Quipt Home Medical Corp, (TSXV: QIPT) is a healthcare company providing in-home monitoring equipment, supplies, and services to patients. The company's services consist of Daily & Ambulatory Aides, Power Mobility, INR Self-Testing, Respiratory Equipment Rental, Home ventilation, Oxygen Therapy, and Sleep Apnea & PAP Treatment.

Key highlights

• Accelerating organic growth: The company continued to deliver excellent results, highlighted by significant organic growth, which was fueled by strong performance across the board.  it experienced strong organic growth of 14%, excluding new acquisitions in Q4 2021, while for FY 2021, it clocked an organic growth of 10%. Furthermore, its recurring revenue has shown to be reliable, accounting for more than 77% of overall income in FY 2021.

• Diversified Product Offering: To take advantage of organic growth, the company is concentrating on expanding its product offering across the continuum of care in order to establish broad-based touch points inside referring healthcare facilities and referring physicians.

Source: Company Presentation

• Industry expansion in a highly fragmented market: The current size of the DME sector is merely a fraction of what it would become in the next two decades, with an estimated 10,000 individuals turning 65 every day over the next 15 years. The sector's current performance supports estimates of a 6.0% CAGR from 2021 to 2028, with the entire industry size estimated to exceed USD 84.4 billion in 2028. The company believes it is well positioned to capitalize on these outstanding market dynamics, given its track record of making smart, accretive acquisitions.

Source: Company Presentation

• Elevated cash flows: The company’s cash flow from continuing operations were on the higher side at USD 18.7 million in FY 2021, compared to USD 14.1 million in the previous corresponding period. An increase in cash flows can be attributed to higher revenues and elevated customer base.

• Reiteration of Outlook for Calendar End 2022: The Company is reiterating its forecast for annual run-rate sales of USD 180-USD 190 million with USD 38-USD 43 million in adjusted EBITDA by the end of calendar 2022, based on existing operations, market trends, and completed and prospective acquisitions. Expecting numbers at the higher level is a big positive.

• Increasing customer base and demand for respiratory equipment: From 91,650 unique patients treated in FY 2020 to 140,996 unique patients served in FY 2021, the Company's client base rose by 53.8% year over year. Through the continued use of technology and centralized intake processes, respiratory resupply set-ups its deliveries also increased by 157.2% to 158,072, compared to 61,468 in FY 2020.

• Expanding footprints across fifteen U.S: With the addition of skilled sales professionals, the company has expanded its sales reach across fifteen U.S. states. It has also reached 170,000 active patients, 19,000 referring physicians, and 76 locations across 15 states in the United States. Expanding footprints is beneficial for the company as it is clocking enhanced numbers in many KPI’s, which is a key positive.
  

Risks associated with investment 

The Company’s activities are exposed to various risks beyond the Company’s control that could affect its operations and business. Adverse changes in the conditions in the specific markets for the Company’s products and services, conditions in the domestic or global economy generally, competition, currency risk, and interest rate risk are there. 

Financial overview of FY 2021 (Expressed in thousands of US dollars)

Source: Company Filing

• Robust growth in revenue: In FY 2021, the company’s revenue increased by 41% to USD 102.3 million, against USD 72.6 million in the previous corresponding period. This increase was mainly due to organic growth and from the acquisitions.
• Reported operating loss: On the back of higher operating expenses, the company posted operating loss at USD 1.4 million compared to the profit of USD 0.6 million in the pcp.
• Higher adjusted EBITDA: The company reported higher Adjusted EBITDA for fiscal year 2021 at USD 21.4 million (21.1% margin), compared to USD 15.5 million in FY 2020, representing a 38.3% increase year-over-year.
• Rise in net loss: Primarily due to change in fair value of derivative warrant and debentures the company managed to post net loss of USD 6.1 million in the reported period compared to a loss of USD 4.5 million in pcp, partially offset by recovery of income tax in the reported period.

Top-10 Shareholders

The top 10 shareholders have been highlighted in the table, which forms around 24.70% of the total shareholding. Claret Asset Management Corporation and Crawford (Gregory J) hold the company's maximum interests at 11.53% and 3.61%, respectively. The company's institutional ownership stood at 24.42%, and ownership of the strategic entities stood at 4.03%.

Valuation Methodology (Illustrative): EV to Sales based Valuation Metrics

Stock recommendation 

The company successfully surpassed the USD 100 million mark in yearly revenue for fiscal year 2021, while maintaining an adjusted EBITDA margin of more than 20%, a significant achievement. The company's patient-centric ecosystem has been significantly expanded into favorable geographies through organic and inorganic efforts across the United States, resulting in record earnings in the fourth quarter and fiscal year 2021. Moreover, organic growth has been a top priority for the team, and the 10% organic growth achieved year-over-year signifies the ongoing execution company-wide.

Also, a bullish regulatory landscape provides an extraordinary opportunity to the company to scale aggressively, is a big positive. Furthermore, the company shared robust revenue and adjusted EBITDA guidance for FY 2022, where it expects its revenue to be in a range of USD 180-190 million, while adjusted EBITDA will be in a range of USD 38-43 million, which is a significant plus. Hence, based on the above rationale and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of CAD 6.77 at 9.49 A.M Toronto time on February 2, 2022.

One-Year Technical Price Chart (as on February 2, 2022). Source: REFINITIV, Analysis by Kalkine Group 

Technical Analysis Summary

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