Viemed Quick Update - $VMD & $VMD.to

Quick update after Q3 2023

Price: $9.38 CAD/$6.80 USD

MC: 275 mil USD

EV: 272 mil USD

1 year performance:

VMD reported last night and held a call this morning. Results were ahead of my expectations and the stock was up 11-12% for the day.

Quarter Recap

• Revenue of 49.4 mil

  • Up 38% yoy

• EBITDA of 12.1 mil

• Margins

  • Gross margin at 61.9%

    • Highest in 2 years

  • EBITDA margin of 24.5%

    • Compares to 22.7% in Q2 2023

• Vent revenue is now 58% of total revenue

  • Was 67% last year

• Guided for revenue of 49.8-51.0 mil revenue if Q4 2023

  • Up about 33% yoy and 1.2% sequentially

• Expect CPI reimbursement to implement soon

• 75/25 blended rates for CPAP and oxygen expires this year and even if it’s not renewed they still estimates their CMS fee would increase 0.5-2% with the CPI adjustment

• Feel the Medicare Advantage Plan set for 2024 is beneficial to VMD

Call Notes

• They have 988 employees now

• HMP integration going well

• Oxygen was 10% of the product mix

• Sleep is now 17% of the product mix

  • Resupply makes up 47% of the sleep business

• Capital allocation will focus on paying off debt and funding organic growth

• They are not seeing any impact on the business from GLP-1 drugs

Closing Thoughts

I thought the call was quite positive. I think the market is concerned about the impact that GLP-1 availability will have on the VMD business long term, particularly the sleep business. VMD reiterated that they have not seen any meaningful impact on this.

ResMed (equipment supplier) made these comments on their last conference call:

In terms of existing patients in our installed base, we are actively tracking a cohort of many thousands of patients on these GLP-1 medications and APAP therapy. We are not seeing any significant change in the PAP adherence rates nor any reduced participation in resupply programs versus control groups. These data indicate that there is a cohort of patients on combined therapies in a stable state.

In terms of new patients activated into the funnel, we are seeing the number of new patients activated into the health care funnel picking up. We see patient flow is not only strong but increasing. We believe in treating the whole person here at ResMed, including a combination of cardiovascular exercise, diet and nutrition as well as good sleep and breathing. That combination was called the Triumvirate of health by Professor Bill Dement from Stanford, may he rest in peace. And we think a combination of these 3 elements will result in the best outcomes for patients. It is quite possible that this new class of drugs may become as large or even larger than the cholesterol class or the blood pressure treatment class of pharmaceuticals.

If this is the case, we will see a whole new population of patients activated with their primary care providers that we may never have seen in the health care system. If this comes to pass, we may see benefits for the entire health system and for the people being treated themselves and for ResMed, as more and more people are evaluated and screened for sleep apnea, respiratory insufficiency and other key chronic conditions as part of their primary care evaluations. Our data are showing an all-time high of patient flow and that supports this thesis.

This is really interesting. They went into more detail during the Q&A. The positive is that they are seeing continued maintenance and adherence. Of course, only time will tell how much of an impact these will have.

we're tracking many thousands of patients on GLP-1s and PAP we're seeing maintenance of adherence. We're seeing maintenance of resupply programs and really no change.

The VMD business is running well. The management team has navigated the pandemic, inflation, Phillips’ vent issues, M&A and organic growth without needing additional capital. They should eclipse the temporary bump in profitability from covid in 2024.

VMD is also trading at the low end of it’s typical valuation range.

Thanks for reading.

Dean

* long VMD.to