Credit Suisse https://credit-suisse.com in initiating coverage on SOC Telemed (TLMD) https://www.soctelemed.com released their detailed report Saving Lives, Not Just Time, Initiate Report with an Outperform Rating.
SOC Telemed is a leading provider of acute care telemedicine services and technology in the U.S with a customer base featuring some of the largest hospitals, health systems, and physician groups in the country.
The acute care telemedicine market exists simply as a result of the supply shortage of primary and specialist physicians in both urban and rural communities and the critical component of time needed to effectively provide rapid treatments.
Credit Suisse analysts expect a majority of health systems in the country to increase spend on provider-to-provider acute care telemedicine over the next 12-18 months. In addition, while hospitals’ investment priority in telemedicine is expected to increase across the board, post COVID, areas of higher priority (in order) for hospitals include telepsychiatry, teleICU, and teleStroke.
SOC Telemed operates in 548 acute care hospitals and physician groups across 47 states, including 18 of the top 25 largest U.S health systems and two of the top five physician groups. Unlike some of the larger well known telemedicine vendors that have large parts of their business focused on health plans and employers, SOC Telemed is strictly focused on the healthcare provider market, and specifically within the acute care specialty areas of neurology, psychiatry, and ICU.
The company utilizes a national network of acute care specialists made up of both employed and contracted physicians to meet a growing supply/demand mismatch of specialists across the country. In fact, SOC Telemed is the largest provider of teleNeurology and telePsychiatry.
Based on the current core specialties offered (i.e., neurology, psychiatry, and ICU), the company sizes its TAM at $2.8 bin. Extending the acute care telemedicine market to include adjacent specialties results in an incremental $6.1 bin of addressable market, or a total U.S TAM of $8.9 bin. However, this TAM is based on current utilization levels, which along with additional specialties, provides upside to the market opportunity.
After Y/Y decline in Core revenue in 2020 which was due to the COVID-19 impact on utilization-based revenue, Credit Suisse analysts expect Core revenue to return to growth in 2021. Analysts expect this return to growth to result from a few different components, including 1) a recovery in utilization, 2) an expansion in the number of services SOC provides to customers (e.g., cross selling telePsychiatry to a customer only using teleNeurology, etc.) 3) an expansion in the number of facilities in which SOC Telemed operates within the existing customer base, and 4) revenue from new client winds.
In fact, between expanding the number of services and increasing penetration in the number of facilities in existing clients. SOC Telemed has quantified an incremental $860 min whitespace opportunity split between $670 min through expansion of the number of services provided per facility and 4190 min in revenue from an expansion in the number of facilities.
SOC Telemed generated $2.6 min of bookings in 3Q20 (compared to $1.7 min in the prior year) and guided to 2020 total bookings of $11.5-12.min. implying strong bookings momentum for 4Q20 of $3.2-4.2 min.
In fact, the company is achieving acceleration in bookings while still being in the early stages of their sales investments. For example, the company is rapidly expanding their sales/marketing team and expects to reach 20 quota bearing salespersons in 2021 from five in 2019.
SOC Telemed has a very attractive financial profile with long term adjusted gross profit margin of +60% in addition to a long-term adjusted EBITDA margin of ~20%. The company maintains a high degree of visibility into future revenue given the recurring fixed monthly fees with upside from utilization-based revenue.
SOC Telemed has also demonstrated a strong track record of net revenue retention from 2015 to 2019, with future visibility provided from strong bookings growth. The company has a tenured customer base, with an average customer relationship of ~48 months and just under two-thirds of clients have been with the company for over four years.
The analysts expect SOC Telemed’s strong customer base to prove valuable given the expectations of telemedicine adoption to improve post-COVID and the analysts view that hospitals/health systems are likely to expand the number of services and facilities with SOC Telemed in an incrementally favorable reimbursement environment for their hospital clients.
Analysts expect SOC Telemed to maintain its one year forward current EV/Sales multiple of ~9.0x one year from now. A 9.0x multiple on the analysts CY22 revenue estimate for SOC Telemed to yield an $11 target price, or roughly 38% upside potential from current levels, meriting an Outperform Rating.
Risks include an increasingly competitive telehealth market, a slower recovery in the utilization of SOC Telemed’s services, and a slower rollout of standalone Telemed IQ platform sales including the impact of the reimbursement environment for telemedicine.
For the SOC Telemed initiation report Saving Lives, Not Just Time: Initiate with an Outperform Rating, for more information on SOC Telemed, to ask questions, or to provide feedback, email Jailendra Singh at jailendra.singh@credit-suisse.com or call 212-325-8121.