The recent earnings call for Quipt Home Medical (QIPT) left analysts puzzled. Despite solid margins in the face of Medicare rate changes and a cyberattack on Change Healthcare, the overall sentiment remained cautious. However, a closer look suggests a potential shift in Quipt's business model that could unlock significant, untapped profitability.

The clue lies in Quipt's resupply program and its relationship to patient capital expenditures (CapEx). Traditionally, durable medical equipment (DME) companies, particularly those specializing in respiratory care, face a cash flow drag due to high CapEx. They purchase expensive equipment, which is then rented to patients. This rental revenue is stable, but the upfront investment can be substantial.

Quipt seems to be changing this dynamic. Their resupply program, providing recurring revenue from disposable supplies, has seen explosive growth, now serving over 172,000 patients – a 72% year-over-year increase. This significantly outpaces the growth in their active patient base.

This resupply revenue growth is reflected in Quipt's improved cash flow. Notably, the company disclosed 'EBITDA minus patient CapEx' as a key indicator. In fiscal Q1 2024, this ratio reached 12.3% of revenue, its highest ever, suggesting that the high-margin, low-CapEx resupply revenue is outweighing the traditional capital-intensive rental revenue.

If this continues, Quipt could be on the verge of a profitability breakthrough. DME companies with high resupply revenue typically enjoy superior cash flow and valuation multiples. This is due to resupply's predictability and minimal ongoing CapEx needs.

Is Quipt Shifting to a Resupply-Centric Model?

Several factors suggest a deliberate shift towards a resupply-focused strategy:

Quipt consistently emphasizes their resupply program's importance in driving organic growth and margin improvement. They've invested heavily in technology, including an automated resupply platform. Their recent entry into the diabetes market, offering Continuous Glucose Monitors (CGMs) and related supplies, aligns with this strategy. CGMs represent a high-volume, recurring revenue stream with minimal CapEx. Quipt's management has noted an increase in inbound sell-side inquiries, possibly indicating smaller DME operators are receptive to acquisition offers. Quipt's strong cash flow and growing resupply program position them well for such opportunities.

Patient Growth vs. Resupply Patient Growth

The chart below visualizes the disparity between overall patient growth and the rapid rise of patients enrolled in Quipt's resupply program.

While it's still early to confirm this shift definitively, the evidence is compelling. If Quipt is successfully unlocking resupply-driven profitability, it could be poised for a significant market re-rating.

"Fun Fact: Quipt Home Medical's name cleverly combines 'equipped' and 'quick,' reflecting their commitment to providing patients with needed equipment promptly and efficiently."