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Research Note - Quipt Home Medical Corp. (QIPT:TSXV,$7.09|BUY $13.00 TARGET) Impressive Quarter Given Supply Chain Constraints

Yesterday after market close, Quipt Home Medical reported Q3/22 financial results that beat our expectations. We were particularly impressed by QIPT’s gross margin which came in at 76% (vs. 70% last year), expanding nicely despite inflationary pressures on global supply chains. QIPT posted 2% organic growth, similar to last quarter which was heavily impacted by supply chain issues in the sleep segment. The sleep devices backlog stood at 6,000 patients at the end of the quarter (vs. 6,500 in Q2 and 8,000 in Q1); this remains much higher than the typical 1,000 patient backlog, providing an opportunity for outsized revenue growth in the coming quarters as supply comes online.

Additional highlights from the quarter include:

  • Revenue of US$36.7M (+40% YoY) vs. our estimate of US$36.0M and US$33.6M in the prior quarter. During Q3, 77% of total revenue was recurring.

  • Gross margin of 76% vs. our estimate of 72% and 78% in Q2.

  • Adjusted EBITDA of US$7.7M (21% margin) vs. our estimate of US$7.2M (20% margin) and US$7.0M (21% margin) last quarter.

  • Cash flow from operations for the quarter of US$7.2M.

  • QIPT ended the quarter with a cash balance of US$18.5M.

Operating Metrics: QIPT reported strong operating metrics once again in Q3, including 63K respiratory resupply set-ups/deliveries (+55% YoY), 89K unique patients served (+38% YoY), and 134K unique set-ups/deliveries (+40% YoY). Quipt now operates out of 94 locations in nineteen states across the U.S. and has over 200K active patients with 22K referring physicians. QIPT continues to accelerate its hiring of sales staff to expand its reach across the U.S, in a push to increase organic growth. 80% of QIPT’s revenue came from respiratory products in Q3 as the demand for oxygen concentrators, ventilators, and CPAP supplies remained robust. CEO Greg Crawford highlighted that the respiratory product momentum accelerated towards the end of the quarter and into Q4. Acquisitions: During the quarter, Quipt acquired Good Night Medical (US$7.0M, 4.7x EBITDA), NorCal Respiratory (US$3.1M, 4.8x EBITDA) and Access Respiratory (transaction details not disclosed), and subsequently acquired Hometown Medical (transaction details not disclosed). For additional information on each transaction and their strategies rationales, please refer to our previous notes. We are very encouraged by the pace of acquisitions and expect more to come given the new financing package (details below).

20220816 - M Partners - QIPT - Q3 Results
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