Viemed Healthcare, Inc. (VMD) Earnings Call Transcript & Summary

Next up, we have Casey and Todd from Viemed. The stage is yours.

Yes. Thank you. Okay. We're going to get right into this since we only have 20 minutes. So at Viemed, we are the largest independent non-invasive ventilation -- we're the largest independent distributor, non-invasive ventilation in the country. And what we do is we -- we're treating very sick patients in the home. Our patient comes to us with 17 months left to live. They're typically struggling with COPD or some other form of neuromuscular disease where their lungs are deteriorating and we catch them at a critical moment in time when they're burdening the hospital with costly readmissions and ER visits. Our -- we have a 30% CAGR since 2017. Located in Lafayette, Louisiana and serving over 48,000 patients. We're dual-listed on the NASDAQ and the Toronto Senior Exchange. So a little bit of our journey. We -- I'm the CEO, original founder of the business, started with the name Sleep Management. We became one of the first home sleep testing companies in the country back in 2010, a big part of our history. It allowed us to develop a new sales pitch, embraced new innovation that led us to the ventilator opportunity back in 2012. 2015 where we found our Canadian roots, we were acquired by Patient Home Monitoring. They hired me to be the CEO. And my business partner to be the President [indiscernible]. In 2017, we effectuated a spin out from PHM, and as you can see, we've been growing. We went from $41.3 million to finish in 2022 with $138.8 million in revenue. COPD is the third largest killer behind cancer and congestive heart failure. We're spending $50 billion in the U.S. on this disease alone. So there's a major problem out there. It's the top line baby boomers that are driving the patients our way. We have a major opportunity with the second largest payer here. The majority of our business comes from Medicare, and we'll talk about that here in the coming slides, but the VA is the second largest payer in the country. They've yet to identify NIV as the gold standard of care. So we've been busy at kind of puncturing through that barrier. The favorable market trends. We're seeing more -- the continuum of care enter the home. If the pandemic shined a bright light on anything, it was the fact that we don't have as many hospital beds in the country to really support what's headed our way. So this is all something that we're in a really good position to capitalize on that opportunity and we're doing so. So this slide right here is, I'm not going to spend too much time on it, but the main takeaway is that Medicare is having to invest in the DME business, which is what we're classified as durable medical equipment business. They're going from $54.9 billion in 2020 to happen to invest $98.4 billion in 2030. And at the age of 65, that's when Medicare patients qualify for Medicare, and we're allowed to treat them and get paid for that. This slide right here really is the way that we think about the COPD marketplace, and it's important to connect with the blue ocean of opportunity that we have to treat, the patients who need us. We've got 25 million COPD-ers in the country. About 10% of these guys are at Stage 4, the most severe level of the disease state. Half of those have reached chronic respiratory failure, which is when they become a candidate for our therapy. We've only hit, as an industry, 80,000 Medicare beneficiaries collectively, that's Viemed with all of our combined competitors alone. So that leaves us with a 6% market penetration number. This means that 94% of the folks who need our care right now are going back into the hospital without a home ventilator solution. And so Viemed is the third largest provider. We have 2 big nationals ahead of us, Apria and Lincare, Apria is public. You can do some homework on them. They're owned by Owens & Minor. And then 64% of the overall market is dominated by just the top 10 providers. So it gets really fragmented after there with a lot of other mom-and-pop type of ventilator companies. So this is our service mix. And if you think about this slide right here, it's basically how our revenue is broken up. Ventilation makes up 66% of what we do; sleep and sleep apnea makes up 11%; oxygen, 8%; and then the other 15% is coming from staff -- lines of staffing that we started late in 2021. We have some percussion vests and other ancillary products in there, a behavioral health arm of our business now that is treating things beyond respiratory in the home. The payer mix, as I mentioned, we're 46% Medicare. The rest is coming from Medicaid, which is state programs, commercial Medicare Advantage and private insurance contracts that reimburse for our services. So a little bit on how we do things. Basically, we are just trying to find good people, all of our respiratory therapists, our COPD educators. They are overseen by a pulmonologist who is on staff who regulates all of our clinical protocols. We -- as I mentioned, we have the behavioral health guys that are kind of -- if things go beyond respiratory, they can step in and help the patient find Meals on Wheels and transportation and things that they need help with. But they're working through these activity daily living reports. And because the patient is so sick, I mean, a win for us is if they go to the mailbox or if they're playing in the garden or something like that, it's just small wins. These patients, we call them frequent flyers. They're in and out of the hospital at all times. The theme here on this slide, it shows some of the products that we offer, but there's multiple manufacturers. So it's important to understand that Viemed a distributor of these products. We're not the manufacturer. We work with multiple companies across all these product lines and equipment lines. And that's very helpful as we made it through the pandemic with supply shortages and things like that. We didn't have any patient disruption with any of the equipment that we were able to access and deliver to the patient. And so how do we do it? When we're growing organically, and we're going to talk a lot about our growth here in the numbers, but this is a little bit on our organic growth strategy. We certainly look at COPD prevalence and we analyze the doctors that are in certain areas and what are they scripting. We pay attention to hospital facilities. And if they have high readmission, troubles or whatnot, they might be a candidate for our therapy. But at the end of the day, it's really just finding a clinician and that person who's respected in the community that we can train up and walk and talk -- they can walk and talk the Viemed way. At the end of the day, very unique, lean deployment. They're operating in these vehicles with inventory in the trunks of their car and they're designed to go a little bit faster than the competitor. But make no mistake about it. This is a high-touch, high-service market and always compare our model to the competitor's model is, think of our competitor who's waiting in the van in the parking lot and they want a wheelchair, walker, bed, commode, CPAP, vent, they want it all. We're more on the front end of the sales process with our clinicians. We're walking shoulder to shoulder with the pulmonologists, making consultations to qualify the candidate for care and then work with case management to discharge them. So we're on the front end. This is a brand-new slide to us because last Monday, we announced our first acquisition, we've been talking a lot over our past earnings calls, or actually since last September about bolting on M&A as a new form of growth for us since we've been such an organic growth engine. And happy to announce we just closed a deal or signed a paperwork, we'll fund it here on June 1. But a company called HMP. They are based in Tennessee, have operations in North Mississippi and North Alabama, a geographic gap for us, if you will. We were strong in Southern Mississippi and Southern Alabama and sort of weak in Tennessee, but their top line revenue was $28 million. The EBITDA was $6.8 million... Yes, sorry. You got a question.

I just want to make sure I understand since you were spun off by the PHM or split, you're saying you just grew organically from $41 million to $120 million without any acquisition?

That's correct. So his question was, since we've spun out from PHM has all of our growth been related to organic, and the answer is yes. And so this is our first acquisition since that spin up. And so what we like about it and it really just -- I'm putting it on the slide because it really is a perfect fit for us. There's a lot of revenue synergies here. The company is -- it was not only a good transaction financially because we got it for $31.75 million, which is about 4.7x EBITDA. But we're really excited about them. They share the same type of culture as us. It's got a good management team. It's got some good clinicians, and we see revenue synergy with them. They are about 45% sleep, with their service mix and 13% vent, where we're 66% in vent and up -- or whatever it was 11% or 12% sleep. So that's a nice opportunity for us to kind of bring them into the fold and really drop to the bottom line.

Right here, we're very proud of the 3 published studies that we have worked on over the last 3 years. I won't go through every single bullet point that you see here, just to -- confuse you -- but I'll give you the highlights. First of all, we reduced mortality. We -- by 16%. For every 5.5 patients that we put on therapy, we save a life. Second of all, we reduced ER visits for every 5.5 we save an ER visit. For every 8, we save a hospital admission. The last piece, all the way to the far left in the most recent study is we found out that the sooner we get them on therapy, the more money we can save, we can save up to $5,484 per patient per year if we can get them on therapy in the first month. So a lot of this data will show to us that they were 3x more likely to die in the first 90 days if they went untreated, and it really proved it out once we were able to work with some groups and publish the studies. So we're excited about that. This information is hot off the press to a certain extent, and our sales force is rolling it out now. She is holding our technology platform that we built from the ground up. It's a hub and talks through all of our devices in the home, has a Bluetooth connection -- connectability feature to it. And what it also has is a telehealth feature. And so she add therapists, can go back and forth. We found out that 50% of the reasons folks go back into the hospital is because of a motion or anxiety-driven reasons. And so -- we were losing 20% of our patients in months 1, 2 and 3 without technology. And now that we've implemented this platform, we've gotten that down to 13%. So we know we're driving quality of life. We know we're at -- getting the patient to live longer. But another feature that this thing is doing for us right now it's capturing data. It's allowing us to have clinical outcomes that we can deliver back to the payer to where we can build out more value-based arrangements here in the future, which we're big believers of. It's going to be a part of the future. Value-based means that you save money and that you produce positive clinical outcomes. This is my last slide, and I'll hand it over to Todd, our COO, for financials, but just a couple of highlights of the things that we're working on in the next 24 months, continue to grow organically for sure. The research study that I just presented still, there's a golden opportunity to get it out to the clinicians that need it. Diversifying the payer base through either the VA or some of these commercial payers with their value-based arrangements is very important to us, on top of mind. We're big believers that this technology is going to increase length of stay. So coupling our human interaction in the home with our technology platform is very important to us. And then strategic partnerships, expanding on those with hospital systems. Hospitals right now are forming their own MA plans and becoming their own payer and they're starting to understand that they need to keep more patients out of the hospital themselves. And so we're in position for that. And then we started our own Viemed Healthcare Staffing division at the end of 2021. 3-pronged strategy: one, support our [indiscernible], where we're getting a lot of staffing business; two, to find other clinicians in a clinical labor shortage environment that we're in for our hospital referral sources; and three, the most important, find our own people. We've been able to find our own sales reps, our own clinicians at a faster rate. We hired over 40% of our workforce last year, and that's increasing here this year. So I'm going to introduce our COO, Todd Zehnder, who's going to handle the rest of the presentation.

All right. Thanks for -- everybody for being here. First thing, from a regulatory standpoint at the DME world, it's about as positive of the landscape as we've had in quite a while. Obviously, COVID had a lot of headwinds for the business. But what we all learned is the ability to treat people remotely. It also gave CMS the opportunity to defer some competitive bidding programs that we are subject to that have now been pushed off and allowed the DME business to really thrive. And then something that's more acute to us, we had gone through a review by one of the organizations within HHS called OIG and had some pretty negative initial findings. But over a 4-year period, we were able to work through the appeal process and have 100% resolution in our favor. So as we stand here today, we're confident about where rates are. We're confident about the rules that are in place and confident about our ability to keep the organic growth that we're going to show, we have been doing. Talking a little bit about the vent revenue model. And really, as it comes to all of our products, sleep, oxygen, percussion vests and vents, we buy all this equipment. So we have a fleet of assets around the country that we own outright. And then it's on a rental model to whether it be Medicare, Medicaid or any of the commercial plans. We're charging a monthly rent. So for ventilation, it's a little bit over $1,000. For that, the patient receives the ventilator itself. They receive the RT that's in the home. They receive the technology, all supplies. We own the asset. So if the machine breaks or something, that's all on us. It's called a bundled rate, and it's also an uncapped rental. So if we -- if the patient lives with us for 3 months, we bill them for 3 months. If we're able to keep the patient alive for 2 years, we get to bill them for 2 years. So we always say we're heavily incentivized or we're all aligned as patient, payer, and provider. The patient doesn't want to go in and out of the hospital 4 times over the last year. The payer doesn't want to, it's the most expensive part of their life. And we, as a provider, are paid if the patient is alive and out of the hospital. We can only bill when they're at the home.

Yes, sir. And in terms of payer, is it CM -- Is it the Center for Medicare & Medicaid or is it insurance companies that are paying you?

That graph earlier that Casey showed had the distribution of our payers. 46% is Medicare, about 10% is Medicaid. And that's the CMS bucket and then the rest is commercial and Medicare Advantage. No, it's all good. The rest of our products are treated very similar. We buy the product. We put it on a rental mode. The only difference is most of those have cap periods. So after about a year of running a CPAP, the patient owns it. It's a little less intensive. They don't have the therapy. They don't have the respiratory therapist, they pay for their supply. So a little bit different, but one comes with a heavy therapy, the RTs in the home all the time, we have the technology. The other is more of a standardized product.

Looking at our historical financials and once again, answering this gentleman's question, this is all organic. We have about a 30% CAGR on revenue and roughly about the same thing on EBITDA during this period of time. We -- you can see 2020, there was a spike during that time. We had some headwinds from the core business. Our business model, as Casey mentioned, it's very in the hospital driven. And as we all know, hospitals were overrun and on lockdown. So our core business had a little bit of struggles to it. But being the third largest provider of ventilation in the country, we had events to be able to sell to people and hospitals were in dire need, as we all know, in states. So we started as a resource for these health systems in these states and just did a bunch of different things to help out during the pandemic. So we had obviously a spike here in 2020. But if you look at it normalized, we're still on track for 30% growth. If you look at our first quarter guidance of 2023, the midpoint has us growing in the upper 20s. So our goal every year, we don't set full year guidance, but our goal is to grow somewhere between 25% and 35% organically. And now that we have the inorganic engine to put on top of it, we're comfortable saying that, that's going to add to it. We're going to be patient. We're going to be opportunistic, and we're going to be diversifying ourselves when we do these acquisitions. The vast majority of our revenue comes from the vents, like Casey said, 66% and our patient population is slightly under 10,000. So those are those high acute high-touch, high-technology patients. That's the bread and butter of Viemed right there. Balance sheet and capital markets. We have about 38 million shares outstanding since we've spun out, we've never issued a share of equity. We have paid off any debt that we have. We ended the year with slightly under $20 million. We bought back 5% of the stock last year in a share buyback and paid off the debt and still ended up with a very, I think, $23 million, $24 million of working capital. So our business is one that we've proven that we can organically grow the company 30% out of free cash flow and actually still build liquidity. The only reason we're going to take down any debt or in the future, if we ever needed to issue a share of stock is through this acquisition effort. But we do think that we'll continue to build liquidity through the core business. Right now, we have about 770 employees. And I think looking at the most recent proxy, we're up to about 20% inside ownership as we've bought back some of the share and the management team and Board hasn't sold any. I always tell people, this is a growth story and a value story. If you just look at where our market cap and enterprise value is $20 million lower than that. We think we trade at a historically cheap EBITDA multiple, and we're also a growth name, obviously, for growing 30% organically a year. In the interest of time, the last couple of slides are just kind of housekeeping with our structure and our Board of Directors. We're fortunate enough to have one of them here in the audience with us, Mr. Nitin, and we're very -- we're surrounded by a very talented team on our Board. So with that, I think we have a couple of minutes to answer questions, and we'll open it up to the floor.

I'm just curious [indiscernible] what your first acquisition [ looked like]? And I'm in thinking as a person the name [indiscernible] for some of these [indiscernible] what you're acquiring, are you acquiring with the idea as you're going to go snip-snip and cost cut or are you acquiring with the idea that they're strategically placed and you use them as you try to build the business? Because I imagine as you've grown 30%, you have to hire people.

Yes. It's the latter. So, we'll repeat the question.

Repeat the question.

Yes. The question was whether or not -- what is our M&A strategy are we going to go out and we're going to cut cost and clean up shops. We're looking for less fixer-upper type of companies and more strategic fits for us, folks with that are good clinicians good sales force that we can trend up and get the revenue synergies from them. And so that's, in a nutshell. They've got contracts that we don't have in geographic regions that are gaps and so on and so forth. Do you see us do a sub-5 transaction. That's us going after some type of insurance contract in a state that we need to get it. This example, there's $37 million transaction, it's chunky for us right now, but it was a good fit with a lot of thought, and we're very pleased with what we got. Yes sir?

Your plans for further acquisitions? And how much capital do you have available for that?

Yes. I think we'll continue to look for acquisitions. We have a team that is building a pipeline. We'll be measured and thoughtful about those, make sure we're integrating this first one properly before we rush into the next one. But yes, the answer is yes. We have a fully undrawn $90 million credit facility. So like I showed you, no debt, $20 million of cash, roughly a $90 million. So we have $110 million. We're using $30 million of this, but we also think we're going to be dropping a significant amount of free cash flow to -- through our organic efforts this year. So we're confident to say that -- we're going to grow the liquidity of the company through the organic side, it's just how fast we use those proceeds to go do M&A. Historically, number two and three on the capital allocation standpoint would have been paying off debt, if we had any, we didn't have much and then buying back shares. And so those have now taken a back seat to the M&A effort, and we'll just -- we'll take a patient and measured approach of doing that.

Any further questions?

With regards to M&A, you said that, I think about 60 -- thank you very much. I think you said in one of the slides that the top 10 providers represented about 60% of the market and that you're in third place. And the comment that you made was that the -- it was a lot of mom-and-pop shops. So from company #4 to company #10 or company #15, would that be your -- where you would be looking at acquiring?

Eventually, I think if you wanted to rank the one that we found right here, they're probably in the 80 spot in that ballpark. And so there's plenty of other companies in certain areas that we can find to where we can grow at a good rate. Right now, our focus is on making sure that our integration efforts are really dialed in. We hired a team from LHC Group, largest home health and the company that just got bought up -- in the country, got bought out by United. And these guys have come in with a lot of knowledge and not only build the pipeline, but they're really focused on integration and making sure we do this one right before we get ready to go out and bite off one of the top 10. But we're not afraid to do so down the road.

And I guess a little more clarity on that is that's the ventilation market. So in this exact example, HMP, 45% of their business is sleep, only 13% is ventilation. So while they're smaller on the vent side, they have a very robust sleep business that we were able to integrate into us.

Weren't you originally, sleep, when you started your new...

Yes. Yes I'm the original founder, we started in sleep and in oxygen, but we didn't expand sleep and oxygen around the country whenever we were growing with a non-invasive vents because in those days, you really needed the patient to come into a facility and set them up. You don't have to do that anymore. One sleep got remote to where we can ship it out to the patient, they can set it up themselves, that opened it up to -- for us to offer it to our sales force and really grow that business line, if you will. So that's fairly new to our expansion.

Excuse me, what's the total addressable or size of the market of ventilation?

Ventilation the best way to frame it up is that COPD slide that I just, say you had 25 million COPD-ers, 16 million diagnosed and 2.5 million are at the most severe level of the disease state. Half of those guys are ready for vents today, and we've only got 80,000 only.

So what would we multiply the 2.5 by $2,000, $5,000 a year in terms of what they need in terms of services.

Well, so we would save roughly over $1 million is the total addressable market. And if they were on service with us, the way we look at it is, for every patient you put on therapy, you're going to save $5,400 per patient. So we have that much to save for the health care system.

So you save the health care system, but you're also...

Our costs that we charge is offset by them not having to go to the hospital 3 or 4 times a year.

If there's no further questions, we'll thank Todd and Casey for their time. And [indiscernible] and we will give you guys 5 minutes back to wrap...

Thank you.

Thank you.