This morning, Quipt Home Medical announced that it has upsized its senior credit facilities to US$110M. The facilities are structured as US$5M in aggregate principal with an US$85M delayed draw term loan facility and a US$20M revolving credit facility. The US$110M comes as an upsize to the US$80M figure that QIPT announced on August 15th due to increased demand from its lenders. We remind readers that QIPT had access to this financing for almost a year now, but only planned to close on it if there were opportunities for larger scale acquisitions. QIPT’s acquisitions over the past year have been completed at 0.8x sales and 4.3x EBITDA on average. This implies that the credit facility will be able to add $25M in EBITDA via acquisitions, which would increase our target by $6.00/share (to $19.00/share) assuming 9x EBITDA. QIPT also had a strong cash balance of US$18.5M at the end of Q3, adding to the available dry powder.

We believe the next catalyst for QIPT beyond the M&A program is the unlock of its sleep backlog which has been impacted by supply chain issues over the last few quarters. The sleep devices backlog stood at 6,000 patients at the end of Q3 (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. However, despite supply chain issues, Quipt has posted stellar financial results, with gross margins and EBITDA margins coming in at 76% and 21% last quarter respectively. Our Thoughts: We continue to expect QIPT to execute on its roll-up strategy (at <1.0x sales) and take advantage of the favourable reimbursement environment to post 8%+ annual organic growth. We are maintaining our BUY rating and target price of $13.00/share based on 9.0x 2023E adjusted EBITDA.