VMD.TO - Viemed Healthcare Inc.

[Cigarbutt]

That’s one I'll follow for a consistent operating history although some may feel it’s promising enough as of now.

 

Short story:

 

Casey Hoyt (entrepreneur style) and a friend, Micheal Moore, a respiratory tech, founded, in 2006, what was to become Viemed. The respiratory care unit went through a temporary ownership under PHM (home therapy umbrella) and was recently spun off (founders were also spun off).

 

They basically provide home care through resp. technicians who follow US (24 states and expanding) patients who have significant lung insufficiency and who may benefit from “non-invasive ventilation” equipment, which is rented. As everything related to healthcare, the benefit is not so clear cut and the company refers to a KPMG “third party” to-be-published study showing good outcomes with net decreased costs to payors but IMO, after an objective and balanced review, there is relatively significant evidence that this kind of service (equipment and in-person technical service) does provide benefits to patients (quality of life, survival and decreased hospitalisations) and potential significant cost savings.

 

The relevant “market” is relatively large and expanding  (aging, Medicare coverage etc), is fragmented and Viemed appears to be one of three leading contestants fighting for market share.

 

It’s been growing. Potential growth through increased penetration in existing markets and through geographic expansion.

 

I see an increasing role for home care and a developing perspective on end-of-life care which may increase the attractiveness of Viemed’s services, which are focused on a specific niche.

 

It’s one of those firms that is incorporated in Canada but that does business only in the US (for now). It recently graduated to the TSX. It has been profitable, is net cash positive and will have tax shields for a while. Annualized sales run at about 60-65M (USD) and market cap stands today at about 248M (CDN). At this point, it trades at about 10-12x cash flow (depending how one deals with the non- cash share-based compensation expense which is, as is typically the case in these “promising” scenarios, significant).

 

The company seems to be in a “promotional” mode but nevertheless, appears to be little followed and “analyzed” (boring market?).

 

After preparing this review, I looked at a recent report from what appears to be the only analyst following (although Beacon was involved with Viemed to sell securities so…) and it is included below.

 

http://q4live.s22.clientfiles.s3-website-us-east-1.amazonaws.com/662064274/files/doc_news/2018/04/VMD-2018-04-25.pdf

[mwtorock]

Thanks for bringing this up. I have been also looking at it. I thought 4.5 price tag was not compelling enough and here we are looking at 6.7 per share in CAD :).

 

If I remember correctly, this was recommended by Kupperman around end of last year or beginning of this year. He also posted this idea on VIC as special situation of spin off. If anyone is interested, might be able to get some background there.

 

Lake Street also initiated it with a BUY (price target CAD10).

 

*******************

Viemed, based in Lafayette, Louisiana, is the third largest player in the U.S. respiratory care market, and with only 5% total market penetration, we believe the company can deliver strong organic revenue growth and increased profits for years to come. While the equipment Viemed uses in the home is cutting edge technology, it is the service the company delivers to its vulnerable patients that separates it from competitors. Viemed delivers a triple-win, with better patient comfort, better health outcomes and lower costs for the payor.

We believe VMD.TO is below the radar screen for most U.S. investors as the company went public via a spinoff from former parent, Patient Home Monitoring (now Protech Home Medical Corp. (PHM.V)), and currently primarily trades on the Toronto Stock Exchange (TSX). As Viemed’s visibility grows, particularly with U.S. investors, we expect the stock to deliver outsized appreciation. We are initiating coverage on Viemed Healthcare, Inc. with a Buy rating and a CAD10 PT.

HIGHLIGHTS

• Attractive, Underpenetrated Market – Viemed estimates less than 10% of patients who could use non-invasive ventilation (NIV) in the home currently get it and the number of patients who could benefit is projected to grow 8% per year through at least 2023.

• Stable Reimbursement – Beginning in January 2019, CMS has suspended competitive bidding for durable medical equipment (DME) suppliers for the following 2 years. Since ventilators were not part of competitive bidding, we suspect this suggests pricing could be stable during this period. Given the pricing pressure Medicare has historically put on home respiratory players, we expect stable reimbursement to be a big positive for investors.

• Self-funding Organic Growth – During 2017, Viemed grew revenue 42% organically while funding all of its growth from cash from operations. While management has indicated it will consider attractive acquisitions, we expect the focus on strong organic growth to continue.

• Patient Service Key Differentiator – Viemed’s patients are usually old and sick, which makes the Company’s focus on exceptional patient service especially important. Viemed’s service offering includes 24x7 in-home care provided by specially trained respiratory therapists using state-of-the-art non-invasive ventilators and other equipment.

• KPMG Study Results Coming – When results of the KPMG study are published, likely in the next year, we expect them to show for every six people put on its noninvasive ventilation therapy, Viemed saves one life and simultaneously saves $25,000 per patient per year for the payor.

• BUY Rating, CAD10 PT – Our 12-month price target on Viemed is CAD10, which is based on our expectation investors will place an enterprise value multiple of 16.0x our 2019 AEBITDA estimate.

 

 

[UNF2007]

I would be careful with this one, for a few reasons.First NIV( non-invasive ventilation) as they say in the document has been around a long long time, it's not some new technology. In the paper they try to lead you to believe the Trillogy unit was first to market in 2009 and up to that point if you had COPD you needed to be in a hospital to get NIV, this is false. You can go back to the Bird ventilators from the 1950's and find they had an NIV mode, in fact it was the first kind of ventilation mode, it's more commonly known in the medical profession as CPAP. Thie first home use of CPAP came around the 1980s. All non-invasive means is the ventilation is delivered through a mask, or sometimes a very large humidified nasal cannula, and not an endotracheal tube or tracheostomy. CPAP is commonly prescribed for sleep apnea, and there is no shortage of devices on the market for that. It seems from the document they are targeting people with COPD and the idea is that people will be wearing these masks most of the day and night. I can tell you from experience with OSA (sleep apnea) patients that the mask is tolerable at best. Compliance with having people wear the mask just at night for sleeping, is not very good. The reason is that it's just not comfortable, it's noisy (potentially disrupting the spouse), and there are issues with keeping it clean. Now imagine wearing the thing continuously, trying to drive with it, go out to eat , etc. etc. Contrast that to just wearing a simple nasal cannula connected to a portable O2 concentrator, which is what most of the stage IV COPD patients are currently doing, which would you choose? I guess what I'm trying to say is the market for CPAP aka NIV has been around for a while, there are problems with it that make it difficult for people to use it around the clock and any investment thesis that centers on that is in my opinion severely flawed.

[doc75]

An acquaintance was trying to interest me in this story a while back.  I took a quick peek,  saw that it was related to Patient Home Monitoring, and looked no further.  I spent some time a while back digging into PHM and its principals and came away disgusted.  I can't remember the details, just remember the bad taste of pseudo-fraud.  I think management changed at some point, but one of the original goons (Michael Dalsin?) was still involved.

 

All that to say:  I didn't bother to dig into Viamed and it looks like I missed a quick triple for my laziness. 

 

 

 

[Cigarbutt]

I would be careful with this one, for a few reasons.First NIV( non-invasive ventilation) as they say in the document has been around a long long time, it's not some new technology. In the paper they try to lead you to believe the Trillogy unit was first to market in 2009 and up to that point if you had COPD you needed to be in a hospital to get NIV, this is false. You can go back to the Bird ventilators from the 1950's and find they had an NIV mode, in fact it was the first kind of ventilation mode, it's more commonly known in the medical profession as CPAP. Thie first home use of CPAP came around the 1980s. All non-invasive means is the ventilation is delivered through a mask, or sometimes a very large humidified nasal cannula, and not an endotracheal tube or tracheostomy. CPAP is commonly prescribed for sleep apnea, and there is no shortage of devices on the market for that. It seems from the document they are targeting people with COPD and the idea is that people will be wearing these masks most of the day and night. I can tell you from experience with OSA (sleep apnea) patients that the mask is tolerable at best. Compliance with having people wear the mask just at night for sleeping, is not very good. The reason is that it's just not comfortable, it's noisy (potentially disrupting the spouse), and there are issues with keeping it clean. Now imagine wearing the thing continuously, trying to drive with it, go out to eat , etc. etc. Contrast that to just wearing a simple nasal cannula connected to a portable O2 concentrator, which is what most of the stage IV COPD patients are currently doing, which would you choose? I guess what I'm trying to say is the market for CPAP aka NIV has been around for a while, there are problems with it that make it difficult for people to use it around the clock and any investment thesis that centers on that is in my opinion severely flawed.

 

You are correct in underlying 1-the compliance issue and would like to expand on 2-the "choice" issue.

 

1-Compliance can be a significant problem especially if patients are poorly selected and followed (ventilatory settings and patient "education"). With ongoing research, it looks like a diagnostic and treatment algorithm is being defined and that may improve compliance. Interesting to remember that something like 25% of patients reaching late stages of respiratory failure still smoke when starting noninvasive ventilation and only about half of those will stop smoking during treatment. Home care with available and dedicated technical assistance (VMD formula) may help. Some suggest that the compliance pattern gets established after only a few days of treatment. Somewhat anecdotally, I've spoken to people who had sleep apnea, who report very positive results and who would never abandon treatment. The masks (Respironics and Resmed) are bulky and the apparatus is noisy. The whole set-up can obviously interfere with intimacy unless you look for unusual experiences. :)

 

2-People suffering from sleep apnea can decide to go without the device and accept lesser quality sleep. People who reach advanced chronic respiratory failure may not have such a choice. Data shows quite clearly (looking for disconfirming evidence) that a combination of oxygen therapy with non-invasive ventilation is superior to oxygen therapy alone and, inevitably, in many instances of the progressive condition, the only alternative may be to have a tube put down your throat (or through hole made at the level of your mid-neck) coupled with continuous mechanical ventilation from which weaning can become next to impossible.

 

@doc75

You may be forgetting the number of times when your sixth sense allowed you to avoid teaming up with shady people.

With decisions, you end up with false positives and false negatives and where you draw the line may make you miss a few of those "quick triples". So be it. Compromise on integrity is a slippery slope.

Flowers can grow on manure but there are greener pastures.

 

[mwtorock]

A potential risk is from the payer - US Govt. Last time they cut the rate around 30% maybe, how confident are we that it is not going to happen again?  The management seems to be really confident, but it is a risk nonetheless.

 

 

[Cigarbutt]

A potential risk is from the payer - US Govt. Last time they cut the rate around 30% maybe, how confident are we that it is not going to happen again?  The management seems to be really confident, but it is a risk nonetheless.

 

Management confidence is necessary but not sufficient in itself.

If you want to take this further:

 

-"Market" abuse can occur and the payer needs to focus on accountability. Here's a related example:

https://oig.hhs.gov/oei/reports/oei-12-15-00370.pdf

 

-The determination of "value" provided is work in progress and the issue is still controversial. This is still price discovery. There is however a certain trend and one has to determine the extent of the value provided. The "ventilation" market has changed from sleep apnea to generic respiratory failure. CMS has followed, to some extent, the industry on this path with evolving criteria and guidelines but who really knows what will happen? Opinion that will evolve with facts: The actual product sold of home non-invasive ventilation in combination with human technical assistance and monitoring at a distance does provide value to the customer (patient) and does provide cost savings for the system in relation to a sub-group of people suffering from chronic respiratory failure. So one has to define the value provided ($ per patient and potential number of patients) and how VMD can recuperate part of this value.

http://1yh21u3cjptv3xjder1dco9mx5s.wpengine.netdna-cdn.com/wp-content/uploads/2016/06/Meeting-the-Challenge-of-COPD-Care-Delivery-in-the-USA.pdf

 

-Not saying that VMD is Resmed but Resmed's history is interesting for perspective and technological details.

https://www.resmed.com/au/en/consumer/about-us/the-resmed-story.html

 

-Also, for perpsective on the value proposition dynamics in healthcare, you may be interested in DaVita who will need to continue to validate value for its product in order to continue to get its share of the value creation from the payers, regulators etc

[maybe4less]

A potential risk is from the payer - US Govt. Last time they cut the rate around 30% maybe, how confident are we that it is not going to happen again?  The management seems to be really confident, but it is a risk nonetheless.

 

FWIW, if you speak with management, I don't think they will tell you they are confident there won't be further cuts. I think they would tell you the opposite. Everyone expects more cuts as the industry grows.

 

They are, however, trying to get CMS to understand the benefits of what they do: both for the patient in terms of outcomes and for the system in terms of cost reductions. But if they are successful with this, it does not mean that there will not be more cuts over time.

 

The recent 30% cut appears to be an anomaly, driven by a suspicion that the rapid growth in non-invasive ventilation billing codes was partly fraudulent (see the Inspector General's report attached or linked to in Cigarbutt's last post). It does seem clear that CMS did not have a good understanding of what in-home non-invasive vent providers were doing. More likely I think we are looking at more conventional 10-15% cuts at any given point in time in the future.

 

What management is confident about is that they can grow out of such a cut rapidly and that they will take share from mom and pops when it happens. It's a question of what operating margins will settle down at. They should be able to cut some SG&A and things like sales commissions will decline, but we should probably expect lower operating margins long-term.

office_of_inspector_general_report_on_escalated_billing_for_vents_Sept_2016.pdf

[Steven B]

Looked at this awhile back. Top line wasn't hitting the bottom line even after accounting for growthex and all so I passed. Also seems promotional. I'm sure I'll miss more 3x next year to, so all's good.

[Cigarbutt]

Looked at this awhile back. Top line wasn't hitting the bottom line even after accounting for growthex and all so I passed. Also seems promotional. I'm sure I'll miss more 3x next year to, so all's good.

Reasonable perspective.

 

It seems though that this company may be a forefront example of a player participating in the evolving trend where patients with chronic and pretty much irreversible diseases (minority of patients "responsible" for majority of costs) will tend to be integrated away from hospital-centered care and uncoordinated/fragmented follow-up and more into a model based on home-and-community-based, patient-centered, remote monitored, technology-facilitated and team-coordinated care with first-line available technical ability.

 

If I were them, I would pro-actively enter negotiations with insurers and government agencies in order to set up a bundled payment system based on long term objectives and outcomes. Really complex but that's where the money is and all the patient is asking is to breathe better. Deep pockets required but could start with pilot projects.

 

But there will be others. Don't hesitate to share.

"The best way to have a good idea is to have a lot of ideas"  Linus Pauling

[maybe4less]

If I were them, I would pro-actively enter negotiations with insurers and government agencies in order to set up a bundled payment system based on long term objectives and outcomes. Really complex but that's where the money is and all the patient is asking is to breathe better. Deep pockets required but could start with pilot projects.

 

As you probably know, they are indeed actively doing this. They've yet to land a big deal so far though, but they are also unaware of anyone else in the industry having done so. Viemed is hitting the VA pretty hard; hopefully that goes somewhere soon.

[Cigarbutt]

As you probably know, they are indeed actively doing this. They've yet to land a big deal so far though, but they are also unaware of anyone else in the industry having done so. Viemed is hitting the VA pretty hard; hopefully that goes somewhere soon.

Your post seems to imply a privileged access to insider info.

This is not the case. I follow the area to harvest and first learned and read about this specific company about 10 days ago.

 

Bundled payments are promising. When it was introduced on the procedural side, there was a learning curve but the protocols are now IMO well established and being refined. For the chronic conditions side, success is not guaranteed, there are more variables, the learning curve will be longer but that is the area where most of the savings/profits lie. For the generic bundled payments, there are several ongoing and parallel endeavors (public and private) and some like Prometheus Payment include patients with chronic respiratory failure. For chronic lung ailments under bundled payments, there are established protocols in the Netherlands and some work has been started in Ontario (Canada).

 

There was a CMS-funded study published in 2016 that may signal that bundled payments won't work in chronic lung disease but that may just mean that we are early in the game.

https://www.atsjournals.org/doi/pdf/10.1513/AnnalsATS.201610-775BC

 

I assume that the triple venture spearheaded by Todd Combs may look in that direction and the dominoes may start to fall.

 

[maybe4less]

As you probably know, they are indeed actively doing this. They've yet to land a big deal so far though, but they are also unaware of anyone else in the industry having done so. Viemed is hitting the VA pretty hard; hopefully that goes somewhere soon.

Your post seems to imply a privileged access to insider info.

 

Not at all. They've mentioned this many times on their earnings/investor and called out the VA effort specifically on the last earnings call. You can also call up the COO and he'll tell you the same story.

[Cigarbutt]

They've mentioned this many times on their earnings/investor and called out the VA effort specifically on the last earnings call. You can also call up the COO and he'll tell you the same story.

 

Thanks.

Slowly digging deeper here. In these potential "the best is yet to come" ideas, I usually end the analysis with the more direct stuff (calls, videos etc) because doing so early in the appraisal may frame the thought process as many of these owner-operators can be unusually good at sales pitches. ;)

[maybe4less]

They've mentioned this many times on their earnings/investor and called out the VA effort specifically on the last earnings call. You can also call up the COO and he'll tell you the same story.

 

Thanks.

Slowly digging deeper here. In these potential "the best is yet to come" ideas, I usually end the analysis with the more direct stuff (calls, videos etc) because doing so early in the appraisal may frame the thought process as many of these owner-operators can be unusually good at sales pitches. ;)

 

Sorry, you seem very knowledgeable on the company, so I assumed you knew about those efforts. :)

 

These guys certainly are promotional and will freely admit it that they want the stock price to reflect the success of the underlying business. That being said, I believe there is a lot to like about the business.

 

My problem is mostly one of valuation. I think you have to model in some reimbursement cuts over time. When you do that, the stock seems roughly fair-valued to me (i.e., you get high single-digit returns from here), to a greater or less degree depending on what growth rates you assume.

 

I've sold into this run-up as it approached my estimate of fair value, but I think momentum may continue to drive the price up for a while. Many investors may be looking at the 40% growth rates and not thinking too hard about the future and there is still an element of "market discovery" going on, since they have only been independent since December. These types of companies seem to trade at much higher multiples than I would want to pay, so for now I'm letting it ride.

[writser]

Interesting price action today ...

[Cigarbutt]

Interesting price action today ...

I'v been scratching my head too as the regulatory "news" did not seem that unusual; it seemed like negotiation-as-usual type of tactics from the CMS? It just goes to show how 1-these firms remain at the mercy of the Big Brother regulator and 2-how skittish the crowd seems to be.

 

For 1-, this is a humbling experience: in the last 24 hours, I blasted an idea submitted by Gregmal on regulatory and sustainability concerns and that stock is up about35% as this is written. And on this thread, I tried to explain how VMD has some regulatory moat and with a blip on the news screen, the stock goes down by about the same amount.

 

For 2-, if I'd be 10% as intelligent as Mr. Druckenmiller, I'd say this kind of price action is telling us something.

[maybe4less]

Interesting price action today ...

I'v been scratching my head too as the regulatory "news" did not seem that unusual; it seemed like negotiation-as-usual type of tactics from the CMS? It just goes to show how 1-these firms remain at the mercy of the Big Brother regulator and 2-how skittish the crowd seems to be.

 

For 1-, this is a humbling experience: in the last 24 hours, I blasted an idea submitted by Gregmal on regulatory and sustainability concerns and that stock is up about35% as this is written. And on this thread, I tried to explain how VMD has some regulatory moat and with a blip on the news screen, the stock goes down by about the same amount.

 

For 2-, if I'd be 10% as intelligent as Mr. Druckenmiller, I'd say this kind of price action is telling us something.

 

Yeah, the price move is interesting and probably reflects more than anything that the stock had gotten ahead way of itself. If I model in a 10% rate cut in a few years, the stock currently just seems slightly undervalued to fair valued.

 

Seems pretty clear a lot of momo investors were in this and are getting out. If you weren't prepared for this kind of regulatory news and pricing the company appropriately, than you weren't paying attention.

 

That being said, CMS seems to have realized that its initial competitive bid process forced the "winners" to cut so hard into the bone that patient outcomes were suffering. Reforms now see to be in the offing. Being a part of the competitive bid regime may not be such a negative in the future as it has been in the past.

[writser]

Even more crazy today ..

[writser]

Confession: after the huge drop the past few days I decided to buy some shares without having a firm grasp of fair value (never looked at in sufficient detail). The company looked cheapish at first glance, the price action looked ridiculous and the rumors about competitive bidding looked overhyped with changes coming into effect in 2021 at the earliest.

 

The past two days I have been trying to tag a price onto Viemed and I have come to the conclusion that this company is too hard for me to value. Revenue is growing at 40% annually, EBITDA is growing 40% annually, obviously if you project this growth for a few years the sky is the limit. However, how sustainable is this growth? How sustainable are profits given that you are basically exploiting the US government? Why is revenue outgrowing the number of patients by 12% p.a.? Is that sustainable? Why are earnings not hitting the bottom line? Also, insiders receive a huge paycheck and the company's past is a bit shady.

 

All in all, here I was with a position in a stock I didn't know how to value. After two days of thinking I decided to sell my shares in the run-up for a small gain. Got lucky. Too hard for me.

 

If anybody smarter than me has some thoughts on how to value this company they'd be appreciated. What approach do you use? What growth do you model? The problem is not as much choosing a model but rather choosing inputs for the model. With what conservative assumptions (if any) do you conclude there is signficant upside?

[Cigarbutt]

Confession: this is unlikely to be helpful but at least it's a start. This is not Coke in 1988.

Limitations: we have different styles and what I'm looking for now is stuff where I could put large chunks to work for a long period leaving time to discuss unrelated issues.

But I'm building a potential category with a basket approach (4 to 7 healthcare firms that could benefit from the coming transition with focus on value-based care and government direct or indirect involvement) and VMD is on that list.

 

Take a look at reply #6 describing the potential additional revenues per patients. What I do now is to project the growing revenues and profitability over the next 5, 10 and 15 years (with progressively lower revenue growth and levelling bottom-line profitability), put a reasonable multiple on the three terminal values and discount by 15% to today.

 

That gives me an intrinsic value range of 1 to 3$.

Hoping for smarter thoughts too.

[writser]

$1 to $3? per share? $1b mcap? Not totally sure what you mean.

 

I tried to take a shorter-term approach. No clue how the company will look in 15 years. Company is on track to generate ~14m EBITDA (adding back stock-based compensation) this year.  Patients count has grown by ~30% annualized the past 6 quarters. Assuming they can grow EBITDA ~25% the next two years and a valid exit multiple is ~8x (low - bit of uncertainty regarding margins given potential rate slashes) I end up at $175m vs. a $200m mcap today. Current price doesn't seem unreasonable if you assume they keep growing but not a bargain either.

 

All back of the envelope and probably on the conservative side.

[Cigarbutt]

Meant 1-3$ share price or 40-120M market cap.

 

One could focus on numbers here and simply project forward what has been accomplished so far but the "value" that VMD is bringing to market has not been clearly validated although they seem to be on the right track.

 

FWIW, I think what they bring has three components in order of decreasing importance (note: the market presently does not see it that way):

1-integrated network of humans (resp techs) doing the connection

2-setup allowing monitoring at a distance

3-the ventilator technology giving better results (this is the weakest link IMO)

 

This is an unfolding and potentially promising "story" but I would temper the precision inherent to short term numbers.

Looking for more volatility and that's all I have to say about that.

[maybe4less]

Confession: after the huge drop the past few days I decided to buy some shares without having a firm grasp of fair value (never looked at in sufficient detail). The company looked cheapish at first glance, the price action looked ridiculous and the rumors about competitive bidding looked overhyped with changes coming into effect in 2021 at the earliest.

 

The past two days I have been trying to tag a price onto Viemed and I have come to the conclusion that this company is too hard for me to value. Revenue is growing at 40% annually, EBITDA is growing 40% annually, obviously if you project this growth for a few years the sky is the limit. However, how sustainable is this growth? How sustainable are profits given that you are basically exploiting the US government? Why is revenue outgrowing the number of patients by 12% p.a.? Is that sustainable? Why are earnings not hitting the bottom line? Also, insiders receive a huge paycheck and the company's past is a bit shady.

 

All in all, here I was with a position in a stock I didn't know how to value. After two days of thinking I decided to sell my shares in the run-up for a small gain. Got lucky. Too hard for me.

 

If anybody smarter than me has some thoughts on how to value this company they'd be appreciated. What approach do you use? What growth do you model? The problem is not as much choosing a model but rather choosing inputs for the model. With what conservative assumptions (if any) do you conclude there is signficant upside?

 

Overall the approach I've taken is to run a range of different growth scenarios over the next decade and a range of different rate cut scenarios to value the company. The bottom line is that under most reasonable scenarios, I think the company is fairly valued to slightly undervalued. I think you can only model a really good return (e.g., ~15%+ per year) if you assume no rate cuts.

 

To answer some of your other points:

 

-Revenues appear to be growing faster than patient count because they only report the number of vent patients they have. They have other business lines than vents, but don't tell us how many patients there are.

 

-I don't actually think there is any exploitation of the government or payers in general here. Putting people on vents in-home actually saves the system money. Additionally, gross margins are really large, but SG&A is very high and I don't know how much lower they'll be able to get it as a percentage of sales. They will get some improvement, but certain SG&A costs scale with growth. Unless you model significant SG&A operating leverage, they actually can't take too big of a rate cut and stay profitable. I'm assuming we see at some point in the next few years a 10-15% rate cut, because anything more I think makes it hard for these companies to exist. If I'm wrong about that, it will mean they can get more operating leverage out of SG&A, so it will likely be a wash.

 

-I think it is incorrect to state that Viemed's past was shady. It's not hard to see that they were given an offer they couldn't refused by an aggressive roll-up company. That company's roll-up strategy started to fail just after they bought Viemed and the board hired Viemed's management to help stabilize the ship. Not surprisingly, Viemed's management wanted to extricate themselves as quickly as possible and save the value of the equity they were paid in.

 

 

 

[Alan00]

$1 to $3? per share? $1b mcap? Not totally sure what you mean.

 

I tried to take a shorter-term approach. No clue how the company will look in 15 years. Company is on track to generate ~14m EBITDA (adding back stock-based compensation) this year.  Patients count has grown by ~30% annualized the past 6 quarters. Assuming they can grow EBITDA ~25% the next two years and a valid exit multiple is ~8x (low - bit of uncertainty regarding margins given potential rate slashes) I end up at $175m vs. a $200m mcap today. Current price doesn't seem unreasonable if you assume they keep growing but not a bargain either.

 

All back of the envelope and probably on the conservative side.

 

Writser - I think you might be comparing a USD valuation with a CAD market cap number.  Also, how did you get to your EBITDA number, by end Q3 2018 they are showing AEBITDA USD 12.2m YTD already.