Viemed Healthcare (VMD), through its wholly owned subsidiaries Sleep Management and Home Sleep, is a participating Medicare durable medical equipment supplier that provides post-acute respiratory care services, explains Ryan Irvine, contributing editor to Internet Wealth Builder.
The company specializes in providing home respiratory services to patients struggling with various respiratory diseases including COPD and various neuromuscular diseases.
With almost 25 million Americans reporting that they have been diagnosed with COPD, the country’s third largest killer behind cancer and congestive heart failure, Viemed provides a solution for people who suffer from this debilitating disease.
Buoyed by a return to strong organic growth levels, Viemed’s shares have posted good growth in a weak market. The share price gains this year had been excellent until the second quarter report. It beat revenue growth but missed EBITDA expectations, primarily due to a hiring spree that is designed to position the company for future growth.
While Viemed’s shares have gained in 2022, they have corrected from their highs as a result of the EBITDA margin compression in the quarter to 19.3% from 21.5% last quarter. The drop was almost entirely due to an increase in full-time staff to 715 from 662 for future growth.
The company believes the margin compression will be temporary for several key reasons including the fact that the recent headcount additions related to new product categories are expected to moderate even as utilization of the new hires improves. Hiring in upcoming quarters should be less aggressive.
Unlike recent quarters, the solid second quarter revenue increase was driven by strong growth in the core vent business as well as revenues from oxygen and other durable medical equipment rentals and sales. Additionally, Viemed continues to have an excellent balance sheet with $21 million in cash even after buying back 1.35 million shares (about 3.5% of the total) at an average price of $5.20.
Viemed’s price to cash flow from operations and price to funds from operations are 9.14 and 6.12 respectively. For a company with a strong cash-rich balance sheet which will likely grow revenues organically in the range of 25% in its next quarter, the multiples are attractive.
While this may be conservative given the growth, the margin compression (which should be corrected) and lack of current EPS growth adds risk. We expect margins to improve by year-end and certainty into 2023, which continues to make Viemed a long-term buy.
Near term, the margin depression provides some caution, but the return to strong organic growth, the potential for M&A growth from cash on hand, and management’s track record of delivering on margin over the long term give us reason for optimism 1-3 years forward.
The fact the company operates in a recession-resistant market is a general positive. We would like to see the company deliver better earnings per share heading into 2023 and that does appear to be the way the operations could be trending.
