Investors looking for a rapidly growing healthcare tech play should be thinking about pubco newcomer Kovo HealthTech (Kovo HealthTech Stock Quote, Chart, News, Analysts, Financials TSXV:KOVO), says Research Capital analyst Yue Ma, who delivered a report to clients on the company on Monday.
With its head office in Evergreen, Colorado, Kovo HealthTech, which filed a non-offering prospectus on May 26 and began trading on the TSX Venture Exchange on June 4, is a healthcare sector software solutions and services business focusing on providing proprietary revenue cycle management (RCM) solutions for clinics, hospitals and other healthcare organizations in the US. RCM allows users to digitally track and manage patient care registration, services, billing and payments.
Incorporated in February, 2020, Kovo is currently building out its business both organically and through M&A, having completed seven acquisitions to date. The company is on track to complete nine acquisitions, announcing in mid-June an LOI to acquire Midwest Medical Billing.
For his part, Ma said there are about 15,000 companies available for acquisition in the highly fragmented RCM market, with the analyst quoting a Black Book market survey which said that 45 per cent of healthcare systems use more than seven outsourced RCM vendors.
“RCM refers to a process that healthcare organizations design and implement to maximize both patient revenues and the speed of their collection,” Ma wrote.
“The process is complex and requires unique skills that are often outside the skill set of smaller practices, clinics and hospitals. It is common for them to outsource RCM to third parties in order to receive fees correctly and timely. KOVO has been actively consolidating smaller RCM companies, as well as, growing its customer base organically,” Ma said.
Kovo’s last twelve months of revenues were $3.3 million as of March of this year, while Ma said the US RCM market is worth an incredible $96 billion globally in 2019, according to Fortune Business, and is expected to grow at a 13 per cent CAGR to reach $258 billion by 2027. The North American market alone is estimated at $47 billion for 2018, with a reported 25 per cent of the market represented by outsourced vendors. (All figures in US dollars except where noted otherwise.)
According to Ma, other pluses for KOVO include its high insider ownership and an experienced management team. CEO Greg Noble has over 20 years of experience in managing healthcare-focused SAAS and RCM businesses, while Chairman Peter Bak is an established entrepreneur in eHealth, according to the analyst. Together, the two executives own over 60 per cent of KOVO.
Also, Ma likes the healthcare tech field, saying, “The market has historically rewarded rollups well: WELL Health Technologies (TSX:WELL), Cloudmd Software & Services (TSXV:DOC) and Skylight Health Group (TSX:SLHG) are prime examples of rollups in the healthcare tech/services space.”
Since its debut on June 4, KOVO was down 18 per cent to C$0.84 per share as of Friday’s market close. Currently, the company has about 32 million shares outstanding, while it has options and warrants to purchase an aggregate of about 4.4 million common shares. The company completed in February of this year a non-brokered offering of subscription receipts at a price of $1.00 each for gross proceeds of $634,200.
Commenting on Kovo’s start as a publicly traded company, Noble said in a press release, “All around the globe, healthcare is experiencing a digital transformation to help make healthcare billing, record keeping, scheduling and treatment more efficient and empowering for patients and physicians.”
“Our team is inspired by the potential to help health care providers to embrace and navigate this important shift in healthcare,” Noble said.
Kovo said it has had a 366 per cent revenue growth in its RCM business during its most recent fiscal year, while the company processes about $71 million annually in RCM claims and its customers serve about 2.6 million patients.
On the Midwest Medical deal, Kovo said the company recorded trailing twelve month revenue of $1.123 million and that it should be immediately accretive to Kovo’s business. The announced deal involved a cash consideration of $50,000 and the issuing of about 1.1 million shares at $1.01 per share.
“We’re excited about the potential to roll Midwest Medical Billing into our Kovo HealthTech Corporation family of Revenue Cycle Management specialist firms,” said Noble, in a June 14 press release.
“Midwest Medical has consistently demonstrated a solid financial track-record and has built up trust with its long-standing customers. Together, we believe we can introduce new efficiencies and digital technologies that will empower the Midwest team and its clients to continue to improve and provide quality healthcare experiences. For Kovo and our shareholders, this is an important step in our long-term, proactive acquisition growth strategy. We believe the value of our asset light acquisition model is evident in this proposed ninth transaction,” Noble wrote.