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LBMH - MEDICAL SUPPLY COMPANY GEARS UP TO MEET THE NEEDS OF A RAPIDLY GROWING AND AGING US POPULATION

Monday, October 12, 2009

PRIMARY BUSINESS:

Liberator Medical Supply Inc. is a wholly owned subsidiary of Liberator Medical Holdings Inc., (OTC: LBMH). The Company offers over 5,000 products to Medicare-eligible patient populations with chronic conditions requiring repeat-orders of maintenance supplies. Direct billing to Medicare is a key component of the Company’s strategic plans, providing strong third-party payment revenue continuum, critical to funding the Company’s goals, as well as creating continued consumer purchase incentive due to ease and convenience.

The Company’s management team, led by founder CEO Mark Libratore, brings a unique competitive advantage to Liberator’s goals of rapid expansion into several of the healthcare market’s highest-opportunity growth segments. As creators of a marketing model that uses national Direct-to-Consumer advertising to fuel the growth of their former company, Liberty Medical Supply, into a super brand in the diabetes arena, Mr. Libratore and his team are recognized as innovative contributors to the growth of the U.S. medical supplies industry.

By executing their own marketing model to meet four of the highest growth opportunities of the industry--mastectomy, urology, ostomy and mobility patients –as well as diabetes— the Liberator brand is in a unique position to achieve market leadership and increased long-term value for its shareholders.

BUY PROPOSITION:

We have four driving factors making up the buy proposition here for Liberator: senior management, demographics, healthcare reform and accelerating numbers and the combination of these 4 factors leads me to believe that we shall see substantial gains down the road for LBMH. And those gains have already begun after my regular audience received a heads up from me on LBMH when the stock was ticking along at $.55 a couple of months ago which means the company was lacking an audience despite it’s emerging growth trajectory. Such are the opportunities in microcaps today post the worst bear market in my lifetime. Anecdotally my own microcap index reflected an avg 72% loss for companies with market caps ranging from $1m to $50m after the vicious 20 month bear market in microcaps that began in July ’07.

The stock has already gone up over 300% from my initial call but I firmly believe there is considerable upside yet to come here. LBMH reminds me of the recommendation I made on ZAGG Inc (ZAGG.OB $5.94). I recommended ZAGG to my audience last August ’08 at $.69 ….not the greatest time frame to be recommending stocks as the markets were neck deep in the tank. Despite the extremely weak underpinnings of the markets 8 months later in April ’09 ZAGG had moved up to $3.25 which reflected a gain of almost 500% in a market with gale force headwinds opposing any extended price gains. But ZAGG still had further to go. Over the next few months it kept going up and finally topped out on the last up leg at $7.91 this past July ‘09. In toto that is over a 10x gain in less than one year. That is one hellacious performance in what must be regarded as a miserable stock market at the time. And that performance had little to do with my recommendation and everything to do with ZAGG being in the right place at the right time with the right products.

I went through that little history lesson so that you will fully understand what I mean when I am stating here that LBMH reminds me of ZAGG and will embark on a similar path higher…in fact as already mentioned it has moved up over 300% from my initial call two months ago at $.55. But I firmly believe we have just begun the move in terms of potential gains and here is why---the convergence of the four driving factors mentioned above:

• senior management: the past record of CEO Mark Libratore and his ‘dream team’.
• demographics: more and more people in the USA and worldwide are getting older and living longer.
• health reform: in whatever way shape and form it takes it will mean that roughly 42m more people will be added to the insurance rolls…through either private insurance plans or the Gov’ts various programs.
• accelerating numbers: recent 9 month results indicate that LBMH will soon be at ‘critical mass’ in terms of revenues, margins and profits thus driving the price up to my target area of btw $7-$8.00 post release of the 2010 FY numbers.

I will briefly run through these four factors and for additional information investors can read LBMH’s SEC filings which I always encourage when looking at a company and assessing the risk-reward ratio.

Senior Management:
First there is CEO Mark Libratore, 57, who founded a similar company, Liberty Medical Supply, and grew it quickly from a start up to a company with $11m in revenues and 80 employees when he sold Liberty to Polymedica in 1996. Mr. Libratore stayed on another 3 years as president of Liberty Medical and senior vice president of Poymedica, the parent company. During those 3 years he propelled revenue growth from that run rate of $11m to $100m and expanded the employee count to over 900. Liberty Medical was recently sold to Medco for $1.4 billion and at that time had revenues of $600m.

Now Mr. Libratore is repeating the same pattern at Liberator Medical Holdings Inc, which he began in 1999. Although he had to deal with a 5yr non-competition agreement when it came to diabetes he went after other major medical sectors with the same driving edge and strategies he had used to drive the results at Liberty. When I spoke with Mr. Libratore recently he expressed considerable satisfaction that he now has almost all of his former ‘dream team’ or ‘stars’ together now…the team that powered Liberty to such formidable numbers. Senior management is one of and perhaps THE most critical factor in the buy proposition for this stock. Liberator Medical Holdings Inc. currently has 118 employees.

Demographics:
Worldwide, the average life span is expected to extend another 10 years by 2050. In the United States, the proportion of the population aged >65 years is projected to increase from 12.4% in 2000 to 19.6% in 2030. The number of persons aged >65 years is expected to increase from approximately 35 million in 2000 to an estimated 71 million in 2030, and the number of persons aged >80 years is expected to increase from 9.3 million in 2000 to 19.5 million in 2030. THAT folks is one helluva set of numbers to market over 5000 medical products to in the most rapidly expanding areas of healthcare. And many of these are chronic conditions that require repeat orders of maintenance supplies thus enabling an ever growing recurring revenue rate. The Company offers over 5,000 products to Medicare-eligible patient populations focused primarily on four of the fastest growing healthcare needs today---mastectomy, urology, ostomy and mobility. Direct billing to Medicare is a key component of the Company’s strategic plans, providing strong third-party payment revenue continuum, critical to funding the Company’s goals, as well as creating continued consumer purchase incentives due to ease and convenience. The dollar total for the target markets for Liberator Medical right now…the medical supplies required by an ever aging population just here in the USA….is approx $100 Billion. That makes quite a target and Liberator is just getting off the ground as we will see, attacking that potential $100B in revenues with the same models that succeeded so wildly at the prior company. And the above are just US trends.

HealthCare Reform:
This is perhaps the simplest factor to understand in the Liberator picture. The company already has payer numbers for almost all their products with the appropriate Gov’t health programs including Medicare and Medicaid. Liberator also serves an ever growing list of private insurers with 125 experts who can provide clear, written or oral instructions for all the products they offer. Now, no matter what you may think about healthcare reform the fact remains that legislation will soon be passed that will provide insurance coverage for another 42 million individuals in the US. I don’t think it is necessary to belabor this point…let’s just say Liberator’s prognosis for growth is very healthy.

Accelerating numbers:
This is also an easy part of the Liberator story to understand. The last 4 qtrs beginning in Sept ’08 had revenues of $4,251--$5,342--$5,827 and then $6,950 for this past June qtr. Third qtr results (June 30) were record revenues of $6.9m (up 184%), gross profit was $4.44m up 186%, operating expenses for the three months were $3.37m or 49% of revenue compared to $1.6m or 66% of revenue for the three months ended June ’08 and net inc was $794,000 or $.02 per share compared to a loss of ($218,000) the prior year. For the past 9 months ended June 30 ’09 revenues were $18.1m up $12.8m or 186% compared to the 9 months ended June 30 ’08. I think these numbers prove the point that the top and bottom lines are accelerating at a rapid pace.

Potential downside: People stop getting old, people stop getting ill.

Conclusion: I had the pleasure of being in a conference call with Mr. Libratore and his senior staff about 2 months ago. Over the years I have talked to maybe 500 CEOs or CFOs and this call was as enjoyable as any I have ever been on…and it was strictly business. Point of the discussion was as evidenced by the third qtr numbers that business was GOOD. Mr. Libratore described the former business model used at Liberty and how that model has served him so well in getting Liberator to the point it’s at today. And more importantly how that model will serve to launch Liberator towards the $100m revenue mark. With good strong margins to boot LBMH, only if they had to mind you, could cut their present margins in half and still make money. Their heavy advertising promotions return about $10 for every dollar invested. THAT is leverage in the marketplace.

It will be exciting to watch this company grow. Even though it has made a strong move since I first recommended at $.55 a couple of months ago…it’s up over 300% to $1.79 which is a new 52WH, I feel the stock price has a long way to go….higher. Once the street recognizes the velocity in the numbers LBMH is delivering the institutions are going to climb all over it and make it easy to hit my target price of $7-$8 after this FY is reported prior to Dec 31, 2010.

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