Please see below for our House Call replay link and quick recap, as well as access to our usual MicroQuad and other weekly data updates (included in today's presentation materials). As always, email us if you have any questions on any of the data or our takeaways. - .
CLICK HERE for the event replay, which includes the link to the slides presented and video.
Sept. 8 House Call Recap
- Macro: Given the potential for Macro Quad 4 in 2Q22, we’re watching out Estimate Revision Trend data and the MicroQuad forecasts very, very closely. Shorter-term, we’re looking for reacceleration similar to 2Q21 with new COVID-19 cases dropping and people going back to the doctor, etc. Longer-term, we’re on the knife’s edge. See below for more.
- Cancer/Genetic Testing: Geneoscopy is working to bring RNA-FIT testing to CRC screening - tune in on 9/13. NVTA and Adaptive are upper right quadrant in MQs (best potential stock performance). NVTA's acquisition of Ciitizen sounds really cool but might be a science experiment. We continue to like Natera and its opportunity a lot.
- Employment data: ADP and BLS show a “million worker gap” and then some. We must at least come back to trend… some of the deferred care won’t come back, but the magnitude of care - acuity - is higher. JOLTS at all-time high. 20% of people surveyed by CDC still deferring care.
- Digital Health: What is advanced primary care? What does Iora mean for ONEM? where health care is heading? We think good care will become cheaper. TDOC may have missed a window (same with MDLive, AMWL). It's hard to put AMWL back on as an active short (risk/reward), but there are other ways to play the evolution of care and move to a hybrid environment. Legacy can't follow.
- ATIP Tracker: We’re seeing the churn here that ruined the stock and their year. We can visualize and monitor how good the recovery is going (at state level and where people go). From here, stays a Long.
- DGX: Remains a Best Idea Long w/ 10-20%+ upside from here as story unfolds. Maintaining about 6-7% share, as of last update about 100k COVID tests/day, speaking at Morgan Stanley tomorrow AM (we'll listen for color in COVID and base testing, ability to convert capacity)
Audience Q&A
- Regarding the pent-up demand and return of in-person care, is it possible that we've reset to a lower level? Possibly true. If the survey data didn’t say 20% deferring or delaying care – yes, permanent reset. Also, Delta emerged in June, impact July/Aug, but getting better now. Last, a challenge could be unemployment benefits rolling off, but the other side of it, we all know things aren’t coming back as they were. At a minimum, missed checkup last year, not going to have 2, but when you get to this one, some portion of people will have an incremental problem. We hear that anecdotally all over the place – oncologists, cardiologists, disrupted Oak Street. Plus, 1.7MM job openings - if there wasn’t incremental demand, would we be seeing JOLTS at that level?
- Amazon – threat to ONEM? Our team has done a lot of work on primary care … it’s become very apparent that APC – the ONEM model - or Amazon Care, Cano, etc. are mushrooming everywhere. There’s a large opportunity. The legacy FFS physician’s office – visit every 8 min, no texts, video, machine learning, etc. to allow to take risk, treat people better, deliver better outcomes cannot compete. With ONEM at $24, we think people are more worried about Iora being a good idea, box profitability, and 2022 numbers.
- Question on TDOC and AMWL from here: With AMWL, tough to find valuation that’s meaningful. What are you playing for at $10? Suppose it could go a lot lower, but it’s smaller now. We’ll update the tracker, we’ll update the virtual visits too. The incremental demand from systems looks lower heading into 2022 – risk/reward of being wrong is higher though. TDOC has more broad-based institutional support, and a rationale for being long. We need a little more confidence in where we are in the adoption cycle. TDOC has an interesting collection of assets and is trying to package w/ Primary360 and MyStrength Complete… but there's still no in-person and a lot of competition. A little like AMWL, selling to systems, a little like legacy, but everyone has MyChart and Doximity, so who are they? How many lives does Livongo need to get to make the stock work?
- ATIP: New management – more confidence? No.
- Poor Glassdoor reviews, anything changed? Not really. If ATIP can collapse the spread - net hire PTs - it means revenue growth. The market is incredibly strong. There are plenty of referrals, so get to net + on headcount, revenue will be there. Their lack of communication at $4-5 is all about what 2022 looks like. Did they hand us a big bag of crap? Maybe. We would love for them to communicate more aggressively, BUT our tracker does it for everyone. We'll update it on October 1, and have list now of every PT that left and know where they went… we’ll figure it out. We can get to $120MM or more of EBITDA, demand and consolidation are still opportunities. It should be a double from here and then some.
- BFLY 2nd half ramp? The 2H21 ramp is a beast… one big order could make it happen. The headwinds to adoption seem manageable. Salesforce productivity should remain – the team is 2x so we should see it in the app downloads. There are facilities that want to put controls around BYOD – has to be compliant data. Back half ramp is big, need to see incremental + data on the KPIs. For us, it’s more about when it’ll happen than if. We could bench it ahead of the print if the data points don’t look good.
- DRIO – how much more room [time] will you give them? The people we talked to at Dario are impressive, and the product lineup looks correct. The per engaged member per month model is right. But the deals they are announcing are small and detail is limited. The last few were WayForward, and behavioral wins make sense, but we’d really like to see that the metabolic core has some value. We think they have 3Q in the bag – that’s not the problem. The problem will come if they fail to pick up anything meaningful. We don’t think they’ve gotten it, yet. Some good proof points, good practices, but not to the point about it breaking out.
- USPH Glassdoor is just as bad as ATIP – what’s different? Acquisition roll-up, partner, left to manage and have P&L at USPH vs. corporate with ATIP where it’s much more about standardizing, push down from corporate, etc. The market is hot, PTs could go down the street for more money if they didn't like management.
- GDRX - Where does it go from here given just over 6MM MAC/MAUs? It's interesting the way the stock reacted to earnings. Saw the number, where exited 1Q21 vs. where printed, and think they need the number to move higher. What they were selling on the 2Q call is a great pharma services business. There is value to pharma, but the numbers didn’t look like a scalable business that ramps exponentially for 5 years (to Tom). It looks like a nice accretive addition that benefits from a growing MAC user number – get to 20MM-30MM and have scale. GDRX is fragile to the PBM system, but the PBM system isn't going to change despite disruption.
KEY DATA CALL OUTS - Stuck in Neutral, for Now
Will the past five weeks end up looking like a pause or stabilization, or the start of a more concerning trend? We'll see, but with Delta Variant potentially peaking here and now (or last week or early next week), we think "normal" activity can resume across the South and Southeast, which should help analysts think through revenue trends and what 2022 might look like.
MICROQUADS*
As a reminder, if you have questions about the MicroQuad process, please try to find ~20 minutes to watch our Dec 30, 2020 call replay: Process & Utility of the Hedgeye Health Care #MicroQuads - CLICK HERE for event details (includes video link and materials link).
We continue to watch revision trends for core Longs like DGX and NEO closely for rotation out of MQ1 (-> MQ2). For EXAS and TDOC on the short side, we're watching but expecting negative revision trends from here, but the Street appears to be pushing NTM numbers higher (as you can see in the table below showing October and November).
All data available upon request. Please reach out to with any feedback or inquiries.
Best,
Thomas Tobin
Managing Director
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William McMahon
Analyst
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Justin Venneri
Director, Primary Research
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*Please note, not all Position Monitor names make it into the MicroQuad output - most likely due to a lack of sufficient historical trading and estimate data.
**We may show stocks that we have data for but the correlation fails to meet the criteria for MQ bin inclusion week-to-week.
