they can be around their loved ones is one thing, but there is also a reduction hospital readmissions. Hospital stays are expensive and consume valuable resources.
The company has always provided more than NIVs to patients. The oxygen portion of the business has grown 100% in 2020 (albeit from a lower base). They expect it to grow quicker than the ventilator side of the business. Though margins are not as strong as NIV, the incremental cost is low and leads to high incremental ROIC.
They have also been able to provide specific product sales and support from COVID. Though this will eventually unwind, it demonstrates their ability to capitalize on opportunities.
They are currently in 38 states and have the opportunity to expand into new states. They could also penetrate further into the existing states they have a presence.
Though somewhat muted in the immediate term, the company has been investing heavily in technology to assist RTs in treating patients. They have also invested in systems to improve workflow for their employees. They have purchased 5% in VeruStat, a company focusing on remove patient monitoring.
There is always the chance that VMD acquires another business or product(s). Previously they had mentioned that they were looking at pediatric patients.
Partnership and Payor Diversification
They announced an alliance with Commonwealth Primary Care ACO in Arizona in February. There could be more partnerships like this with ACOs in the future.
They also have been approved to provide care for the VA (Veterans Affairs). They are working on demonstrating the savings that VMD will provide. This was delayed due to covid and is picking up again in April 2021.
- Competitive bidding
- The competitive bidding process for CMS services was paused due to the pandemic. In 2016 they took a 35% cut in reimbursement from Medicare. It took them several quarters to outgrow the cut. Home medical equipment was removed from the competitive bidding process in 2021.
- Lower than expected growth
- whether it’s from covid or other reasons, a slower growth rate could cause the share price to re-rate into “deep value” territory.
- Key person
- Casey Hoyt (CEO) was one of the founders of the company. He has been there since day one and has a material amount of his net worth tied up in the business. If he left, I would view it as a negative event.
- Bad debt expense
- As their patients are at end of life, there can be some significant swings in bad debt expenses. They have guided for 9-13% range. They could have a instance of greater than 13% of revenue spent on bad debt. Thought I feel it’s unlikely as they have gotten better at collections and monitoring patients, it’s a risk to monitor.
What needs to happen to make money
In my opinion, VMD is a company that you need some patience with. If they have growth opportunities, they will take the opportunity to invest via the income statement and cash flow statement. This could hurt profitability in the short term. I do think that the business could outperform the stock over the next few years. To me, VMD is not a company to trade but to own.
Given all the growth levers, VMD is looking to get back to pre-covid growth levels. If they can return to that rate (or even close to it) of growth, I think the current share price is a bargain. The company is trading around 10x forward EV/EBITDA today.
I feel that VMD is a high quality business providing a valuable service to it’s customers, has lots of TAM, incentivized owner-operators, and is not at the valuation where I would sell it.
*I am long shares of VMD at time of writing