VieMed - Deep Dive
"Patients are 3 times more likely to pass away during 90 days after a Chronic Respiratory failure diagnosis if NIV treatment is not obtained."
What’s inside…
Company
What Attracted Me To This Company?
Short History
About This Company
Management
Competitors
Past Performance
Thesis
Bull Case(s)
Bear Case(s)
Financials/Metrics
Personal Touch
Does This Co. Meets The Check List Requirements?
Is this a WONDERFUL Business or a GOOD Business?
Guru Holdings?
Margin of Safety Price?
Fair Value? Price Target?
Holding Period?
Conclusion
Disclaimer is at the end.
1. Company
Company that we will discuss today is Viemed. Right now Viemed mostly provides rental non-invasive ventilators (NIVs) with a minor in CPAP, BiPAP, percussion vests, and temporary established call center to provide contact and vaccine tracing services to states.
Viemed is expending more into oxygen related products, remote patient monitoring/ consulting via apps, trying to expend on VA contracts and more while also growing at around 30% (organically).
2. What Attracted Me To This Company?
Being that my main line of business is DME/O&P and that I am also familiar with CPAPs and other oxygen related products, I think I have good enough understanding of what Viemed is and can potentially become.
What I like:
Low/no debt
Management owning over 10% of the company
Organic Growth of over 25%
Little to no coverage
Potential for large recurring revenue
Lots of Uncertainty and Optionality
I believe Viemed has opportunities that are either being discarded or not currently priced in.
Viemed also (so far) came out with two Research Studies:
Mortality & Cost Study Analysis
The Impact of Non-invasive Ventilation on Health Cost and Outcomes
Don’t see many (if any) other DME/HHE competitors doing much research.
3. Short History
Viemed’s business, which has been operating since 2006, was acquired by Protech Home Medical Corp.*, a corporation formerly known as Patient Home Monitoring Corp. (“PHM”), in June 2015.
Side note: PHM changed its name (again) to Quipt Home Medical when it went public TSX (2018) and NASDAQ (2021) under ticker $QIPT.
Viemed was incorporated under the Business Corporations Act (British Columbia) on December 14, 2016 as a wholly-owned subsidiary of PHM in order to effect the spin-out of Viemed’s business from PHM. The spin-out was completed in December 2017.
So technically Viemed is a Canadian company that does it’s business in US.
As we can see Viemed Inc. has to subsidiaries Home Sleep Delivered LLC, Sleep Management LLC, and Viemed Clinical Services LLC while all of this might be a bit confusing, we will call the whole structure Viemed with major focus on non-invasive ventilation (“NIV”).
Viemed/Sleep Management LLC was started by two friends from college Casey Hoyt and Michael Moore (both of whom still with the company and own large percentage of the company).
4. About The Company
Viemed VMD is one of the largest independent non-invasive ventilator providers in the United States with a service coverage area of 46 states (31 states in 2019, 39 in 2020, and 46 in Q2/2021) in the United States and prospects to grow into the remaining states.
Viemed has around 500+ employees, with a little over 50% (285) being licensed respiratory therapists.
Viemed wants provide the best possible in-home care for respiratory patients with COPD (and other serious breathing problems) to maximize care for patient while lowering costs (per patient) for payors (medical insurance companies) by minimizing necessity for patients to be hospitalized.
Side note: Insurances would have to pay a lot more per patient who would have to spend time in the hospital (hospitals bill for everything, no mercy) so by paying companies like Viemed to keep patients home and use their services for treatment, payors are actually saving money in the long run.
Viemed focuses on disease management and improving the quality of life for respiratory patients through clinical excellence, education and technology. Its service offerings are based on effective home treatment with respiratory care practitioners (respiratory therapists/RTs) providing therapy and counseling to patients in their homes using cutting edge technology.
Because of Covid-19, Viemed established a call center to provide contact and vaccine tracing services to states. This is most likely a temporary line of business.
Although Viemed provides range of different services not all of them are actually “billable”.
Billable & Complimentary:
As of 2021 here is a quick break down of most popular HCPC Codes based on Medicare Free Schedule (on average fee), taken from here:
Ventilators - E0465/E0466 (Rental) = $1,000
BiPAP - E0471(Rental) = $330
CPAP - E0601 (Rental) = $55
Cough Assits - E0482 (Rental) = $500
Percussion Vests - E0483 = $1,237.56 (CAPPED)
Oxygen Therapy - E0434 (Rental) = $50
Supplies - ranging from single digits to double digits of dollar amounts.
All main rental services are usually at least 12 months after which patients/Viemed need to get new referrals and get in touch with the insurances.
All minor rentals (like supplies) range from three months to 12 moths.
Keep in mind that those are just some codes that are billable and known, there is a possibility of Viemed using different codes with different amount of fees per patients.
*Monitoring, HST, and CT are billable by physicians not DME company.*
Viemed’s services include rental of home ventilators, CPAPs, BiPAPs, percussion vests, oxygen therapy, and addition supplies to all of those items.
Consulting to patients, management of data via apps, reports on patients progress, and study publications are all necessary to show “how useful Viemed is” to payors and their patients.
5. Management
As mentioned before, Viemed was started by Casey Hoyt and Michael Moore.
Casey Hoyt is currently the CEO of Viemed.
Before Viemed, Mr Hoyt was CEO of PHM and before that he co-founded Sleep Management. Mr. Hoyt holds a Bachelor of Science in General Studies from the University of Louisiana at Lafayette.
Casey Hoyt owns (2.1m shares) about 5.36% of total outstanding shares.
Michael B. Moore, CRT, has served as President of Viemed Healthcare, Inc. since December 2017.
Mr Moore served as Chief Operating Officer at Viemed Healthcare, Inc. since December 2019 until January 2020. Before Viemed, Mr Moore was managing Director of PHM and before that he was co-founder of Sleep Management with Casey Hoyt. Michael Moore holds a degree as a Respiratory Therapist from the California College of Health Science.
Michael Moore owns (1.8m shares) about 4.54% of total outstanding shares.
Other members of management and board own all together about 1%-2% of total outstanding shares.
6. Competitors
I will divide competition into three segments:
ResMed & Philips
Apria (Public Market)
Everyone else (Private Market)
1) Lets get first thing out of the way ResMed ($RMD) and Philips Respironics ($PHG)
They are not (in my eyes) competitors of Viemed, both ResMed and Respironics are suppliers and both don’t have any interest in going into that line of business.
They would rather sell CPAPs, BiPAPs, Ventilators, etc. to companies like Viemed, Apria, and other local DME providers.
Now, Apria on the other hand is a company to worry about, but also not really…
2) APRIA ($APR)
From first hand experience when I was in CPAP line of business, Apria is what everyone thought when they were thinking of CPAPs/BiPAPs (thats in 2016-2017).
They took most insurance but they also took too long and there was too much bureaucracy and when I was in that line. Doctors did not like that Apria couldn’t fill in the order quickly enough, especially when patients had sever cases.
Apria is also a billion dollar company (with a lot of debt), while Viemed is around 200 million dollars (with almost no debt). If anything Viemed would be a good candidate for acquisition.
Apria is trying to do too many things at once, while Viemed is trying to do one thing well.
3) Everyone else (Private Market)
Doing a quick google search on “viemed competitors” and you can get a list of some private companies with enterprise value from 50 million to 900+ million.
Notable mentions: Rotech Healthcare, Corner Home Medical, and AeroCare Holdings.
None do strictly ventilators and most are doing mix of insurance and D2C, which could be seen as both positive and negative for Viemed.
Also some went out of business (due to Covid-19) while others haven’t updated their website since 2012.
Most are also bound to their state only.
It’s a mixed bag and that’s a plus for Viemed.
7. Past Performance
Regarding past performance, there is not much of the past and so not much of performance.
Viemed has only been on the public market since 2016 with stock market date since 2018.
Past says they can grow at around 25% to 50% a year, and if the future will look anything like the past (with margin of safety)…
If they can grow at around 15% to 20% (that’s being conservative) there is still value to be unlocked!
8. Thesis
“Bull Case(s)”
There are a few bullish cases that I would like to discuss when it comes to unlocking Viemed’s potential hidden value.
TAM
Veterans Affairs (VA)
For over a year or so, Viemed’s Casey Hoyt has been discussing their progress of getting into VA and serving veterans with COPD and other similar respiratory problems. VA serves about 9 million veterans, out of 9 million there are approximately 500,000 patients with a diagnosis of COPD (I believe that’s conservative number and if you include other respiratory problems that number could be over a million).
With VA it’s really hard to get contracts and even if you are able to a lot of DME/HHE do not want to get into it as it can become really complicated with a lot of bureaucracy which is not attractive to DME/HHE who are in the “quick buck business”.
In 2020, Viemed was able to secure three-year contract (pilot program) with the Veterans Administration. Although a minor win, with more research and data to back up Viemed’s ability to care and serve for these patients can provide for lucrative contracts with longer duration.
Pediatric Patients
Viemed mostly services adults with little to no pediatric patients and although pediatric COPD is rare, it is still a condition that is worth addressing and being a “first mover”.
It’s a different play with use being lower, but the market is there and it is profitable.
While COPD is rare in children, asthma is very common and so with new products (if Viemed chooses to expend the line of DME products) that condition can be addressed if Viemed decided to be one-stop-shop for caring for respiratory patients.
New Products
Two easy products to add would be nebulizers and humidifiers.
Nebulizers come in two billable types: Pediatric/Adult and Ultrasonic (portable).
Standard Nebulizer - E0570 (Rental) = $10 and Ultrasonic - E0575 (Rental) = $110
Humidifiers are also billable with HCPC code and are usually only covered when they are used with CPAP/BiPAP machines which is a great add-on to the already established product line.
Humidifier - E0562 = $150
Viemed could also go into DME as some other DME/HHE providers have done. Providing rentals for hospital beds, wheelchairs, walkers, etc. although I would see this more as a bear case than a bull case as all of those items are expensive, large, and heavy and as of right now Viemed is really asset “light” company and I would like them to stay that way.
Others include:
Oximeter E0445 = Not covered by Medicare but is covered by some PPOs/HMOs.
Other smaller billable supplies codes.
Technology Driven
Although I have seen some other companies “show” use of technology, non came close to what Viemed does.
Viemed has four different Remote Patience Care apps on App Store, and while ResMed and Philips Respironics have their own apps for use, I did not see any of Viemed competitors create app for their patients and/or for the doctors.
Using ResMed/PRs apps are how you stay on the same level with competitors not surpass them.
If we learned anything from big tech is that data is power and data is money.
The more data Viemed has the more chance it has to show how great the company is vs the competitors and being able to demonstrate that to the government (CMS/OIG or VA) is a powerful hidden “ace”.
Behavior Services
Behavior service is more of an add on for everything else that Viemed is doing, but again shows how the company is trying to get creative with being one-stop-shop for their patients.
Commonwealth Primary Care ACO
Commonwealth is another side project that Viemed is doing to get more data and to help more patients. The more data Viemed has to show how their non-invasive home ventilation strategy is helping patients, the bigger chance for them to get more goodwill with CMS/IOG or to get new contracts with other providers.
Services to Commonwealth patients will now include: 24/7 on-call support from COPD-certified Respiratory Therapists; Remote Physiological Monitoring and Patient Engagement technologies; In-home, personalized assessments, equipment setups, care plans, and education; Integrated Chronic Care Management; Transitional care and compliance programs to optimize adherence and reduce readmissions.
M&A
Viemed’s management has been “flirting” with “being open about strategic acquisitions” and while I think it’s possible for them to acquire another company for growth purposes (they have cash for that), I also believe it’s very likely that Viemed could be acquired by someone bigger (like Apria or some other billion dollar competitor).
Share Repurchase
Not the major bull case, but the lower the stock goes the more likely company will do share repurchase (if there is no good candidates for M&A), and in that way return capital in tax efficient way.
Management has been open about doing share repurchase while also stating that they will not be doing dividends.
Recurring Revenue
Obvious statement and yet I think it’s missed by some.
All of the patients are on monthly billing via insurance (meaning patients don’t directly pay for the services and if the services are well managed, patients have no reason to cancel or change provider) that is for the most time recurring unless patients die or get cured (unfortunately unlikely).
The more patients on a yearly basis the more recurring revenue Viemed will have and with ability to re-use old machines and acquire used machines and refurbish them, they can save a lot more money, and don’t forget billable supplies that patients need for their Ventilators/CPAPs/BiPAPS/etc.
Basically they should be compounding their money on quarterly/yearly basis, as long as CMS competitive-bidding/guide-lines are not changed/are not changed too much.
“Bear Case(s)”
Medicare/OIG Audit
Problem: In May of 2021 Office of Inspector General audited Sleep Management aka Viemed and found that 98 out of 100 claims that OIG audited did not meet Medicare guidelines. OIG states that Medicare overpaid to Viemed almost $37 million for NHVs.
Viemed pushed backed saying that everything is by the books and that all of the services that were provided were medically necessary.
Solution: Reading/listening to earnings calls/Q, management states that claims that were submitted to Medicare, all followed CMS guidelines and that if they have to they will keep appealing and going to courts if needed (which is what you should do when you believing you are right and have paperwork to back it up).
Auditors job is to audit and take back money, companies like Viemed’s job is to defend and provide documentation when audited. It’s a cat and mouse game.
When you are one of the top three suppliers of NHVs, you are bound to be audited, that’s just a fact and there is nothing too crazy about it.
Even if they have to return partially some kind of an amount (and they probably will have to) management states that the damage would be around $9 million or less. Viemed currently has around $31 million in “Cash and cash equivalents”, so even in the worse case they have money to pay for it without going into debt.
Competitive Bidding
Problem: Viemed relies on CMS/Medicare and reimbursements for their services that are billed on the monthly basis to insurance.
CMS conducts a competition for each competitive acquisition area under which providers submit bids to supply certain covered items of DME. Under the competitive bidding program, DME suppliers compete to become Medicare contract suppliers by submitting bids to furnish certain items in competitive bidding areas.
Basically those who bid the lowest will win and everyone else are not able to bill for those items in certain areas.
For Viemed that means either receiving a lot less money for their services or not being able to bill for them at all!
Solution: No real solution except that the next competitive bidding round is anticipated to begin on January 1, 2024 while some say that it might get pushed farther due to pandemic.
This one is a wild card.
Potential Shortage of RT/General staff
Problem: Although a minor problem / low probability, there is still a chance that Viemed could become short staffed and not finding enough RTs or other workers due to labor shortage.
Solution: Low probability, because management (on Q2 2021) state that they are hiring and training reps with no problems and are not seeing any kind of labor shortage.
Revenue/Product Manipulation or Fraud
Problem: Connecting this one into audit from OIG, because of the way revenue comes in and the way billing works, there is a chance of company “cooking it’s books”
Solution: Management doesn’t seem like that type and unless it is revealed there is no real way of knowing, and so I’m giving this one also low probability, and giving management benefit of the doubt.
Phantom Shares
Problem: When researching $VMD some would point out Phantom Shares and how it’s unusual and “not good” to have them.
Solution: Personally I don’t have an opinion here yet, as I have not had any experience (good or bad) with phantom shares and so I’m open if anyone would like to educate me on this topic.
Someone did point out that being able to award shares was one of the reasons Viemed went public.
From what I understand there is about $5 million worth of phantom shares which is still well covered by “Cash and cash equivalent”.
But as said before, I am open to getting educated on this topic.
Decline of “smokers” and so decline of potential COPD patients
Problem: Current smoking has declined from 20.9% (nearly 21 of every 100 adults) in 2005 to 14.0% (14 of every 100 adults) in 2019, and the proportion of ever smokers who have quit has increased.
Solution: Although I see this as a good “problem” (that less people are smoking) the sad truth is that previous generations that DID smoke will get older and they are more likely (unfortunate) to develop such issues as COPD and then getting on Medicare (after 65) would not really effect Viemed. At least not for now.
Also smoking is really not going anywhere (at least not quickly enough), there are many other things that people smoke that are not cigarets and people with stressful jobs/military are more likely to smoke.
Real Estate
Problem: Viemed rents out from Moore Hoyt Rentals, LLC which is Michael Moore and Casey Hoyt company. So basically company is paying for their mortgage with a Triple Net Lease that ends in 2025.
Solution: I don’t see this as a red flag, but more like a yellow flag.
Again, my knowledge here is limited and so I’m more than happy to learn from others if they have anything to add regarding this matter.
If this is a concern or pretty much normal practice for small caps.
Major Supplier Issues
Problem: There are not that many companies that make ventilators and CPAP/BiPAP machines.
Solution: Viemed’s ability to work with all the major manufactures and constantly looking for and buying more ventilators should not be a big problem for them and their ability to convert certain CPAP/BiPAP machines helps.
Current known vendors are Breas, ResMed, Philips Respironics, and Ventec Life Systems.
Inflation
Problem: Last but not least is inflation. If/when inflation picks up, Viemed does not have power to increase the prices on insurance companies and so Viemed in the mercy of CMS and other insurances in regard to them increasing pay rate if/when inflation picks up.
Solution: Because Viemed does not have ability to increase prices and transfer inflation to “consumers” or patience, I think the best thing would be for management to get creative and find other ways to transfer inflation onto someone else.
Since I’m not big on trying to predict inflation or macro events, I will trust management will know how to deal with it, if/when that happens.
9. Financials
After getting some feedback and giving it some thought here is what I though would be useful from my point of you (again if you have any suggestions or thoughts on what I’m putting here in “Financials” I am open to criticism)
I like to start with a visual on the basic metrics:
Relevant and important number to look for and to look for it to keep increasing is Vent Patients:
The more active patients on ventilators the higher recurring revenue!
I am not big on forecasting or predicting numbers (sometimes management has hard time with that, what kind of chance do I have) but since there is less then five years of information on VMD , I do like to take a look what analysts are thinking just to get a “feel” for the near future.
EPS Forecasts:
Revenue Forecasts:
I don’t know if I will put forecasting EPS/Revenue in the future deep dives, would like to get some feedback via comments, email, or DMs…
I “built” comparison table in finbox for $VMD vs $APR:
I would love to hear your thoughts on the comparison table I did, I think it’s useful. Do you? Would you like to see something added? or removed?
Just something extra:
10. Personal Touch
Does This Co. Meets The Check List Requirements?
Yes
Is this a WONDERFUL Business or a GOOD Business?
Based on current metrics, this is GOOD Business with potential of being WONDERFUL.
Guru Holdings?
Currently none of the gurus that I follow own any significant amount of $VMD shares.
Margin of Safety Price?
MoS ranging from $4 to $6.
Fair Value? Price Target?
Based on my septenary model, range for Fair Value is $8 to $12.
Usually PT is FV, but depending how the CMS/OIG/MCR/Competitive Bidding plays out I would raise PT around $20 to $25 range.
Holding Period?
As of right now, I am looking at this as a “3-5”.
Which means I really would like for this to “play out” within three to five years and sell at around FV Price and be done with it.
But due to too much uncertainty, if events will be playing a lot more favorable towards Viemed, I would be willing to re-check thesis & numbers and maybe hold it for a longer period.
11. Conclusion
Uncertainty creates opportunity and there is a lot of uncertainty when it comes to Viemed.
But knowing that it’s going to be hard and yet not impossible to maneuver through all of the challenges (since I have been in similar situations), I have to believe that management will be able to do what needs to be done to make this company successful over the long term.
Holdings Disclosure
At the time of this publication, I do own shares of VMD .
Disclaimer
The information of this article (deep dive) is provided for informational and educational purposes only.
The information is not intended to be and does not constitute financial advice or any other advice, is general in nature, and is not specific to you. Before using this article’s information to make an investment decision, you should seek the advice of a qualified and registered securities professional and undertake your own due diligence.
None of the information in this article is intended as investment advice, as an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any security, company, or fund. The company is not responsible for any investment decision made by you. You are responsible for your own investment research and investment decisions.
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