The medical device industry is gradually witnessing an increase in demand due to the ageing population in North America, and home medical equipment is no exception to this rule. There are a number of interesting companies within this domain that could be long-term candidates, but I have my eyes on Quipt Home Medical Corp (QIPT, Financial). This Kentucky-based player is a home medical equipment small-cap that caters to the North American market and operates through a subscription model. The company has a promising set of offerings in home medical equipment as well as telehealth, but its valuation appears to be significantly below the industry averages, indicating a potential investment opportunity.
Company overview
Quipt Home Medical is a premium medical equipment supplier that delivers nearly 250,000 pieces of equipment every year. The company is particularly well-known for the supply of clinical respiratory equipment through a network of more than 17,000 referring physicians across the world. They mainly operate using a subscription-based revenue model that not only offers initial equipment supply and implementation to patients but also deals with periodic re-supply of orders for them throughout the year.
Quipt’s operational efficiency and acquisition-led strategy have set the platform for future growth. The company has made a significant technological investment in its platform in order to provide exceptional services to its patients. This technological platform also serves as a major differentiating factor between the company and its competitors as the platform helps leverage technology as well as strong regional distribution to simplify the entire Durable Medical Equipment (DME) delivery process.
Quipt’s operating process
Quipt’s innovative platform has streamlined all the phases of the DME delivery process in order help physicians to improve clinical efficiency without neglecting the patients. The phases of the DME delivery process are easy and safe. It starts with Quipt’s field sales team and ends with the successful collection of the revenues by the revenue collection team.
At the beginning of the process, the sales representatives call on physicians, clinics, rehabilitation centers and long-term care. The physicians and clinical staffs place their orders and submit all the necessary details to Quipt’s customer support team. After this step, the support team obtains all the authorizations and verifies the patient benefits.
Quipt’s certified respiratory therapists and technicians ensure the successful delivery of the prescribed device to the patient. The team provides in-house training to educate the patient about the device. After the successful completion of the delivery, the revenue team processes all the paperwork and documentation for billing. The revenue team also manages the final collection. In this way, Quipt’s ordering platform integrates all aspects of the DME ordering process to ensure patient satisfaction.
Quipt’s market
As stated in Quipt’s company presentation, it caters to the aging population in the United States, which is expected to generate around 5-6% revenue growth per year. With an estimated 10,000 Americans turning 65 each day over the next 15 years, the DME industry is expected to grow rapidly over the coming years. The increasing use of oxygen concentrators among patients above 65 is expected to increase, especially among chronic obstructive pulmonary disorder (COPD) patients as well as Covid-19 patients.
According to the American Sleep Apnea Association (ASAS) researchers, sleep disorders like sleep apnea are expected to become a major health problem in the U.S and the company presentation indicates that the number of sleep apnea patients has increased by almost 70% over the past few years. All these factors point towards a particularly large addressable market for Quipt’s equipment offerings.
The re-supply and telehealth programs
Quipt Home Medical is focused on expanding its product offerings to establish broad-based touchpoints within the referring healthcare institutions as well as physicians. The company has a proven track record of performing strategic acquisitions, and its platform is well-positioned to capture two exceptional dynamics - the Sleepwell re-supply program and the telehealth offering.
Over the last few years, the company has spent significant resources to simplify its existing systems to create a sophisticated as well as interconnected infrastructure. Quipt’s platform will depend on this infrastructure to roll out their Sleepwell re-supply program. The company expects that this program will significantly increase the overall volumes and reduce fulfillment errors. Quipt is currently obtaining $25 million for its re-supply subscription model and expecting to increase more than $30 million with Sleepwell fully integrated.
With respect to its telehealth training program, the company offers the initial patient setup as well as ongoing training through a telemedicine or drop shipment platform. The main objective of this program is to increase patient compliance and ease of training. In addition, the training program also helps to accelerate patient onboarding and helps to reduce the improper use of equipment. Telehealth training significantly reduces the onboarding cost.
Final thoughts
Quipt’s price share shows volatility over the past six months, but its valuation right now appears to be very cheap. The company’s price-sales ratio of 1.77 is well below the medical devices and instruments industry average of 5.93. The management is highly optimistic about future earnings, estimating the company’s forward price-earnings ratio to be 17.64, which is nearly half of the industry average. All this implies a significant scope for multiples expansion.
It is worth highlighting that Quipt’s management team has over five decades of combined experience in healthcare administration as well as acquisitions. Their profound understanding and utilization of effective workflow methods are bound to drive operational efficiencies in the long run. I believe that Quipt is a high-potential med-tech play and a compelling investment opportunity at current levels.
