VIEMED HEALTHCARE, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with, and is qualified entirely by, our condensed consolidated financial statements (including Notes to the Condensed Consolidated Financial Statements) and the other consolidated financial information under Item 1 of this Quarterly Report on Form 10-Q. Some of the information in this discussion and analysis includes forward-looking statements that involve risk and uncertainties. Actual results and timing of events could differ from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. OnMarch 11, 2020 , theWorld Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. Based on the duration and severity of the impacts of the COVID-19 pandemic, including but not limited to any negative economic conditions arising from the pandemic, our ability to assess potential patients in hospitals and set up and treat patients in the home, and the impacts of government actions and administrative regulations on the healthcare industry and broader economy, including through existing and any future stimulus efforts, we are uncertain of the ultimate impact COVID-19 could have on our business, financial condition and results of operations.
Forward-Looking Statements
Certain statements and information in this Quarterly Report on Form 10-Q may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 or "forward-looking information" as
such term is defined in applicable Canadian securities legislation
(collectively, "forward-looking statements"). Any statements other
than statements of historical information, including those that express, or
involve discussions as to, expectations, beliefs, plans, objectives, assumptions
or future events or performance are not historical facts and may be
forward-looking and may involve estimates, assumptions and uncertainties that
could cause actual results or outcomes to differ materially from those expressed
in the forward-looking statements. These forward-looking statements are made as
of the date hereof. We undertake no obligation to publicly update or revise any
forward-looking statements after the date they are made, whether as a result of
new information, future events or otherwise, except as required by applicable
law.
Forward-looking statements relate to future events or future performance and
reflect the expectations or beliefs of management regarding future events, and
include, but are not limited to, statements with respect to: operating results;
profitability; financial condition and resources; anticipated needs for working
capital; liquidity; capital resources; capital expenditures; milestones;
licensing milestones; information with respect to future growth and growth
strategies; anticipated trends in our industry; our future financing plans;
timelines; currency fluctuations; government regulation; unanticipated expenses;
commercial or governmental disputes or claims; limitations on insurance coverage
or other reimbursement; and availability of cash flow to fund capital
requirements.
Often, but not always, forward-looking information can be identified by the use
of words such as "plans", "expects", "is expected", "budget", "potential",
"scheduled", "estimates", "forecasts", "intends", "anticipates", "believes",
"projects", or the negatives thereof or variations of such words and phrases or
statements that certain actions, events or results "will", "should", "may",
"could", "would", "might" or "will be taken", "occur" or "be achieved" or the
negative of these terms or comparable terminology.
Forward-looking statements are based on the reasonable assumptions, estimates,
analysis and opinions of management made in light of its experience and its
perception of trends, current conditions and expected developments, as well as
other factors that management believes to be relevant and reasonable in the
circumstances at the date that such statements are made, but which may prove to
be incorrect. We believe that the assumptions and expectations reflected in such
forward-looking statements are reasonable. We cannot assure you, however, that
such statements will prove to be accurate, as actual results and future events
could differ materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on forward-looking statements.
Page 23
--------------------------------------------------------------------------------
VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
June 30, 2022 and 2021 By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, including those identified under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and the other documents we file with theSEC , including under "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year endedDecember 31, 2021 , and with the securities regulatory authorities in certain provinces ofCanada , which contribute to the possibility that the predicted outcomes may not occur or may be delayed. The risks, uncertainties and other factors, many of which are beyond our control, that could influence actual results include, but are not limited to: the general business, market and economic conditions in the regions in which the we operate; the impact of the COVID-19 pandemic and of the actions taken by governmental authorities, individuals and companies in response to the pandemic on our business, financial condition and results of operations, including on our patient base, revenues, employees, and equipment and supplies; significant capital requirements and operating risks that we may be subject to; our ability to implement business strategies and pursue business opportunities; volatility in the market price of our common shares; our novel business model; the risk that the clinical application of treatments that demonstrate positive results in a study may not be positively replicated or that such test results may not be predictive of actual treatment results or may not result in the adoption of such treatments by providers; the state of the capital markets; the availability of funds and resources to pursue operations; reductions in reimbursement rates and audits of reimbursement claims by various governmental and private payor entities; dependence on few payors; possible new drug discoveries; dependence on key suppliers and the recall of certain Royal Philips BiPAP and CPAP devices and ventilators that we distribute and sell; granting of permits and licenses in a highly regulated business; competition; low profit market segments; disruptions in or attacks (including cyber-attacks) on our information technology, internet, network access or other voice or data communications systems or services; the evolution of various types of fraud or other criminal behavior to which we are exposed; the failure of third parties to comply with their obligations; difficulty integrating newly acquired businesses; the impact of new and changes to, or application of, current laws and regulations; the overall difficult litigation and regulatory environment; increased competition; changes in foreign currency rates; increased funding costs and market volatility due to market illiquidity and competition for funding; critical accounting estimates and changes to accounting standards, policies, and methods used by us; our status as an emerging growth company and a smaller reporting company; and the occurrence of natural and unnatural catastrophic events or health epidemics or concerns, such as the COVID-19 pandemic, and claims resulting from such events or concerns, as well as other general economic, market and business conditions; and other factors beyond our control.General Matters In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms the "Company," "we," "us" and "our" refer toViemed Healthcare, Inc. and its wholly-owned subsidiaries. We were incorporated onDecember 14, 2016 pursuant to the Business Corporations Act (British Columbia ). As ofJune 30, 2020 , we determined that we no longer qualify as a "foreign private issuer," as defined in Rule 3b-4 of the Exchange Act, for the purposes of the informational requirements of the Exchange Act. As a result, effectiveJanuary 1, 2021 , we became subject to the proxy solicitation rules under Section 14 of the Exchange Act and Regulation FD, and our officers, directors, and principal shareholders became subject to the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. We will continue to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with theSEC and with the relevant Canadian securities regulatory authorities on the System for Electronic Document Analysis and Retrieval (SEDAR). We are an "emerging growth company," as defined in the JOBS Act and a "smaller reporting company" under Rule 12b-2 of the Exchange Act, and as such, we have elected to comply with certain reducedU.S. public company reporting requirements.
Unless otherwise noted herein, all references to "$" or "USD" are to the
currency of
Overview
We provide an array of home medical equipment, services and supplies, specializing in post-acute respiratory care services inthe United States . Our primary objective is to focus on the organic growth of the business and thereby solidify our position as one ofthe United States' largest providers of in-home therapy for patients suffering from respiratory diseases. Our respiratory care programs are designed specifically for payors to have the ability to treat patients in the home for less total cost and with a superior quality of care. Our services include respiratory disease management (through the rental of various DME devices), in-home sleep testing and sleep apnea treatment, oxygen therapy, and the sale of associated supplies. We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 68.6% and 77.3% of our traditional revenue, excluding COVID-19 response sales and services, for the three months endedJune 30, 2022 and 2021, respectively, and 69.9% and 78.6% for the six months endedJune 30, 2022 and 2021, respectively. We combine the benefits Page 24 --------------------------------------------------------------------------------VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
June 30, 2022 and 2021
of home ventilation support with licensed Respiratory Therapists ("RTs") to drive improved patient outcomes and reduce costly hospital readmissions.
We expect to grow through expansion of existing service areas as well as in new territories through a cost efficient launch that reduces location expenses. Our licensed RTs currently serve patients in 48 states. We expect to continue to employ more RTs in order to assure our high service model is accomplished in the home. As ofJune 30, 2022 , we employed 284 licensed RTs, representing approximately 40% of our company-wide employee count. By focusing overhead costs on personnel that service the patient rather than physical location costs, we anticipate that we will efficiently scale our business in regions that are currently not being effectively serviced. The continued trend of servicing patients in the home rather than in hospitals is aligned with our business objective and we anticipate that this trend will continue to offer growth opportunities for us. We expect to continue to be a solution to the rising health costs inthe United States by offering more cost effective, home based solutions while increasing the quality of life for patients fighting serious respiratory diseases.
Trends Affecting our Business
OnMarch 11, 2020 , theWorld Health Organization designated COVID-19 as a global pandemic. Various policies and initiatives have been implemented to reduce the transmission of COVID-19, including travel bans and restrictions, the postponement of non-essential medical surgeries, limiting access to medical facilities, and adoption of social distancing and remote working policies. Local, state and national governments continue to emphasize the importance of essential medical personnel and we remain open to meet the needs of our communities. Employee and patient safety is our first priority, and as a result, we put preparedness plans in place for our employees, especially our clinical personnel, and modified our clinical protocols to limit unnecessary patient encounters. These measures do not appear to be negatively impacting our patient attrition rate at this time, but we cannot assure you that future governmental policies and initiatives will not significantly disrupt our operations or adversely affect our ability to provide services to our patients in the future. In addition, our ability to assess potential patients in hospitals varies by hospital and city, but overall our business of setting up new patients in the home is continuing although at lower levels than in recent periods. While governmental and other restrictions have not had a material impact on our consolidated operating results for the six months endedJune 30, 2022 , it is possible that more significant disruptions could occur if the COVID-19 pandemic continues for a prolonged period of time and we cannot assure you that demand for our products and services will continue or that we will be able to maintain operations necessary to satisfy such demand, including sufficient personnel, supply chains and distributions channels. The COVID-19 pandemic has led to significant disruptions and volatility in capital and financial markets. Broad economic factors resulting from the current COVID-19 pandemic, including high unemployment and underemployment levels and reduced consumer spending and confidence, could also affect our service mix, revenue mix, payor mix and patient base, as well as our ability to collect outstanding receivables. Business closures and layoffs in the geographic areas in which we operate may lead to increases in the uninsured and under-insured populations and adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered. Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our financial results and require an increased level of working capital. In addition, we may experience supply chain disruptions, including delays and price increases in equipment and supplies. Staffing, equipment and supplies shortages may also impact our ability to assess potential patients in hospitals and set up and treat patients in the home. We believe we presently have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. The CARES Act, which was signed into law onMarch 27, 2020 , provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. The legislation provides for relief funds to hospitals and other healthcare providers on the front lines of the coronavirus response to support healthcare-related expenses or lost revenue attributable to COVID-19 and to ensure uninsured Americans can get testing and treatment for COVID-19. As a result, we received a general distribution payment from theProvider Relief Fund of$3.5 million inApril 2020 , a targeted distribution payment of$1.5 million inNovember 2021 , and a general distribution payment of$0.4 million in January of 2022. Payments from theProvider Relief Fund are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic.The Department of Health and Human Services has stated thatProvider Relief Fund payments are not loans and will not need to be repaid. However, as a condition to the receipt of funds, the Company and any other providers must agree to a detailed set of terms and conditions. CMS has indicated that the terms and conditions may be subject to ongoing changes and reporting. To the extent that reporting requirements and terms and conditions are modified, it may affect our ability to comply and may require the return of funds. In accordance with the terms of acceptance for the grant, we believe we have utilized these funds to prevent, prepare for, and respond to the COVID-19 pandemic.
The CARES Act also provides for a temporary suspension of the 2% payment
sequestration adjustment currently applied to all Medicare fee-for-service
claims. In
Page 25
--------------------------------------------------------------------------------
VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
June 30, 2022 and 2021
the 2 percent payment sequestration through
We are continuing to monitor any effects or requirements that may result from the CARES Act as many of the provisions in the CARES Act are temporary and may require us to modify our operations and compliance procedures. CMS and other federal agencies have and are likely to issue rules and regulations to implement the CARES Act. The impact of these rules and regulations are unknown and may affect us. To the extent these provisions will expire as stated in the CARES Act, we will be required to unwind any modifications. In 2019, CMS announced the inclusion of noninvasive ventilator products on the list of products subject to the competitive bidding program for Round 2021, which covers the period ofJanuary 1, 2021 throughDecember 31, 2023 . Rental revenue from ventilator products represents a significant portion of our revenues (approximately 69.9% of total traditional revenue, excluding COVID-19 response sales and services, for the six months endedJune 30, 2022 ). OnMarch 9, 2020 , CMS announced that due to the COVID-19 pandemic,the United States President's exercise of the Defense Production Act, public concern regarding access to ventilators, and the non-invasive ventilators product category being new to the competitive bidding program, non-invasive ventilators were removed as a product category from Round 2021. OnOctober 27, 2020 , CMS announced that it had removed 13 of the 15 remaining product categories from Round 2021, including oxygen and PAP devices, because the payment amounts did not achieve expected savings. The next competitive bidding round is anticipated to begin no sooner thanJanuary 1, 2024 . As a result of these announcements, we retain the ability to continue to furnish non-invasive ventilators and oxygen and PAP devices for all of our Medicare accredited areas, however, we are uncertain if non-invasive ventilators, oxygen, and PAP devices will be included in future competitive bidding programs.
The below table highlights summary financial and operational metrics for the last eight quarters.
(Tabular amounts expressed in
thousands of
June 30, December 31, September 30, December 31, September 30,
For the quarter ended 2022 March 31, 2022 2021 2021 June 30, 2021 March 31, 2021 2020 2020
Financial Information:
Revenue $ 33,310 $ 32,255 $ 31,962 $ 29,285 $ 27,399 $ 28,416 $ 31,202 $ 33,447
Gross Profit $ 20,390 $ 19,743 $ 19,662 $ 18,381 $ 17,625 $ 17,742 $ 19,178 $ 19,453
Gross Profit % 61 % 61 % 62 % 63 % 64 % 62 % 61 % 58 %
Net Income $ 967 $ 1,762 $ 4,087 $ 1,789 $ 1,566 $ 1,684 $ 5,071 $ 2,804
Cash (As of) $ 21,922 $ 29,248 $ 28,408 $ 26,867 $ 31,151 $ 31,097 $ 30,981 $ 32,396
Total Assets (As of) $ 115,904 $ 119,007 $ 117,962 $ 115,486 $ 111,014 $ 113,001 $ 112,560 $ 113,969
Adjusted EBITDA(1) $ 6,458 $ 7,273 $ 9,549 Vent Patients(2) 8,837 8,434 8,405 8,200 8,103 7,733 7,892 7,788
(1) Refer to "Non-GAAP Financial Measures" section below for definition of Adjusted EBITDA. (2) Vent Patients represents the number of active ventilator patients on recurring billing service at the end of each calendar quarter.
Page 26
--------------------------------------------------------------------------------
VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
June 30, 2022 and 2021
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended June 30,
% of Total % of Total $ %
2022 Revenue 2021 Revenue Change Change
Revenue $ 33,310 100.0 % $ 27,399 100.0 % $ 5,911 21.6 %
Cost of revenue 12,920 38.8 % 9,774 35.7 % 3,146 32.2 %
Gross profit 20,390 61.2 % 17,625 64.3 % 2,765 15.7 %
Selling, general and administrative 17,536 52.6 % 12,884 47.0 % 4,652 36.1 %
Research and development 672 2.0 % 583 2.1 % 89 15.3 %
Stock-based compensation 1,271 3.8 % 1,236 4.5 % 35 2.8 %
Depreciation 243 0.7 % 207 0.8 % 36 17.4 %
Loss (gain) on disposal of property
and equipment (110) (0.3) % 83 0.3 % (193) (232.5) %
Other expense (income) (223) (0.7) % (32) (0.1) % (191) 596.9 %
Income from operations 1,001 3.0 % 2,664 9.7 % (1,663) (62.4) %
Non-operating income and expenses
Income from equity method investments 446 1.3 % 231 0.8 % 215 93.1 % Interest expense, net (59) (0.2) % (83) (0.3) % 24 (28.9) % Net income before taxes 1,388 4.2 % 2,812 10.3 % (1,424) (50.6) % Provision (benefit) for income taxes 421 1.3 % 1,246 4.5 % (825) (66.2) % Net income$ 967 2.9 %$ 1,566 5.7 %$ (599) (38.3) % Revenue
The following table summarizes our revenue for the three months ended
Three Months Ended June 30,
% of Total % of Total $ %
2022 Revenue 2021 Revenue Change Change
Net revenue from rentals
Ventilator rentals, non-invasive and
invasive $ 22,736 68.3 % $ 20,305 74.1 % $ 2,431 12.0 %
Other durable medical equipment
rentals 4,912 14.7 % 3,304 12.2 % 1,608 48.7 %
Net revenue from sales and services
Equipment and supply sales 3,245 9.7 % 2,076 7.6 % 1,169 56.3 %
COVID-19 response sales and services 183 0.5 % 1,136 4.1 % (953) (83.9) %
Service revenues 2,234 6.7 % 578 2.1 % 1,656 286.5 %
Total net revenue $ 33,310 100.0 % $ 27,399 100.0 % $ 5,911 21.6 %
For the three months ended June 30, 2022 , net revenue totaled $33.3 million , an
increase of $5.9 million (or 21.6%) from the comparable period in 2021.
Excluding COVID-19 response sales and services revenue, net revenue increased
$6.9 million (or 26.1%) from the comparable period in 2021. The net revenue
increase was comprised of an increase in ventilator rental revenue of $2.4
million (or 12.0%), rental revenue from other DME of $1.6 million (or 48.7%),
equipment and supply sales of $1.2 million (or 56.3%), and service revenue of
$1.7 million (or 286.5%). The growth in other durable medical equipment rentals
and equipment and supply sales has been primarily driven by PAP and oxygen
related sales and services. The increase in service revenue is primarily due to
the addition of our healthcare staffing offerings. While ventilator rentals
continue to make up the majority of our revenue, the growth of PAP and oxygen
related sales and services, as well as our healthcare staffing offerings, over
the comparable period in 2021 is contributing significantly to the diversity of
overall revenue mix.
Page 27
--------------------------------------------------------------------------------
VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
June 30, 2022 and 2021 During the three months endedJune 30, 2022 , net revenue from COVID-19 response sales and services totaled$0.2 million , compared to$1.1 million during the comparable three month period in 2021. Current period COVID-19 response sales and services consist primarily of contact and vaccination tracing services. The amount of COVID-19 response sales and services revenue is expected to be lower through the end of 2022 and impact of such revenue remains uncertain and dependent on the length and intensity of the COVID-19 pandemic and the availability of such equipment, supplies, and services from other suppliers. As we continue to expand geographically into new territories and further expand our presence in our existing territories, we expect growth in our active ventilator patient base and our other respiratory offerings, and additional revenue from our new staffing and recruitment division. While we expect growth for the remainder of the current year to exceed growth in pandemic impacted periods, the rate of growth may be impacted by residual effects of the pandemic.
Cost of revenue and gross profit
For the three months endedJune 30, 2022 , cost of revenue totaled$12.9 million , an increase of$3.1 million (or 32.2%) from the comparable period in 2021. Overall gross profit percentage decreased from 64.3% in the three months endedJune 30, 2021 to 61.2% in the three months endedJune 30, 2022 . The decrease in gross profit percentage is due to migration of the revenue mix associated with product and service diversification. We expect our gross profit percentage for our normal operations to remain relatively consistent with the current quarter through the end of 2022.
Selling, general and administrative expense
For the three months endedJune 30, 2022 , selling, general and administrative expenses totaled$17.5 million , an increase of$4.7 million (or 36.1%) from the comparable prior period. Selling, general, and administrative expenses as a percentage of revenue increased to 52.6% for the three months endedJune 30, 2022 compared to 47.0% for the three months endedJune 30, 2021 . The increase in overall selling, general and administrative expense as compared to the prior period is primarily attributable to additional employee related expenses to accommodate the overall growth of the Company. Our full time employee count increased from 575 onJune 30, 2021 to 715 onJune 30, 2022 , an increase of 24.3%. Employee compensation expenses increased$3.4 million (or 48%) as a result of the increase in our employee headcount, volume based sales commissions, and an increase in market based individual compensation rates. Included in this amount is a$0.5 million increase related to the remeasurement of phantom stock liability associated with the increase in share price. The remaining increase in selling, general, and administrative expense over the prior year period is largely due to an increase in auto and travel related expenses associated with increases in travel and in-person activities combined with increasing costs for fuel. We expect that current year selling, general and administrative expenses will decline as a percentage of revenue through the end of 2022 as costs stabilize relative to revenue growth.
Research and development
For the three months endedJune 30, 2022 , research and development expense totaled$0.7 million , an increase of$0.1 million (or 15.3%) from the comparable period in 2021. As we continue to invest in research and development related projects to support our technology initiatives, we expect that associated costs will continue to increase in 2022 relative to 2021 costs.
Stock-based compensation
For the three months endedJune 30, 2022 , stock-based compensation totaled$1.3 million , remaining consistent with the comparable period in 2021. We expect that as we continue to increase our employee count and utilize stock-based awards as an aspect of employee compensation, stock-based compensation expense will increase accordingly. Revenue growth has historically exceeded the growth in stock based compensation and stock-based compensation as a percentage of revenue is expected to continue to decline.
Interest expense, net
For the three months endedJune 30, 2022 and during the comparable period in 2021, net interest expense totaled$0.1 million . As a result of low levels of interest bearing debt, we expect net interest expense to remain relatively consistent with the current quarter through the end of 2022. Page 28 --------------------------------------------------------------------------------VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts)June 30, 2022 and 2021 Provision for income taxes For the three months endedJune 30, 2022 , the provision for income taxes was a$0.4 million expense, compared to a$1.2 million expense during the 2021 period. The decrease in income tax expense was primarily due to a decrease in non-deductible compensation expenses. Our annual estimated effective tax rate for 2022 is 29.4%. Net income For the three months endedJune 30, 2022 , net income was$1.0 million , a decrease of$0.6 million (or 38.3%) from the comparable period in 2021. Net income as a percentage of net revenue decreased from 5.7% for the three months endedJune 30, 2021 to 2.9% for the three months endedJune 30, 2022 , primarily due to changes in the product mix as a result of diversification and increases of direct and indirect costs driven by market forces within the supply and labor environments.
Comparison of the Six Months Ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended June 30,
% of Total % of Total $ %
2022 Revenue 2021 Revenue Change Change
Revenue $ 65,565 100.0 % $ 55,815 100.0 % $ 9,750 17.5 %
Cost of revenue 25,432 38.8 % 20,448 36.6 % 4,984 24.4 %
Gross profit 40,133 61.2 % 35,367 63.4 % 4,766 13.5 %
Selling, general and administrative 33,312 50.8 % 27,393 49.1 % 5,919 21.6 %
Research and development 1,304 2.0 % 922 1.7 % 382 41.4 %
Stock-based compensation 2,576 3.9 % 2,543 4.6 % 33 1.3 %
Depreciation 480 0.7 % 407 0.7 % 73 17.9 %
Loss (gain) on disposal of property
and equipment (124) (0.2) % 159 0.3 % (283) NM
Other expense (income) (664) (1.0) % (53) (0.1) % (611) 1,152.8 %
Income from operations 3,249 5.0 % 3,996 7.2 % (747) (18.7) %
Non-operating expenses
Income from equity method investments 769 1.2 % 451 0.8 % 318 NM Interest expense, net (123) (0.2) % (174) (0.3) % 51 (29.3) % Net income before taxes 3,895 5.9 % 4,273 7.7 % (378) (8.8) % Provision for income taxes 1,166 1.8 % 1,023 1.8 % 143 NM Net income$ 2,729 4.2 %$ 3,250 5.8 %$ (521) (16.0) % Page 29
--------------------------------------------------------------------------------
VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
June 30, 2022 and 2021
Revenue
The following table summarizes our revenue for the six months ended June 30,
2022 and 2021:
Six Months Ended June 30,
% of Total % of Total $ %
2022 Revenue 2021 Revenue Change Change
Net revenue from rentals
Ventilator rentals, non-invasive and
invasive $ 44,254 67.5 % $ 40,656 72.8 % $ 3,598 8.8 %
Other durable medical equipment
rentals 9,271 14.1 % 6,234 11.2 % 3,037 48.7 %
Net revenue from sales and services
Equipment and supply sales 6,282 9.6 % 3,844 6.9 % 2,438 63.4 %
COVID-19 response sales and services 2,278 3.5 % 4,091 7.3 % (1,813) (44.3) %
Service revenues 3,480 5.3 % 990 1.8 % 2,490 251.5 %
Total net revenue $ 65,565 100.0 % $ 55,815 100.0 % $ 9,750 17.5 %
For the six months ended June 30, 2022 , revenue totaled $65.6 million , an
increase of $9.8 million (or 17.5%) from the comparable period in 2021.
Non-COVID-19 related net revenue increased $11.6 million (or 22.4%) from the
comparable period in 2021. The net revenue increase was comprised of an increase
in ventilator rental revenue of $3.6 million (or 8.8%), rental revenue from
other DME of $3.0 million (or 48.7%), equipment and supply sales of $2.4 million
(or 63.4%), and service revenue of $2.5 million (or 251.5%). The growth in other
durable medical equipment rentals and equipment and supply sales has been
primarily driven by PAP and oxygen related sales and services. The increase in
service revenue is primarily due to the addition of our healthcare staffing
offerings. While ventilator rentals continue to make up the majority of our
revenue, the growth of PAP and oxygen related sales and services, as well as our
healthcare staffing offerings, over the comparable period in 2021 is
contributing significantly to the diversity of overall revenue mix.
During the six months ended June 30, 2022 , net revenue from COVID-19 response
sales and services totaled $2.3 million , compared to $4.1 million during the
comparable six month period in 2021. Current period COVID-19 response sales and
services consist primarily of contact and vaccination tracing services. The
amount of COVID-19 response sales and services revenue is expected to be lower
through the end of 2022 and impact of such revenue remains uncertain and
dependent on the length and intensity of the COVID-19 pandemic and the
availability of such equipment, supplies, and services from other suppliers.
As we continue to expand geographically into new territories and further expand
our presence in our existing territories, we expect growth in our active
ventilator patient base and our other respiratory offerings, and additional
revenue from our new staffing and recruitment division. While we expect growth
for the remainder of the current year to exceed growth in pandemic impacted
periods, we anticipate that the rate of growth may be impacted by residual
effects of the pandemic.
Cost of revenue and gross profit
For the six months endedJune 30, 2022 , cost of revenue totaled$25.4 million , an increase of$5.0 million (or 24.4%) from the comparable period in 2021. Overall gross profit percentage decreased from 63.4% for the six months endedJune 30, 2021 to 61.2% for the six months endedJune 30, 2022 . Excluding COVID-19 response sales and services, gross profit percentage for the six months endedJune 30, 2022 was 61.6%. The decrease in gross profit percentage is due to migration of the revenue mix associated with product and service diversification. We expect our gross profit percentage for our normal operations to remain relatively consistent with the current quarter through the end of 2022.
Selling, general and administrative expense
For the six months endedJune 30, 2022 , selling, general and administrative expenses totaled$33.3 million , an increase of$5.9 million (or 21.6%) from the comparable period in 2021. Selling, general, and administrative expenses as a percentage of revenue increased slightly to 50.8% for the six months endedJune 30, 2022 compared to 49.1% for the six months endedJune 30, 2021 . The increase in overall selling, general and administrative expense as compared to the prior period is primarily attributable to additional employee related expenses to accommodate the overall growth of the Company. Our full time employee count increased from 575 onJune 30, 2021 to 715 onJune 30, 2022 , an increase of 24.3%. Employee compensation expenses increased$3.6 million (or 22%) as a result of the increase in our employee headcount, volume-based sales commissions, and an increase in Page 30 --------------------------------------------------------------------------------VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
June 30, 2022 and 2021 market based individual compensation rates. Included in this amount is a$0.9 million increase related to the remeasurement of phantom stock liability associated with the increase in share price. The remaining increase in selling, general, and administrative expense over the prior year period is largely due to an increase in auto and travel related expenses associated with increases in travel and in-person activities combined with increasing costs for fuel. We expect that current year selling, general and administrative expenses will decline as a percentage of revenue through the end of 2022 as costs stabilize relative to revenue growth. Research and development For the six months endedJune 30, 2022 , research and development expense totaled$1.3 million , an increase of$0.4 million (or 41.4%) from the comparable period in 2021. As we continue to invest in research and development related projects to support our technology initiatives, we expect that associated costs will continue to increase in 2022 relative to 2021 costs.
Stock-based compensation
For the six months endedJune 30, 2022 , stock-based compensation totaled$2.6 million , remaining relatively unchanged from the comparable period in 2021. We expect that as we continue to increase our employee count and utilize stock-based awards as an aspect of employee compensation, stock-based compensation expense will increase accordingly. Revenue growth has historically exceeded the growth in stock based compensation and stock-based compensation as a percentage of revenue is expected to continue to decline.
Interest expense, net
For the six months ended
Provision for income taxes
For the six months endedJune 30, 2022 , the provision for income taxes was a$1.2 million expense, compared to a$1.0 million benefit during the 2021 period. The slight increase in the overall effective tax rate was due to the effect of discrete deductible compensation expenses during the prior year interim period. Our annual estimated effective tax rate for 2022 is 29.4%.
Net income
For the six months endedJune 30, 2022 , net income was$2.7 million , a decrease of$0.5 million (or 16.0%) from the comparable period in 2021. Net income as a percentage of revenue decreased from 5.8% for the six months endedJune 30, 2021 to 4.2% for the six months endedJune 30, 2022 , primarily due to changes in the product mix as a result of diversification and increases of direct and indirect costs driven by market forces within the supply and labor environments.
Non-GAAP Financial Measures
The Company uses Adjusted EBITDA, which is a financial measure that is not prepared in accordance with generally accepted accounting principles inthe United States ("GAAP") to analyze its financial results and believes that it is useful to investors, as a supplement toU.S. GAAP measures. Management believes Adjusted EBITDA provides helpful information with respect to the Company's operating performance as viewed by management, including a view of the Company's business that is not dependent on the impact of the Company's capitalization structure and items that are not part of the Company's day-to-day operations. Management uses Adjusted EBITDA (i) to compare the Company's operating performance on a consistent basis, (ii) to calculate incentive compensation for the Company's employees, (iii) for planning purposes, including the preparation of the Company's internal annual operating budget, and (iv) to evaluate the performance and effectiveness of the Company's operational strategies. Accordingly, management believes that Adjusted EBITDA provides useful information in understanding and evaluating the Company's operating performance in the same manner as management. In calculating Adjusted EBITDA, certain items (mostly non-cash) are excluded from net income including interest, taxes, stock based compensation, and depreciation of property and equipment. Set forth below are descriptions of the financial items that have been excluded from net income to calculate Adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income.
-Depreciation may be useful for investors to consider because it generally represents the wear and tear on the property and equipment used in our operations. However, we do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating costs.
Page 31
--------------------------------------------------------------------------------
VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
June 30, 2022 and 2021
-The amount of interest expense we incur or interest income we generate may be
useful for investors to consider and may result in current cash inflows or
outflows. However, we do not consider the amount of interest expense or interest
income to be a representative component of the day-to-day operating performance
of our business.
-Stock-based compensation may be useful for investors to consider because it is
an estimate of the non-cash component of compensation received by the Company's
directors, officers, employees and consultants. However, stock-based
compensation is being excluded from our operating expenses because the decisions
which gave rise to these expenses were not made to increase revenue in a
particular period, but were made for the Company's long-term benefit over
multiple periods. While strategic decisions, such as those to issue stock-based
awards are made to further our long-term strategic objectives and do impact our
earnings under GAAP, these items affect multiple periods and management is not
able to change or affect these items within any period.
-Income tax expense may be useful for investors to consider because it generally
represents the taxes which may be payable for the period and the change in
deferred income taxes and may reduce or increase the amount of funds otherwise
available for use. However, we do not consider the amount of income tax expense
to be a representative component of the day-to-day operating performance of our
business.
The following table is a reconciliation of Net income, the most directly
comparable GAAP measure, to Adjusted EBITDA, on a historical basis for the
periods indicated:
June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30,
For the quarter ended 2022 2022 2021 2021 2021 2021 2020 2020
Net Income $ 967 $ 1,762 $ 4,087 $ 1,789 $ 1,566 $ 1,684 $ 5,071 $ 2,804
Add back:
Depreciation 3,740 3,397 3,120 2,867 2,716 2,609 2,835 2,425
Interest expense 59 64 69 75 83 91 100 116
Stock-based compensation 1,271 1,305 1,305 1,302 1,236 1,307 1,301 1,234 Income tax expense (benefit) 421 745
968 1,386 1,246 (223) 151 1,141
Adjusted EBITDA $ 6,458 $ 7,273 $ 9,549 $ 7,419 $ 6,847 $ 5,468 $ 9,458 $ 7,720 Use of Non-GAAP Financial Measures
Adjusted EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. It is not a measurement of our financial performance under GAAP and should not be considered as an alternative to revenue or net income, as applicable, or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of the Company's liquidity, and may not be comparable to other similarly titled measures of other businesses. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our operating results as reported under GAAP. Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations; and other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
Liquidity and Capital Resources
Cash and cash equivalents atJune 30, 2022 was$21.9 million , compared to$28.4 million atDecember 31, 2021 . Based on our current plan of operations, we believe this amount, when combined with expected cash flows from operations and amounts available under our line of credit will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months from the date of this filing. The Company utilizes short term leases with a major supplier that could be extended over a longer term if there was a need for additional liquidity. Additionally, the Company maintains a$10.0 million line of credit withHancock Whitney Bank which was fully undrawn as ofJune 30, 2022 . Page 32 --------------------------------------------------------------------------------VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts)June 30, 2022 and 2021 Cash Flows
The following table summarizes our cash flows for the periods indicated:
Six
Months Ended
2022 2021
Net Cash provided by (used in):
Operating activities $ 12,092 $ 8,811
Investing activities (10,495) (4,758)
Financing activities (8,083) (3,883)
Net (decrease) increase in cash and cash equivalents
Net Cash Provided by Operating Activities
Net cash provided by operating activities during the six months endedJune 30, 2022 was$12.1 million , primarily resulting from net income of$2.7 million , increased by non-cash net income adjustments of$14.4 million , increased by a change in net operating liabilities of$0.3 million , and decreased by a change in net operating assets of$6.0 million . The non-cash net income adjustments primarily consisted of$6.3 million of provision for uncollectible accounts,$7.1 million of depreciation,$2.6 million of stock-based compensation,$0.8 million gain on equity investments and a$0.7 million change in deferred tax asset. The primary changes in working capital were an increase in gross accounts receivable of$7.8 million , offset by an increase in income taxes payable of$1.4 million and an increase in inventory of$1.0 million . Included in our operating cash flows for the period is the receipt of$0.4 million in Provider Relief Funds. Net cash provided by operating activities during the six months endedJune 30, 2021 was$8.8 million , resulting from net income of$3.3 million , non-cash net income adjustments of$12.0 million , and an increase in net operating liabilities of$3.4 million , which was partially offset by an increase in net operating assets of$3.1 million . The non-cash net income adjustments primarily consisted of$3.4 million in a change of allowance for doubtful accounts,$5.3 million of depreciation,$0.2 million of gains on disposal of property and equipment, change in deferred tax asset of$1.0 million and$2.5 million of stock-based compensation. The uses of cash related to changes in operating assets primarily consisted of an increase in accounts receivable of$3.2 million and an increase in inventory of$0.2 million . The changes in operating liabilities primarily consisted of an increase in accounts payable of$0.4 million and an increase in accrued liabilities of$3.8 million .
Net cash used in investing activities during the six months endedJune 30, 2022 was$10.5 million , consisting of$11.0 million of purchases of property and equipment, partially offset by$0.6 million of sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to medical equipment rented to our patients. Cash purchases of property and equipment represents a$5.9 million , or 117.2%, increase year over year. Net cash used in investing activities during the six months endedJune 30, 2021 was$4.8 million , consisting of$5.0 million of purchases of property and equipment, partially offset by$0.3 million of COVID-19 response sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to medical equipment rented to our patients. Combining cash purchases of property and equipment and equipment financed through finance leases, our total capital expenditures for the six months endedJune 30, 2021 were$5.1 million .
Net cash used in financing activities during the six months endedJune 30, 2022 was$8.1 million . For the six months endedJune 30, 2022 , the Company repurchased and canceled 1,350,567 common shares at a cost of$7.0 million pursuant to the Share Repurchase Program authorized by the Board of Directors onMarch 7, 2022 (the "2022 Share Repurchase Program"). Net cash used in financing activities during the six months endedJune 30, 2022 also consisted of$0.9 million in principal payments on the Term Note (as defined below). Net cash used in financing activities during the six months endedJune 30, 2021 was$3.9 million , consisting of$0.8 million in principal payments on the Term Note and$1.7 million in repayments of finance lease liabilities, partially offset by$0.1 million of proceeds from the exercise of stock options. Page 33 --------------------------------------------------------------------------------VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts)June 30, 2022 and 2021 Line of Credit The Company maintains a line of credit in the amount of$10.0 million that expiresMay 1, 2023 under the Commercial Business Loan Agreement. Any amounts advanced on this line will be subject to an interest rate equal to the WSJ prime rate plus a margin of 0.50%, with a 3.50% interest rate floor and will be secured by substantially all of the Company's assets. There were no borrowings against this line of credit atJune 30, 2022 orDecember 31, 2021 . While we currently have no immediate plans to draw on this line of credit, the line of credit allows flexibility in funding our future operations subject to compliance with the covenants described above. Under the Commercial Business Loan Agreement, the Company is subject to several restrictive covenants that, among other things, impose operating and financial restrictions on the Company. Financial covenants include a Total Debt to Adjusted EBITDA, a Loan-to-Value Ratio and a Fixed Charged Coverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains certain customary events of default, including, among other things, failure to make payments when due thereunder and failure to observe or perform certain covenants. The Company was in compliance with all covenants under the Commercial Business Term Loan Agreement in effect atJune 30, 2022 .
Commercial Term Notes
OnMay 30, 2019 , the Company entered into an amendment to the loan agreement providing for a term note (the "Building Term Note") in favor ofHancock Whitney Bank in the principal amount of$4.8 million . The proceeds of theBuilding Term Note were used to purchase a building to utilize as a new corporate headquarters for the Company. BeginningJuly 1, 2019 , the Company makes monthly payments towards the outstanding balance. TheBuilding Term Note matures onMay 30, 2026 and is secured by substantially all of our assets, including the real property acquired with the proceeds of theBuilding Term Note . TheBuilding Term Note bears interest at a variable rate equal to the one month ICE LIBOR index plus a margin of 2.45% per annum. The Company is required to maintain a loan to value ratio of 85% with respect to the appraised value of the real property. In connection with theBuilding Term Note , the Company entered into an interest rate swap transaction (the "Interest Rate Swap Transaction") withHancock Whitney Bank effectively fixing the interest rate for theBuilding Term Note at 4.68%. OnSeptember 19, 2019 , the Company entered into a third amendment to the loan agreement providing for a term note (the "Term Note") in favor ofHancock Whitney Bank in the principal amount of$5.0 million . The proceeds of the Term Note will be used for general corporate purposes. BeginningOctober 19, 2019 , the Company makes monthly payments towards the outstanding balance. The Term Note matures onSeptember 19, 2022 and is secured by substantially all of our assets. The Term Note bears interest at the rate of 4.60% per annum.
Use of Funds
Our principal uses of cash are funding our new rental assets and other capital purchases, operations, and other working capital requirements. The following table presents our material contractual obligations and commitments to make future payments as ofJune 30, 2022 : Within 12 Months
Beyond 12 Months
Debt Obligations, including interest $ 821 $ 4,801
Lease Obligations $ 285 $ 220
Total $1,106 $5,021
We anticipate that our operating cash flows will satisfy our material cash
requirements for the 12 months after June 30, 2022 . In addition to our operating
cash flows, we may need to raise additional funds to support our contractual
obligations and investing activities beyond such 12 month period, and such
funding may not be available to us on acceptable terms, or at all. If we are
unable to raise additional funds when needed, our operations and ability to
execute our business strategy could be adversely affected. We may seek to raise
additional funds through equity, equity-linked or debt financings. If we raise
additional funds through the incurrence of indebtedness, such indebtedness would
have rights that are senior to holders of our equity securities and could
contain covenants that restrict our operations. Any additional equity financing
may be dilutive to our stockholders.
Page 34
--------------------------------------------------------------------------------
VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
June 30, 2022 and 2021 Leases Leases under which we assume substantially all the risks and rewards of ownership are classified as capital leases. Upon initial recognition, the leased asset is measured at an amount equal to the lesser of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to the asset. The associated lease liability is drawn down over the life of the lease by allocating a portion of each lease payment to the liability with the remainder being recognized as finance charges. Leases that do not transfer the risks and rewards of ownership to the Company are treated as operating leases and are expensed as incurred.
Retirement Plan
The Company maintains a 401(k) retirement plan for employees to which eligible employees can contribute a percentage of their pre-tax compensation. Matching employer contributions to the 401(k) plan totaled$351,000 and$283,000 for the three months endedJune 30, 2022 and 2021, respectively, and$622,000 and$457,000 for the six months endedJune 30, 2022 and 2021, respectively.
Off balance sheet arrangements
The Company has no material undisclosed off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its results of operations or financial condition.
Accounting and Disclosure Matters
Critical Accounting Principles and Estimates
We are required to disclose "critical accounting estimates" which are estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and that have had or are reasonably likely to have a material impact on our financial condition or results of operations. We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted inthe United States . The more significant of these policies are summarized in Note 2 to our consolidated financial statements included in Part II, Item 8 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, the policy noted below could be deemed to meet theSEC's definition of a critical accounting estimate.
Allowance for Doubtful Accounts
The Company estimates that a certain portion of receivables from customers may not be collected and maintains an allowance for doubtful accounts. The Company evaluates the net realizable value of accounts receivable as of the date of Consolidated Balance Sheets. Specifically, we consider historical realization data, including current and historical cash collections, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the healthcare industry and third-party reimbursement, it is possible that the estimates could change, which could have a material impact on the operations and cash flows. If circumstances related to certain customers change or actual results differ from expectations, our estimate of the recoverability of receivables could fluctuate from that provided for in our consolidated financial statements. A change in estimate could impact bad debt expense and accounts receivable. For the six months endedJune 30, 2022 , our assessment considered business and market disruptions caused by the COVID-19 pandemic and estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for doubtful accounts in future periods. Our allowance for doubtful accounts was$9.4 million and$7.3 million as ofJune 30, 2022 and 2021, respectively, and based on our analysis, we believe the reserve is adequate for any exposure to credit losses.
Recently Issued Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies of our Condensed Consolidated Financial Statements for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows.
Page 35
--------------------------------------------------------------------------------
VIEMED HEALTHCARE, INC. June 30, 2022 and 2021
© Edgar Online, source
