UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20192021 |
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____ to _____
Commission file number: 001-38973
Viemed Healthcare, Inc.
(Exact name of registrant as specified in its charter)
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British Columbia, Canada | | N/A |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification Number) |
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| 202 N. Luke St.625 E. Kaliste Saloom Rd.
Lafayette, LA 7050670508 | |
(Address of principal executive offices, including zip code) |
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| (337) 504-3802 | |
(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act: |
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Title of each class | Trading Symbol(s) | Name of exchange on which registered |
Common Shares, no par value | VMD | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ xNox ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes xNo ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ | | Accelerated filer ☐ | | Non-Accelerated filer ☐☒ | | Smaller reporting companyx☒ Emerging growth companyx☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ Nox
As of August 8, 2019,July 23, 2021, there were 37,735,78539,588,299 common shares of the registrant outstanding.
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VIEMED HEALTHCARE, INC. TABLE OF CONTENTS |
June 30, 20192021 and 20182020 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS |
(Expressed in thousands of U.S. Dollars, except outstanding shares) |
| Note | | At June 30, 2021 | | At December 31, 2020 |
| | | (Unaudited) | | (Audited) |
ASSETS | | | | | |
Current assets | | | | | |
Cash and cash equivalents | | | $ | 31,151 | | | $ | 30,981 | |
Accounts receivable, net of allowance for doubtful accounts of $7,288 and $9,013 at June 30, 2021 and December 31, 2020, respectively | 2 | | 12,134 | | | 12,373 | |
Inventory, net of inventory reserve of $1,284 and $1,353 at June 30, 2021 and December 31, 2020, respectively | 2 | | 2,558 | | | 2,310 | |
Prepaid expenses and other assets | 2 | | 1,202 | | | 1,511 | |
Total current assets | | | $ | 47,045 | | | $ | 47,175 | |
Long-term assets | | | | | |
Property and equipment, net | 3 | | 54,354 | | | 55,056 | |
Equity investments | 2 | | 1,061 | | | 733 | |
Deferred tax asset | 9 | | 7,693 | | | 8,733 | |
Other long-term assets | 8 | | 861 | | | 863 | |
Total long-term assets | | | $ | 63,969 | | | $ | 65,385 | |
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TOTAL ASSETS | | | $ | 111,014 | | | $ | 112,560 | |
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LIABILITIES | | | | | |
Current liabilities | | | | | |
Trade payables | | | $ | 2,458 | | | $ | 2,096 | |
Deferred revenue | | | 3,742 | | | 3,409 | |
Income taxes payable | | | 0 | | | 340 | |
Accrued liabilities | 4 | | 9,259 | | | 12,595 | |
Current portion of lease liabilities | 5 | | 978 | | | 2,741 | |
Current portion of long-term debt | 5 | | 1,880 | | | 1,836 | |
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Total current liabilities | | | $ | 18,317 | | | $ | 23,017 | |
Long-term liabilities | | | | | |
Accrued liabilities | 7 | | 693 | | | 1,292 | |
Long-term lease liabilities | 5 | | 894 | | | 762 | |
Long-term debt | 5 | | 4,846 | | | 5,796 | |
Total long-term liabilities | | | $ | 6,433 | | | $ | 7,850 | |
TOTAL LIABILITIES | | | $ | 24,750 | | | $ | 30,867 | |
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Commitments and Contingencies | 8 | | 0 | | | 0 | |
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SHAREHOLDERS' EQUITY | | | | | |
Common stock - No par value: unlimited authorized; 39,588,299 and 39,185,182 issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | 7 | | $ | 13,696 | | | $ | 9,181 | |
Additional paid-in capital | | | 5,460 | | | 7,320 | |
Accumulated other comprehensive loss | | | (351) | | | (451) | |
Retained earnings | | | 67,459 | | | 65,643 | |
TOTAL SHAREHOLDERS' EQUITY | | | $ | 86,264 | | | $ | 81,693 | |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | | $ | 111,014 | | | $ | 112,560 | |
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VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS |
(Expressed in thousands of U.S. Dollars, except outstanding shares) |
| Note | | At June 30, 2019 | | At December 31, 2018 |
| | | (Unaudited) | | Audited |
ASSETS | | | | | |
Current assets | | | | | |
Cash and cash equivalents | | | $ | 7,691 |
| | $ | 10,413 |
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Accounts receivable, net of allowance for doubtful accounts of $6,874 and $4,266 at June 30, 2019 and December 31, 2018, respectively | 2 | | 12,797 |
| | 8,839 |
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Inventory, net | 2 | | 3,712 |
| | 2,887 |
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Prepaid expenses and other assets | | | 861 |
| | 824 |
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Total current assets | | | $ | 25,061 |
| | $ | 22,963 |
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Long-term assets | | | | | |
Property and equipment | 3 | | 45,803 |
| | 30,562 |
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Other assets | | | 22 |
| | — |
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Total long-term assets | | | $ | 45,825 |
| | $ | 30,562 |
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TOTAL ASSETS | | | $ | 70,886 |
| | $ | 53,525 |
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LIABILITIES | | | | | |
Current liabilities | | | | | |
Trade payables | | | $ | 7,818 |
| | $ | 5,884 |
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Income taxes payable | | | — |
| | 152 |
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Accrued liabilities | 4 | | 6,950 |
| | 7,551 |
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Current portion of lease liabilities | 5 | | 8,410 |
| | 3,031 |
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Current portion of long-term debt | | | 133 |
| | — |
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Warrant conversion liability | 6 | | 800 |
| | 363 |
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Total current liabilities | | | $ | 24,111 |
| | $ | 16,981 |
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Long-term liabilities | | | | | |
Accrued liabilities | 7 | | 1,685 |
| | 1,117 |
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Long-term lease liabilities | 5 | | 1,098 |
| | 394 |
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Long-term debt | 5 | | 4,703 |
| | — |
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Total long-term liabilities | | | $ | 7,486 |
| | $ | 1,511 |
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TOTAL LIABILITIES | | | $ | 31,597 |
| | $ | 18,492 |
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Commitments and Contingencies (Note 8) | | | — |
| | — |
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SHAREHOLDERS' EQUITY | | | | | |
Common stock - No par value: unlimited authorized; 37,697,535 and 37,500,815 issued and outstanding as of June 30, 2019 and December 31, 2018, respectively | 7 | | 2,350 |
| | 71 |
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Additional paid-in capital | | | 5,063 |
| | 5,390 |
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Accumulated other comprehensive loss | | | (148 | ) | | — |
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Retained earnings | | | 32,024 |
| | 29,572 |
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TOTAL SHAREHOLDERS' EQUITY | | | $ | 39,289 |
| | $ | 35,033 |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | | $ | 70,886 |
| | $ | 53,525 |
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See accompanying notes to the condensed consolidated financial statements |
| | | Page | 3 |
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VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
(Expressed in thousands of U.S. Dollars, except share and per share amounts) (Unaudited) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Note | | 2021 | | 2020 | | 2021 | | 2020 |
Revenue | 2 | | $ | 27,399 | | | $ | 42,854 | | | $ | 55,815 | | | $ | 66,660 | |
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Cost of revenue | | | 9,774 | | | 16,927 | | | 20,448 | | | 25,180 | |
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Gross profit | | | $ | 17,625 | | | $ | 25,927 | | | $ | 35,367 | | | $ | 41,480 | |
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Operating expenses | | | | | | | | | |
Selling, general and administrative | | | 12,884 | | | 16,428 | | | 27,393 | | | 27,005 | |
Research and development | | | 583 | | | 271 | | | 922 | | | 445 | |
Stock-based compensation | 7 | | 1,236 | | | 1,196 | | | 2,543 | | | 2,347 | |
Depreciation | | | 207 | | | 205 | | | 407 | | | 410 | |
Loss (gain) on disposal of property and equipment | | | 83 | | | (1,458) | | | 159 | | | (2,627) | |
Other expense (income) | | | (32) | | | (3,574) | | | (53) | | | (3,574) | |
Income from operations | | | $ | 2,664 | | | $ | 12,859 | | | $ | 3,996 | | | $ | 17,474 | |
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Non-operating expenses | | | | | | | | | |
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Loss (gain) from equity method investments | | | (231) | | | (42) | | | (451) | | | (15) | |
Interest expense, net of interest income | 5 | | 83 | | | 135 | | | 174 | | | 293 | |
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Net income before taxes | | | 2,812 | | | 12,766 | | | 4,273 | | | 17,196 | |
Provision (benefit) for income taxes | 9 | | 1,246 | | | (6,646) | | | 1,023 | | | (6,459) | |
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Net income | | | $ | 1,566 | | | $ | 19,412 | | | $ | 3,250 | | | $ | 23,655 | |
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Other comprehensive income (loss) | | | | | | | | | |
Change in unrealized gain/loss on derivative instruments, net of tax | | | (6) | | | (33) | | | 100 | | | (345) | |
Other comprehensive income (loss) | | | $ | (6) | | | $ | (33) | | | $ | 100 | | | $ | (345) | |
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Comprehensive income | | | $ | 1,560 | | | $ | 19,379 | | | $ | 3,350 | | | $ | 23,310 | |
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Net income per share | | | | | | | | | |
Basic | 10 | | $ | 0.04 | | | $ | 0.50 | | | $ | 0.08 | | | $ | 0.62 | |
Diluted | 10 | | $ | 0.04 | | | $ | 0.48 | | | $ | 0.08 | | | $ | 0.59 | |
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Weighted average number of common shares outstanding: | | | | | | | | | |
Basic | 10 | | 39,584,064 | | | 38,665,765 | | | 39,357,992 | | | 38,348,310 | |
Diluted | 10 | | 41,028,742 | | | 40,814,238 | | | 40,849,311 | | | 40,103,016 | |
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| | | Three Months Ended June 30, | | Six Months Ended June 30, |
| Note | | 2019 | | 2018 | | 2019 | | 2018 |
Revenue | 2 | | $ | 22,547 |
| | $ | 15,508 |
| | $ | 42,990 |
| | $ | 29,619 |
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Cost of revenue | | | 5,686 |
| | 4,185 |
| | 10,727 |
| | 7,744 |
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Gross profit | | | $ | 16,861 |
| | $ | 11,323 |
| | $ | 32,263 |
| | $ | 21,875 |
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Operating Expenses | | | | | | | | | |
Selling, general and administrative | | | 13,244 |
| | 7,919 |
| | 24,836 |
| | 15,208 |
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Research and development | | | 203 | | — |
| | 437 | | — |
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Stock-based compensation | 7 | | 1,034 |
| | 665 |
| | 1,914 |
| | 1,226 |
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Depreciation | | | 138 |
| | 124 |
| | 267 |
| | 330 |
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Loss on disposal of property and equipment | | | 85 |
| | 52 |
| | 141 |
| | 88 |
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Other expense | | | 25 |
| | 7 |
| | 49 |
| | 7 |
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Income from operations | | | $ | 2,132 |
| | $ | 2,556 |
| | $ | 4,619 |
| | $ | 5,016 |
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Non-operating expenses | | | | | | | | | |
Unrealized loss on warrant conversion liability | 6 | | 268 | | 123 | | 437 |
| | 195 |
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Interest expense, net of interest income | 5 | | 20 |
| | 67 |
| | 46 |
| | 114 |
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Net income before taxes | | | 1,844 |
| | 2,366 |
| | 4,136 |
| | 4,707 |
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Provision for income taxes | 9 | | 24 |
| | — |
| | 162 |
| | — |
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Net income | | | $ | 1,820 |
| | $ | 2,366 |
| | $ | 3,974 |
| | $ | 4,707 |
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Other Comprehensive Income | | | | | | | | | |
Change in unrealized loss on derivative instruments, net of tax | | | (148 | ) | | — |
| | (148 | ) | | — |
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Other Comprehensive Loss | | | (148 | ) | | $ | — |
| | $ | (148 | ) | | $ | — |
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Comprehensive Income | | | 1,672 |
| | $ | 2,366 |
| | $ | 3,826 |
| | $ | 4,707 |
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Net income per share | | | | | | | | | |
Basic | 11 | | $0.05 | | $0.06 | | $0.10 | | $0.12 |
Diluted | 11 | | $0.05 | | $0.06 | | $0.10 | | $0.12 |
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Weighted average number of common shares outstanding: | | | | | | | | | |
Basic | 11 | | 37,686,763 |
| | 37,909,628 |
| | 38,165,274 |
| | 37,909,628 |
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Diluted | 11 | | 39,975,307 |
| | 39,335,011 |
| | 40,166,855 |
| | 39,099,186 |
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See accompanying notes to the condensed consolidated financial statements |
| | | Page | 4 |
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VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY |
(Expressed in thousands of U.S. Dollars, except share and per share amounts) (Unaudited)
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| | Common Stock | | Additional paid-in capital | | Accumulated other comprehensive loss | | | | Total Shareholders' equity |
| | Shares | | Amount | | | | Retained earnings | |
Shareholders' equity, December 31, 2019 | | 37,952,660 | | $ | 3,366 | | | $ | 6,377 | | | $ | (157) | | | $ | 34,113 | | | $ | 43,699 | |
Stock-based compensation - options | | — | | | — | | | 891 | | | — | | | — | | | 891 | |
Stock-based compensation - restricted stock | | — | | | — | | | 260 | | | — | | | — | | | 260 | |
Exercise of options | | 4,737 | | | 15 | | | — | | | — | | | — | | | 15 | |
Shares issued for vesting of restricted stock units | | 529,375 | | | 3,276 | | | (3,276) | | | — | | | — | | | 0 | |
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Change in accumulated other comprehensive loss, net of tax | | | | | | | | (312) | | | | | (312) | |
Net income | | — | | | — | | | — | | | — | | | 4,243 | | | 4,243 | |
Shareholders' equity, March 31, 2020 | | 38,486,772 | | | $ | 6,657 | | | $ | 4,252 | | | $ | (469) | | | $ | 38,356 | | | $ | 48,796 | |
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Stock-based compensation - options | | — | | | — | | | 933 | | | — | | | — | | | 933 | |
Share-based compensation - restricted stock | | — | | | — | | | 263 | | | — | | | — | | | 263 | |
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Exercise of options | | 596,160 | | | 1,757 | | | — | | | — | | | — | | | 1,757 | |
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Change in accumulated other comprehensive loss, net of tax | | — | | | — | | | — | | | (33) | | | — | | | (33) | |
Net income | | — | | | — | | | — | | | — | | | 19,412 | | | 19,412 | |
Shareholders' equity, June 30, 2020 | | 39,082,932 | | | $ | 8,414 | | | $ | 5,448 | | | $ | (502) | | | $ | 57,768 | | | $ | 71,128 | |
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| | Common Stock | | Additional paid-in capital | | Accumulated other comprehensive loss | | | | Total Shareholders' equity |
| | Shares | | Amount | | | | Retained earnings | |
Shareholders' equity, December 31, 2020 | | 39,185,182 | | | $ | 9,181 | | | $ | 7,320 | | | $ | (451) | | | $ | 65,643 | | | $ | 81,693 | |
Stock-based compensation - options | | — | | | — | | | 1,078 | | | — | | | — | | | 1,078 | |
Stock-based compensation - restricted stock | | — | | | — | | | 229 | | | — | | | — | | | 229 | |
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Exercise of options | | 16,586 | | | 65 | | | — | | | — | | | — | | | 65 | |
Shares issued for vesting of restricted stock units | | 556,840 | | | 4,403 | | | (4,403) | | | — | | | — | | | 0 | |
Shares redeemed to pay income tax | | (181,320) | | | — | | | — | | | — | | | (1,434) | | | (1,434) | |
Change in accumulated other comprehensive loss, net of tax | | — | | | — | | | — | | | 106 | | | — | | | 106 | |
Net income | | — | | | — | | | — | | | — | | | 1,684 | | | 1,684 | |
Shareholders' equity, March 31, 2021 | | 39,577,288 | | | $ | 13,649 | | | $ | 4,224 | | | $ | (345) | | | $ | 65,893 | | | $ | 83,421 | |
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Stock-based compensation - options | | — | | | — | | | 998 | | | — | | | — | | | 998 | |
Stock-based compensation - restricted stock | | — | | | — | | | 238 | | | — | | | — | | | 238 | |
Exercise of options | | 11,011 | | | 47 | | | — | | | — | | | — | | | 47 | |
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Change in accumulated other comprehensive loss, net of tax | | — | | | — | | | — | | | (6) | | | — | | | (6) | |
Net income | | — | | | — | | | — | | | — | | | 1,566 | | | 1,566 | |
Shareholders' equity, June 30, 2021 | | 39,588,299 | | | $ | 13,696 | | | $ | 5,460 | | | $ | (351) | | | $ | 67,459 | | | $ | 86,264 | |
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| | Common Stock | | Additional paid-in capital | | Accumulated other comprehensive loss | | | | Total Shareholders' equity |
| | Shares | | Amount | | | | Retained earnings | |
Shareholders' equity, December 31, 2017 | | 37,909,628 | | $ | 67 |
| | $ | 2,688 |
| | $ | — |
| | $ | 20,989 |
| | $ | 23,744 |
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Stock-based compensation - options | | | | | | 145 |
| | | | | | 145 |
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Stock-based compensation - restricted stock | | | | | | 416 |
| | | | | | 416 |
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Net Income | | | | | | | | | | 2,341 |
| | 2,341 |
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Shareholders' equity, March 31, 2018 | | 37,909,628 |
| | $ | 67 |
| | $ | 3,249 |
| | $ | — |
| | $ | 23,330 |
| | $ | 26,646 |
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Stock-based compensation - options | | | | | | 229 |
| | | | | | 229 |
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Stock-based compensation - restricted stock | | | | | | 436 |
| | | | | | 436 |
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Net Income | | | | | | | | | | 2,366 |
| | 2,366 |
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Shareholders' equity, June 30, 2018 | | 37,909,628 |
| | $ | 67 |
| | $ | 3,914 |
| | $ | — |
| | $ | 25,696 |
| | $ | 29,677 |
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Shareholders' equity, December 31, 2018 | | 37,500,815 |
| | $ | 71 |
| | $ | 5,390 |
| | $ | — |
| | $ | 29,572 |
| | $ | 35,033 |
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Stock-based compensation - options | | | | | | 578 |
| | | | | | 578 |
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Stock-based compensation - restricted stock | | | | | | 302 |
| | | | | | 302 |
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Exercise of options | | 2,418 | | 4 |
| | | | | | | | 4 |
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Shares issued for vesting of restricted stock units | | 539,965 | | 2,202 |
| | (2,202 | ) | | | | | | — |
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Shares repurchased and canceled under the Normal Course Issuer Bid | | (365,100) | |
| | | | | | (1,522 | ) | | (1,522 | ) |
Net Income | | | | | | | | | | 2,154 |
| | 2,154 |
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Shareholders' equity, March 31, 2019 | | 37,678,098 |
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| $ | 2,277 |
|
| $ | 4,068 |
|
| $ | — |
|
| $ | 30,204 |
|
| $ | 36,549 |
|
| | | | | | | | | | | | |
Stock-based compensation - options | | | | | | 705 |
| | | | | | 705 |
|
Stock-based compensation - restricted stock | | | | | | 329 |
| | | | | | 329 |
|
Exercise of warrants | | 8,280 |
| | 16 |
| | | | | | | | 16 |
|
Exercise of options | | 4,725 |
| | 18 |
| | | | | | | | 18 |
|
Shares issued for vesting of restricted stock units | | 6,432 |
| | 39 |
| | (39 | ) | | | | | | — |
|
Change in unrealized loss on derivative instruments | | | | | | | | (148 | ) | | | | (148 | ) |
Net Income | | | | | | | | | | 1,820 |
| | 1,820 |
|
Shareholders' equity, June 30, 2019 | | 37,697,535 |
|
| $ | 2,350 |
|
| $ | 5,063 |
|
| $ | (148 | ) |
| $ | 32,024 |
|
| $ | 39,289 |
|
|
| | | | | | | | | | | | | |
See accompanying notes to the condensed consolidated financial statements |
| | | Page | 5 |
|
| |
VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Expressed in thousands of U.S. Dollars) (Unaudited) |
| | | | | | | | | | | | | | | | | |
| | | Six Months Ended June 30, |
| Note | | 2021 | | 2020 |
Cash flows from operating activities | | | | | |
Net income | | | $ | 3,250 | | | $ | 23,655 | |
Adjustments for: | | | | | |
Depreciation | | | 5,325 | | | 4,320 | |
Change in allowance for doubtful accounts | 2 | | 3,402 | | | 5,578 | |
| | | | | |
Share-based compensation | 7 | | 2,543 | | | 2,347 | |
Distributions of earnings received from equity method investments | | | 123 | | | 0 | |
| | | | | |
(Gain) on equity method investments | | | (451) | | | (15) | |
Loss (gain) on disposal of property and equipment | | | 159 | | | (2,627) | |
Deferred income taxes (benefit) | | | 1,005 | | | (7,825) | |
Net change in working capital | | | | | |
Increase in accounts receivable | | | (3,163) | | | (5,073) | |
Increase in inventory | | | (248) | | | (5,220) | |
Increase (decrease) in prepaid expenses and other assets | | | 311 | | | (329) | |
Increase in trade payables | | | 362 | | | 2,044 | |
Increase (decrease) in deferred revenue | | | 333 | | | (36) | |
(Decrease) increase in accrued liabilities | | | (3,800) | | | 3,765 | |
(Decrease) increase in income tax payable | | | (340) | | | 1,404 | |
Net cash provided by operating activities | | | $ | 8,811 | | | $ | 21,988 | |
| | | | | |
Cash flows from investing activities | | | | | |
Purchase of property and equipment | | | (5,047) | | | (5,729) | |
Investment in equity investments | | | 0 | | | (31) | |
Proceeds from sale of property and equipment | | | 289 | | | 5,140 | |
Net cash used in investing activities | | | $ | (4,758) | | | $ | (620) | |
| | | | | |
Cash flows from financing activities | | | | | |
| | | | | |
Proceeds from exercise of options | | | 112 | | | 1,772 | |
| | | | | |
| | | | | |
| | | | | |
Principal payments on notes payable | 5 | | (73) | | | (67) | |
Principal payments on term note | 5 | | (833) | | | (795) | |
Shares redeemed to pay income tax | 7 | | (1,434) | | | 0 | |
| | | | | |
Repayments of lease liabilities | | | (1,655) | | | (5,926) | |
| | | | | |
Net cash used in financing activities | | | $ | (3,883) | | | $ | (5,016) | |
| | | | | |
Net increase in cash and cash equivalents | | | 170 | | | 16,352 | |
Cash and cash equivalents at beginning of year | | | 30,981 | | | 13,355 | |
Cash and cash equivalents at end of period | | | $ | 31,151 | | | $ | 29,707 | |
| | | | | |
Supplemental disclosures of cash flow information | | | | | |
Cash paid during the period for interest | | | $ | 198 | | | $ | 309 | |
Cash paid during the period for income taxes, net of refunds received | | | $ | 358 | | | $ | (38) | |
Supplemental disclosures of non-cash transactions | | | | | |
Net non-cash changes to finance lease balances | | | $ | 12 | | | $ | 2,883 | |
Net non-cash changes to operating lease balances | | | $ | 355 | | | $ | 57 | |
| | | | | |
|
| | | | | | | | | |
| | | Six Months Ended June 30, |
| Note | | 2019 | | 2018 |
Cash flows from operating activities | | | | | |
Net income | | | $ | 3,974 |
| | $ | 4,707 |
|
Adjustments for: | | | | | |
Depreciation |
| | 2,739 |
| | 1,634 |
|
Bad debt expense | 2 | | 3,859 |
| | 2,685 |
|
Share-based compensation | 7 | | 1,914 |
| | 1,226 |
|
Unrealized loss on warrant conversion liability | | | 437 |
| | — |
|
Loss on disposal of property and equipment | | | 141 |
| | 88 |
|
Net change in working capital | | | | | |
Increase in accounts receivable | | | (7,818 | ) | | (761 | ) |
Increase in inventory | | | (825 | ) | | (302 | ) |
Increase (decrease) in trade payables | | | 1,934 |
| | (120 | ) |
Decrease in accrued liabilities | | | (181 | ) | | (83 | ) |
Decrease in income tax payable | | | (153 | ) | | (69 | ) |
Increase in prepaid expenses and other current assets | | | (58 | ) | | (2 | ) |
Net cash provided by operating activities | | | $ | 5,963 |
| | $ | 9,003 |
|
| | | | | |
Cash flows from investing activities | | | | | |
Purchase of property and equipment | | | (7,700 | ) | | (2,057 | ) |
Proceeds from sale of property and equipment | | | 213 |
| | 277 |
|
Net cash used in investing activities | | | $ | (7,487 | ) | | $ | (1,780 | ) |
| | | | | |
Cash flows from financing activities | | | | | |
Proceeds from exercise of options | | | 22 |
| | — |
|
Proceeds from exercise of warrants | | | 16 |
| | — |
|
Proceeds from commercial long-term note for building | | | 4,837 |
| | — |
|
Shares repurchased and canceled under the Normal Course Issuer Bid | | | (1,522 | ) | | — |
|
Repayments of lease liabilities | | | (4,551 | ) | | (3,770 | ) |
Net cash used in financing activities | | | $ | (1,198 | ) | | $ | (3,770 | ) |
| | | | | |
Net (decrease) increase in cash and cash equivalents | | | (2,722 | ) | | 3,453 |
|
Cash and cash equivalents at beginning of year | | | 10,413 |
| | 5,098 |
|
Cash and cash equivalents at end of year | | | $ | 7,691 |
| | $ | 8,551 |
|
| | | | | |
Supplemental disclosures of cash flow information | | | | | |
Cash paid during the period for interest | | | $ | 52 |
| | $ | 116 |
|
Cash paid during the period for income taxes, net of refunds received | | | $ | 317 |
| | $ | 68 |
|
Supplemental disclosures of non-cash transactions | | | | | |
Property and equipment financed through capital leases and long-term debt | | | $ | 9,438 |
| | $ | 4,586 |
|
Property and equipment financed through leases upon adoption of FASB ASC 842 | | | $ | 1,919 |
| | $ | — |
|
Change in unrealized (losses) on derivative instruments, net of tax | | | $ | (148 | ) | | $ | — |
|
|
| | | | | | | |
See accompanying notes to the condensed consolidated financial statements |
| | | Page | 6 |
|
| |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited)
|
June 30, 20192021 and 20182020 |
1. Nature of Business and Operations
| |
1. | Nature of Business and Operations |
On December 21, 2017, Viemed Healthcare, Inc. (the "Company") consumated Asset and Share Purchase Agreements as well as an Arrangement Agreement ("the Arrangement") with Protech Home Medical Corp. ("PHM") (formerly Patient Home Monitoring Corp.) and was spun-out as a separate public company that owns a 100% interest in Home Sleep Delivered, L.L.C. ("HSD") and Sleep Management, L.L.C. dba Viemed ("Viemed") through the U.S. holding company Viemed Inc. Effective as of the spin-out date, the consolidated financial statements include all of the above referenced entities. The spin-out transaction was treated as a common control transaction and all assets and liabilities of the spun out business were transferred at the prior carrying values.
The Company,, through its subsidiaries, providesis a provider of in-home durable medical equipment ("DME") and health care solutionspost-acute respiratory healthcare services in the United States. The Company’s service offerings are focused on effective in-home treatment with clinical practitioners providing therapy and counseling to patients across over 29in their homes using cutting edge technology. The Company currently serves patients in 46 states in the United States. Viemed offers customers requiring respiratory services and related equipment an appropriate selection of home medical products including non-invasive ventilators, positive airway pressure (“PAP”) machines and oxygen units, as well as the services of experienced respiratory therapists. HSD provides in-home sleep apnea testing, allowing a patient to determine the existence of sleep apnea at home at a fraction of the cost of the traditional sleep lab environment. The Company was incorporated under the Business Corporations Act (British Columbia) on December 14, 2016. The Company's registered and records office is located at Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia V6C 2Z7 and its corporate office is located at 202 N. Luke Street,625 E. Kaliste Saloom Road, Lafayette, Louisiana 70506.70508.
The Company qualifies as a "foreign private issuer," as defined in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), for the purposes of the informational requirements of the Exchange Act. Although, as a foreign private issuer, the Company would not be required to do so, the Company will file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the Securities and Exchange Commission (the "SEC"), instead of filing the reporting forms available to foreign private issuers.
The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act (the "JOBS Act") and a "smaller reporting company" under Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and, as such, has elected to comply with certain reduced U.S. public company reporting requirements.
The Company’s common shares are traded in Canada on the Toronto Stock Exchange under the symbol VMD.TO, and as of August 9, 2019, in the U.S. on the Nasdaq Capital Market under the symbol VMD.VMD and in Canada on the Toronto Stock Exchange ("TSX") under the symbol VMD.TO.
2. Summary of Significant Accounting Policies
Principles of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC.Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. TheseThe accompanying condensed consolidated financial statements are unaudited, but reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our consolidated balance sheets, consolidated statementsCondensed Consolidated Balance Sheets, Condensed Consolidated Statements of incomeIncome and comprehensive income, consolidated statementsComprehensive Income, Condensed Consolidated Statements of changesChanges in shareholders’ equityShareholders’ Equity and consolidated statementsCondensed Consolidated Statements of cash flowsCash Flows for the interim periods and as of the dates presented. Our fiscal year ends on December 31. The condensed consolidated balance sheetCondensed Consolidated Balance Sheet as of December 31, 20182020 was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto.thereto and the report of our independent registered public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.
Reporting currency
All values are in U.S. dollars ($ or "USD") unless specifically indicated otherwise. Canadian dollars are indicated as CAD$.
Functional currency
Management has exercised judgment in selecting the functional currency of each of the entities that it combines based on the primary economic environment in which the entity operates and in reference to the various indicators including the currency that primarily influences or determines the selling prices of goods and services and the cost of those services, including labor, material and other costs and the currency whose competitive forces and regulations mainly determine selling prices. The Company's functional currency
|
|
VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
was determined to be the U.S. dollar, which was determined using management’s assumption that the primary economic environment which it will derive its revenue and expenses incurred to generate those revenues is the United States.
Basis of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to revenue recognition, inventory, accounts receivable allowancesand the related allowance for bad debts, stock compensation expense, depreciation and amortization, legal provisions,doubtful accounts, income tax provisions, and fair value of financial instruments. Actual results could differ from these estimates.
Accounts receivable
Net accounts receivable aging for each reporting period is as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | Current | | 30-60 | | 60-90 | | Over 90 | | Total Accounts Receivable, net of Allowance |
June 30, 2019 | | $ | 6,896 |
| | $ | 1,816 |
| | $ | 1,435 |
| | $ | 2,650 |
| | $ | 12,797 |
|
December 31, 2018 | | $ | 4,857 |
| | $ | 1,124 |
| | $ | 668 |
| | $ | 2,190 |
| | $ | 8,839 |
|
Accounts receivable are regularly reviewed for collectability and an allowance is recorded to cover the estimated bad debts and billing modifications. The accounts receivable are presented on the Condensed Consolidated Balance Sheets net of the allowance for doubtful accounts. It is possible that the estimates of the allowance for doubtful accounts could change, which could have a material impact on our operations and cash flows.
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
The Company writes off receivables when the likelihood for collection is remote, and when the Company believes collection efforts have been fully exhausted and it does not intend to devote additional resources in attempting to collect. The write-offs are charged against the allowance for doubtful accounts.
For the six months ended June 30, 2021, our evaluation takes into consideration such factors as historical bad debt experience, national and local economic trends and conditions, industry and regulatory conditions, other collection indicators and information about disaggregated receivables. The complexity of many third-party billing arrangements, patient qualification for medical necessity of equipment and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.
The estimates and write-offs for the allowance for doubtful accounts for each reporting period were as follows:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | June 30, 2020 |
Balance, beginning of year | | $ | 9,013 | | | $ | 7,782 | |
Change in allowance for doubtful accounts | | 3,402 | | | 5,578 | |
Amounts written off | | (5,127) | | | (4,015) | |
Balance, end of period | | $ | 7,288 | | | $ | 9,345 | |
|
| | | | | | | | |
| | June 30, 2019 | | June 30, 2018 |
Balance, beginning of year | | $ | 4,266 |
| | $ | 3,060 |
|
Provision for bad debts | | 3,859 |
| | 2,685 |
|
Amounts written off | | (1,251 | ) | | (2,593 | ) |
Balance, end of period | | $ | 6,874 |
| | $ | 3,152 |
|
As of June 30, 2019 and 2018, no one customer represented more than 10% of outstandingIncluded in accounts receivable. The Company does have receivablesreceivable at June 30, 20192021 are amounts due from Medicare and Medicaid representing 42%which represent 39% and 13%, respectively, and 55%52% combined, of total outstanding receivables. As of December 31, 2020, 46% of total outstanding receivables (December 31, 2018 - 60%). As these receivables are bothwere due from government programs, there is very little credit risk associated with these balances.Medicare and Medicaid.
Revenues from Medicare and Medicaid accounted for 67% and 69%,as percentages of the total revenuesCompany's traditional revenue streams, excluding COVID-19 response sales and services, for the three months ended June 30, 2019 and 2018, respectively, and 68% and 71% for the six months ended June 30, 20192021 and 2018, respectively.2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Medicare revenues | | 54 | % | | 57 | % | | 57 | % | | 58 | % |
Medicaid revenues | | 10 | % | | 9 | % | | 9 | % | | 8 | % |
Total Medicare and Medicaid | | 64 | % | | 66 | % | | 66 | % | | 66 | % |
|
|
VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
Inventory represents non-serialized respiratory supplies that consist of equipment parts, consumables, and associated product supplies and is expensed at the time of sale or use. The Company values inventory at the lower of cost or net realizable value. Obsolete and unserviceable inventories are valued at estimated net realizable value. Inventory is presented net of a reserve balance of $1,284,000 and $1,353,000 at June 30, 2021 and December 31, 2020, respectively, that relates to COVID-19 response supplies.
Property and equipment
Property and equipment is presented on the consolidated balances sheetsCondensed Consolidated Balance Sheets at historic cost less accumulated depreciation. Major renewals and improvements that extend the useful life of assets are capitalized to the respective property accounts, while maintenance and repairs, which do not extend the useful life of the respective assets, are expensed as incurred. Management has estimated the useful lives of equipment leased to customers. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Property and equipment are amortized on a straight-line basis over their estimated useful lives.
The estimated useful lives of the property and equipment are as follows:
|
| | |
Description | | Estimated Useful Lives |
Medical Equipment | | 2 - 10 Years |
Computer Equipment | | 5 Years |
Office Furniture & Fixtures | | 5 - 10 Years |
Leasehold Improvements | | Shorter of Useful Life or Lease |
Vehicles | | 5 Years |
Building | | 15 - 39 Years |
Land | | Indefinite Life |
Depreciation of medical equipment commences at the date of service, which represents the date that the asset has been deployeddelivered to a patient’s addresspatient and is put in use.use and continues through the useful life of the asset. Property and equipment and other non-current assets with definite useful lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
Equity investments
Equity investments on the Condensed Consolidated Balance Sheets are comprised of an investment accounted for under the equity method and an equity investment without a readily determinable fair value which is accounted for under the measurement alternative described in ASC 321-10-35-2.
The following table details the Company’s equity investments:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Equity method investments | | $ | 462 | | | $ | 134 | |
Other equity investments | | 599 | | | 599 | |
Balance, end of period | | $ | 1,061 | | | $ | 733 | |
Investments accounted for under the equity method are investments in unconsolidated entities over whose operating and financial policies the Company has the ability to exercise significant influence but not control. Equity method investments are initially measured at cost in the Condensed Consolidated Balance Sheets with any subsequent adjustments made to the carrying amount of the investment for the Company’s proportionate share of income or loss. The Company has recognized its share of income or loss on the gain (loss) from equity method investments within non-operating expenses in the Condensed Consolidated Statements of Income. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the investments may exceed the fair value. No events or changes have occurred as of June 30, 2021 that would affect the carrying value of equity method investments.
Other equity investments are investments without a readily determinable fair value which do not qualify for the practical expedient in ASC 820. For these investments, the Company has elected the measurement alternative which measures the investment at cost, less any impairment. ASU 2019-04 clarifies that if an entity identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, it must measure its equity investment at fair value in accordance with ASC 820 as of the date that the observable transaction occurred. The Company was not aware of any impairment or observable price change adjustments that needed to be made as of June 30, 2021 on its investments in equity securities without a readily determinable fair value.
Comprehensive income
Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income represents net income adjusted for unrealized gains and losses on derivative instruments, net of tax. Accumulated other comprehensive loss is presented on the accompanying Condensed Consolidated Balance Sheets as a component of shareholders' equity.
As a result of the “backward tracing” prohibition in ASC 740, certain previously measured unrealized gains or losses have resulted in the existence of "dangling" amounts within other comprehensive income. The Company has elected the individual security approach to the release of these effects. Under the individual security approach, dangling amounts are tracked on a security-by-security basis and cleared out of the other comprehensive income balance upon sale of each individual security. During the periods presented, none of the individual securities associated with a dangling balance were sold.
Revenue recognition
Revenue from a customer consists of any combination of the sale and rental of durable medical equipment (“DME”)DME and/or patient medical services. Revenues are billed to and collections received from Medicare, Medicaid, third-party insurers, co-insurance and patient-pay. Revenue is recognized net of contractual adjustments and bad debt based on contractual arrangements with third-party payors, an evaluation of expected collections resulting from the analysis of current and past due accounts, past collection experience in relation to amounts billed and other relevant information. Contractual adjustments result from the differences between the rates charged for services and reimbursementsreimbursement rates paid by government-sponsored healthcare programs and insurance companies for such services.
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
The Company's contracts with customers often include multiple products and services, and the Company evaluates these arrangements to determine the unit of accounting for revenue recognition purposes based on whether the product or service is distinct from other products or services in the arrangement and should be accounted for as a separate performance obligation. A product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and the Company's ability to transfer the goods or services is separately identifiable from other promises in the contractual arrangement with the customer (e.g. patient). Revenue is then allocated to each separately identifiable good or service based on the standalone price of the items underlying the performance obligations. Most of the Company’s products fall in the Medicare Fee-for-Service (“FFS”) program which is a payment model where services are unbundled and paid for separately. These services are paid based on a Medicare determined price that is publicly available on the website for the Centers for Medicare & Medicaid Services (“CMS”).
For commercial payors, DME companies must negotiate in-network pricing separately, though in general, the Company’s payors tend to benchmark their contract rates and coverage policies closely to those of Medicare.
The Company considers performance obligations for sales and rentals to be met when the customer receives the equipment, and revenue for rentals is recognized over time, over the respective rental period. For revenue associated with DME rentals, the Company recognizes revenue in accordance with FASB ASC 842, “Leases,” (Topic 842). For any DME sales and services, the Company recognizes revenue under FASB ASU 2014-09, “Revenue from Contracts with Customers,” (Topic 606) and related amendments.
The Company recognizes equipment rental revenue over the non-cancelable lease term, which is one month, less estimated adjustments, in accordance with ASC 842—Leases.Topic 842. The Company has separate contracts with each patient that are not subject to a master lease agreement with any third-party payor. The Company would first consider the lease classification issue (sales-type lease or operating lease) and then appropriately recognize or defer rental revenue over the lease term.
|
|
VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
The revenues from each major source are summarized in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Revenue from rentals | | | | | | | | |
Ventilator rentals, non-invasive and invasive | | $ | 20,305 | | | $ | 18,951 | | | $ | 40,656 | | | $ | 37,651 | |
Other durable medical equipment rentals | | 3,304 | | | 2,288 | | | 6,234 | | | 4,409 | |
Revenue from sales and services | | | | | | | | |
Equipment and supply sales | | 2,108 | | | 1,637 | | | 3,876 | | | 3,272 | |
COVID-19 response sales and services | | 1,136 | | | 19,712 | | | 4,091 | | | 20,752 | |
Service revenues | | 546 | | | 266 | | | 958 | | | 576 | |
Total revenues | | $ | 27,399 | | | $ | 42,854 | | | $ | 55,815 | | | $ | 66,660 | |
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
Revenue from rentals under Topic 842 | | | | | | | | |
Ventilator rentals, non-invasive and invasive | | $ | 19,461 |
| | $ | 13,852 |
| | $ | 37,743 |
| | $ | 26,676 |
|
Other durable medical equipment rentals | | 1,425 |
| | 532 |
| | 2,343 |
| | 984 |
|
Revenue from sales and services under Topic 606 | | | | | | | | |
Equipment sales | | 1,164 |
| | 895 |
| | 2,032 |
| | 1,502 |
|
Service revenues | | 497 |
| | 229 |
| | 872 |
| | 457 |
|
Total Revenues | | $ | 22,547 |
| | $ | 15,508 |
| | $ | 42,990 |
| | $ | 29,619 |
|
Revenue Accounting under Topic 842
The Company leases durable medical equipmentDME such as non-invasive and invasive ventilators, positive airway pressure ("PAP") machines, percussion vests, oxygen concentrator units and other small respiratory equipment to customers for a fixed monthly amount on a month-to-month basis. The customer generally has the right to cancel the lease at any time during the rental period for a subsequent month’s rental, and payments are generally billed in advance.period. The Company considers these rentals to be operating leases.
Under FASB Accounting Standards CodificationASC Topic 842, “Leases”, the Company recognizes rental revenue on operating leases on a straight-line basis over the contractual lease term which varies based on the type of equipment rental, but generally ranges from 10 to 36 months.rental. The lease term begins on the date products are delivered to patients, and revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including Medicare, private commercial payors, and Medicaid. Certain customer co-payments are included in revenue when considered probable of payment, which is generally when paid.
Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. There were no material changes in estimates recorded in the three months ended June 30, 2019, relating to prior periods.
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
Revenue Accounting under Topic 606
The Company sells durable medical equipment,DME, replacement parts and supplies to customers and recognizes revenue based on contractual payment rates as determined by the payors at the point in time where control of the good or service is transferred through delivery to the customer. Each piece of equipment, part, or supply is distinct, separately priced, and represents a single performance obligation. The revenue is allocated amongst the performance obligations based upon the relative standalone selling price method, however, items are typically all delivered or supplied together. The customer and, if applicable, the payors are generally charged at the time that the product is sold. For sales of equipment previously placed in service, proceeds associated with these sales are recorded to gain (loss) on disposal of property and equipment.
The Company also provides sleep study services to customers and recognizes revenue when the results of the sleep study results are complete, as that is whensatisfying the performance obligation is met.obligation. In response to the COVID-19 pandemic, the Company began offering contact and vaccine tracing services, which revenues are recognized in the period in which the service has been provided. The transaction price on both equipment sales, and sleep studies and contact and vaccine tracing is the amount that the Company expects to receive in exchange for the goods and services provided. Due to the nature of the durable medical equipmentDME business, gross charges are retail charges and generally do not reflect what the Company is ultimately paid. As such, the transaction price is constrained for the difference between the gross charge and what is estimated to be collected from payors and from patients. The transaction price therefore is predominantly based on contractual payment rates as determined by the payors. The Company does not generally contract with uninsured customers. The payment terms and conditions of customer contracts vary by customer type and the products and services offered.
|
|
VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
The Company determines its estimates of contractual allowances and discounts based upon contractual agreements, ourits policies and historical experience. While the rates are fixed for the product or service with the customer and the payors, such amounts typically include co-payments, co-insurance and deductibles, which vary in amounts, and are due from the patient customer.patient. The Company includes in the transaction price only the amount that the Company expects to be entitled, which is substantially all of the payor billings at contractual rates. The transaction price is initially constrained by the amount of customer co-payments, which are included in the transaction price when considered probable of payment and included in revenue if the product or service has already been provided to the customer.
Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. There were no material changes in estimates recorded in the three months ended June 30, 2019, relating to prior periods.
Returns and refunds are not accepted on either equipment sales, or sleep study services or contact and vaccine tracing services. The Company does not offer warranties to customers in excess of the manufacturer’s warranty. Any taxes due upon sale of the products or services are not recognized as revenue. The Company does not have any partially or unfilled performance obligations related to contracts with customers and as such, the Company has no contract liabilities as of June 30, 2019.2021.
Stock-based compensation
The Company accounts for its stock-based compensation in accordance with ASC 718—Compensation—, "Compensation—Stock CompensationCompensation", which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. Stock–based compensation costcosts for stock options are determined at the grant date using the Black-Scholes option pricing model. Stock-based compensation costs for restricted stock units ("RSUs") are determined at the grant date based on the closing stock price. The expense of such stock-based compensation awards is recognized using the graded vesting attribution method over the vesting period and the offsetting credit is recorded as an increase in additional paid-in capital. Forfeitures are recorded as incurred. Any excess tax benefit or deficiency is recognized as a component of income taxes and within operating cash flows upon vesting of the share-based award.
For the Company’s phantom share units settled in cash, the Company computes the fair value of the phantom share units using the closing price of the equivalent Company's stock value at the end of each period and records a liability based on the percentage of requisite service.
Interest Rate Swapsrate swaps
The Company utilizes an interest rate swap contract to reduce exposure to fluctuations in variable interest rates for future interest payments on the Term Note (as defined below).
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
For determining the fair value of the interest rate swap contract, the Company uses significant other observable market data or assumptions (Level 2 inputs) that market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. These fair value estimates reflect an income approach based on the terms of the interest rate swap contract and inputs corroborated by observable market data including interest rate curves. The Company includes unrealized gains in Otherother long-term assets, as a component of Long-term Assets,long-term assets, and unrealized losses in Accruedaccrued liabilities, as a component of Long-termlong-term liabilities on the Condensed Consolidated Balance Sheets.
The Company recognizes any differences between the variable interest rate payments and the fixed interest rate settlements from ourits swap counterparty as an adjustment to interest expense over the life of the swap. If determined to be an effective cash flow hedge, the Company will record the changes in the estimated fair value of the swaps to Accumulatedaccumulated other comprehensive income or loss on the Condensed Consolidated Balance Sheets. To the extent that interest rate swaps are determined to be ineffective, the Company would recognize the changes in the estimated fair value of swaps in Interestinterest and other non-operating expenses, net on ourin its Condensed Consolidated Statements of Income.
Income taxes
|
|
VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
Net Income per Share Attributable to Common Stockholders
The Company usesis subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the two-class methodprovision for income taxes. The Company's income tax provisions reflect management’s interpretation of country and state tax laws. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business and may remain uncertain for several years after their occurrence. The Company recognizes assets and liabilities for taxation when it is probable that we will receive refunds from or pay taxes to compute netthe relevant tax authority. Where the final determination of tax assets and liabilities is different from the amounts that were initially recorded, such differences will impact the current and deferred income per common sharetaxes provision in the period in which such a determination is made. Changes in tax law or changes in the way tax law is interpreted may also impact our effective tax rate as well as our business and operations.
Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to common stockholders becausetemporary differences between the Company issued securities, other than common stock, that contractually entitled the holdersfinancial statement carrying value of assets and liabilities and their respective income tax bases. Deferred income tax assets or liabilities are measured using enacted or substantively enacted income tax rates expected to participateapply to taxable income in the dividendsyears in which those temporary differences are expected to be settled. The calculation of current and earnings priordeferred income taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment concerning the carrying value of assets and liabilities. The current and deferred income tax assets and liabilities are also impacted by expectations about future operating results and the timing of reversal of temporary differences as well as possible audits of tax filings by regulatory agencies. Changes or differences in these estimates or assumptions may result in changes to the initial listing aftercurrent and deferred tax assets and liabilities on the Arrangement. The two-class method requires earnings for the periodCondensed Consolidated Balance Sheets and a charge to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings.or recovery of income tax expense.
Under the two-class method, for periods with net income, basic net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of the current period's earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses.
See Note 11 for earnings per share computations.
Recently adopted accounting pronouncements
In August 2016,December 2019, the FASB issued ASU No. 2016-15, “Statement2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The new guidance also improves consistent application of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,” to provide clarity on how certain cash receipt and cash payment transactions are presented and classified within the statement of cash flows. The ASU is effectivesimplifies GAAP for annual periods beginning December 31, 2018, and its adoption did not impact these condensed consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-07 “Improvements to Non-employee Share-Based Payment Accounting,” which expands the scopeother areas of Topic 718 to include share-based payment transactions for acquiring goods740 by clarifying and services from non-employees. The ASU is effective for interim periods as of January 1, 2019, and its adoption did not have any material impact on our consolidated financial statements.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842) (“ASC 842”), which supersedesamending the existing guidance for lease accounting, “Leases” (Topic 840) (“ASC 840”). ASC 842 requires lessees to recognize a lease liability and a right of use asset for all leases that extend beyond one year. This standard was adopted using the modified retrospective transition approach at the adoption date of January 1, 2019. This approach does not require the restatement of previous periods. The Company completed a qualitative and quantitative assessment of its leases from both a lessee and lessor perspective. As part of this process, the Company elected to utilize certain practical expedients that provided transition relief. Accordingly, the Company did not reassess expired or existing contracts, lease classifications or related initial direct costs as part of the assessment process for either lessee or lessor leases. The adoption of this standard, from a lessee perspective, resulted in the recording of Right of Use (“ROU”) operating lease assets as a component of property and equipment, net and liabilities as a component of current and non-current liabilities of approximately $1.5 million on the Condensed Consolidated Balance Sheet as of January 1, 2019, with no impact to retained earnings. In addition, the Company elected as an accounting policy, not to record leases with an initial term of less than 12 months. (See Note 5 – “Debt and lease liabilities” for additional information and required disclosures.)
In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging", which changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results, in order to better align an entity’s risk management activities and financial reporting for hedging relationships. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements.guidance. The Company adopted this standard on JuneJanuary 1, 2019 and adoption of this standard2020, which did not have a materialany impact on the Company’s condensed consolidated financial statement presentation or results.statements.
Recently issued accounting pronouncements
The Company is an “emerging growth company” as defined by the Jumpstart Our Business Startups (“JOBS”) Act of 2012.JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, (the “Securities Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can selectively delay the adoption of all accounting standards until those standards would otherwise apply to private companies. The Company has elected to utilize this exemption and, as a result, theseour condensed consolidated financial statements may not be comparable to the financial statements of issuers that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. To date, however, the Company has not delayed
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VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
the adoption of any accounting standards.standards except as noted below. Section 107 of the JOBS Act provides that the Company can elect to opt out of the extended transition period at any time, which election is irrevocable.
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses,” on Financial Instruments, which is intended to requireimprove financial reporting by requiring earlier recognition of credit losses on certain financial assets. The standard replaces the measurement ofcurrent incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses forimmediately when a financial instruments held atasset is originated or purchased. Further, the reporting date basedFASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on historical experience, current conditions and reasonable forecasts.the credit losses standard. The ASU will bestandard is effective for fiscal years beginning after December 15, 2022 for smaller reporting companies, including interim andperiods within those annual periods, beginning January 1, 2020 for issuers and annual periods beginning January 1, 2021 for non-issuers. Therefore,with early adoption permitted. The Company is currently evaluating the Company plans to further evaluate the anticipated impact of the adoption ofeffect that this ASUstandard will have on theits consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance to ease the potential burden in future periods including considering whetheraccounting for (or recognizing the effects of) reference rate reform on financial reporting. Specifically, the guidance permits an entity, when certain criteria are met, to delay adoptionconsider amendments to contracts made to comply with reference rate reform to meet the definition of a modification under GAAP. It further allows hedge accounting to be maintained and a one-time transfer or sale of qualifying held-to-maturity securities. The expedients and exceptions provided by the standard.amendments are permitted to be adopted any time through December 31, 2022 and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain optional expedients elected for certain hedging relationships existing as of December 31, 2022. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.
3. Property and Equipment
The Company’s fixed assets consist of its medical equipment held for rental, furniture and fixtures,equipment, real property and related improvements, and vehicles and other various small equipment. In May 2019, the Company purchased a 77,000 square foot commercial building located in Lafayette, Louisiana that it plans to utilize as its new corporate headquarters. The commercial term note used to finance this purchase is further discussed in Note 5.
The following table details the Company’s fixed assets:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Medical equipment | | $ | 66,207 | | | $ | 63,307 | |
Furniture and equipment | | 2,298 | | | 2,722 | |
Land | | 2,138 | | | 2,138 | |
Buildings | | 5,999 | | | 5,966 | |
Leasehold improvements | | 290 | | | 290 | |
Vehicles | | 947 | | | 922 | |
Less: Accumulated depreciation | | (23,525) | | | (20,289) | |
Property and equipment, net of accumulated depreciation and amortization | | $ | 54,354 | | | $ | 55,056 | |
|
| | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
Medical equipment | | $ | 45,470 |
| | $ | 35,541 |
|
Furniture and equipment | | 2,052 |
| | 1,174 |
Land | | 2,138 |
| | 367 |
Buildings | | 5,034 |
| | 264 |
|
Leasehold improvements | | 301 |
| | 256 |
Vehicles | | 1,768 |
| | 1,782 |
Less: Accumulated depreciation | | (10,960 | ) | | (8,822 | ) |
Property and equipment, net of accumulated depreciation | | $ | 45,803 |
| | $ | 30,562 |
|
Depreciation in the amount of $1,306,000$2,509,000 and $769,000$1,985,000 is included in cost of revenue for the three months ended June 30, 20192021 and June 30, 2018,2020, respectively, and $2,472,000in the amount of $4,918,000 and $1,304,000$3,910,000 for the six months ended June 30, 20192021 and 2018,2020, respectively. Included in medical equipment above is equipment acquired under capitalfinance lease obligations whose cost and accumulated depreciation at June 30, 20192021 total $7,872,000$4,365,000 and $1,473,000,$851,000, respectively. At December 31, 2018,2020, cost and accumulated depreciation on equipment acquired under capitalfinance lease obligations was $7,943,000$6,900,000 and $1,100,000,$885,000, respectively.
| | | | | | | | |
4. | Current Liabilities | |
Page 13 |
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VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
4. Current Liabilities
The Company’s short-term accrued liabilities are included within current liabilities and consist of the following:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Accrued trade payables | | $ | 2,256 | | | $ | 1,252 | |
Accrued commissions payable | | 409 | | | 278 | |
Accrued bonuses payable | | 2,251 | | | 5,190 | |
Accrued vacation and payroll | | 2,545 | | | 844 | |
Current portion of phantom share liability | | 1,026 | | | 4,485 | |
Accrued other liabilities | | 772 | | | 546 | |
Total accrued liabilities | | $ | 9,259 | | | $ | 12,595 | |
|
| | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
Accrued trade payables | | $ | 694 |
| | $ | 960 |
|
Accrued commissions payable | | 425 | | 315 |
Accrued bonuses payable | | 2,440 | | 3,788 |
Accrued vacation and payroll | | 1,119 | | 1,012 |
Current portion of phantom share liability | | 2,272 | | 1,476 |
Total accrued liabilities | | $ | 6,950 |
| | $ | 7,551 |
|
|
|
VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
5. Debt and lease liabilitiesLease Liabilities
Senior Credit Facility
On February 20, 2018, wethe Company entered into a two year commercial business loan agreementCommercial Business Loan Agreement that provides for Term Loans and Line of Credit with Hancock Whitney Bank for linesBank.
Line of Credit
The Company maintains a line of credit for up to $5.0in the amount of $10.0 million (with a letter of credit sub-limit of $0.5 million), expiring on February 21, 2020.that expires May 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 our assets and carry an interest rate of one month ICE libor plus 3.00%, with a 4.00% interest rate floor. Advances of the Company's assets. There were 0 borrowings against this line of credit initially were subject to a borrowing base as determined in accordance with the loan agreement, which was based on the value of our accounts receivable balance.
On March 19, 2019, the Company entered into an amendment to the loan agreement increasing the available line of credit from $5.0 million to $10.0 million and extending the expiration date to March 19, 2021. In addition, the borrowing base restriction was removed from the loan agreement and all current financial covenants were replaced with the following covenants:
|
| | |
Financial Covenant | | Required Ratio |
Total Debt to Adjusted EBITDA (Quarterly) | | not more than 1.50:1.00 |
Minimum Working Capital (Quarterly)(1)
| | at least $2,500,000 |
Fixed Charge Coverage Ratio (Quarterly) | | not less than 1.35:1.00 |
(1) This covenant will be in effect and tested quarterly beginning September 30, 2019.
The Company was in compliance with all covenants in effect at June 30, 2019. There were no borrowings against this facility at June 30, 2019 and2021 or December 31, 2018.2020.
Commercial Term NoteNotes
On May 30, 2019, the Company entered into an amendment to the loan agreement providing for a commercial term note (the “Term“Building Term Note”) in favor of Hancock Whitney Bankunder the Commercial Business Loan Agreement in the principal amount of $4,845,000.$4.8 million. The proceeds of the Building Term Note were used to purchase a building that the Company plans to utilize as its newCompany's corporate headquarters. Beginning July 1, 2019, the Company makesbegan making monthly payments towards the outstanding balance. The Building Term Note matures on May 30, 2026 and is secured by substantially all of the assets of the borrower, including the real property acquired with the proceeds of the Building Term Note. The Building Term Note bears interest at a variable rate equal to the one month ICE liborLIBOR 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 the Building Term Note, the Company entered into an interest rate swap transaction (the "Interest Rate Swap Transaction") with Hancock Whitney Bank effectively fixing the interest rate for the Building Term Note at 4.68%.
On September 19, 2019, the Company entered into an additional loan agreement providing for a term note (the “Term Note") under the Commercial Business Loan Agreement in the principal amount of $5.0 million. The proceeds of the Term Note were utilized for general corporate purposes. Beginning October 19, 2019, the Company started making monthly principal payments of $139,000 towards the outstanding balance. The Term Note matures on September 19, 2022 and is secured by substantially all of the assets of the borrower. The Term Note bears interest at the rate of 4.60% per annum.
The Company incurred immaterial deferred financing costs related to the real property acquired with the proceeds of the Term Note.above term notes. These deferred financing costs are recorded as a reduction to long-term debt in the consolidated balance sheets and will be amortized over the term of the loan. The Company has recorded $0 in amortization of deferred financing costs related toloans using the note for the period ended June 30, 2019.effective interest method.
The Company has recognized the note payable, which has a term greater than twelve months, as follows:
|
| | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
Note payable | | $ | 4,836 |
| | $ | — |
|
Less: | |
|
| |
|
|
Current portion of note payable | | (133 | ) | | — |
|
Net long-term note payable | | $ | 4,703 |
| | $ | — |
|
|
| |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited)
|
June 30, 20192021 and 20182020 |
The table below representsrecorded balances associated with these term notes, which have terms greater than twelve months, are as follows:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Notes payable | | $ | 6,726 | | | $ | 7,632 | |
Less: | | | | |
Current portion of notes payable | | (1,880) | | | (1,836) | |
Net long-term notes payable | | $ | 4,846 | | | $ | 5,796 | |
Under the future minimum principalCommercial Business Loan Agreement, the Company is subject to several restrictive covenants that, among other things, impose operating and interest obligations forfinancial 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 Note as ofLoan Agreement in effect at June 30, 2019:2021.
|
| | | | | | | | |
| | Principal Payments | | Interest Payments(1) |
Less than one year (current portion) | | $ | 133 |
| | $ | 273 |
|
Between one and two years | | 148 |
| | 226 |
|
Between two and five years | | 491 |
| | 632 |
|
Five years or more | | 4,064 |
| | 348 |
|
Total | | $ | 4,836 |
| | $ | 1,479 |
|
(1) Interest payments under effective interest rate of 4.68%.
Leases
The Company has recognized finance lease liabilities for medical equipment and operating leases for land and buildings that have terms greater than twelve months, as follows:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Lease liabilities | | $ | 1,872 | | | $ | 3,503 | |
Less: | | | | |
Current portion of lease liabilities | | (978) | | | (2,741) | |
Net long-term lease liabilities | | $ | 894 | | | $ | 762 | |
|
| | | | | | | | |
| | June 30, 2019 | | December 31, 2018 |
Lease liabilities | | $ | 9,508 |
| | $ | 3,425 |
|
Less: | | | | |
Current portion of lease liabilities | | (8,410 | ) | | (3,031 | ) |
Net long-term lease liabilities | | $ | 1,098 |
| | $ | 394 |
|
Finance lease liabilities
The Company has various finance leases for equipment with an implied interest rate at fixed rates up to 12.85%9.61%, secured by equipment, due between 20192021 and 2023.2024. The Company's weighted average interest rate was 0.47%4.74% and 1.54%2.75% for all finance lease liabilities outstanding as of June 30, 20192021 and 2018,2020, respectively. At June 30, 2019,2021 and 2020, the weighted average lease term was approximately 0.76 years.
Minimum payments0.30 years and interest for finance lease obligations required over the next five0.90 years, as of June 30, 2019, are as follows:
|
| | | | | | | | |
| | Principal Payments | | Interest Payments |
Less than one year (current portion) | | $ | 8,173 |
| | $ | 39 |
|
Between one and two years | | 90 |
| | 8 |
|
Between two and five years | | 49 |
| | 2 |
|
Total | | $ | 8,312 |
| | $ | 49 |
|
Interest expense related to these finance lease obligations for the three and six months ended June 30, 2019 amounted to $20,000 and $46,000, respectively. Interest expense related to these finance lease obligations for the three and six months ended June 30, 20182021 amounted to $67,000$11,000 and $114,000,$31,000, respectively. Interest expense related to these finance lease obligations for the three and six months ended June 30, 2020 amount to $42,000 and $94,000, respectively.
Operating lease liabilities
The Company has recognized operating lease liabilities that relate primarily to the lease of land and buildings. These leases contain renewal options that we have not included as part of ourthe Company's assessment of the lease term as it is not reasonably certain that we will exercise these options. These lease liabilities are recorded at present value based on a discount rate of 5.50%, which was based on the Company's incremental borrowing rate at the time of assessment. At June 30, 2019,2021, the weighted average lease term was approximately 5.513.42 years.
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VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
Minimum payments Operating rental expenses were $190,000 and interest$375,000 for the three and six months ended June 30, 2021, respectively, and $201,000 and $385,000 for the three and six months ended June 30, 2020, respectively. The related assets for operating lease liabilities required overhave been included with property and equipment on the next five years as of June 30, 2019, are as follows:Condensed Consolidated Balance Sheets. |
| | | | | | | | |
| | Principal Payments | | Interest Payments |
Less than one year (current portion) | | $ | 237 |
| | $ | 59 |
|
Between one and two years | | 200 |
| | 48 |
|
Between two and five years | | 367 |
| | 65 |
|
Five years or more | | 392 |
| | 22 |
|
Total | | $ | 1,196 |
| | $ | 194 |
|
Included inwithin these operating lease liabilities are real property leases for real estate from a related party. On August 1, 2015, the Company entered ten-year triple net lease agreements for office space with an entity that is affiliated with the Company's CEO, Casey Hoyt, and President, Michael Moore. Rental payments under these related party lease agreements are $18,000$20,000 per month, plus taxes, utilities and maintenance. Total rental payments for the use of these properties were $59,000 and $113,000 for the three and six months ended June 30, 2021, respectively, and $61,000 and $121,000 for the three and six months ended June 30, 2019, respectively, and $56,000 and $114,000 for the three and six months ended June 30, 2018,2020, respectively. The expense for these related party rents has been included within selling, general and administrative expenses.
| | | | | | | | |
6. | Fair value measurement | |
Page 15 |
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
6. Fair Value Measurement
Under ASC Topic 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). ASC Topic 820 establishes a hierarchy for inputs to valuation techniques used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that reflect assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. There are three levels to the hierarchy based on the reliability of inputs, as follows:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or
similar assets and liabilities in markets that are not active.
Level 3 - Unobservable inputs for the asset or liability. The degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company’sCompany measures certain assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during any presented period.
The following tables summarize the Company's assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At June 30, 2021 |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
Recurring Fair Value Measurements: | | | | | | | | |
Money market mutual funds | | $ | 25,994 | | | $ | 0 | | | $ | 0 | | | $ | 25,994 | |
Interest rate swap | | 0 | | | (298) | | | 0 | | | (298) | |
Total | | $ | 25,994 | | | $ | (298) | | | $ | 0 | | | $ | 25,696 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | At December 31, 2020 |
(In thousands) | | Level 1 | | Level 2 | | Level 3 | | Total |
Recurring Fair Value Measurements: | | | | | | | | |
Money market mutual funds | | $ | 25,662 | | | $ | 0 | | | $ | 0 | | | $ | 25,662 | |
Interest rate swap | | 0 | | | (433) | | | 0 | | | (433) | |
Total | | $ | 25,662 | | | $ | (433) | | | $ | 0 | | | $ | 25,229 | |
Derivative instruments and hedging activities
The Company recognizes its interest rate swaps as either assets or liabilities in the accompanying Condensed Consolidated Balance Sheets at fair value. The valuation of these derivative instruments is determined using widely accepted valuation techniques, including discounted cash andflow analysis on the expected cash equivalents are measured using level 1 inputs.
Warrants
Pursuant toflows of each derivative. This analysis reflects the Arrangement with PHM effective December 21, 2017, PHM common share purchase warrant holders each received one tenth (1/10) of one warrant to purchase one Viemed share. The warrants conversion feature is denominated in Canadian dollars which is different from the functional currencycontractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. As of June 30, 2021, the Company (U.S. dollars). The conversion featureholds 1 interest rate swap contract which matures on May 30, 2026 and has a notional amount of $4.6 million. This contract is treateddesignated as a derivative financial liability andcash flow hedge. In the fair value movement duringfirst six months of 2021, ineffective portions of the period is recognized in the Consolidated Statement of Income and Comprehensive Income. The change in the value of warrants has been recorded as an unrealized loss on derivative financial liability in the Condensed Consolidated Statements of Income and Comprehensive Income.
The warrant derivative financial liability has been valued using level 3 inputs from the fair value hierarchy. Changes to these assumptions could result in a higher or lower fair value measurement.hedge were immaterial. The fair value was $(0.3) million (determined based on Level 2 inputs) and is included in accrued liabilities, as a component of the warrants atlong-term liabilities as of June 30, 2019 was calculated using the Black-Scholes option pricing model with the following assumptions:2021.
| | | | | | | | |
| | |
Risk-free interest rate | | 1.52% |
Expected volatility | | 48.92% |
Expected life of warrants | | 0.17 years |
Expected dividend yield | | NilPage 16 |
|
|
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited)
|
June 30, 20192021 and 20182020 |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities include equity method investments and other equity investments. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the investments may exceed the fair value. The Company's other equity investments are holdings in a privately-held company without a readily determinable market value. The Company remeasures equity securities without readily determinable fair value at fair value when an orderly transaction is identified for an identical or similar investment of the same issuer in accordance with Topic 820. ASU 2019-04 states that the measurement alternative is a nonrecurring fair value measurement. Accordingly, other equity investments without readily determinable fair value are classified within Level 3 in the fair value hierarchy because the Company estimates the value using a combination of observable and unobservable inputs, including valuation ascribed to the issuing company in subsequent financing rounds, volatility in the results of operations of the issuers and rights and obligations of the holdings we own.
The Company had no material adjustments of assets and liabilities measured at fair value on a nonrecurring basis during any of the periods presented. There were no warrants issued during the three and six month periods ended June 30, 2019. There were 8,280 warrants exercised during the six months ended June 30, 2019.
|
| | | | |
Warrant Conversion Liability | | |
Balance December 31, 2018 | | 363 |
|
Warrants issued | | — |
|
Unrealized loss on warrant conversion liability | | 437 |
Balance June 30, 2019 | | $ | 800 |
|
Derivative instruments and hedging activities
We currently have one interest rate swap contract in place, which became effective on May 31, 2019 and has been designated as a cash flow hedge. This swap contract matures on May 30, 2026. This swap contract converts the variable interest rate to a fixed interest rate on borrowings under the Term Note. As of June 30, 2019, the notional amount of the interest rate swap was $4.8 million and will be amortized over the term of the swap. Thetransfers between fair value was $0.1 million (determined based on Level 2 inputs) and is included in Accrued liabilities, as a component of Long-term liabilities as of June 30, 2019.measurement levels during any presented period.
In the first six months of 2019, losses recognized as a result of ineffectiveness were immaterial.
7. Shareholders' Equity
Authorized share capital
The Company’s authorized share capital consists of an unlimited number of common shares.
Issued and outstanding share capital
The Company has only one class of stock outstanding, common shares. The authorized stock consists of an unlimited number of common shares with no stated par value, of which 37,697,53539,588,299 and 37,500,81539,185,182 shares were issued and outstanding as of June 30, 20192021 and December 31, 2018,2020, respectively.
For the six months ended June 30, 2019,2021, the Company re-purchasedrepurchased and canceled 365,100181,320 common shares at a cost of $1,522,000 pursuant$1.4 million due to the Normal Course Issuer Bid (the "NCIB") that went into effect on November 29, 2018. Total shares repurchased under the NCIB were 775,803 as of June 30, 2019.tax withholding for RSUs vesting. The Company’s retained earnings waswere reduced by the amount paid for the shares repurchased for cancellation.
Warrants
Warrants outstanding and exercisable as of June 30, 2019:
|
| | | | | | | |
Year issued | Date of expiry | Type | Number of warrants (000's) | Weighted average exercise price (CAD$) |
2017 | August 27, 2019 | Warrant | 169 |
| $ | 2.60 |
|
Total | | | 169 |
| $ | 2.60 |
|
The following table summarizes warrant activity for the period ended June 30, 2019:
|
| | | | | | | |
| | Number of warrants (000's) | | Weighted average exercise price (CAD$) |
Balance December 31, 2018 | | 177 |
| | $ | 2.60 |
|
Issued | | — |
| | $ | — |
|
Exercised | | (8 | ) | | $ | 2.60 |
|
Expired | | — |
| | $ | — |
|
Balance June 30, 2019 | | 169 |
| | $ | 2.60 |
|
|
|
VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
There were no warrants issued and 8,280 warrants exercised during the six months ended June 30, 2019.
Stock-based compensation
AtEffective June 11, 2020 (the "Effective Date"), the Company’s shareholders approved the Company's annual and special meeting of shareholders held on July 17, 2018, shareholders2020 Long Term Incentive Plan (the "Omnibus Plan"). Upon approval of the Company passed a resolution approvingOmnibus Plan, no future awards are available to be made under the Company's previous RSU and Option Plans (collectively, the “Plan”"Former Plan"). The purpose, and the common shares that were not settled or awarded under the Former Plan as of the Plan is to provide incentive to employees, directors, officers, management companies, and consultants who provide services toEffective Date are available for awards under the Company or any of its subsidiaries.Omnibus Plan. The Plan is a “fixed” stock plan, whereby the maximum number of common shares that are available for awards under the Company's shares reserved for issuance, combined withOmnibus Plan and under any equity securities granted under all other security-based compensation arrangements adopted by the Company, including the Former Plan, may not exceed 7,582,0007,758,211 shares (equal to 20% of the issued and outstanding common shares of the Company ason the Effective Date). The maximum amount of the date offoregoing common shares that may be awarded under the Arrangement).Omnibus Plan as “incentive stock options” is 2,600,000 common shares. As of June 30, 2019,2021, the Company had outstanding issuances of options of 2,766,0003,799,000 and restricted stock unitsRSUs of 1,196,000180,000 associated with common shares under the Omnibus Plan.
The following table summarizes stock-based compensation for the three and six months ended June 30, 20192021 and 20182020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Stock-based compensation - options | | $ | 998 | | | $ | 933 | | | $ | 2,076 | | | $ | 1,824 | |
Stock-based compensation - restricted stock units | | 238 | | | 263 | | | 467 | | | 523 | |
Total | | $ | 1,236 | | | $ | 1,196 | | | $ | 2,543 | | | $ | 2,347 | |
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, 2019 | | June 30, 2018 | | June 30, 2019 | | June 30, 2018 |
Stock-based compensation - options | | $ | 705 | | | $ | 229 | | | $ | 1,283 | | | $ | 374 | |
Stock-based compensation - restricted stock | | 329 | | | 436 | | | 631 | | | 852 | |
Total | | $ | 1,034 | | | $ | 665 | | | $ | 1,914 | | | $ | 1,226 | |
At June 30, 2019,2021, there was approximately $3,496,000$4,547,000 of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized over a weighted-average period of 2.492.21 years. As of June 30, 2019,2021, there was approximately $942,000$584,000 of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 1.050.91 years.
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
Options
The following table summarizes stock option activity for the six months ended June 30, 2019:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of options (000's) | | Weighted average exercise price(1) | | Weighted average remaining contractual life | | Aggregate intrinsic value(2) |
Balance December 31, 2020 | | 3,057 | | | $ | 4.37 | | | 7.9 years | | $ | 10,362 | |
Issued | | 829 | | | 8.60 | | | | | |
Exercised | | (28) | | | 3.87 | | | | | |
Expired / Forfeited | | (59) | | | 8.89 | | | | | |
Balance June 30, 2021 | | 3,799 | | | $ | 5.23 | | | 7.9 years | | $ | 7,293 | |
| | | | | | | | |
|
| | | | | | | | | | | | | |
| | Number of options (000's) | | Weighted average exercise price (CAD$) | | Weighted average remaining contractual life | | Aggregate Intrinsic Value(1) |
Balance December 31, 2018 | | 1,545 |
| | $ | 3.39 |
| | 5.8 years | | $ | 1,605 |
|
Issued | | 1,236 |
| | 5.66 |
| | | | |
Exercised | | (7 | ) | | 3.99 |
| | | | |
Expired / Forfeited | | (8 | ) | | 3.26 |
| | | | |
Balance June 30, 2019 | | 2,766 |
| | 4.40 |
| | 7.2 years | | $ | 6,698 |
|
Includes NIL shares netted for tax. | | | | | | | | |
(1)For presentation purposes, stock options issued with a CAD exercise price have been translated to USD based on the prevailing exchange rate on the date of grant.(1) (2)The aggregate intrinsic value of options outstanding represents the difference between the exercise price of the option and the closing stock price of our common stock on the last trading day of the period.period ($7.15).
The aggregate intrinsic value of options outstanding was $7,293,000 and options exercisable were $6,666,000 at June 30, 2021. For the six months ended June 30, 2019, 7,1432021, 27,597 shares of common stock were issued pursuant to the exercise of stock options.
At June 30, 2019,2021, the Company had 1,076,0001,867,000 exercisable stock options outstanding with a weighted average exercise price of CAD $3.86$3.58 and a weighted average remaining contractual life of 3.97.0 years. At December 31, 2018,2020, the Company had 851,000971,000 exercisable stock options outstanding with a weighted average exercise price of CAD $4.30$3.09 and a weighted average remaining contractual life of 3.26.9 years.
The Company accounts for its stock-based compensation in accordance with ASC 718 — Compensation—Stock Compensation, which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. Stock–based compensation cost for stock options are determined at the grant date using the Black-Scholes option pricing model. The assumptions used to determine the grant date fair value of the stock options granted during the six months ended June 30, 2021 were as follows:
| | | | | | | | | | |
| | | | |
| | | | |
Exercise price | | $8.57 - $9.70 | | |
Risk-free interest rate | | 0.60% - 1.39% | | |
Expected volatility | | 64.55% - 67.57% | | |
Expected term | | 5.65 - 5.76 years | | |
Expected dividend yield | | NaN | | |
Fair value on date of grant | | $5.05 - $5.57 | | |
Restricted stock units
The Company also grants RSUs to directors, officers, and employees. The Company accounts for RSUs using fair value as of the date of issuance. The fair value of the RSUs has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and credited to additional paid-in capital over the vesting period, based on the stock price on the date of grant. RSUs vest generally over a one or three-year period. The Company accounts for forfeitures on RSUs under ASU 2016-09 and recognizes forfeitures in the period in which they occur.
|
| |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited)
|
June 30, 20192021 and 20182020 |
The fair value of the stock options has been charged to the statement of income and comprehensive income and credited to additional paid-in capital over the proper vesting period, using the Black-Scholes option pricing model calculated using the following assumptions for issuances during the six months ended June 30, 2019:
|
| | |
Exercise price ($CAD) | | $5.49 - $9.26 ($CAD) |
Risk-free interest rate | | 1.59 - 1.96% |
Expected volatility | | 73 - 81% |
Expected life of options | | 10 Years |
Expected dividend yield | | Nil |
Fair value on date of grant ($USD) | | $3.40 - $5.45 ($USD) |
Restricted stock units
The Company has a restricted stock unit plan, which it uses for grants to directors, officers, and employees. Restricted stock units vest generally over a one or three-year period.
The following table summarizes restricted stock unitRSU activity for the six months ended June 30, 2019:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of RSUs (000's) | | Weighted average grant price(1) | | Weighted average remaining contractual life | | Aggregate intrinsic value(2) |
Balance December 31, 2020 | | 684 | | | $ | 3.04 | | | 0.22 years | | $ | 5,308 | |
Issued | | 63 | | | 8.57 | | | | | |
Vested | | (557) | | | 2.07 | | | | | |
Expired / Forfeited | | (10) | | | 6.80 | | | | | |
Balance June 30, 2021 | | 180 | | | $ | 7.74 | | | 0.91 years | | $ | 1,288 | |
|
| | | | | | | | | | | |
| | Number of Restricted Stock Units (000's) | | Weighted average grant price (CAD$) | | Weighted average remaining contractual life | | Aggregate Intrinsic Value(1) |
Balance December 31, 2018 | | 1,715 |
| | $ | 2.41 |
| | 1.01 years | | $6,575 |
Issued | | 60 |
| | $ | 5.49 |
| | | | |
Vested | | (546 | ) | | $ | 2.25 |
| | | | |
Expired / Forfeited | | (33 | ) | | $ | 2.25 |
| | | | |
Balance June 30, 2019 | | 1,196 |
| | $ | 2.65 |
| | 1.05 years | | $8,159 |
(1)All future equity grants will be awarded in USD, therefore, RSUs issued with a CAD grant price have been translated to USD based on the prevailing exchange rate on the date of grant for presentation purposes.(1) (2)The aggregate intrinsic value of time-based restricted stock unitsRSUs outstanding was based on our closing stock price on the last trading day of the period.period ($7.15).
During the three months ended June 30, 2021, the Company issued no RSUs. During the six months ended June 30, 2021, the Company issued 63,306 RSUs with a vesting term of three years and a fair value of $8.57 per share.
Phantom share units
The Company has a phantom share unit plan, which it uses for grants to directors, officers, and employees. Phantom share units granted under the plan are non-assignable and are settled in cash at vesting.vesting based on the fair value of the Company's common stock on the vesting date. Phantom share units vest annually over a three-year period. The cash-settled phantom share units are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with accrued liability and related expense being recognized over the requisite service period.
The following table summarizes phantom share unit activity for the six months ended June 30, 2019:2021:
| | | | | | | | | | | | | | |
| | Number of phantom share units (000's) | | Value of share equivalents(1) |
Balance December 31, 2020 | | 985 | | | $ | 7,642 | |
Issued | | 394 | | | 3,766 | |
Vested | | (656) | | | (6,282) | |
Expired / Forfeited | | (55) | | | (390) | |
Balance June 30, 2021 | | 668 | | | $ | 4,777 | |
|
| | | |
| | Number of Phantom Share Units (000's) |
Balance December 31, 2018 | | 1,692 |
|
Issued | | 351 |
|
Vested | | (550 | ) |
Expired / Forfeited | | (72 | ) |
Balance June 30, 2019 | | 1,421 |
|
(1)The value of outstanding share equivalents at the beginning of the period is based on the market price of the Company’s stock at that time, the value of issued share equivalents is based on the market price of the Company’s stock at issuance, the value of vested share equivalents is based on the cash paid at the time of vesting, the values of expired/forfeited share equivalents and outstanding share equivalents at the end of the period and are based on the market price of the Company's stock at the end of the period. The market price of the Company's stock was $7.15 on June 30, 2021.
|
|
VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
The change in fair value of the phantom share units has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and recorded as a liability included in accrued liabilities and long-term accrued liabilities, using a valuation method with the following assumptions:
|
| | | |
| June 30, 2019 |
Share price | $ 8.93 (CAD$) |
Remaining life of phantom share units | 0.86 - 2.86 Years |
|
Calculated fair value of phantom share units | $ | 3,809,000 |
|
liabilities. The total liability associated with phantom share units at June 30, 20192021 is $3,809,000,$1,421,000, with $1,537,000$1,026,000 of this balanceamount included in long-termcurrent accrued liabilities and the remaining portion of $2,272,000$395,000 included in currentlong-term accrued liabilities. Accrued liability and related expense is determined at each reporting period based on the stock price at period end.
| | | | | | | | |
8. | Commitments and Contingencies | |
Page 19 |
Retirement Plan
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
The Company maintains a 401(k) retirement plan for employees to which eligible employees can contribute a percentageimpact associated with the fair value re-measurement of their pre-tax compensation. Matching employer contributions tophantom share units is recorded in selling, general and administrative expenses within the 401(k) plan totaled $166,000unaudited Condensed Consolidated Statements of Income and $115,000Comprehensive Income. The following table summarizes expense (benefit) associated with the phantom share units for the three and six months ended June 30, 20192021 and 2018,2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Selling, general, and administrative | | $ | (106) | | | $ | 4,308 | | | $ | 2,359 | | | $ | 3,611 | |
The Company paid cash settlements of $6,282,000 and $4,201,000 during the six months ended June 30, 2021 and 2020, respectively, pertaining to vestings of cash-settled phantom share units.
8. Commitments and $335,000Contingencies
The Company accrues estimates for resolution of any legal and $225,000other contingencies when losses are probable and reasonably estimable in accordance with ASC 450, Contingencies (“ASC 450”). No less than quarterly, we review the status of each significant matter underlying a legal proceeding or claim and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made, which may prove to be incomplete or inaccurate or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters.
Legal Proceedings
As previously disclosed, the Company (through its subsidiary Sleep Management LLC) submitted a purchase order (the “Purchase Order”) in March 2020 to Vyaire Medical, Inc. d/b/a CareFusion Respiratory Technologies (“Vyaire”) for respiratory equipment. The Company ultimately prepaid $1.4 million towards the delivery of such respiratory equipment. Vyaire was unable or unwilling to deliver the vast majority of the respiratory equipment referenced in the Purchase Order, and also refused to refund the prepayment amount (less the amounts paid for equipment actually received). On July 29, 2020, the Company (through its subsidiary Sleep Management LLC) filed a lawsuit against Vyaire in the United States District Court for the Western District of Louisiana (the “Court”). This lawsuit was dismissed on December 8, 2020 in connection with the commencement of the lawsuit filed by the Company (through its subsidiary Sleep Management) on November 5, 2020, against Vyaire in the 15th Judicial District Court for the Parish of Lafayette, Louisiana (the “State Court”) seeking damages for breach of contract and seeking a declaratory judgment that the Company is not required to pay any further funds to Vyaire. On December 28, 2020, Vyaire filed its Answer, Affirmative Defenses, and Reconventional Demand (“Reconventional Demand”) with the State Court alleging breach of contract and seeking damages of $4.7 million, purportedly for the improper cancellation of the Purchase Order. The Company filed its Answer to the Reconventional Demand on February 12, 2021 and the parties are currently engaged in discovery.
We continue to believe that we have valid legal and equitable grounds to recover our outstanding prepayment as a result of Vyaire’s failure to deliver the vast majority of the respiratory equipment referenced in the Purchase Order. We have determined that a loss related to the Reconventional Demand is not probable, and thus have not accrued a liability related to this claim. Although a loss may be reasonably possible, we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the Reconventional Demand given that the dispute is in the early stages of the legal process. As of June 30, 2021, outstanding funds in the amount of $0.9 million related to undelivered respiratory equipment are included within other long-term assets.
Governmental and Regulatory Matters
From time to time we are involved in various external governmental investigations, audits and reviews. Reviews, audits and investigations of this sort can lead to government actions, which can result in the assessment of recoupment of reimbursement, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way we conduct business, loss of licensure or exclusion from participation in government healthcare programs.
| | |
VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
In May of 2021, a final report and recommendation (“Report”) was issued by the U.S. Department of Health and Human Services Office of the Inspector General (“OIG”) regarding an audit by OIG of claims relating to one hundred (100) of the Company’s non-invasive ventilation at home (“NIVH”) patients. The OIG asserted that most of the sampled Medicare claims submitted for the monthly rental of non-invasive ventilators did not comply with Medicare requirements. The Company firmly believes that the Report ignores each patient’s diagnosis and supporting documentation of that diagnosis from treating and prescribing physicians and applies clinical guidelines that are contrary to CMS’s accepted standard of care. In late June of 2021, the Company received initial request letters from DME Medicare Administrative Contractors referencing the Report and requesting repayment of purported overpayments. The Company has responded to each initial request by submitting a rebuttal and by filing a redetermination appeal as prescribed by the initial request letters and by statute, and the Company intends to continue to defend itself vigorously through Redetermination appeals, Reconsideration appeals, Administrative Law Judge appeals, Medicare Appeals Council review, and ultimately through Federal Court, if necessary. Based on initial discussions with CMS, a review of the current facts and circumstances as we understand them, and the nature of the requests, we have determined that a loss is not probable but may be reasonably possible. Accordingly, no related accrual has been recorded. The value of the population of associated claims within the 4-year reopening period prescribed by statute is less than $9 million. Management estimates that a possible loss, if any, will not exceed this amount. It is possible that the ultimate resolution of this matter, if unfavorable, could materially and adversely affect the Company’s consolidated financial position, consolidated results of operations, or consolidated cash flows.
9. Income Taxes
For the six months ended June 30, 2021, the Company recorded income tax expense of $1.0 million, which includes a discrete tax benefit of $0.9 million for excess tax benefits associated with stock-based compensation arrangements. Excluding the impact of the discrete tax benefit, the effective rate for the six months ended June 30, 20192021 is 44.1%. The effective rate differs from the amount computed by applying the statutory federal and 2018, respectively.state income tax rates to ordinary income before the provision for income taxes due to permanent non-deductible differences, Our effective tax rate is based on forecasted annual results which may fluctuate significantly through the rest of the year, in particular due to the uncertainty in our annual forecasts resulting from the unpredictable impact of the COVID-19 pandemic on our operating results. During the six months ended June 30, 2020, the Company released a valuation allowance associated with deferred tax assets, resulting in a 6.5 million benefit during that period.
At June 30, 20192021 and 2018,2020, the Company had no amounts recorded for uncertain tax positions and does not expect any material changes in uncertain tax benefits during the next 12 months. The Company recognizes interest and penalties related to income tax matters in income tax expense.
The Company is subject to U.S. federal income tax as well as income tax in various states. The Company is generally not subject to examination by taxing authorities for years prior to 2015. Our annual estimated effective2016.
The Company recognizes deferred tax rate for 2019 is 1.53%, consistent with the effective tax rate for the year ended December 31, 2018. The primary component of the annual effective tax rate relatesassets to the Company's current state income taxes, as the Company continues to generate taxable losses for U.S. federal income tax purposes.
10. Financial Risk Factors
Risk management
In the normal course of business, the Company is exposed to a number of risks that can affect its operating performance. ASC 820—Fair Value Measurements and Disclosures creates a single definition of fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement is to estimate the price at which an orderly transaction to sell an asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. Assets and liabilities adjusted to fair value in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk are primarily cash and accounts receivable. Each subsidiary places its cash with one major financial institution. At times, the cash in the financial institution is temporarily in excess of the amount insured by the Federal Deposit Insurance Corporation. Substantially all accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, directly from patients or for rebates due from manufacturers. Receivables generally are collected within industry norms for third-party payors and from manufacturers. The Company continuously monitors collections from its clients and maintains an allowance for bad debts based upon lifetime expected credit losses.
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VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
Liquidity risk
Liquidity risk is the riskextent that the Company willbelieves that these assets are more likely than not to be able to meet its financial obligations as they become due. The Company’s approach in managing liquidity is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due by continuously monitoring actual and budgeted cash flows, and monitoring financial market conditions for signs of weakness.
As of June 30, 2019,realized. In making such a determination, the Company faced no material liquidity riskconsiders all available positive and is able to meet allnegative evidence, including future reversals of its current financial obligations as they become dueexisting taxable temporary differences, projected future taxable income, tax-planning strategies, and payable. The Company had $24,111,000 and $16,981,000results of current liabilities that are due within one year as of June 30, 2019 and December 31, 2018, respectively. The Company had $25,061,000 and $22,963,000 of current assets as of June 30, 2019 and December 31, 2018, respectively in addition to positive cash flow fromrecent operations. 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 with Hancock Whitney Bank which was fully available as of June 30, 2019, subject to compliance with certain covenants.
Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk is limited to potential decreases on the interest rate offered on cash and cash equivalents held with registered US financial institutions. The Company considers this risk to be immaterial. The interest on finance leases is not subject to cash flow interest rate risk as these instruments bear interest at fixed rates. In connection with the Term Note, the Company entered into an Interest Rate Swap Transaction with Hancock Whitney Bank for a fixed rate of 4.68%, thereby transforming the variable interest rate exposure into a fixed rate obligation.
11.10. Earnings Per Share
Income per common share is calculated using the combined earnings for the year divided by the weighted average number of shares outstanding during the year. Diluted Using the treasury stock method, diluted income per share amounts are calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares by assuming the proceeds received from the exercise of stock options and warrantsthe vesting of RSUs are used to purchase common shares at the prevailing market rate.
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VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) |
June 30, 2021 and 2020 |
The following reflects the earnings and share data used in the basic and diluted earnings per share computations:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Numerator - basic and diluted: | | | | | | | | |
Net income attributable to shareholders | | $ | 1,566 | | | $ | 19,412 | | | $ | 3,250 | | | $ | 23,655 | |
| | | | | | | | |
Denominator: | | | | | | | | |
Basic weighted-average number of common shares | | 39,584,064 | | | 38,665,765 | | | 39,357,992 | | | 38,348,310 | |
Diluted weighted-average number of shares | | 41,028,742 | | | 40,814,238 | | | 40,849,311 | | | 40,103,016 | |
| | | | | | | | |
Basic earnings per share | | $ | 0.04 | | | $ | 0.50 | | | $ | 0.08 | | | $ | 0.62 | |
Diluted earnings per share | | $ | 0.04 | | | $ | 0.48 | | | $ | 0.08 | | | $ | 0.59 | |
| | | | | | | | |
Denominator calculation from basic to diluted: | | | | | | | | |
Basic weighted-average number of common shares | | 39,584,064 | | | 38,665,765 | | | 39,357,992 | | | 38,348,310 | |
Stock options and other dilutive securities | | 1,444,678 | | | 2,148,473 | | | 1,491,319 | | | 1,754,706 | |
Diluted weighted-average number of shares | | 41,028,742 | | | 40,814,238 | | | 40,849,311 | | | 40,103,016 | |
|
| | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended |
| | June 30, 2019 | | June 30, 2018 | | | June 30, 2019 | | June 30, 2018 |
Numerator - basic and diluted: | | | | | | | | | |
Net income attributable to shareholders | | $ | 1,820 |
| | $ | 2,366 |
| | | $ | 3,974 |
| | $ | 4,707 |
|
| | | | | | | | | |
Denominator: | | | | | | | | | |
Basic weighted-average number of common shares | | 37,686,763 |
| | 37,909,628 |
| | | 38,165,274 |
| | 37,909,628 |
|
Diluted weighted-average number of shares | | 39,975,307 |
| | 39,335,011 |
| | | 40,166,855 |
| | 39,099,186 |
|
| | | | | | | | | |
Basic earnings per share | | $0.05 | | $0.06 | | | $0.10 | | $0.12 |
Diluted earnings per share | | $0.05 | | $0.06 | | | $0.10 | | $0.12 |
| | | | | | | | | |
Denominator calculation from basic to diluted: | | | | | | | | | |
Basic weighted-average number of common shares | | 37,686,763 |
| | 37,909,628 |
| | | 38,165,274 |
| | 37,909,628 |
|
Stock options and other dilutive securities | | 2,288,544 |
| | 1,425,383 |
| | | 2,001,581 |
| | 1,189,558 |
|
Diluted weighted-average number of shares | | 39,975,307 |
| | 39,335,011 |
| | | 40,166,855 |
| | 39,099,186 |
|
Anti-dilutive shares excluded from the calculation consisted of dilutive employee stock options that were de minimis in all periods presented.
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VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
|
June 30, 2019 and 2018 |
Conversion of Accounts Payable into Short-term Capital Lease
Subsequent to June 30, 2019, the Company entered into a capital lease agreement with a third party and as a result $1,563,000 of accounts payable was converted to a short-term lease payable.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 20192021 and 20182020 |
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.
On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. We are closely monitoring the impact of the COVID-19 pandemic on our business. The suspension of Medicare sequestration through December 31, 2021 (resulting in a 2% increase in Medicare payments to all providers) and recent regulatory guidance from CMS expanding telemedicine and reducing documentation requirements during the emergency period are expected to result in increased revenues for certain products and services. However, 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;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”, or “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.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
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 the SEC, including under “Item 1A. Risk Factors” of our Annual Report on Form 10 filed with10-K for the SEC on August 1, 2019,year ended December 31, 2020, and with the securities regulatory authorities in certain provinces of Canada, 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: We may be subjectthe 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; therisks that we may be subject to; our ability to implement business strategies and pursue business opportunities; volatility in the market price of the shares in the capital;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; declinereductions in reimbursement rates and audits of reimbursement rates;claims by various governmental and private payor entities; dependence on few payors; possible new drug discoveries; dependence on key suppliers;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; risks relating to the deterioration of global economic conditions; 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;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;methods used by us; our status as an emerging growth company and a foreign private issuer;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.
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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2019 and 2018 |
General Matters
In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms the "Company," "we," "us" and "our" refer to Viemed Healthcare, Inc. and its wholly-owned subsidiaries, Viemed Inc., Home Sleep Delivered, L.L.C. ("HSD"), and Sleep Management, L.L.C. dba Viemed ("Viemed").subsidiaries.
We were incorporated on December 14, 2016 pursuant to the Business Corporations Act (British Columbia), and. As of June 30, 2020, we determined that we no longer qualify as a "foreign private issuer," as defined in Rule 12b-23b-4 of the Exchange Act, for the purposes of the informational requirements of the Exchange Act. Although, asAs a foreign private issuer,result, effective January 1, 2021, we would not be requiredbecame subject to do so, wethe 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 the SEC, instead of filing the reporting forms available to foreign private issuers.SEC.
We are an "emerging growth company," as defined in the Jumpstart Our Business StartupsJOBS Act (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 reduced U.S. public company reporting requirements.
Unless otherwise noted herein, all references to "$" or "USD" are to the currency of the United States and references to "CAD$" or "Canadian dollars" are to the currency of Canada.
Overview
We provide an array of home medical equipment, services and supplies, specializing in post-acute respiratory care services in the United States. Our primary objective is to focus on the organic growth of the business and thereby solidify our position as one of the United States’ largest providers of in homein-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 durable medical equipmentDME devices), in-home sleep testing and sleep apnea treatment, oxygen therapy, and the sale of associated supplies. In December of 2020, we acquired a 5% interest in VeruStat, Inc, a newly created company focusing on remote patient monitoring (“RPM”). The investment is part of an ongoing initiative to enable our salesforce to offer a new revenue source to its physician network around the country. RPM platforms allow physicians to bill for safely monitoring patients inside of the home that are struggling with chronic diseases. The VeruStat RPM solution will be placed in the home in conjunction with Viemed’s existing patient engagement platform (“PEP”).
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 86.3%77.3% and 87.8%81.9% of our traditional revenue, excluding COVID-19 response sales and services, for the three months ended June 30, 2021 and 2020, respectively, and 78.6% and 82.0% for the six months ended June 30, 2019.2021 and 2020, respectively. We combine the benefits of home ventilation support with licensed Respiratory Therapists ("RTs") to drive improved patient outcomes and reduce costly hospital readmissions.
We expect to use an organic growth model wherebygrow through expansion is accomplished throughof existing service areas as well as in new regions through a cost efficient launch that reduces location expenses. Our licensed RTs currently serve patients in 2946 states. We expect to continue to employ more RTs in order to assure our high service model is accomplished in the home. As of June 30, 2019,2021, we employed more than 210285 licensed RTs, representing more than 55%approximately 50% of our company-wide employee count. By focusing overhead costs toon personnel that service the patient rather than physical location costs, we anticipate that we will efficiently scalingscale 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 in the 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
On March 11, 2020, the World 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, the limiting of access to medical facilities in certain areas, the promotion of social distancing and the adoption of 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 in order to ensure the safety of our employees as well as the safety of our patients.
These measures have not had a material adverse impact on our consolidated operating results for the three months ended June 30, 2021, but we have experienced curtailment of revenue growth in certain of our product categories due to the disruption in our access to physician and facility referral sources. This curtailment was slightly offset by revenue related to COVID-19 response sales and services. 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 current 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.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was signed into law on March 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 $100 billion in 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 payment from the Provider Relief Fund of $3.5 million in April 2020. Payments from the Provider 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 ("HHS") has stated that Provider 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. On Wednesday, April 14, 2021, the President signed H.R. 1868 into law, which further extended the suspension of Medicare sequestration until December 31, 2021.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 20192021 and 20182020 |
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 changes.
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 of January 1, 2021 through December 31, 2023. Rental revenue from ventilator products represents a significant portion of our revenues (approximately 78.6% of total traditional revenue, excluding COVID-19 response sales and services, for the six months ended June 30, 2021). On March 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. On October 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 than January 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 (in thousands):quarters.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(Tabular amounts expressed in thousands of U.S. Dollars, except vent patients) |
For the quarter ended | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 |
Financial Information: | | | | | | | |
Revenue | $ | 27,399 | | $ | 28,416 | | $ | 31,202 | | $ | 33,447 | | $ | 42,854 | | $ | 23,806 | | $ | 21,448 | | $ | 20,368 | |
Gross Profit | 17,625 | | 17,742 | | 19,178 | | 19,453 | | 25,927 | | 15,553 | | 14,243 | | 14,050 | |
Gross Profit % | 64 | % | 62 | % | 61 | % | 58 | % | 61 | % | 65 | % | 66 | % | 69 | % |
Net Income | 1,566 | | 1,684 | | 5,071 | | 2,804 | | 19,412 | | 4,243 | | 2,388 | | 2,853 | |
Cash (As of) | 31,151 | | 31,097 | | 30,981 | | 32,396 | | 29,707 | | 8,409 | | 13,355 | | 12,630 | |
Total Assets (As of) | 111,014 | | 113,001 | | 112,560 | | 113,969 | | 112,178 | | 86,801 | | 82,596 | | 79,981 | |
Adjusted EBITDA(1) | 6,847 | | 5,468 | | 9,458 | | 7,720 | | 16,287 | | 7,869 | | 5,569 | | 4,883 | |
Operational Information: | | | | | | | |
| | | | | | | | |
Vent Patients(2) | 8,103 | | 7,733 | | 7,892 | | 7,788 | | 7,705 | | 7,965 | | 7,759 | | 7,421 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts and vent patients) |
For the quarter ended | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 |
Financial Information: | | | | | | | |
Revenue | $ | 22,547 |
| $ | 20,443 |
| $ | 18,489 |
| $ | 17,163 |
| $ | 15,508 |
| $ | 14,111 |
| $ | 13,548 |
| $ | 12,451 |
|
Gross Profit | $ | 16,861 |
| $ | 15,402 |
| $ | 13,645 |
| $ | 13,062 |
| $ | 11,323 |
| $ | 10,552 |
| $ | 10,186 |
| $ | 9,312 |
|
Gross Profit % | 75 | % | 75 | % | 74 | % | 76 | % | 73 | % | 75 | % | 75 | % | 75 | % |
Net Income (Loss) | $ | 1,820 |
| $ | 2,154 |
| $ | 3,046 |
| $ | 2,424 |
| $ | 2,366 |
| $ | 2,341 |
| $ | (26 | ) | $ | 4,018 |
|
Adjusted EBITDA(1) | $ | 4,610 |
| $ | 4,662 |
| $ | 4,974 |
| $ | 4,360 |
| $ | 4,114 |
| $ | 3,762 |
| $ 1,877(3) | $ | 4,690 |
|
Cash (As of) | $ | 7,691 |
| $ | 7,410 |
| $ | 10,413 |
| $ | 10,174 |
| $ | 8,551 |
| $ | 4,634 |
| $ | 5,098 |
| $ | 7,273 |
|
Total Assets (As of) | $ | 70,886 |
| $ | 58,583 |
| $ | 53,525 |
| $ | 49,147 |
| $ | 44,168 |
| $ | 40,566 |
| $ | 37,691 |
| $ | 32,740 |
|
Operational Information: | | | | | | | |
Vent Patients(2) | 7,130 |
| 6,393 |
| 5,905 |
| 5,444 |
| 5,078 |
| 4,685 |
| 4,385 |
| 4,044 |
|
(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.
(3) Fourth quarter 2017 Adjusted EBITDA was negatively impacted by our annual performance incentive compensation program which was recorded in full during the quarter due to the effective date of the Arrangement. During the year ended December 31, 2018 and subsequent periods, our accrual for these types of costs was recorded throughout the year. Adjusted EBITDA for the fourth quarter 2017 would have been $4,308,000 had this compensation been accrued throughout the year.
| | | | | | | | |
VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
Results of Operations
Comparison of the Three Months Ended June 30, 20192021 and 2018:2020:
The following table summarizes our results of operations for the three months ended June 30, 20192021 and 2018 (in thousands2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2021 | | % of Total Revenue | | 2020 | | % of Total Revenue | | $ Change | | % Change |
Revenue | $ | 27,399 | | | 100.0 | % | | $ | 42,854 | | | 100.0 | % | | $ | (15,455) | | | (36.1) | % |
Cost of revenue | 9,774 | | | 35.7 | % | | 16,927 | | | 39.5 | % | | (7,153) | | | (42.3) | % |
Gross profit | 17,625 | | | 64.3 | % | | 25,927 | | | 60.5 | % | | (8,302) | | | (32.0) | % |
Selling, general and administrative | 12,884 | | | 47.0 | % | | 16,428 | | | 38.3 | % | | (3,544) | | | (21.6) | % |
Research and development | 583 | | | 2.1 | % | | 271 | | | 0.6 | % | | 312 | | | 115.1 | % |
Stock-based compensation | 1,236 | | | 4.5 | % | | 1,196 | | | 2.8 | % | | 40 | | | 3.3 | % |
Depreciation | 207 | | | 0.8 | % | | 205 | | | 0.5 | % | | 2 | | | 1.0 | % |
Loss (gain) on disposal of property and equipment | 83 | | | 0.3 | % | | (1,458) | | | (3.4) | % | | 1,541 | | | NM |
Other expense (income) | (32) | | | (0.1) | % | | (3,574) | | | (8.3) | % | | 3,542 | | | (99.1) | % |
Income from operations | 2,664 | | | 9.7 | % | | 12,859 | | | 30.0 | % | | (10,195) | | | (79.3) | % |
Non-operating expenses | | | | | | | | | | | |
| | | | | | | | | | | |
Loss (gain) from equity method investments | (231) | | | (0.8) | % | | (42) | | | (0.1) | % | | (189) | | | 450.0 | % |
Interest expense, net | 83 | | | 0.3 | % | | 135 | | | 0.3 | % | | (52) | | | (38.5) | % |
Net income before taxes | 2,812 | | | 10.3 | % | | 12,766 | | | 29.8 | % | | (9,954) | | | (78.0) | % |
Provision (benefit) for income taxes | 1,246 | | | 4.5 | % | | (6,646) | | | (15.5) | % | | 7,892 | | | NM |
Net income | $ | 1,566 | | | 5.7 | % | | $ | 19,412 | | | 45.3 | % | | $ | (17,846) | | | (91.9) | % |
Revenue
The following table summarizes our revenue for the three months ended June 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2021 | | % of Total Revenue | | 2020 | | % of Total Revenue | | $ Change | | % Change |
Net revenue from rentals | | | | | | | | | | | |
Ventilator rentals, non-invasive and invasive | $ | 20,305 | | | 74.1 | % | | $ | 18,951 | | | 44.2 | % | | $ | 1,354 | | | 7.1 | % |
Other durable medical equipment rentals | 3,304 | | | 12.1 | % | | 2,288 | | | 5.4 | % | | 1,016 | | | 44.4 | % |
Net revenue from sales and services | | | | | | | | | | | |
Equipment and supply sales | 2,108 | | | 7.7 | % | | 1,637 | | | 3.8 | % | | 471 | | | 28.8 | % |
COVID-19 response sales and services | 1,136 | | | 4.1 | % | | 19,712 | | | 46.0 | % | | (18,576) | | | (94.2) | % |
Service revenues | 546 | | | 2.0 | % | | 266 | | | 0.6 | % | | 280 | | | 105.3 | % |
Total net revenue | $ | 27,399 | | | 100.0 | % | | $ | 42,854 | | | 100.0 | % | | $ | (15,455) | | | (36.1) | % |
For the three months ended June 30, 2021, net revenue totaled $27.4 million, a decrease of U.S. Dollars, except percentages):$15.5 million (or 36.1%) from the comparable period in 2020. Excluding COVID-19 response sales and services revenue, net revenue increased $3.1 million (or 13.5%) from the comparable period in 2020. The non-COVID-19 related net revenue growth was primarily driven by an increase in ventilator rental revenue of $1.4 million (or 7.1%) and rental revenue from other DME of $1.0 million (or 44.4%) related to oxygen therapy and PAPs. Non-COVID-19 related equipment sales and services combined increased by $0.8 million (or 39.5%) from the comparable three month period in 2020, primarily as a result of increasing demand for home sleep studies and respiratory supplies for our PAP patients.
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2019 | | % of Total Revenue | | 2018 | | % of Total Revenue | | $ Change | | % Change |
Revenue | $ | 22,547 |
| | 100.0 | % | | $ | 15,508 |
| | 100.0 | % | | $ | 7,039 |
| | 45.4 | % |
Cost of revenue | 5,686 |
| | 25.2 | % | | 4,185 |
| | 27.0 | % | | 1,501 |
| | 35.9 | % |
Gross profit | 16,861 |
| | 74.8 | % | | 11,323 |
| | 73.0 | % | | 5,538 |
| | 48.9 | % |
Selling, general and administrative | 13,244 |
| | 58.7 | % | | 7,919 |
| | 51.1 | % | | 5,325 |
| | 67.2 | % |
Research and development | 203 |
| | 0.9 | % | | — |
| | — | % | | 203 |
| | 100.0 | % |
Stock-based compensation | 1,034 |
| | 4.6 | % | | 665 |
| | 4.3 | % | | 369 |
| | 55.5 | % |
Depreciation | 138 |
| | 0.6 | % | | 124 |
| | 0.8 | % | | 14 |
| | 11.3 | % |
Loss on disposal of property and equipment | 85 |
| | 0.4 | % | | 52 |
| | 0.3 | % | | 33 |
| | 63.5 | % |
Other expense | 25 |
| | 0.1 | % | | 7 |
| | — | % | | 18 |
| | 257.1 | % |
Income from operations | 2,132 |
| | 9.5 | % | | 2,556 |
| | 16.5 | % | | (424 | ) | | (16.6 | )% |
Non-operating expenses | | | | | | | | | | | |
Unrealized Loss on warrant conversion liability | 268 |
| | 1.2 | % | | 123 |
| | 0.8 | % | | 145 |
| | 117.9 | % |
Interest expense, net | 20 |
| | 0.1 | % | | 67 |
| | 0.4 | % | | (47 | ) | | (70.1 | )% |
Net income before taxes | 1,844 |
| | 8.2 | % | | 2,366 |
| | 15.3 | % | | (522 | ) | | (22.1 | )% |
Provision for income taxes | 24 |
| | 0.1 | % | | — |
| | — | % | | 24 |
| | 100.0 | % |
Net income | $ | 1,820 |
| | 8.1 | % | | $ | 2,366 |
| | 15.3 | % | | $ | (546 | ) | | (23.1 | )% |
|
| | | | | | | |
VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 20192021 and 20182020 |
Revenue
The following table summarizes our revenue forDuring the three months ended June 30, 20192021, net revenue of COVID-19 response sales and 2018 (in thousandsservices totaled $1.1 million, compared to $19.7 million during the comparable three month period in 2020 during the height of U.S. Dollars, except percentages):
|
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| 2019 | | % of Total Revenue | | 2018 | | % of Total Revenue | | $ Change | | % Change |
Revenue from rentals | | | | | | | | | | | |
Ventilator rentals, non-invasive and invasive | $ | 19,461 |
| | 86.3 | % | | $ | 13,852 |
| | 89.3 | % | | $ | 5,609 |
| | 40.5 | % |
Other durable medical equipment rentals | 1,425 |
| | 6.3 | % | | 532 |
| | 3.4 | % | | 893 |
| | 167.9 | % |
Revenue from sales and services | | | | | | | | | | | |
Equipment sales | 1,164 |
| | 5.2 | % | | 895 |
| | 5.8 | % | | 269 |
| | 30.1 | % |
Service revenues | 497 |
| | 2.2 | % | | 229 |
| | 1.5 | % | | 268 |
| | 117.0 | % |
| $ | 22,547 |
| | 100.0 | % | | $ | 15,508 |
| | 100.0 | % | | $ | 7,039 |
| | 45.4 | % |
For the three months ended June 30, 2019,pandemic. Current period COVID-19 response sales and services consist primarily of contact and vaccination tracing services. While we expect further COVID-19 response related revenue totaled $22.5 million, an increaseduring the remainder of $7.0 million (or 45.4%) from2021, the second quarterincremental revenue is expected to decline and impact of 2018. Thesuch revenue growth was primarily driven by a $5.6 million (or 40.5%) increase in ventilator rental revenue. This increase is attributable to our organic growth in active ventilator patient base. Our active ventilator patient base grew from 5,078 asremains uncertain and dependent on the length and intensity of June 30, 2018 to 7,130 asthe COVID-19 pandemic and the availability of June 30, 2019, an increase of 40%. In addition to the ventilator rental revenue growth, rental revenuesuch equipment, supplies, and services from other durable medical equipment grew $0.9 million (or 167.9%) quarter over quarter. This growth was distributed throughout our many other respiratory-related products (PAPs, oxygen concentrators, nebulizers, percussion vests). Many of our patients need multiple respiratory related durable medical equipment devices and supplies over time and we expect as our total patient base continues to grow, so too will these complimentary devices and supplies. However, we expect our ventilator rental revenue to be the primary driver of future revenue growth. suppliers.
As we continue to expand geographically into new states and further expand our presence in ourpenetrate existing territories, we expect continued growth in our active ventilator patient base and ventilator rental revenue, accordingly.as well as in our other growing respiratory offerings, though in the short term we anticipate growth to occur at a slightly slower rate than historically realized.
Cost of revenue and gross profit
For the three months ended June 30, 2019,2021, cost of revenue totaled $5.7$9.8 million, an increasea decrease of $1.5$7.2 million (or 35.9%42.3%) from the comparable period in 2018.2020. For the three months ended June 30, 20192021, COVID-19 response sales and 2018, grossservices accounted for $0.7 million (or 7.4%) of these costs, compared to $9.2 million (or 54.3%) of these costs from the comparable period in 2020. Gross profit percentage increased from approximately 73.0%60.5% in the three months ended June 30, 2020 to approximately 74.8%. The expanded margins are primarily64.3% in the result of scale reached through our increased patient base. We expectthree months ended June 30, 2021. Excluding COVID-19 response sales and services, gross profit percentage for the three months ended June 30, 2021 and 2020 was 65.5% and 66.6%, respectively. The reduction in overall gross profit percentage is due to fluctuations in product and service mix, including the significant increase in net revenue for non-ventilator related products and services. We expect our gross profit percentage for our normal operations (non-COVID-19 related) to remain relatively consistent forwith the remaindercurrent quarter through the end of the year.2021.
Selling, general &and administrative expense
For the three months ended June 30, 2019,2021, selling, general and administrative expenses totaled $13.2$12.9 million, an increasea decrease of $5.3$3.5 million (or 67.2%21.6%) from the comparable prior period. The increase was primarily the result of an increase in employee costs which includes the impact of our phantom stock plan. Our phantom stock plan is measured at fair value as of the reporting period and is driven primarily by our stock price. During the three months ended June 30, 2019, our stock price increased 36%, driving higher expenses related to these awards.
Additionally, we incurred higher absolute bad debt expense as a result of higher revenue. As a result, selling,Selling, general, and administrative expenses as a percentage of revenue increased to 58.7%47.0% for the three months ended June 30, 20192021 compared to 51.1%38.3% for the three months ended June 30, 2018. As noted, the primary driver of our2020.
The decrease in overall selling, general and administrative expense as compared to the prior period is primarily attributable to a decrease in employee related expenses is employee associated cost.with variable and incentive based compensation, including share based phantom stock compensation. Variable and incentive compensation declined $6.0 million from the comparable period, including a $4.4 million decrease related to the remeasurement of the impact of our phantom stock plan. As we continue to grow into new markets and increase our employee count, we expect selling, general and administrative expenses will trend accordingly. We expect that selling, general and administrative expensesgrow proportionally as a percentage of revenue will trend lower towards historical percentages towardthrough the end of 2019.2021.
Stock-based compensationResearch and development
For the three months ended June 30, 2019, stock-based compensation2021, research and development expense totaled $1.0$0.6 million, an increase of $0.4$0.3 million (or 55.5%115.1%) from the comparable period in 2018.2020. 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 2021 relative to 2020 costs.
Loss on disposal of property and equipment
For the three months ended June 30, 2021, we recorded a loss on disposal of property and equipment of $0.1 million, compared to a gain of $1.5 million during the comparable period in 2020. During the three months ended June 30, 2020, as a result of our COVID-19 response efforts, certain of our previously placed in service property and equipment was sold and gains resulting from these disposals was recognized. We expect disposals of equipment to generally remain consistent with historical trends.
Other expense (income)
During the three months ended June 30, 2020, we recorded income from the receipt of Provider Relief Fund payments of $3.5 million in April 2020. Payments from the Provider Relief Fund are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic as described in detail above. There was no receipt of payments from the Provider Relief Fund during the three months ended June 30, 2021. We expect other expense (income) to remain at immaterial levels.
| | | | | | | | |
VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
Stock-based compensation
For the three months ended June 30, 2021, stock-based compensation totaled $1.2 million, remaining consistent with the comparable period in 2020. 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. Stock-based compensation as a percentage of revenue has historically remained near or below 5%.
|
| | |
VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
|
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2019 and 2018 |
Interest expense, net
For the three months ended June 30, 2019,2021, net interest expense totaled $19.8 thousand,$0.1 million, a decrease of $47.2 thousand$0.1 million (or 70.1%38.5%) from the comparable period in 2018.2020, as a result of declines in index rates associated with loans. We expect net interest expense to increase as a resultremain relatively consistent with the current quarter through the end of the Term Note described below; however, we expect net interest expense will continue to be relatively inconsequential as a result of our favorable lease terms and ability to purchase equipment through cash generated from operations.2021.
Provision (benefit) for income taxes
For the three months ended June 30, 2019,2021, the provision for income taxes was $24.1 thousand,a $1.2 million expense, compared to nila $6.6 million benefit during the 20182020 period. The currentAt June 30, 2020, the Company determined that it was more likely than not that deferred tax assets would be realized, and during the three month period provision is relatedended June 30, 2020, made an adjustment to state income tax liabilities for which our federal tax net operating losses could not be fully utilized. We expect to continue to benefit from the federal tax environment in the United States. Recent tax changes allow for accelerated deductions for capital expenditures and lower corporate tax rates. As we continue to incur substantial capital expenditures to acquire medical equipment to accommodate our rapid patient base growth, combined with the deferred tax assets mentioned above, we expect most near-termasset valuation allowance, which resulted in a net benefit for the period. Our annual estimated effective tax payments will continue to result from state tax liabilities.rate for 2021 is 44.1%.
Net income
For the three months ended June 30, 2019,2021, net income was $1.8$1.6 million, a decrease of $0.5$17.8 million (or 23.1%91.9%) from the comparable period in 2018.2020. Net income as a percentage of net revenue decreased from 15.3%45.3% for the three months ended June 30, 20182020 to 8.1%5.7% for the three months ended June 30, 2019,2021, primarily driven by increased employee costs, absolute bad debt expense,due to the decrease in COVID-19 related activities and stock-based compensationthe comparative benefit from income taxes in the prior period, as described above.
Comparison of the Six Months Ended June 30, 20192021 and 2018:2020:
The following table summarizes our results of operations for the six months ended June 30, 20192021 and 2018 (in thousands of U.S. Dollars, except percentages):2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | % of Total Revenue | | 2020 | | % of Total Revenue | | $ Change | | % Change |
Revenue | $ | 55,815 | | | 100.0 | % | | $ | 66,660 | | | 100.0 | % | | $ | (10,845) | | | (16.3) | % |
Cost of revenue | 20,448 | | | 36.6 | % | | 25,180 | | | 37.8 | % | | (4,732) | | | (18.8) | % |
Gross profit | 35,367 | | | 63.4 | % | | 41,480 | | | 62.2 | % | | (6,113) | | | (14.7) | % |
Selling, general and administrative | 27,393 | | | 49.1 | % | | 27,005 | | | 40.5 | % | | 388 | | | 1.4 | % |
Research and development | 922 | | | 1.7 | % | | 445 | | | 0.7 | % | | 477 | | | 107.2 | % |
Stock-based compensation | 2,543 | | | 4.6 | % | | 2,347 | | | 3.5 | % | | 196 | | | 8.4 | % |
Depreciation | 407 | | | 0.7 | % | | 410 | | | 0.6 | % | | (3) | | | (0.7) | % |
Loss (gain) on disposal of property and equipment | 159 | | | 0.3 | % | | (2,627) | | | (3.9) | % | | 2,786 | | | NM |
Other expense (income) | (53) | | | (0.1) | % | | (3,574) | | | (5.4) | % | | 3,521 | | | (98.5) | % |
Income from operations | 3,996 | | | 7.2 | % | | 17,474 | | | 26.2 | % | | (13,478) | | | (77.1) | % |
Non-operating expenses | | | | | | | | | | | |
| | | | | | | | | | | |
Loss (gain) from equity method investments | (451) | | | (0.8) | % | | (15) | | | — | % | | (436) | | | NM |
Interest expense, net | 174 | | | 0.3 | % | | 293 | | | 0.4 | % | | (119) | | | (40.6) | % |
Net income before taxes | 4,273 | | | 7.7 | % | | 17,196 | | | 25.8 | % | | (12,923) | | | (75.2) | % |
Provision (benefit) for income taxes | 1,023 | | | 1.8 | % | | (6,459) | | | (9.7) | % | | 7,482 | | | NM |
Net income | $ | 3,250 | | | 5.8 | % | | $ | 23,655 | | | 35.5 | % | | $ | (20,405) | | | (86.3) | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | % of Total Revenue | | 2018 | | % of Total Revenue | | $ Change | | % Change |
Revenue | $ | 42,990 |
| | 100.0 | % | | $ | 29,619 |
| | 100.0 | % | | $ | 13,371 |
| | 45.1 | % |
Cost of revenue | 10,727 |
| | 25.0 | % | | 7,744 |
| | 26.1 | % | | 2,983 |
| | 38.5 | % |
Gross profit | $ | 32,263 |
| | 75.0 | % | | $ | 21,875 |
| | 73.9 | % | | $ | 10,388 |
| | 47.5 | % |
Selling, general and administrative | 24,836 |
| | 57.8 | % | | 15,208 |
| | 51.3 | % | | 9,628 |
| | 63.3 | % |
Research and development | 437 |
| | 1.0 | % | | — |
| | — | % | | 437 |
| | 100.0 | % |
Stock-based compensation | 1,914 |
| | 4.5 | % | | 1,226 |
| | 4.1 | % | | 688 |
| | 56.1 | % |
Depreciation | 267 |
| | 0.6 | % | | 330 |
| | 1.1 | % | | (63 | ) | | (19.1 | )% |
Loss on disposal of property and equipment | 141 |
| | 0.3 | % | | 88 |
| | 0.3 | % | | 53 |
| | 60.2 | % |
Other expense | $ | 49 |
| | 0.1 | % | | $ | 7 |
| | — | % | | $ | 42 |
| | 600.0 | % |
Income from operations | $ | 4,619 |
| | 10.7 | % | | $ | 5,016 |
| | 16.9 | % | | $ | (397 | ) | | (7.9 | )% |
Non-operating expenses | | | | | | | | | | | |
Unrealized Loss on warrant conversion liability | 437 |
| | 1.0 | % | | 195 |
| | 0.7 | % | | 242 |
| | 124.1 | % |
Interest expense, net | 46 |
| | 0.1 | % | | 114 |
| | 0.4 | % | | (68 | ) | | (59.6 | )% |
Net income before taxes | $ | 4,136 |
| | 9.6 | % | | $ | 4,707 |
| | 15.9 | % | | $ | (571 | ) | | (12.1 | )% |
Provision for income taxes | 162 |
| | 0.4 | % | | — |
| | — | % | | 162 |
| | 100.0 | % |
Net income | $ | 3,974 |
| | 9.2 | % | | $ | 4,707 |
| | 15.9 | % | | $ | (733 | ) | | (15.6 | )% |
|
| | | | | | | |
VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 20192021 and 20182020 |
Revenue
The following table summarizes our revenue for the six months ended June 30, 20192021 and 2018 (in thousands of U.S. Dollars, except percentages):2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2021 | | % of Total Revenue | | 2020 | | % of Total Revenue | | $ Change | | % Change |
Net revenue from rentals | | | | | | | | | | | |
Ventilator rentals, non-invasive and invasive | $ | 40,656 | | | 72.9 | % | | $ | 37,651 | | | 56.5 | % | | $ | 3,005 | | | 8.0 | % |
Other durable medical equipment rentals | 6,234 | | | 11.2 | % | | 4,409 | | | 6.6 | % | | 1,825 | | | 41.4 | % |
Net revenue from sales and services | | | | | | | | | | | |
Equipment and supply sales | 3,876 | | | 6.9 | % | | 3,272 | | | 4.9 | % | | 604 | | | 18.5 | % |
COVID-19 response sales and services | 4,091 | | | 7.3 | % | | 20,752 | | | 31.1 | % | | (16,661) | | | (80.3) | % |
Service revenues | 958 | | | 1.7 | % | | 576 | | | 0.9 | % | | 382 | | | 66.3 | % |
Total net revenue | $ | 55,815 | | | 100.0 | % | | $ | 66,660 | | | 100.0 | % | | $ | (10,845) | | | (16.3) | % |
|
| | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2019 | | % of Total Revenue | | 2018 | | % of Total Revenue | | $ Change | | % Change |
Revenue from rentals | | | | | | | | | | | |
Ventilator rentals, non-invasive and invasive | $ | 37,743 |
| | 87.8 | % | | $ | 26,676 |
| | 90.1 | % | | $ | 11,067 |
| | 41.5 | % |
Other durable medical equipment rentals | 2,343 |
| | 5.5 | % | | 984 |
| | 3.3 | % | | $ | 1,359 |
| | 138.1 | % |
Revenue from sales and services | | | | | | | | |
|
| | |
Equipment sales | 2,032 |
| | 4.7 | % | | 1,502 |
| | 5.1 | % | | $ | 530 |
| | 35.3 | % |
Service revenues | 872 |
| | 2.0 | % | | 457 |
| | 1.5 | % | | $ | 415 |
| | 90.8 | % |
| $ | 42,990 |
| | 100.0 | % | | $ | 29,619 |
| | 100.0 | % | | $ | 13,371 |
| | 45.1 | % |
For the six months ended June 30, 2019,2021, revenue totaled $43.0$55.8 million, an increasea decrease of $13.4$10.8 million (or 45.1%16.3%) from the comparable period in 2018. The2020. Non-COVID-19 related net revenue growth was primarily driven by a $11.1increased $5.8 million (or 41.5%12.7%) increasefrom the comparable period in ventilator2020. Ventilator rental revenue. This increase is attributablerevenue increased $3.0 million (or 8.0%) due to our organic growth in active ventilator patient base. Our active ventilator patient base grew from 5,078 as of June 30, 2018 to 7,130 as of June 30, 2019, an increase of 40%. In addition to the ventilator rental revenue growth, rental revenue from other durable medical equipmentDME grew $1.4$1.8 million (or 138.1%41.4%). from oxygen therapy and PAPs. In the short term, we anticipate our growth to occur at a slower rate than in recent periods as a result of the pandemic.
Non-COVID-19 related equipment sales and services combined increased by $1.0 million (or 25.6%) from the comparable period in 2020, primarily as a result of increasing demand for home sleep studies and associated supplies for our PAP patients.
Cost of revenue and gross profit
For the six months ended June 30, 2019,2021, cost of revenue totaled $10.7$20.4 million, an increasea decrease of $3.0$4.7 million (or 38.5%18.8%) from the comparable period in 2018.2020. For the six months ended June 30, 20192021 and 2018,2020, gross profit percentage increased from approximately 73.9%62.2% to approximately 75.0%63.4%. The expanded margins are primarily the result of scale reached through our increased patient base. We expectExcluding COVID-19 response sales and services, gross profit percentage for the six months ended June 30, 2021 was 65.5%. We expect our gross profit percentage for our normal operations (non-COVID-19 related) to remain relatively consistent forwith the remaindercurrent quarter through the end of the year.2021.
Selling, general &and administrative expense
For the six months ended June 30, 2019,2021, selling, general and administrative expenses totaled $24.8$27.4 million, an increase of $9.6$0.4 million (or 63.3%1.4%) from the comparable period in 2018. The increase was primarily the result of an increase in employee costs which includes the impact of our phantom stock plan. Our phantom stock plan is measured at fair value as of the reporting period and is driven primarily by our stock price. During the six months ended June 30, 2019, our stock price increased 71%, driving higher expenses2020. Excluding COVID-19 related to these awards.
Additionally, we incurred higher absolute bad debt expense as a result of higher revenue. Selling, general, and administrative expenses as a percentage of revenue increased to 57.8% for the six months ended June 30, 2019 compared to 51.3% and for the six months ended June 30, 2018. As noted, the primary driver of our selling, general, and administrative expenses is employee associated cost. As we continue to grow into new markets and increase our employee count, we expect selling, general, and administrative expenses will trend accordingly. We expect thatrevenues, selling, general and administrative expenses as a percentage of net revenue decreased to 53.0% for the six months ended June 30, 2021, compared to 58.8% for the six months ended June 30, 2020. The change in overall selling, general and administrative expense as compared to the prior year period is attributable to lower variable and incentive based employee compensation and higher employee related expenses to accommodate the overall growth of the Company, as our full time employee count increased to 575 at June 30, 2021, compared to 459 at June 30, 2020, an increase of 25.3%. We expect selling, general and administrative expenses will trend lower towards historical percentages towardgrow proportionally as a percentage of revenue through the end of 2019.2021.
Stock-based compensationResearch and development
For the six months ended June 30, 2019, stock-based compensation2021, research and development expense totaled $1.9$0.9 million, an increase of $0.7$0.5 million (or 56.1%107.2%) from the comparable period in 2018.2020. 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 2021 relative to 2020 costs.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
Loss on disposal of property and equipment
For the six months ended June 30, 2021, we recorded a loss on disposal of property and equipment of $0.2 million, compared to a gain of $2.6 million during the comparable period in 2020. As a result of our efforts for the COVID-19 response as described above, certain of our previously placed in service property and equipment was sold. As a result, during the six months ended June 30, 2020, we recorded sales proceeds on used equipment of $5.0 million which resulted in a net gain on disposal for related equipment of $3.5 million, partially offset by a loss of $0.8 million on property and equipment unrelated to COVID-19. We expect disposals of equipment to generally remain consistent with historical trends through the remainder of the year.
Other expense (income)
During six months ended June 30, 2020, we recorded income from the receipt of Provider Relief Fund payments of $3.5 million in April 2020. Payments from the Provider Relief Fund are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic as described in detail above. There was no receipt of payments from the Provider Relief Fund during the six months ended June 30, 2021.
Stock-based compensation
For the six months ended June 30, 2021, stock-based compensation totaled $2.5 million, an increase of $0.2 million (or 8.4%) from the comparable period in 2020. 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. Stock-based compensation as a percentage of revenue has historically remained under 5%.
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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2019 and 2018 |
Interest expense, net
For the six months ended June 30, 2019,2021, net interest expense totaled $45.6 thousand,$0.2 million, a decrease of $68.4 thousand (or 60.0%)$0.1 million from the comparable period in 2018.2020, as a result of declines in index rates associated with loans. We expect net interest expense to increase as a resultremain materially consistent through the end of the Term Note described below; however, we expect net interest expense will continue to be relatively inconsequential as a result of our favorable lease terms and ability to purchase equipment through cash generated from operations.2021.
Provision (benefit) for income taxes
For the six months ended June 30, 2019,2021, the provision for income taxes was $162.1 thousand,a $1.0 million expense, compared to nila $6.5 million benefit during the 20182020 period. The currentAt June 30, 2020, the Company determined that it was more likely than not that deferred tax assets would be realized, and during the six month period provision is relatedended June 30, 2020, made an adjustment to state incomethe deferred tax liabilitiesasset valuation allowance, which resulted in a net benefit for which our federal tax net operating losses could not be fully utilized. We expect to continue to benefit from the federal tax environment in the United States. Recent tax changes allow for accelerated deductions for capital expenditures and lower corporate tax rates.period. As we continue to incur substantial capital expenditures to acquire medical equipment to accommodate our rapid patient base growth, combined with the deferred tax assets, mentioned above, we expect most near-term cash tax payments will continue to result fromfor federal and state tax liabilities.liabilities to remain relatively consistent.
Net income
For the six months ended June 30, 2019,2021, net income was $4.0$3.3 million, a decrease of $0.7$20.4 million (or 86.3%) from the comparable period in 2018.2020. Net income as a percentage of revenue decreased from 15.9%35.5% for the six months ended June 30, 20182020 to 9.2%5.8% for the six months ended June 30, 2019, primarily2021, driven by increased employee costs, absolute bad debt expense,a decrease in COVID-19 related sales and stock-based compensationthe comparative benefit from income taxes in the prior period, as described above.
Non-GAAP Financial Measures
Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets. We believe that one of the most important measures for our company is Adjusted EBITDA.The Company uses Adjusted EBITDA, which is a non-GAAP financial measure. We believemeasure that is not prepared in accordance with generally accepted accounting principles in the United States ("GAAP") to analyze its financial results and believes that it is useful to investors, as a supplement to U.S. GAAP measures. Management believes Adjusted EBITDA provides helpful information with respect to ourthe Company’s operating performance as viewed by management, including a view of ourthe Company’s business that is not dependent on the impact of ourthe Company’s capitalization structure and items that are not part of ourthe Company’s day-to-day operations. Management uses Adjusted EBITDA (i) to compare ourthe Company’s operating performance on a consistent basis, (ii) to calculate incentive compensation for ourthe Company’s employees, (iii) for planning purposes, including the preparation of ourthe Company’s internal annual operating budget, and (iv) to evaluate the performance and effectiveness of ourthe Company’s operational strategies. Accordingly, we believemanagement believes that Adjusted EBITDA provides useful information in understanding and evaluating ourthe Company’s operating performance in the same manner as management.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
In calculating Adjusted EBITDA, certain items (mostly non-cash) are excluded from net income including interest, taxes 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.
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– | 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. |
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– | 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. |
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– | Unrealized loss on warrant conversion liability may be useful for investors to consider as it represents changes in the fair value of warrants and exchangeable shares of subsidiaries, driven predominantly by changes in our share price and exchange rates. These changes are non-cash, as is the settlement of the underlying derivative liability, which occurs upon the conversion of the derivative instrument into common shares of the Company. |
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– | 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 the our earnings under U.S. generally accepted accounting principles ("GAAP"), these items affect multiple periods and management is not able to change or affect these items within any period. |
–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.
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| Page | 29–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.
–Unrealized loss on warrant conversion liability may be useful for investors to consider as it represents changes in the fair value of warrants and exchangeable shares of subsidiaries, driven predominantly by changes in our share price and exchange rates. These changes are non-cash, as is the settlement of the underlying derivative liability, which occurs upon the conversion of the derivative instrument into common shares of the Company.
–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.
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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2019 and 2018 |
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– | 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 (in thousands of U.S. Dollars):indicated:
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For the quarter ended | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | June 30, 2020 | March 31, 2020 | December 31, 2019 | September 30, 2019 |
Net Income | $ | 1,566 | | $ | 1,684 | | $ | 5,071 | | $ | 2,804 | | $ | 19,412 | | $ | 4,243 | | $ | 2,388 | | $ | 2,853 | |
Add back: | | | | | | | | |
Depreciation | 2,716 | | 2,609 | | 2,835 | | 2,425 | | 2,190 | | $ | 2,130 | | $ | 2,003 | | $ | 1,659 | |
Interest expense | 83 | | 91 | | 100 | | 116 | | 135 | | $ | 158 | | $ | 212 | | $ | 56 | |
Unrealized (gain) loss on warrant conversion liability | — | | — | | — | | — | | — | | $ | — | | $ | — | | $ | (800) | |
Stock-based compensation | 1,236 | | 1,307 | | 1,301 | | 1,234 | | 1,196 | | $ | 1,151 | | $ | 908 | | $ | 1,064 | |
Income tax expense (benefit) | 1,246 | | (223) | | 151 | | 1,141 | | (6,646) | | $ | 187 | | $ | 58 | | $ | 51 | |
Adjusted EBITDA | $ | 6,847 | | $ | 5,468 | | $ | 9,458 | | $ | 7,720 | | $ | 16,287 | | $ | 7,869 | | $ | 5,569 | | $ | 4,883 | |
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For the quarter ended | June 30, 2019 | March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 |
Net Income (Loss) | 1,820 | 2,154 | 3,046 | 2,424 | 2,366 | 2,341 | (26) | 4,018 |
Add back: | | | | | | | | |
Depreciation | 1,444 | 1,295 | 1,177 | 972 | 893 | 741 | 738 | 662 |
Interest expense | 20 | 26 | 30 | 37 | 67 | 47 | 49 | 67 |
Unrealized (gain) loss on warrant conversion liability | 268 | 169 | (210) | 220 | 123 | 72 | 158 | — |
Stock-based compensation | 1,034 | 880 | 804 | 672 | 665 | 561 | 828 | — |
Income tax expense (benefit) | 24 | 138 | 127 | 35 | — | — | 130 | (57) |
Adjusted EBITDA | $4,610 | $4,662 | $4,974 | $4,360 | $4,114 | $3,762 | $1,877 | $4,690 |
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 alternativesan alternative to revenue or net income, (loss), 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 you should not consider itbe 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 theirits usefulness as a comparative measures.measure.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
Liquidity and Capital Resources
Cash and cash equivalents at June 30, 20192021 was $7.7$31.2 million, compared to $10.4$31.0 million at December 31, 2018.2020. Based on our current plan of operations, including potential acquisitions, 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.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 with Hancock Whitney Bank which was fully undrawn as of June 30, 2019.2021.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in thousands of U.S. Dollars):indicated:
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| | Six Months Ended June 30, |
| | 2021 | | 2020 |
Net Cash provided by (used in): | | | | |
Operating activities | | $ | 8,811 | | | $ | 21,988 | |
Investing activities | | (4,758) | | | (620) | |
Financing activities | | (3,883) | | | (5,016) | |
Net increase in cash and cash equivalents | | $ | 170 | | | $ | 16,352 | |
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| | Six Months Ended June 30, |
| | 2019 | | 2018 |
Net Cash provided by (used in): | | | | |
Operating activities | | $5,963 | | $9,003 |
Investing activities | | (7,487) | | (1,780) |
Financing activities | | (1,198) | | (3,770) |
Net (decrease) increase in cash and cash equivalents | | $(2,722) | | $3,453 |
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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2019 and 2018 |
Net Cash Provided by Operating Activities
Net cash provided by operating activities during the six months ended June 30, 20192021 was $6.0$8.8 million, resulting from net income of $4.0$3.3 million and non-cash net income adjustments of $9.1$12.0 million, an increasewhich was partially offset by a decrease in net operating liabilities of $1.6$3.4 million and an increase in net operating assets of $8.7$3.1 million. The non-cash net income adjustments primarily consisted of $3.9$3.4 million in change of bad debt expense, $2.7allowance for doubtful accounts, $5.3 million of depreciation, $0.2 million of loss on disposal of property and $1.9equipment, $2.5 million of stock-based compensation.compensation, $0.5 million gain on equity investments and $1.0 million change in deferred tax asset. The uses of cash related to changes in operating assets primarily consisted of increasesan increase in accounts receivable of $7.8$3.2 million and an increase in inventory of $0.8$0.2 million, partially offset by a decrease in prepaid expenses and other assets of $0.3 million. The changes in operating liabilities primarily consisted of an increase in accounts payable of $1.9$0.4 million, and an increase in deferred revenue of $0.3 million, partially offset by a decrease in accrued liabilities of $0.2$3.8 million and a decrease in income tax payable of $0.3 million. The increase in our operating assets and liabilities were primarily driven by our increased business volume period-over-period and higher compensation and personnel-related costs.
Net cash provided by operating activities during the six months ended June 30, 20182020 was $9.0$22.0 million, resulting from net income of $4.7$23.7 million, non-cash net income adjustments of $5.6$1.8 million, and a decreasean increase in net operating liabilities of $0.3$7.2 million, which werewas partially offset by an increase in net operating assets of $1.1$10.6 million. The non-cash net income adjustments primarily consisted of $2.7$5.6 million in change of bad debt expense, $1.6allowance for doubtful accounts, $4.3 million of depreciation, $2.6 million of gains on disposal of property and $1.2equipment, change in deferred tax asset of $7.8 million and $2.3 million of stock-based compensation. The uses of cash related to changes in operating assets primarily consisted of an increase in accounts receivable of $0.8$5.1 million as a resultand an increase in inventory of increased revenue growth.$5.2 million. The changes in operating liabilities primarily consisted of decreasesan increase in accounts payable of $0.1$2.0 million and an increase in accrued liabilities of $0.1$3.8 million. These decreasesThe increase in our operating assets was primarily driven by accounts payable and accrued liabilities can be primarily attributedreceivable related to higher expenses incurred relating toCOVID-19 response sales occurring during the corporate spin-out atquarter. Included in our operating cash flows for the endperiod is the receipt of 2017.$3.5 million in Provider Relief Funds.
Net Cash Used in Investing Activities
Net cash provided byused in investing activities during the six months ended June 30, 20192021 was $7.5$4.8 million, consisting of $7.7$5.0 million of purchases of property and equipment, partially offset by $0.2$0.3 million of sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to the purchase of our new corporate headquarters in addition to medical equipment rented to our patients. Combining cash purchases of property and equipment of $7.7 million and equipment financed through finance leases, and long term debt of $9.4 million, our total capital expenditures for the six months ended June 30, 2019 was $17.12021 were $5.1 million. This represents a $10.5$3.6 million, or 158.0%41.3%, increasedecrease year over year, driven by our revenue growth of 45.1% during the same periods combined with the purchase of our new corporate headquarters.year.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
Net cash provided byused in investing activities during the six months ended June 30, 20182020 was $1.8$0.6 million, consisting of $2.1$5.7 million of purchases of property and equipment, partially offset by $0.3$5.1 million of COVID-19 response sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to the medical equipment we rentrented to our patients. Combining cash purchases of property and equipment of $2.1$5.7 million and equipment financed through finance leases and long term debt of $4.6$2.9 million, our total capital expenditures for the six months ended June 30, 2018 was $6.62020 were $8.6 million.
Net Cash Used in Financing Activities
Net cash used in financing activities during the six months ended June 30, 20192021 was $1.2$3.9 million, consisting of $4.8$0.8 million in proceeds to financeprincipal payments on the purchase of our corporate headquarters, $4.6Term Note (as defined below), $1.7 million in repayments of finance lease liabilities, and $1.5$1.4 million offor shares repurchasedredeemed and canceled under our normal course issuer bid described below.for tax withholding in connection with RSUs vested in the period.
Net cash used in financing activities during the six months ended June 30, 20182020 was $3.8$5.0 million, consisting of $3.8$0.8 million in principal payments on the Term Note and $5.9 million in repayments of finance lease liabilities.liabilities, partially offset by $1.8 million of proceeds from the exercise of stock options.
Line of Credit Agreement
On February 20, 2018, we entered intoThe Company maintains a two year commercial business loan agreement with Hancock Whitney Bank for linesline of credit for up to $5.0in the amount of $10.0 million (with a letter of credit sub-limit of $0.5 million), expiring on February 21, 2020.that expires May 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 our assets and carry an interest rate of one month ICE libor plus 3.00%, with a 4.00% interest rate floor. Advances of the line of credit initially were subject to a borrowing base as determined in accordance with the loan agreement, which was based on the value of our accounts receivable balance.
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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2019 and 2018 |
On March 19, 2019, we entered into an amendment to the loan agreement increasing the available line of credit from $5.0 million to $10.0 million and extending the expiration date to March 19, 2021. In addition, the borrowing base restriction was removed from the loan agreement and all current financial covenants were replaced with the following covenants:
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Financial Covenant | Require Ratio |
Total Debt to Adjusted EBITDA (Quarterly) | not more than 1.50:1.00 |
Minimum Working Capital (Quarterly)(1)
| at least $2,500,000 |
Fixed Charge Coverage Ratio (Quarterly) | not less than 1.35:1.00 |
(1) This covenant will be in effect and tested quarterly beginning September 30, 2019.
The Company was in compliance with all covenants in effect at June 30, 2019.Company's assets. There were no borrowings against this facilityline of credit at June 30, 2019 and2021 or December 31, 2018.
2020. While we currently have no immediate plans to draw on this facility,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 table above.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 at June 30, 2021.
Commercial Term NoteNotes
On May 30, 2019, the Company entered into an amendment to the loan agreement providing for a commercial term note (the “Term“Building Term Note”) in favor of Hancock Whitney Bank in the principal amount of $4.8 million. The proceeds of the Building Term Note were used to purchase a building that the Company plans to utilize as itsa new corporate headquarters.headquarters for the Company. Beginning July 1, 2019, the Company makes monthly payments towards the outstanding balance. The Building Term Note matures on May 30, 2026 and is secured by substantially all of theour assets, of the borrower, including the real property acquired with the proceeds of the Building Term Note. The Building Term Note bears interest at a variable rate equal to the one month ICE liborLIBOR 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 the Building Term Note, the Company entered into an interest rate swap transaction (the "Interest Rate Swap Transaction") with Hancock Whitney Bank effectively fixing the interest rate for the Building Term Note at 4.68%.
On September 19, 2019, the Company entered into a third amendment to the loan agreement providing for a term note (the “Term Note") in favor of Hancock Whitney Bank in the principal amount of $5.0 million. The proceeds of the Term Note will be used for general corporate purposes. Beginning October 19, 2019, the Company makes monthly payments towards the outstanding balance. The Term Note matures on September 19, 2022 and is secured by substantially all of our assets. The Term Note bears interest at the rate of 4.60% per annum.
Sources of funds
Our cash provided by operating activities in the six months ended June 30, 20192021 was $6.0$8.8 million compared to $9.0$22.0 million in the six months ended June 30, 2018. 2020.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
HHS Provider Relief Funds
During the quarter ending June 30, 2020, the Company received $3.5 million of Provider Relief Funds from the HHS that was provided to eligible healthcare providers out of the $100 billion Public Health and Social Services Emergency Fund provided for in the CARES Act. The funds are allocated to eligible healthcare providers for expenses and lost revenue attributable to the COVID-19 pandemic. The HHS has stated that Provider 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 the Company's ability to comply and may require the return of funds. In accordance with the terms of acceptance for the grant, the Company has utilized these funds to prevent, prepare for, and respond to the COVID-19 pandemic.
As of June 30, 2019,2021, we had cash and cash equivalents of $7.7$31.2 million.
Use of funds
Our principal uses of cash are funding our new rental assets and other capital purchases, operations, and other working capital requirements. Over the past two years, our revenue has increased significantly from year-to-year and, as a result, ourOur cash provided by operating activities has increasedaccumulated over time and now is a significant source of capital to the business, which we expect to continue in the future.business.
We may need to raise additional funds to support our investing operations, 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.
For the six months ended June 30, 2019,2021, the Company re-purchasedrepurchased and canceled 365,100181,320 common shares pursuant to our Normal Course Issuer Bid (the "NCIB") at a cost of $1,522,000. Total$1.4 million due to tax withholding for RSUs vesting. The Company’s retained earnings were reduced by the amount paid for the shares repurchased under the NCIB were 775,803 as of June 30, 2019. There were no repurchases during the three months ended June 30, 2019. Under the NCIB, we are authorized to repurchase up to a maximum of 1,875,575 common shares through November 28, 2019.for cancellation.
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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2019 and 2018 |
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 $166,000$283,000 and $115,000$223,000 for the three months ended June 30, 20192021 and 2018,2020, respectively, and $335,000$457,000 and $225,000$402,000 for the six months ended June 30, 20192021 and 2018,2020, 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.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
Accounting and Disclosure Matters
Segment Information
We have determined that we predominantly operate in a single operating segment, which is the sleep and respiratory disorders sector of the durable medical equipment industry. While we do provide some services and products outside of this operating segment, these operations, both in terms of revenue and profit, are not material to our operations and therefore have not been separately reported as a segment.
Critical Accounting Principles and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United StatesGAAP requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those estimates related to allowance for doubtful accounts, inventory adjustments, impaired assets, income taxes, deferred tax valuation allowances and stock-based compensation costs.
We state these accounting policies in the notes to the consolidated financial statements and at relevant sections in the Management's Discussion and Analysis of Financial Condition and Results of Operations. The estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.
We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:
Revenue recognition
Revenue Accounting under Topic 842
The majority of our revenue is derived from theWe lease of durable medical equipmentDME such as non-invasive and invasive ventilators, positive airway pressure ("PAP")PAP machines, percussion vests, oxygen concentrator units and other small respiratory equipment to customers for a fixed monthly amount on a month-to-month basis. The customer generally has the right to cancel the lease at any time during the rental period for a subsequent month’s rental, and payments are generally billed in advance. We considerperiod. The Company considers these rentals to be operating leases.
Under FASB Accounting Standards CodificationASC Topic 842, “Leases”, we recognize rental revenue on operating leases on a straight-line basis over the contractual lease term which varies based on the type of equipment rental, but generally ranges from 10 to 36 months.rental. The lease term begins on the date products are delivered to patients, and revenues are recorded at amounts estimated to
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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2019 and 2018 |
be received under reimbursement arrangements with third-party payors, including Medicare, private commercial payors, and Medicaid. Certain customer co-payments are included in revenue when considered probable of payment, which is generally when paid.
Due to the nature of the industry and the reimbursement environment in which the we operate, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. There were no material changes in estimates recorded in the three and six months ended June 30, 2019, relating to prior periods.
Revenue Accounting under Topic 606
We sell durable medical equipment, replacement parts and supplies to customers and recognize revenue at the point in time where control of the good or service is transferred through delivery to the customer. Each piece of equipment, part, or supply is distinct, separately priced, and represents a single performance obligation. The revenue is allocated amongst the performance obligations based upon the relative standalone selling price method, however, items are typically all delivered or supplied together. The customer and, if applicable, the payors are generally charged at the time that the product is sold, although separate layers of insurance coverage may need to be invoiced before final billings may occur.
We also provide sleep study services to customers and recognize revenue when the results of the sleep study are complete as that is when the performance obligation is met. The transaction price on both equipment sales and sleep studies is the amount that the we expect to receive in exchange for the goods and services provided. Due to the nature of the durable medical equipment business, gross charges are retail charges and generally do not reflect what we are ultimately paid. As such, the transaction price is constrained for the difference between the gross charge and what is estimated to be collected from payors and from patients. The transaction price therefore is predominantly based on contractual payment rates as determined by the payors. We do not generally contract with uninsured customers. The payment terms and conditions of customer contracts vary by customer type and the products and services offered.
We determine our estimates of contractual allowances and discounts based upon contractual agreements, our policies and historical experience. While the rates are fixed for the product or service with the customer and the payors, such amounts typically include co-payments, co-insurance and deductibles, which vary in amounts, and are due from the patient customer. We include in the transaction price only the amount that we expect to be entitled, which is substantially all of the payor billings at contractual rates. The transaction price is initially constrained by the amount of customer co-payments, which are included in the transaction price when considered probable of payment, which is generally when paid, and included in revenue if the product or service has already been provided to the customer.
Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. There were no material changes
Revenue Accounting under Topic 606
We sell DME, replacement parts and supplies to customers and recognize revenue based on contractual payment rates as determined by the payors at the point in estimates recordedtime when control of the good or service is transferred through delivery to the customer. The customer and, if applicable, the payors are generally charged at the time that the product is sold.
We also provide sleep study services to customers and recognize revenue when the sleep study results are complete, satisfying the performance obligation. In response to the COVID-19 pandemic, we began offering contact and vaccine tracing services, which revenues are recognized in the threeperiod in which the service has been provided. The transaction price on equipment sales, sleep studies and six months ended June 30, 2019, relatingcontact and vaccine tracing is the amount that we expect to prior periods.receive in exchange for the goods and services provided. Due to the nature of the DME business, gross charges are retail charges and generally do not reflect what we are ultimately paid. As such, the transaction price is constrained for the difference between the gross charge and what is estimated to be collected from payors and from patients. The transaction price therefore is predominantly based on contractual payment rates as determined by the payors. We do not generally contract with uninsured customers. The payment terms and conditions of customer contracts vary by customer type and the products and services offered.
We determine our estimates of contractual allowances and discounts based upon contractual agreements, our policies and historical experience. While the rates are fixed for the product or service with the customer and the payors, such amounts typically include co-payments, co-insurance and deductibles, which vary in amounts, and are due from the patient. We include in the transaction price only the amount that we expect to be entitled, which is substantially all of the payor billings at contractual rates. The transaction price is initially constrained by the amount of customer co-payments, which are included in the transaction price when considered probable of payment and included in revenue if the product or service has already been provided to the customer.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial.
Returns and refunds are not accepted on either equipment sales, or sleep study services or contact and vaccine tracing services. We do not offer warranties to customers in excess of the manufacturer’s warranty. Any taxes due upon sale of the products or services are not recognized as revenue. We do not have any partially or unfilled performance obligations related to contracts with customers and as such, we hadhave no contract assets or contract liabilities as of June 30, 2019.2021.
Allowance for doubtful accounts
We estimate that a certain portion of receivables from customers may not be collected and maintain an allowance for doubtful accounts. We evaluate the net realizable value of accounts receivable as of the date of consolidated balance sheets.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 health carehealthcare 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. Our allowance for doubtful accounts was $6.9$7.3 million and $3.2$9.3 million as of June 30, 20192021 and 2018,2020, respectively, and based on our analysis, we believe the reserve is adequate for any exposure to credit losses.
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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2019 and 2018 |
Stock-based compensation
We account for our stock-based compensation in accordance with ASC 718—Compensation—Stock Compensation, which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. Stock–based compensation cost for stock options are determined at the grant date using the Black-Scholes option pricing model. Stock-based compensation cost for restricted stock unitsRSUs are determined at the grant date based on the closing stock price. The expense of such stock-based compensation awards is recognized using the graded vesting attribution method over the vesting period.
For the Company’s phantom share units settled in cash, the Company computes the fair value of the phantom share units using the closing price of the Company's stock at the end of each period and records a liability based on the percentage of requisite service.
Interest Rate Swapsrate swaps
We utilize an interest rate swap contract to reduce our exposure to fluctuations in variable interest rates for future interest payments on Term Note.
For determining the fair value of our interest rate swap contract, we use significant other observable market data or assumptions (Level 2 inputs) that we believe market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. Our fair value estimates reflect an income approach based on the terms of the interest rate swap contract and inputs corroborated by observable market data including interest rate curves. We include unrealized gains in Otherother assets, as a component of Long-term Assets,long-term assets, and unrealized losses in Accruedaccrued liabilities, as a component of Long-termlong-term liabilities on the Condensed Consolidated Balance Sheets.
We recognize any differences between the variable interest rate payments and the fixed interest rate settlements from our swap counterparty as an adjustment to interest expense over the life of the swap. If determined to be effective cash flow hedges, we record the changes in the estimated fair value of the swaps to Accumulatedaccumulated other comprehensive income or loss on our Condensed Consolidated Balance Sheets. To the extent our interest rate swaps are determined to be ineffective, we recognize the changes in the estimated fair value of our swaps in Interestinterest and other non-operating expenses, net on our Condensed Consolidated Statements of Income.
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VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS |
(Tabular amounts expressed in thousands of US Dollars, except per share amounts) |
June 30, 2021 and 2020 |
Income taxes
We are subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes. Our income tax provisions reflect management’s interpretation of country and state tax laws. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business and may remain uncertain for several years after their occurrence. We recognize assets and liabilities for taxation when it is probable that we will receive refunds or pay taxes to the relevant tax authority. Where the final determination of tax assets and liabilities is different from the amounts that were initially recorded, such differences will impact the current and deferred income taxes provision in the period in which such a determination is made. Changes in tax law or changes in the way tax law is interpreted may also impact our effective tax rate as well as our business and operations.
Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to temporary differences between the financial statement carrying value of assets and liabilities and their respective income tax bases. Deferred income tax assets or liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be settled. The calculation of current and deferred income taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment concerning the carrying value of assets and liabilities. The current and deferred income tax assets and liabilities are also impacted by expectations about future operating results and the timing of reversal of temporary differences as well as possible audits of tax filings by regulatory agencies. Changes or differences in these estimates or assumptions may result in changes to the current and deferred tax assets and liabilities on the consolidated statements of financial positionCondensed Consolidated Balance Sheets and a charge to or recovery of income tax expense.
Recently Issued Accounting Pronouncements
See Note 2 – Summary of significant account policiesSignificant Account Policies of the Notes to 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.
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VIEMED HEALTHCARE, INC. |
June 30, 20192021 and 20182020 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.This item is not applicable to smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company's management, including its Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded:
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i. | that the Company's disclosure controls and procedures are designed to ensure (a) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and (b) that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure; and |
i.that the Company's disclosure controls and procedures are designed to ensure (a) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and (b) that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure; and
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ii. | that the Company's disclosure controls and procedures are effective. |
ii.that the Company's disclosure controls and procedures are effective.
Notwithstanding the foregoing, there can be no assurance that the Company's disclosures controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to disclose material information otherwise rquiredrequired to be set forth in the Company's periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting during the three months ended June 30, 20192021 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.
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VIEMED HEALTHCARE, INC. |
June 30, 20192021 and 20182020 |
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be subject to various ongoing or threatened legal actions and other proceedings, including those that arise in the ordinary course of business, which may include employment matters, and breach of contract disputes.disputes, as well as governmental and regulatory matters. Please read Note 8—Commitments and Contingencies to our condensed consolidated financial statements for more information. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. In the opinion of management, the outcome of such routine ongoing litigation is not expected to have a material adverse effect on our results of operations or financial condition.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in “Risk Factors” in our Registration StatementAnnual Report on Form 1010-K for the year ended December 31, 2020 filed with the SEC on August 1, 2019,March 3, 2021, which could materially affect our business, financial condition or future results. ThereExcept as set forth below, there have been no material changes in our risk factors from those disclosed in that Registration Statement. Annual Report.
The recall of certain Royal Philips BiPAP and CPAP devices and ventilators that we distribute and sell could have a significant negative impact on our business, reputation, results of operations, financial condition and prospects.
On June 14, 2021, Royal Philips (“Philips”) initiated a voluntary recall notification with the U.S. Food and Drug Administration (“FDA”) for certain Philips BiPAP (bi-level positive airway pressure) and CPAP (continuous positive airway pressure) and mechanical ventilator devices that we distribute and sell. Philips initiated this recall to address potential health risks related to the polyester-based polyurethane (“PE-PUR”) sound abatement foam component in these devices. To date, Philips has produced millions of BiPAP and CPAP devices and ventilators using the PE-PUR sound abatement foam. Despite a complaint rate of 0.03% in 2020, Philips determined based on testing that there are possible health risks to users of the devices related to this type of foam, including that the foam may degrade into particles that may be ingested or inhaled by the user, and that the foam may off-gas certain chemicals. According to Philips, the potential risks of particulate exposure include headache, irritation, inflammation, respiratory issues, and possible toxic and carcinogenic effects, and the potential health risks of chemical exposure due to off-gassing include headache, irritation, hypersensitivity, nausea/vomiting, and possible toxic and carcinogenic effects.
Philips has stated that it (i) is providing the relevant regulatory agencies with required information related to the launch and implementation of the projected correction, (ii) will replace the current sound abatement foam with a new material, (iii) has already begun the preparations, which include obtaining the relevant regulatory clearances, and (iv) aims to address all affected devices in scope of this correction as expeditiously as possible. While Philips produces alternative CPAP devices and ventilators that are not impacted by the recall, these alternative CPAP devices and ventilators are being used to replace recalled CPAP devices and ventilators rather than be sold to suppliers for placement with newly diagnosed patients. Depending on the time it takes for the FDA and Philips to resolve the issue, potential delays and shortages of BiPAP and CPAP devices and ventilators may occur in our industry, which could have a significant negative impact on our business, reputation, results of operations, financial condition and prospects if we are unable to procure replacement products at a reasonable cost on a timely basis or at all.
Additionally, we do not currently know the full scope of potential risks that may arise as a result of the recall and replacement of BiPAP and CPAP and mechanical ventilator devices described above. Due to the volume of our patients currently using, or who in the past have used, the BiPAP and CPAP and mechanical ventilator devices affected by the recall described above as well as future users of any replacement devices, any litigation, class action or governmental enforcement actions (including, but not limited to, claims relating to product liability, negligence, patient harm including claims for personal injury or wrongful death, consumer protection, or fraud, overpayment or improper billing for services and products affected by the recall or replacement) that may involve us could have a significant negative impact on our business, reputation, results of operations, financial condition and prospects. In general, the reporting of product defects or voluntary recalls to the FDA or analogous regulatory bodies outside the United States could result in manufacturing audits, inspections and broader recalls or other disruptions to our and/or our suppliers’ businesses. The recall described above and future recalls, whether voluntary or required, could result in significant costs to us and significant adverse publicity, which could harm our ability to market our products in the future.
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VIEMED HEALTHCARE, INC. |
June 30, 2021 and 2020 |
Revenue we receive from third-party payors as well as Medicare and Medicaid is subject to potential retroactive reduction.
Payments we receive from governmental healthcare programs, including Medicare and Medicaid, and private third-party payors can be retroactively adjusted after examination during the claims settlement process or as a result of post-payment audits and subsequent recoupment. Governmental healthcare programs and third-party payors may disallow, in whole or in part, our requests for reimbursement, or recoup amounts previously reimbursed, based on determinations by the payors or their third-party audit contractors that certain costs are not reimbursable because either adequate or additional documentation was not provided or because certain services were not covered or deemed to not be medically necessary. Significant adjustments, recoupments or repayments of our Medicare or Medicaid revenue, and the costs associated with complying with investigative audits by regulatory and governmental authorities, could materially and adversely affect our financial condition, results of operations and cash flows.
For example, in late June of 2021, we received initial request letters from DME Medicare Administrative Contractors referencing a previously disclosed U.S. Department of Health and Human Services Office of the Inspector General (“OIG”) report and recommendation regarding an audit by OIG of claims relating to one hundred of the Company’s non-invasive ventilation at home patients and requesting repayment of purported overpayments within the 4-year reopening period prescribed by statue. See Note 8—Commitments and Contingencies to our condensed consolidated financial statements for more information. The ultimate resolution of this matter, if unfavorable, could materially and adversely affect our financial condition, results of operations, or cash flows.
Additionally, from time to time we become aware, either based on information provided by third parties and/or the results of internal audits, of payments from such payor sources that were either wholly or partially in excess of the amount that we should have been paid for the service provided. Overpayments may result from a variety of factors, including insufficient documentation supporting the services rendered or medical necessity of the services or other failures to document the satisfaction of the necessary conditions of payment. We are required by law in most instances to refund the full amount of the overpayment after becoming aware of it, and failure to do so within requisite time limits imposed by the law could lead to significant fines and penalties being imposed on us.
Furthermore, our initial billing of and payments for services that are unsupported by the requisite documentation and satisfaction of any other conditions of payment, regardless of our awareness of the failure at the time of the billing or payment, could expose us to significant fines and penalties. We could also be subject to exclusion from participation in the Medicare or Medicaid programs in some circumstances as well, in addition to any monetary or other fines, penalties or sanctions that we may incur under applicable federal and/or state law. Our repayment of any such amounts, as well as any fines, penalties or other sanctions that we may incur, could be significant and could have a material and adverse effect on our financial condition, results of operations and cash flows.
From time to time we are also involved in various external governmental investigations, audits and reviews. Reviews, audits and investigations of this sort can lead to government actions, which can result in the assessment of recoupment of reimbursement, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way we conduct business, loss of licensure or exclusion from participation in government healthcare programs. Failure to comply with applicable laws, regulations and rules could have a material and adverse effect on our financial condition, results of operations and cash flows. Furthermore, becoming subject to these governmental investigations, audits and reviews can also require us to incur significant legal and document production expenses as we cooperate with the government authorities, regardless of whether the particular investigation, audit or review leads to identification of underlying noncompliance or wrongdoing.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
During the three months ended June 30, 2019, we granted to certainNot applicable.
Company Repurchases of our employees 56,390 options and we (i) issued and sold to our employees an aggregate of 4,725 common shares upon the exercise of options under our Option Plan, at exercise prices ranging from CAD $3.58 to $5.14 per share, for a weighted-average exercise price of CAD $4.88, and (ii) issued to our employees an aggregate of 6,432 common shares upon the vesting of restricted stock units under our RSU/DSU Plan. These securities were issued under the Company’s equity incentive plans without registration in reliance on the exemptions afforded by Section 4(a)(2) of theEquity Securities Act or Rule 701 promulgated under the Securities Act. During the three months ended June 30, 2019, in connection with the exercise of warrants, we issued 8,280 common shares without registration in reliance on the exemption afforded by Section 4(a)(2) of the Securities Act or Regulation S.
Share Repurchases
The following table sets forth certain information with respect to repurchases of our common sharesCompany did not repurchase any equity securities during the quarter ended June 30, 2019:2021.
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Period | | Total number of shares (or units) purchased
| | Average price paid per share (or unit) | | Total number of shares (or units) purchased as part of publicly announced plans or programs(1)
| | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs(1)
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April 1 - April 30, 2019 | | — | | — | | — | | 1,099,772 |
May 1 - May 31, 2019 | | — | | — | | — | | 1,099,772 |
June 1 - June 30, 2019 | | — | | — | | — | | 1,099,772 |
Total | | — | | — | | — | | 1,099,772 |
(1) For the quarter ended June 30, 2019, the Company did not purchase any common shares pursuant to the Company’s Normal Course Issuer Bid (the “NCIB”). Total shares repurchased under the NCIB were 775,803 as of June 30, 2019. Under the NCIB, the Company is authorized to repurchase up to a maximum of 1,875,575 common shares through November 28, 2019.
Dividends
We have not declared or paid any cash or stock dividends on our common shares since our inception and do not anticipate declaring or paying any cash or stock dividends in the foreseeable future. Our subsidiaries are restricted from making distributions or dividend payments to us by the Loan Agreement, subject to certain exceptions.
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VIEMED HEALTHCARE, INC. |
June 30, 2021 and 2020 |
Item 3. Defaults Upon Senior Securities
None.
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VIEMED HEALTHCARE, INC. |
June 30, 2019 and 2018 |
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index below.
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Exhibit Number | | Exhibit Title |
#2.1 | | |
#2.1 | | |
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#2.2 | | |
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#2.3 | | |
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#2.4 | | |
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3.1 | | |
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3.2 | | |
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4.1 | | |
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4.2 | | |
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10.1 | | |
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10.2 | | |
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*31.1 | | |
VIEMED HEALTHCARE, INC. |
June 30, 2019 and 2018 |
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10.3 | | |
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10.4 | | |
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10.5 | | |
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*31.1 | | |
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*31.2 | | |
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**32.1 | | |
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**32.2 | | |
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*101.INS | | Inline XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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*101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
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*101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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*101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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*101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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*101.DEF | | Inline XBRL Taxonomy Extension Definition Document. |
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*104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Filed herewithin.herewith. |
** Furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K. |
# Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplementally a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request. |
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VIEMED HEALTHCARE, INC. |
June 30, 20192021 and 20182020 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange of Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| VIEMED HEALTHCARE, INC. |
| (Registrant) |
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| By: | /s/ Casey Hoyt |
| | Casey Hoyt |
| | Chief Executive Officer |
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| By: | /s/ Trae Fitzgerald |
| | Trae Fitzgerald |
| | Chief Financial Officer |
Date: August 2, 2021
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| VIEMED HEALTHCARE, INC. |
| (Registrant) |
| | |
| By: | /s/ Casey Hoyt |
| | Casey Hoyt |
| | Chief Executive Officer |
| | |
| By: | /s/ Trae Fitzgerald |
| | Trae Fitzgerald |
| | Chief Financial OfficerPage 43 |
Date: August 9, 2019