Hello and welcome to the VieMed Healthcare Fireside Chat. My name is Joe Dorame, Managing Partner at Lytham Partners, and today I will be moderating a Q&A discussion with Casey Hoyt, Chief Executive Officer, and Todd Zehnder, Chief Operating Officer at VieMed, which trades on the Nasdaq under the ticker VMD. Let's get started. Casey and Todd, welcome. Please introduce yourselves and provide an overview of VieMed and what makes the company unique.
Yeah, I'm Todd Zehnder. I'm Chief Operating Officer. I'll let Casey do the intro.
Casey Hoyt, CEO, original founder of the business. What makes VieMed unique? We're a home medical provider, and really we specialize in respiratory therapy. We put respiratory therapists in the homes of very sick patients. Our patient is typically struggling with COPD or some form of neuromuscular disease. They're at the end of life. They have 17 months left to live. That's the core business of what we do. We call it complex respiratory services. We catch them at a time when they're burdening the payer with a lot of costs by way of going inside of the hospital or visiting the ER. We manage those costs by treating them in the home for less. Just at the end of the day, we drive quality of life for these patients and make sure that they have that next level of care.
That complex respiratory service offering represents about 50% of what we do. We also. 20% represents the Sleep Apnea patient, the patient that, you know, whether they're from 35 years old to the end of life, is struggling with obstructive Sleep Apnea, and we have a remote offering where we mail out the CPAP. We hook them up with a sleep coach, and we're able to scale that business across the country, so that's 20% of what we do. 10% is oxygen therapy, where, you know, whether it's Stage 1, 2, or 3 COPD, which are the front-end stages, before they need that ventilator in Stage 4 we take care of them with oxygen therapy up until they have the need for going on the ventilator.
Lastly, I guess the rest of the product mix is made up of a staffing division that we cranked up post-COVID during the time of a clinical labor shortage. We have a behavioral health component that also sits on top of our respiratory therapists for the things that go beyond respiratory, and then some percussion vests that complement the complex respiratory service offering as well.
That's great. VieMed has evolved meaningfully over the last several years. What has been the most important strategic inflection point in the company's journey?
In our beginning phase of launching non-invasive ventilation, if you will, across the country, this is probably the 2012 to 2015 era, you know, we knew that we were doing a good thing in the home. We could see it. We could feel it with the patient benefiting. We knew we were solving a problem for the pulmonologist as well with just a tough demographic of patients. And so it wasn't until 2016 whenever we started working on publishing real data inside of our space. And, you know, what we found after publishing three studies, which you can find on our website, is the common theme is that for every, you know, six patients we put on therapy, we'll save a life. We have a 16% reduction in mortality. We prevent visits and hospital admissions, as I mentioned earlier. That all shows up in the data.
And so it wasn't until we really got that data that it springboarded our organic growth in a rapid way around the country that led to us becoming the thought leader in our space. Then you had regulators from CMS leaning on us to understand the data. We get called up to DC to kind of work on what's best. And as we sit here today, we just completed a national coverage determination with CMS, you know, with our folks helping out the regulators. And we, you know, we're very pleased that we have some new rules to the game that is a speed limit on the highway that we can all abide by, for lack of a better description.
And it allows us to really grow the business in the right way around the country in a way that we've been preparing for for many years over here at VieMed. A lot of our competitors were somewhat, you know, behind the curve in terms of where they stood to abide by these new rules that came out. So we consider this new NCD a competitive edge. And that's what our business has been up to right now, is winning the NCD and educating our referral sources around the country about what these new rules mean for managing that patient in the home.
That's helpful. Building on that, when you think about VieMed today versus five years ago, what are you most proud of building?
You know, five years ago, we were a 90% ventilator company, and we were very intentional about diversifying the business. We cranked up an M&A division. Up until five years ago, we really weren't buying companies. We were an organic growth engine, just doing it ourselves, finding one respiratory therapist at a time, training them how to sell, and putting them 60 mi down the road. Today, we have an M&A team. We've completed three transactions: HMP in Tennessee, a coverage gap of ours, Lehan's Medical Equipment up in Illinois, and East Alabama Medical Center home medical products right around Opelika, Alabama. That's new, and that helped springboard our diversification, if you will. Today, as we sit, we were a 50% ventilator company, 20% Sleep. As I mentioned, all the other products, and we're diversified.
We're a different company than what we were five years ago. We're very proud of that. It was intentional. It's not that vents are slowing down. We still are, you know, in an underserved population trying to find those patients more so than ever. And it's a growing sector. But we did all that diversification while maintaining our margins along the way. And so I'm probably most proud of that right now.
That's great. So, you know, what makes VieMed's high-touch business model different from your competitors, and please touch on the key reasons why customers choose VieMed's products and services?
It's definitely in the sales process. I'll start with that. What we do is a little bit different than your traditional mom-and-pop or even national DME provider. I always explain it this way, Joe. It's, you know, where the competitor is waiting in the hospital parking lot in a van, they want the wheelchair, the walker, the bed, the commode, the CPAP, the med. They want it all. Our sales process is a little bit different. We're inside of the hospital, dressed in scrubs, walking shoulder to shoulder with the pulmonologist, really becoming a part of that continuum of care. Excuse me, and it doesn't take an area alone to figure out that if you want to do complex respiratory the right way, you really need to lean on VieMed. Furthermore, we'll take our offering down to the case management department. We'll help them process their charts and their patients.
And we just become an internal fabric of the hospital system, if you will, on the front end of the sales process. And then lastly, it's really our service in the home. You know, our RTs are on call 24/7. We developed our own internal technology, which is a tablet that goes into the home. It connects to the devices. It has a telehealth feature that goes back and forth with the RT. It provides outcomes and data to our payers, our providers, and so on and so forth. So we're capturing data there. And it's, at the end of the day, something that differentiates us from our competitor. As we sit here today, we're using that same technology platform to further document usage and the requirements that have come by way of the new NCD.
That is one of the reasons we feel like we're ahead of the curve there.
That's great. Now, if a large, you know, national player tried to replicate your model, where would they struggle?
They would struggle with sales. I mean, I consider our sales training, the folks that we select, the folks that we train up and put inside of these hospitals, a little bit of our secret sauce. It's really not easy to find a clinician and train them how to be a salesperson. In the early years, it was, let's find an old pharma rep or let's find an old DME rep and let's get them up and running with our sales process. We kind of flipped the script on that. We said, let's find a clinician, a bleeding heart who wants to take care of that patient in a unique manner and train them how to walk and talk as a sales rep the VieMed way, and so that is a difficult thing to do.
It's something that we've mastered over the years, but it is a little bit of our secret sauce.
That's good. All right. You've had an impressive 27% revenue CAGR. You know, can you walk us through the key drivers of organic growth?
The key drivers of organic growth have really been our ability to get to these underserved populations through sales. We've also, you know, bolted on the Sleep division. You know, in the early years, we were expanding complex respiratory around the country. We were not chasing it with Sleep because we didn't really have the private contracts. That has changed. That changed about five years ago. We went in for the Medicare business. We started working on the private contracts. It allowed us the opportunity to chase our infrastructure with the Sleep offering. And so that's why, you know, you'll see our Sleep business grow, you know, in the neighborhood of 45% this year. And that's as a result of just us not doing it up until five years ago. We're now focused on it. We're now putting salespeople in the field, and we're now growing at an exponential rate.
Those have been the real drivers of our success. It's been the ability to find people, to get them up and running, and to expand product offerings.
That's great. You know, resupply and PAP represent recurring revenue streams. You know, how important are they to maintaining stability and visibility in your business? And what percentage of your revenue today is recurring?
Look, Sleep is going to be a very important part of our growth going forward. Just like Casey said, it's by far our fastest growing segment this year. When I think about resupply and the PAP rental, I think of those as two different revenue streams. I'll kind of back up a little bit. When we think about things like ventilators, percussion vests, oxygen, the actual PAP rental, I think of those as recurring because they are on a rental. They're going to be renting every month up until whatever time the insurance caps it. For a ventilator, we bill until the patient expires on average at 17 months with us. Every other product has a different cap period. PAPs are normally about 12 months. Oxygen is 36 months.
We think of that segment of the business, the machine piece of it, the rental piece of it. We think of that as our recurring revenue. And then the other pieces, be it the resupply, when we bought Lehan's Medical, that brought us into the maternal product line, and they have a heavy resupply piece on the breast pumps and other maternity items. And then our staffing division, we think of those product lines, which are more transactional, as our sales piece. And we don't think of them as necessarily recurring, although they will happen in the future. It won't be on a set monthly rental. So as we sit here today, Joe, roughly 70% of our revenue on a quarterly basis is driven from the recurring rental side, and 30% is from the transactional piece of it.
That's very helpful. You know, shifting gears a little bit here, reimbursement is critical in healthcare. How do you manage Medicare and your payer mix risk?
I think the first thing we do is we just do the right thing. I mean, it's not, as long as we're providing the services, doing them timely, treating the patients with the care that we expect, the risk of payers is somewhat mitigated because you're not subject to clawbacks and things like that. From the standpoint of how we manage the payer risk amongst different payers, we generally just try to do as much business with all of them. So people say, do you want to mitigate your Medicare payer risk? We love Medicare. They're a great payer. They pay us in two weeks, virtually every time we submit a claim. But we also know that we need to get with the Medicare Advantages. We need to be doing business with the Medicaids, all the private insurances that Casey was talking about earlier.
So it's not as much of us trying to do less of one payer. It's the same thing we think about products. We don't want to lower our vent percentage just because we want a lower rate. We just, it's not growing as fast as Sleep and some of these other products. So we kind of leave, for lack of a better term, a jump ball for whatever payer grows the fastest. They grow the fastest. And as long as we're treating all of our patients and payers doing business the right way, those risks kind of are mitigated.
Great. You know, again, just, you know, where do you see the most opportunity for operating leverage as the business grows?
Well, I mean, beyond just the not needing two ties, not needing two gates, the executive leadership that we're able to leverage inside of these walls here in Lafayette, Louisiana. Right now, AI and technology solutions are at the forefront and have been for the past year and a half over here at VieMed. We've already implemented tools that we're seeing operational leverage inside of our revenue cycle department, our billing and intake department, audit tools that are scrubbing our charts and making things easier for us to process the regular audits that come through by way of the payers. And so we'll continue to double down on these types of tools. And I think that's where you're going to see the most operating leverage here in the future.
Good. Good. How should investors think about long-term margin profile of the business? And specifically, how do you think about adjusted EBITDA margin for the company?
Yeah. I mean, that has been a very important topic for us over the last few years because, like Casey said, several years ago, we were 90% ventilation and our margins were very, I would say, very easy to model out because our product mix was the same and we had a very sustainable business model under that. Vents carry the highest gross margin out of our products, but they're also the most capital intensive. And so when you brought it all the way down to a net income margin, it was, you know, running in the low to mid single digits. As we've diversified the business, our gross margin has come down, but things like PAP and staffing and oxygen and maternal have a lower CapEx number. And so our net income margins are probably slightly a little bit accretive to where they were.
And when you think about EBITDA, while they're off a little bit from when we were just a vent business, we're still running kind of in the low 20s, 22%, I believe, right now. And we would expect that even if we diversify the business a little bit more away from ventilation, the things that we just talked about from an operating leverage standpoint, we ought to be able to keep that number somewhat consistent. So all things being equal, we feel like the EBITDA margins where we're living right now should be sustainable in the future. Who knows? We might be able to expand that a little bit over time as we continue to build out more operating leverage.
Okay. Great. You know, how do you prioritize capital allocation between organic growth, paying down debt, M&A, and returning cash to shareholders?
We've been very clear for, I guess, a decade of being a public company roughly now. We will always put organic growth as our number one capital allocation. There's nothing more that we like to do with our money than go buy another piece of equipment to service another patient. It's what we're best at. We really see that as the most value that we can deliver to our shareholders. We've never not grown organically because of capital. I can tell you that there's probably been one year during that timeframe where we actually had to borrow some money because we grew so fast. Otherwise, we've been able to fund it out of our internally generated cash flow. After that, the other three are really just dependent on what's going on.
We had never carried a high debt load as a company, but we've put debt on the balance sheet for the two transactions that we've done or three transactions, I guess. And we generally kind of pay that back pretty quick because we're not the company that's going to go do five transactions in a year. We've done three over the last three or four years, and it's been a pace that we've been comfortable with. So we generally will put some debt on the balance sheet to buy a company, which is the M&A chunk of it. And then we pay that back over time and we're ready to go do another transaction. And then the last one is share buybacks. We've done three of them in the, you know, like I said, the decade that we've been public. And it really just looks at, we look at valuations.
Over the last couple of years, valuations have compressed in our sector. So we did another one last year where we bought back 5% of the company. We may very well look at another one this year as we use our, you know, our free cash flow that we generate to return capital to shareholders.
Impressive. All right. Staying on the theme of acquisition, recently you completed an acquisition of Lehan's Medical Equipment. You know, help us understand the strategic importance of this move.
When we first found Lehan Medical, they were up in Illinois and Wisconsin. It was a coverage gap of ours that needed to be filled. We liked their product mix because they were 40% respiratory and dominantly really in the Sleep Apnea space. Similar to our previous acquisition, we saw an opportunity for us to double down on their Sleep business and then teach them how to do complex respiratory service offerings a little bit better. Along the way, you know, during due diligence, we uncovered that, you know, there's 60% maternal health. And as we started to dig deeper into maternal health, we saw the similarities in how it's similar to our resupply business in terms of just fulfillment.
A business that wasn't too far out of bounds, we could leverage some of our existing infrastructure and help these guys expand across state lines beyond Illinois and Wisconsin with some of the VieMed contracts. That's what we've been up to for the last six months. We've got really positive momentum. Stay tuned. We'll look to double down here in 2026 and beyond.
Great. That's very helpful. You know, what aspects of the business today are misunderstood by investors? And what would you highlight as the drivers of durable value?
You know, I think that people look at us as just your traditional DME, and that's a sector that has historically been pretty not a very profitable sector and, for lack of a better term, maybe a sleepy sector. We are a very different company. We, as Casey and I have kind of alluded to some of the things that make us special. And one of the things is that we've, I guess, in our, I guess we've reported eight years as a standalone company. We've been positive net income every one of those years. We've grown organically double digits every one of those years. We have generated free cash flow every one of those years, except the one that I told you we outgrew ourselves. And so we had to borrow a little money.
And we've done all of that while leaving ourselves with no net debt and done three share buybacks. So we're not just your traditional company that has to go bolt on other companies to keep growing. We have a different growth profile. We have a different patient profile. And so sometimes we just get lumped in, I think, into that. And so it's good to, like, just reflect over an eight-year period and say how we're so different and why we still look so clean from a balance sheet and profitable from an income statement standpoint.
Okay. Last question. Looking forward, what are the keys to success that investors should be looking for in 2026 and beyond?
I would definitely keep a watchful eye on our complex respiratory sales. We've got some new tricks up our sleeves for 2026. We've been beefing up ur training programs to train a different type of sales rep, where historically we've been pretty picky about just finding RTs. We're going to widen that net with a different demographic and hopefully get some folks trained and up and running a little bit sooner rather than later. So that is the governor to our growth. If we can enter more new areas by finding new sales reps at a faster rate, that will drive the complex respiratory, the ventilator business at a higher rate. And so we'll keep a watchful eye on that. And then lastly, I keep mentioning it, but just we're super stoked about maternal health. I think that's going to be a big part of the business.
So keep a watchful eye on that. But those two things are at the top of mind right now.
Great. So, you know, as we wrap up here, is there anything else you want to touch on before we close this out?
You know, in the past, historically, we've always not been afraid of this competitive bidding program that's been looming over the DME industry. However, we did get some news here recently, maybe last month, that where our products will not be included in competitive bidding. So that's one less of a thing that is a distraction for us to grow the business. And so we're happy that, I guess, that we don't have to deal with that distraction. And that should relieve some of the angst that some of our investors have been worried about over the past couple of years. But that's behind us. I think we've got a very clear runway with minimal distractions, and we're just set for really positive growth.
Great. Thank you, Casey and Todd. And thank everyone for watching. If you have any questions or would like to schedule a meeting with VieMed Healthcare, send me an email at dorame@lythampartners.com. We have additional presentations and fireside chats coming up, so stick around for more. Thank you and have a great day.
Thank you, Joe.