Exhibit 99.1
Quipt Home Medical Corp.
Condensed Consolidated Interim Financial Statements
2023 Third Quarter
For the three and nine months ended
June 30, 2023 and 2022
(UNAUDITED)
(Expressed in US Dollars)
Quipt Home Medical Corp.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
(Expressed in thousands of US Dollars, except per share amounts)
| | | | | | |
| | As at | | As at | ||
| | June 30, | | September 30, | ||
|
| 2023 |
| 2022 | ||
ASSETS |
| |
|
| |
|
Current Assets |
| |
|
| |
|
Cash | | $ | 20,445 | | $ | 8,516 |
Accounts receivable, net | |
| 23,817 | |
| 16,383 |
Inventory | |
| 19,449 | |
| 15,585 |
Prepaid and other current assets | |
| 3,188 | |
| 1,052 |
Total current assets | |
| 66,899 | |
| 41,536 |
Long-term assets | |
|
| |
|
|
Property, equipment, and right of use assets, net | |
| 51,401 | |
| 33,497 |
Goodwill | |
| 50,850 | |
| 28,208 |
Intangible assets, net | |
| 72,961 | |
| 28,887 |
Other assets | |
| 274 | |
| 86 |
Total long-term assets | |
| 175,486 | |
| 90,678 |
TOTAL ASSETS | | $ | 242,385 | | $ | 132,214 |
| | | | | | |
LIABILITIES | |
|
| |
|
|
Current Liabilities | |
|
| |
|
|
Accounts payable | | $ | 24,373 | | $ | 13,841 |
Accrued liabilities | |
| 5,329 | |
| 3,451 |
Current portion of equipment loans | |
| 13,198 | |
| 5,473 |
Current portion of lease liabilities | |
| 4,704 | |
| 3,304 |
Current portion of senior credit facility | |
| 3,353 | |
| 6,857 |
Deferred revenue | |
| 4,451 | |
| 3,036 |
Purchase price payable | |
| 359 | |
| 5,778 |
Total current liabilities | |
| 55,767 | |
| 41,740 |
Long-term Liabilities | |
|
| |
|
|
Equipment loans | |
| 106 | |
| 234 |
Lease liabilities | |
| 13,562 | |
| 7,195 |
Senior credit facility | |
| 61,966 | |
| 3,378 |
SBA Loan | | | — | | | 120 |
TOTAL LIABILITIES | |
| 131,401 | |
| 52,667 |
| | | | | | |
SHAREHOLDERS' EQUITY | |
|
| |
|
|
Capital stock | |
| 247,444 | |
| 214,254 |
Contributed surplus | |
| 26,024 | |
| 26,317 |
Accumulated deficit | |
| (162,484) | |
| (161,024) |
TOTAL SHAREHOLDERS' EQUITY | |
| 110,984 | |
| 79,547 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 242,385 | | $ | 132,214 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 1 |
Quipt Home Medical Corp.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF INCOME (LOSS) AND
(UNAUDITED)
(Expressed in thousands of US Dollars, except per share amounts)
| | | | | | | | | | | | | | |
|
| |
| Three Months |
| Three Months |
| Nine Months |
| Nine Months | ||||
| | | | Ended June 30, | | Ended June 30, | | Ended June 30, | | Ended June 30, | ||||
| | Notes | | 2023 | | 2022 | | 2023 | | 2022 | ||||
Revenue | | | | | | | | | | | | | | |
Rentals of medical equipment |
|
| | $ | 25,707 | | $ | 18,106 | | $ | 68,648 | | $ | 50,953 |
Sales of medical equipment and supplies |
|
| |
| 34,577 | |
| 18,586 | |
| 90,571 | |
| 48,817 |
Total revenues |
|
| | | 60,284 | | | 36,692 | | | 159,219 | | | 99,770 |
Cost of inventory sold |
|
| |
| 16,630 | |
| 8,906 | | | 41,613 | | | 23,919 |
Operating expenses |
| 13 | |
| 27,385 | |
| 16,926 | | | 74,533 | | | 46,597 |
Bad debt expense | | | | | 2,425 | | | 3,404 | | | 7,190 | | | 8,983 |
Depreciation |
| | |
| 10,208 | |
| 4,602 | | | 24,328 | | | 14,159 |
Amortization of intangible assets |
| 7 | |
| 1,490 | |
| 761 | | | 3,746 | | | 1,676 |
Stock-based compensation |
| 11 | |
| 2,034 | |
| 1,325 | | | 3,911 | | | 4,596 |
Acquisition-related costs |
| 3 | |
| (25) | |
| 156 | | | 1,132 | | | 223 |
Gain on disposal of property and equipment |
|
| |
| (33) | |
| (7) | | | (88) | | | (10) |
Other income from government grant | | | | | — | | | — | | | — | | | (4,254) |
Operating income |
|
| |
| 170 | |
| 619 | |
| 2,854 | |
| 3,881 |
Financing expenses |
|
| |
|
| |
|
| |
|
| |
|
|
Interest expense, net |
|
| |
| 1,969 | |
| 522 | | | 4,704 | | | 1,507 |
Loss (gain) on foreign currency transactions |
|
| |
| (442) | |
| (44) | | | (430) | | | 82 |
Loss on extinguishment of debt | | | | | — | | | — | | | 30 | | | — |
Change in fair value of debentures |
| | |
| — | |
| (177) | | | — | | | (1,235) |
Income (loss) before taxes |
|
| |
| (1,357) | |
| 318 | |
| (1,450) | |
| 3,527 |
Provision (benefit) for income taxes |
| 14 | |
| (323) | |
| 155 | | | 10 | | | 458 |
Net income (loss) |
|
| | $ | (1,034) | | $ | 163 | | $ | (1,460) | | $ | 3,069 |
| | | | | | | | | | | | | | |
Net income (loss) per share |
| 15 | |
|
| |
|
| |
|
| |
|
|
Basic earnings (loss) per share |
|
| | $ | (0.03) | | $ | 0.00 | | $ | (0.04) | | $ | 0.09 |
Diluted earnings (loss) per share |
|
| | $ | (0.03) | | $ | 0.00 | | $ | (0.04) | | $ | 0.08 |
Weighted average number of common shares outstanding (in thousands): |
|
| |
|
| |
|
| |
|
| |
|
|
Basic |
|
| |
| 40,584 | |
| 33,559 | | | 37,434 | | | 33,449 |
Diluted |
|
| |
| 40,584 | |
| 37,863 | | | 37,434 | | | 38,109 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 2 |
Quipt Home Medical Corp.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS’
EQUITY (UNAUDITED)
(Expressed in thousands of US Dollars, except per share amounts)
| | | | | | | | | | | | | | | | | | | | ||
|
| |
| Number of |
| | |
| | |
| | |
| | | | Total | |||
| | | | shares | | Capital | | Contributed | | Shares to | | Accumulated | | shareholders' | |||||||
| | Notes | | (000’s) | | stock | | surplus | | be Issued | | Deficit | | equity | |||||||
Balance September 30, 2021 |
|
|
| 33,350 | | $ | 202,827 | | $ | 21,001 | | $ | 657 | | $ | (165,863) | | $ | 58,622 | ||
Net income |
|
|
| — | | | — | | | — | | | — | | | 3,069 | |
| 3,069 | ||
Conversion of debentures | | 10 | | 160 | | | 884 | | | — | | | — | | | — | | | 884 | ||
Stock options exercised |
| 11 |
| 22 | | | 204 | | | (25) | | | — | | | — | |
| 179 | ||
Compensation options exercised | | 11 | | 115 | | | 528 | | | (153) | | | — | | | — | | | 375 | ||
Stock-based compensation |
| 11 |
| — | | | — | | | 4,596 | | | — | | | — | |
| 4,596 | ||
Balance June 30, 2022 |
|
|
| 33,647 | | $ | 204,443 | | $ | 25,419 | | $ | 657 | | $ | (162,794) | | $ | 67,725 | ||
| | | | | | | | | | | | | | | | | | | | ||
Balance September 30, 2022 |
|
|
| 35,605 | | $ | 214,254 | | $ | 26,317 | | $ | — | | $ | (161,024) | | $ | 79,547 | ||
Net loss |
|
|
| — | | | — | | | — | | | — | | | (1,460) | |
| (1,460) | ||
Acquisition of Great Elm | | 3 | | 432 | | | 2,060 | | | — | | | — | | | — | | | 2,060 | ||
Issuance of shares, net of issuance costs | | 11 | | 5,409 | | | 27,866 | | | — | | | — | | | — | | | 27,866 | ||
Settlement of restricted stock units | | 11 | | 526 | | | 2,791 | | | (4,129) | | | — | | | — | | | (1,338) | ||
Stock options exercised | | 11 | | 101 | | | 473 | | | (75) | | | — | | | — | | | 398 | ||
Change in cumulative translation adjustment | | | | — | | | — | | | — | | | — | | | — | | | — | ||
Stock-based compensation |
| 11 |
| — | | | — | | | 3,911 | | | — | | | — | |
| 3,911 | ||
Balance June 30, 2023 | | |
| 42,073 | | $ | 247,444 | | $ | 26,024 | | $ | — | | $ | (162,484) | | $ | 110,984 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 3 |
Quipt Home Medical Corp.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)
(Expressed in thousands of US Dollars, except per share amounts)
| | | | | | | | |
|
| |
| Nine months |
| Nine months | ||
| | | | ended June 30, | | ended June 30, | ||
| | Notes | | 2023 | | 2022 | ||
Operating activities | | | | | | | | |
Net income (loss) | | | | $ | (1,460) | | $ | 3,069 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| | |
| |
Depreciation and amortization |
| 7 | |
| 28,074 | |
| 15,835 |
Amortization of financing costs and accretion of purchase price payable |
| 3, 10 | |
| 447 | |
| 168 |
Interest expense, net of amortization and accretion |
| 10 | |
| 4,257 | |
| 1,339 |
Cash paid for interest | | | | | (3,808) | | | (1,520) |
Loss on foreign currency transactions | | | |
| (430) | |
| 82 |
Gain on fair value of convertible debentures |
| 10 | |
| — | |
| (1,235) |
Gain on disposal of property and equipment | | | |
| (88) | |
| (10) |
Loss on extinguishment of debt | | | | | 30 | | | — |
Stock-based compensation |
| 11 | |
| 3,911 | |
| 4,596 |
Other income from government grant | | | | | — | | | (4,254) |
Adjustments to purchase price payable | | | | | (95) | | | — |
Provision for income taxes | | | | | 10 | | | 458 |
Cash paid for income taxes | | | | | (515) | | | (468) |
Change in working capital (net of acquisitions): | | | |
| | |
| |
Net (increase) decrease in accounts receivable | | | |
| (1,902) | | | 497 |
Net increase in inventory | | | |
| (2,469) | | | (1,081) |
Net (increase) decrease in prepaid and other current assets | | | |
| (1,578) | | | 801 |
Net increase (decrease) in deferred revenue | | | |
| 393 | | | (117) |
Net increase in accounts payables and accrued liabilities | | | |
| 2,535 | | | 1,273 |
Net cash flow provided by operating activities | | | |
| 27,312 | |
| 19,433 |
Investing activities |
|
| |
|
| |
|
|
Purchase of property and equipment |
| 6 | |
| (4,959) | | | (6,020) |
Cash proceeds from sale of property and equipment | | | |
| 84 | | | 283 |
Cash paid for acquisitions, net of cash acquired |
| | |
| (71,869) | | | (28,687) |
Net cash flow used in investing activities | | | |
| (76,744) | |
| (34,424) |
Financing activities |
|
| |
|
| |
|
|
Repayments of loans |
| 10 | |
| (12,651) | |
| (9,214) |
Repayments of leases | | 10 | | | (3,200) | | | (2,857) |
Issuance of debt under senior credit facility | | 10 | | | 64,000 | | | — |
Repayments of senior credit facility | | 10 | | | (8,788) | | | — |
Proceeds from borrowings on the revolving credit facility | | 10 | | | — | | | 12,000 |
Issuance costs related to senior credit facility | | 10 | | | (467) | | | — |
Payments of purchase price payable |
| 3 | |
| (4,889) | |
| (1,468) |
Settlement of restricted stock units | | 11 | | | (1,338) | | | — |
Issuance of shares, net of issuance costs | | | | | 27,866 | | | — |
Proceeds from exercise of compensation options | | 11 | | | — | | | 375 |
Proceeds from exercise of options |
| 11 | |
| 398 | |
| 179 |
Net cash flow provided by (used in) financing activities | | | |
| 60,931 | |
| (985) |
Net increase (decrease) in cash | | | |
| 11,499 | |
| (15,976) |
Effect of exchange rate changes on cash held in foreign currencies | | | |
| 430 | |
| (98) |
Cash, beginning of period | | | |
| 8,516 | |
| 34,612 |
Cash, end of period | | | | $ | 20,445 | | $ | 18,538 |
The accompanying notes are an integral part of these condensed consolidated interim financial statements.
Page | 4 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
1. |
Reporting entity
Quipt Home Medical Corp. (“Quipt” or the “Company”) was incorporated under the Business Corporations Act (Alberta) on March 5, 1993. On December 30, 2013, the Company was continued into British Columbia, Canada. The address of the registered office is 666 Burrard St, Vancouver, British Columbia, V6C 2Z7. The head office is located at 1019 Town Drive, Wilder, Kentucky, United States. The Company is a participating Medicare provider that provides i) nebulizers, oxygen concentrators, and CPAP (continuous positive airway pressure) and BiPAP (bi level positive air pressure) units; ii) traditional and non-traditional durable medical equipment and services; and iii) non-invasive ventilation equipment, supplies and services.
Basis of measurement
These consolidated financial statements have been prepared on a going concern basis that assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of operations.
2. | Summary of significant accounting policies |
Statement of compliance
These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, “Interim Financial Reporting”, using accounting policies consistent with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. These condensed consolidated interim financial statements do not include all the disclosures required in annual consolidated financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended September 30, 2022.
The Company has followed the same basis of presentation, accounting policies and method of computation for these condensed consolidated interim financial statements as disclosed in the annual audited consolidated financial statements for the year ended September 30, 2022.
The unaudited consolidated financial statements were approved and authorized for issuance by the Board of Directors on August 14, 2023.
3. | Business acquisitions |
Acquisition of Great Elm Healthcare, LLC
On January 3, 2023, the Company, through one of its indirect wholly-owned subsidiaries, acquired Great Elm Healthcare, LLC (“Great Elm”). The purchase price was $73,929,000, which is comprised of approximately $72,689,000 in cash to the sellers and 431,996 Quipt common shares at a closing price per share of $4.77 for $2,060,000, less $820,000 of cash acquired. The net cash was obtained from the delayed draw term loan and revolving credit facility of the senior credit facility described in Note 10. The Company expensed $1,084,000 of professional fees in conjunction with the acquisition for the nine months ended June 30, 2023.
Page | 5 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
The pro forma revenues and net income for Great Elm for the nine months ended June 30, 2023 as if the acquisition had occurred on October 1, 2022 was approximately $50,000,000 and $2,500,000, respectively, of which approximately $33,000,000 and $2,400,000 were recognized in the period from January 3, 2023 to June 30, 2023.
The fair value of the acquired assets and liabilities is provisional pending final valuations of the assets and liabilities and is as follows:
| | | |
Accounts receivable | | $ | 5,531 |
Inventory | |
| 1,398 |
Prepaid and other current assets | | | 584 |
Property, equipment, and right of use assets | |
| 13,261 |
Goodwill | |
| 23,186 |
Intangible assets | | | 47,820 |
Other assets | | | 161 |
Accounts payable | |
| (6,085) |
Accrued liabilities | |
| (3,845) |
Deferred revenue | |
| (1,022) |
Equipment loans | | | (4,259) |
Lease liabilities | |
| (2,801) |
Net assets acquired | | $ | 73,929 |
Cash paid at closing | | $ | 72,689 |
Cash acquired |
| | (820) |
Equity issued at closing | |
| 2,060 |
Consideration paid or payable | | $ | 73,929 |
The goodwill is attributable to expected synergies from the combining operations. All of the goodwill is deductible for income tax purposes.
Purchase Price Payable
The purchase price payable included on the statements of financial position consists of amounts related to prior period acquisitions. Below is the movement in purchase price payable for the nine months ended June 30, 2023 and 2022, respectively:
| | | |
| | Amount | |
Balance September 30, 2021 (current $2,383, long-term $133) | | $ | 2,516 |
Addition from acquisitions | |
| 5,762 |
Accretion of interest | |
| 63 |
Payments | |
| (1,468) |
Balance June 30, 2022 (current $6,873, long-term $0) | | $ | 6,873 |
| | | |
Balance September 30, 2022 (current $5,778, long-term $0) | | $ | 5,778 |
Adjustments on prior acquisitions | | | (639) |
Accretion of interest | |
| 109 |
Payments | |
| (4,889) |
Balance June 30, 2023 (current $359, long-term $0) | | $ | 359 |
Page | 6 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
Of the adjustments on prior acquisitions for the nine months ended June 30, 2023, $544,000 was adjusted through goodwill and $95,000 was included in “Acquisition-related costs” on the condensed consolidated interim statements of income (loss).
4. | Accounts Receivable |
Accounts receivable represent amounts due from insurance companies and patients. As of June 30, 2023, the Company has approximately 12% of the Company’s receivables due from Medicare:
| | | | | | |
|
| As at |
| As at | ||
| | June 30, 2023 | | September 30, 2022 | ||
Gross receivable | | $ | 32,550 | | $ | 27,122 |
Reserve for expected credit losses | |
| (8,733) | |
| (10,739) |
Total | | $ | 23,817 | | $ | 16,383 |
5. | Inventory |
Inventory was comprised of the following as at June 30, 2023 and September 30, 2022:
| | | | | | |
| | As at June 30, | | As at September 30, | ||
| | 2023 | | 2022 | ||
Serialized | | $ | 7,590 | | $ | 5,814 |
Non-serialized | |
| 12,073 | |
| 9,854 |
Reserve for slow-moving | |
| (214) | |
| (83) |
Total Inventory | | $ | 19,449 | | $ | 15,585 |
The expense for slow-moving inventory is included within cost of inventory sold in the condensed consolidated statement of income (loss) and comprehensive income (loss).
6. | Property and equipment and right of use assets |
The property and equipment and right of use assets was comprised of the following:
| | | | | | |
|
| | |
|
| |
| | As at | | | As at | |
Cost | | June 30, 2023 | | September 31, 2022 | ||
Property and equipment, net | | $ | 32,776 | | $ | 22,750 |
Right of use assets, net | |
| 18,625 | |
| 10,747 |
Total | | $ | 51,401 | | $ | 33,497 |
Rental equipment transferred from inventory during the nine months ended June 30, 2023 and 2022 was $20,187,000 and $12,029,000 respectively. For the nine months ended June 30, 2023 and 2022, the Company obtained equipment loans (Note 10) of $15,839,000 and $6,183,000, respectively, with the balance of $4,348,000 and $5,846,000 paid in cash, respectively.
7. | Goodwill and Intangible Assets |
The following is the activity in goodwill and intangible assets for the nine months ended June 30, 2023 and 2022:
Page | 7 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
| | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Sub-total |
| | | |
| | | | | | | | | | | intangibles | | | | |
| | | | | Customer | | Other | | with finite | | | | |||
Cost | | Goodwill | | relationships | | Intangibles | | lives | | Total | |||||
Balance September 30, 2021 | | $ | 12,456 | | $ | 20,690 | | $ | 8,109 | | $ | 28,799 | | $ | 41,255 |
Acquisitions | |
| 22,120 | | | — | | | 5,300 | | | 5,300 | |
| 27,420 |
Disposals | |
| — | | | — | | | (2) | | | (2) | |
| (2) |
Balance June 30, 2022 | | $ | 34,576 | | $ | 20,690 | | $ | 13,407 | | $ | 34,097 | | $ | 68,673 |
| | | | | | | | | | | | | | | |
Balance September 30, 2022 | | $ | 28,208 | | | 34,898 | | | 10,499 | | $ | 45,397 | | $ | 73,605 |
Acquisitions | | | 23,186 | | | 42,000 | | | 5,820 | | | 47,820 | | | 71,006 |
Adjustments to prior year acquisitions | | | (544) | | | — | | | — | | | — | | | (544) |
Balance June 30, 2023 | | $ | 50,850 | | $ | 76,898 | | $ | 16,319 | | $ | 93,217 | | $ | 144,067 |
| | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Sub-total |
| | | |
| | | | | | | | | | | intangibles | | | | |
| | | | | Customer | | Other | | with finite | | | | |||
Accumulation amortization | | Goodwill | | relationships | | Intangibles | | lives | | Total | |||||
Balance September 30, 2021 | | $ | — | | $ | 8,267 | | $ | 5,658 | | $ | 13,925 | | $ | 13,925 |
Amortization | |
| — | | | — | | | 1,676 | | | 1,676 | |
| 1,676 |
Disposals | |
| — | | | — | | | (2) | | | (2) | |
| (2) |
Balance June 30, 2022 | | $ | — | | $ | 8,267 | | $ | 7,332 | | $ | 15,599 | | $ | 15,599 |
| | | | | | | | | | | | | | | |
Balance September 30, 2022 | | $ | — | | $ | 10,345 | | $ | 6,165 | | $ | 16,510 | | $ | 16,510 |
Amortization | |
| — | | | 2,985 | | | 761 | | | 3,746 | |
| 3,746 |
Balance June 30, 2023 | | $ | — | | $ | 13,330 | | $ | 6,926 | | $ | 20,256 | | $ | 20,256 |
| | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| Sub-total |
| | | |
| | | | | | | | | | | intangibles | | | | |
| | | | | Customer | | Other | | with finite | | | | |||
Net carrying amount | | Goodwill | | relationships | | Intangibles | | lives | | Total | |||||
Balance September 30, 2021 | | $ | 12,456 | | $ | 12,423 | | $ | 2,451 | | $ | 14,874 | | $ | 27,330 |
Balance June 30, 2022 | | $ | 34,576 | | $ | 12,423 | | $ | 6,075 | | $ | 18,498 | | $ | 53,074 |
Balance September 30, 2022 | | $ | 28,208 | | $ | 24,553 | | $ | 4,334 | | $ | 28,887 | | $ | 57,095 |
Balance June 30, 2023 | | $ | 50,850 | | $ | 63,568 | | $ | 9,393 | | $ | 72,961 | | $ | 123,811 |
8. | Government Grant |
During the year ended September 30, 2020, the Company received payments related to the US CARES Act.
Payroll Protection Plan (“PPP’)
During April 2020, the Company received $4,254,000 related to the PPP, which was to assist companies in maintaining their workforce. The loans and accrued interest were forgivable if the borrower uses the loan proceeds for eligible purposes. On March 23, 2022, the loan was forgiven, and “other income from government grant” was recorded in the condensed consolidated interim financial statements for the nine months ended June 30, 2022. No balance remained on the balance sheet as of June 30, 2023 and September 30, 2022.
Page | 8 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
9. | Deferred Revenue |
Activity for deferred revenue for the nine months ended June 30, 2023 and 2022 is as follows:
| | | | | | |
|
| For the nine |
| For the nine | ||
| | months ended | | months ended | ||
| | June 30, 2023 | | June 30, 2022 | ||
Beginning Balance | | $ | 3,036 | | $ | 2,452 |
Acquisitions | |
| 1,022 | |
| 424 |
Net change | |
| 393 | |
| (118) |
Ending Balance | | $ | 4,451 | | $ | 2,758 |
10. | Long-term Debt |
Senior Credit Facility
In September 2022, the Company entered into a five-year, $110,000,000 senior credit facility (“Facility”) with a group of US banks. The facility consists of a.) a delayed draw term loan facility of $85,000,000, of which $64,000,000 was drawn on January 3, 2023, to partially fund the acquisition of Great Elm, b.) a term loan of $5,000,000 that was drawn at closing, and c.) a $20,000,000 revolving credit facility. The Facility amended the $20,000,000 revolving credit facility that was entered into in September 2020. The Facility is secured by substantially all assets of the Company and is subject to certain financial covenants.
The Facility bears interest at variable rates ranging in length from one to three months and has fees for unused balances. The rate is based on a secured overnight financing rate plus a spread of 2.1% to 2.85% (2.6% as of June 30, 2023) based on the Company’s leverage ratio. The Company is required to obtain interest rate protection agreements covering at least half of the outstanding principal amount by November 2023.
As of June 30, 2023, the outstanding balances under the Facility totaled $67,213,000, comprised of $62,400,000 on the delayed draw term loan and $4,813,000 on the term loan, both bearing interest at 8.0%. The delayed draw term loan is repayable in quarterly installments of $800,000, with the balance due at maturity. The term loan is repayable in quarterly installments of $62,500, with the balance due at maturity. The revolving credit facility has no balance as of June 30, 2023.
Interest expense on the Facility was $1,380,000 and $3,000,000 for the three and nine months ended June 30, 2023, respectively. The fair value of the facility approximates the carrying value as of June 30, 2023 and September 30, 2022.
The Company has cumulatively incurred $2,246,000 in financing costs to obtain the Facility, which is reflected as a reduction of the outstanding balance and will be amortized as interest expense using the effective interest method over the life of the Facility. During the three and nine months ended June 30, 2023, $114,000 and $338,000 of amortization of deferred financing costs was recorded, respectively.
Page | 9 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
The revolving credit facility that was replaced with the Facility incurred issuance costs that were being amortized on a straight-line over the four-year term of the facility for a total of $35,000 and $105,000 for the three and nine months ended June 30, 2022, respectively.
A summary of the balances related to the Facility as of June 30, 2023 and September 30, 2022 is as follows:
| | | | | | | |
|
| As of |
| As of |
| ||
| | June 30, 2023 |
| September 30, 2022 |
| ||
Delayed draw term loan | | $ | 62,400 | | $ | — | |
Term loan | |
| 4,813 | |
| 5,000 | |
Revolving credit facility | | | — | | | 7,000 | |
Total principal | | | 67,213 | | | 12,000 | |
Deferred financing costs | | | (1,894) | | | (1,765) | |
Net carrying value | | $ | 65,319 | | $ | 10,235 | |
| | | | | | | |
Current portion | |
| 3,353 | |
| 6,857 | |
Long-term portion | |
| 61,966 | |
| 3,378 | |
Net carrying value | | $ | 65,319 | | $ | 10,235 | |
Debentures
On March 7, 2019, the Company issued C$15,000,000 in 8.0% Convertible Unsecured Debentures due March 7, 2024, with interest payable semi-annually on June 30 and December 31. Each C$1,000 (US$807) debenture was convertible at the option of the holder into 192.31 common shares. Beginning March 9, 2022, the Company could force conversion of the outstanding principal at a conversion price of C$5.20 per share, if the daily volume weighted average price of the common shares exceeds C$6.48 per share for twenty consecutive trading days. The Company exercised this option during the year ended September 30, 2022. No debentures remain outstanding as of June 30, 2023 or September 30, 2022.
The debentures contained multiple embedded derivatives including conversion right, forced conversion option and payment in lieu of common shares. Since the Company was unable to measure the fair value of embedded derivatives reliably, it had chosen to designate the convertible debentures in their entirety (including conversion right, forced conversion option and payment in lieu of common shares) to be subsequently measured at fair value through profit or loss (FVTPL). The debentures were valued at fair value using the current trading price, and a gain of $177,000 and $1,235,000 was recorded for the three and nine months ended June 30, 2022, respectively.
Equipment Loans
The Company is offered financing arrangements from the Company’s suppliers and the suppliers’ designated financial institutions, under which payments for certain invoices or products can be financed and paid over an extended period. The financial institution pays the supplier when the original invoice becomes due, and the Company pays the third-party financial institution over a period of time. In most cases, the supplier accepts a discounted amount from the financial institution and the Company repays the financial institution the face amount of the invoice with no stated interest, in twelve equal monthly installments. The Company used an incremental borrowing rate of 6% - 7% to impute interest on these arrangements. There are no covenants with the loans and the carrying value of the equipment that is pledged as security against the loans is $23,375,000 and $14,949,000 as of June 30, 2023 and September 30, 2022, respectively.
Page | 10 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
Following is the activity in equipment loans for the nine months ended June 30, 2023 and 2022:
| | | | | | |
|
| Nine months ended |
| Nine months ended | ||
| | June 30, 2023 | | June 30, 2022 | ||
Beginning Balance | | $ | 5,707 | | $ | 7,384 |
Additions: | |
| | |
| |
Acquisitions | | | 4,259 | | | 1,128 |
Operations | | | 15,839 | | | 6,183 |
Repayments | |
| (12,501) | |
| (9,214) |
Ending Balance | |
| 13,304 | |
| 5,481 |
Current portion | |
| 13,198 | |
| 5,158 |
Long-term portion | | $ | 106 | | $ | 323 |
Leases Liabilities
The Company enters into leases for real estate and vehicles. Real estate leases are valued at the net present value of the future lease payments at incremental borrowing rates ranging from 6.3% to 8.8%. Vehicle leases are recorded at rate implicit in the lease based on the current value and the estimated residual value of the vehicle, equating to rates ranging from 3.0% to 11.3%.
Following is the activity in lease liabilities for the nine months ended June 30, 2023 and 2022:
| | | | | | | | | |
|
| | |
| Real |
| | | |
| | Vehicles | | estate | | Total | |||
Balance September 30, 2021 | | $ | 2,414 | | $ | 5,351 | | $ | 7,765 |
Additions: | | | | | | | | | |
Acquisitions | | | 571 | | | 2,489 | |
| 3,060 |
Operations | | | 340 | | | 1,303 | |
| 1,643 |
Lease terminations | | | — | | | (80) | | | (80) |
Repayments | | | (1,138) | | | (1,719) | |
| (2,857) |
Balance June 30, 2022 | | $ | 2,187 | | $ | 7,344 | | $ | 9,531 |
| | | | | | | | | |
Balance September 30, 2022 | | $ | 1,993 | | $ | 8,506 | | $ | 10,499 |
Additions: | | | | | | | | | |
Acquisitions | | | 365 | | | 2,436 | | | 2,801 |
Operations | |
| 908 | | | 7,258 | |
| 8,166 |
Repayments | |
| (586) | | | (2,614) | |
| (3,200) |
Balance June 30, 2023 | | $ | 2,680 | | $ | 15,586 | | $ | 18,266 |
Page | 11 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
Future payments pursuant to lease liabilities are as follows:
| | | | | | |
|
| As at |
| As at | ||
| | June 30, 2023 | | September 30, 2022 | ||
Less than 1 year | | $ | 5,953 | | $ | 3,979 |
Between 1 and 5 years | |
| 13,513 | |
| 7,443 |
More than five years | |
| 2,207 | |
| 1,108 |
Gross lease payments | |
| 21,673 | |
| 12,530 |
Less: finance charges | |
| (3,407) | |
| (2,031) |
Net lease liabilities | | | 18,266 | | | 10,499 |
Current portion | | | 4,704 | | | 3,304 |
Long-term portion | | $ | 13,562 | | $ | 7,195 |
SBA Loan
In conjunction with an acquisition, the Company assumed an SBA Loan. The face amount of the loan was $150,000 and bears interest at a stated interest rate of 3.75%. Due to the below-market interest rate, the Company valued the loan at the net present value of the payments using the incremental borrowing rate of 6%, resulting in a fair value on the acquisition date of $119,000. The loan was payable in monthly principal and interest installments of $731 through May 2051 and was secured by substantially all the assets of the acquired subsidiary. The loan was paid off during the three and nine months ended June 30, 2023, and a loss on extinguishment of approximately $30,000 was recorded in the condensed consolidated interim financial statements.
Following is the activity in the SBA Loan for the nine months ended June 30, 2023 and 2022:
| | | | | | |
|
| Nine months ended |
| Nine months ended | ||
| | June 30, 2023 |
| June 30, 2022 | ||
Beginning Balance | | $ | 120 | | $ | 121 |
Loss on extinguishment | | | 30 | | | — |
Repayments | |
| (150) | |
| (1) |
Ending Balance | | $ | — | | $ | 120 |
11. | Share capital |
The Company considers its capital to be shareholders’ equity, which is comprised of capital stock, contributed surplus, shares to be issued, and accumulated deficit, in the amount of $110,984,000 and $79,547,000 as at June 30, 2023 and September 30, 2022, respectively.
Issued share capital
The Company has only one class of common stock outstanding. Common shares are classified as equity, and costs related to the issuance of common shares are recognized as a reduction of equity.
Issuance of common shares
On April 25, 2023, the Company completed a bought deal public offering and brokered private placement. The Company issued a total of 5,409,000 common shares for aggregate gross proceeds of approximately C$42,500,000, or $31,200,000. Underwriters received a commission of approximately C$2,100,000, or $1,500,000, and other professional fees of
Page | 12 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
approximately $1,800,000 were incurred for net proceeds of approximately $27,900,000. A portion of the net proceeds have been used to fully pay down the revolver portion of the Facility during the three months ended June 30, 2023.
Shares to be issued
The Company acquired a company during the year ended September 30, 2021, with a portion of the purchase price payable in shares. The fair value of the stock had been discounted by 25%, using the Black-Scholes pricing model for put options, to reflect the inability to sell the stock for a period and for the time between the date of the acquisition and the dates the stock was to be issued. The shares that were scheduled to be issued in August 2022, were settled instead, upon mutual agreement of the parties, with a cash payment of $1,100,000 in the fourth quarter of fiscal year 2022.
Stock options and grants
The Company has a stock option plan, which it uses for grants to directors, officers, employees, and consultants. Options granted under the plan are non-assignable and may be granted for a term not exceeding ten years. Stock options having varying vesting periods and the options granted during the nine months ended June 30, 2023 vest quarterly over eight or twelve quarters.
A summary of stock options is provided below:
| | | | | |
|
| |
| Weighted | |
| | Number of options (000’s) | | average exercise price | |
Balance September 30, 2021 | | 3,786 | | C$ | 4.15 |
Issued | | 195 | | | 6.69 |
Exercised | | (22) | | | 1.50 |
Expired | | (21) | | | 6.18 |
Forfeited | | (115) | | | 8.48 |
Balance June 30, 2022 | | 3,823 | | C$ | 4.15 |
| | | | | |
Balance September 30, 2022 |
| 3,751 | | C$ | 4.24 |
Issued | | 435 | | | 8.30 |
Exercised | | (101) | | | 5.29 |
Expired |
| (42) | |
| 6.96 |
Forfeited |
| (49) | |
| 7.15 |
Balance June 30, 2023 |
| 3,994 | | C$ | 4.49 |
At June 30, 2023, the Company had 3,138,322 vested stock options with a weighted average exercise price of C$3.47.
Restricted stock units
On May 20, 2021, 953,750 restricted stock units were granted to officers and directors. Each unit represents the right to receive one common share, and vests over a period of two years from the grant date at the rate of one-eighth every three months commencing three months after the grant date. During the year ended September 30, 2022, 105,000 units were forfeited. On February 1, 2022, 81,340 restricted stock units were granted to officers. Each unit represents the right to receive one common share and vested in four installments on the last day of each calendar quarter of 2022. The 645,313 units that vested in calendar years 2021 and 2022 were settled through the issuance of 526,193 shares during the three and nine months ended June 30, 2023. The number of shares issued was less than the number of units settled due to the officers’ election to receive a reduced number of shares to satisfy their tax withholding obligations. These tax withholdings resulted in a cash outflow of $1,338,000 by the Company.
Page | 13 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
On February 20, 2023, 831,000 restricted stock units were granted to officers and directors. Each unit represents the right to receive one common share, and vests over a period of two years from the grant date at the rate of one-eighth every three months commencing three months after the grant date.
As of June 30, 2023, a total of 932,719 restricted stock units were outstanding, of which 205,594 had vested.
The fair value of the restricted stock units on the date of grant are discounted to reflect the difference between the vesting dates and the expected issuance dates, to be expensed over the respective vesting periods with an increase to contributed surplus.
Stock-based compensation
The Company accounts for stock-based compensation using the fair value method as prescribed by IFRS 2. Under this method, the fair value of stock options and restricted stock units at the date of grant is expensed over the vesting period and the offsetting credit is recorded as an increase in contributed surplus. An estimate of the number of awards that are expected to be forfeited is also made at the time of grant and revised periodically if actual forfeitures differ from those estimates.
For the three and nine months ended June 30, 2023 and 2022, the Company recorded stock-based compensation expense as follows:
| | | | | | | | | | | | |
|
| Three Months |
| Three Months |
| Nine months |
| Nine months | ||||
| | Ended June 30, | | Ended June 30, | | Ended June 30, | | Ended June 30, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Restricted stock units | | $ | 1,412 | | $ | 600 | | | 2,468 | | | 2,250 |
Stock options | | | 622 | | | 725 | | | 1,443 | | | 2,346 |
Stock-based compensation expense | | $ | 2,034 | | $ | 1,325 | | $ | 3,911 | | $ | 4,596 |
12. | Commitments and contingencies |
Commitments
The Company leases certain facilities with terms of less than a year that are classified as operating leases. Future payments pursuant to these leases are $45,000 as of June 30, 2023, which are all due in less than one year.
Contingencies
From time to time, the Company is involved in various legal proceedings arising from the ordinary course of business. None of the matters in which the Company is currently involved, either individually, or in the aggregate, is expected to have a material adverse effect on the Company’s consolidated financial position, results of operations, or cash flows.
Page | 14 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
13. Operating expenses
| | | | | | | | | | | | |
|
| Three months |
| Three months |
| Nine months |
| Nine months | ||||
| | ended June 30, | | ended June 30, | | ended June 30, | | ended June 30, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Payroll and employee benefits | | $ | 18,160 | | $ | 10,418 | | $ | 49,115 | | $ | 29,002 |
Facilities | |
| 1,222 | |
| 906 | |
| 3,674 | |
| 2,403 |
Billing | |
| 2,444 | |
| 1,656 | |
| 6,644 | |
| 4,501 |
Professional fees | |
| 881 | |
| 787 | |
| 2,631 | |
| 2,758 |
Outbound freight | |
| 1,185 | |
| 570 | |
| 3,000 | |
| 1,486 |
Vehicle fuel and maintenance | | | 1,066 | | | 861 | | | 2,889 | | | 2,107 |
Bank and credit card fees | | | 520 | | | 277 | | | 1,226 | | | 710 |
Technology | | | 357 | | | 206 | | | 1,006 | | | 550 |
Insurance | | | 408 | | | 420 | | | 1,248 | | | 1,203 |
All other | |
| 1,142 | |
| 825 | |
| 3,100 | |
| 1,877 |
Total operating expenses | | $ | 27,385 | | $ | 16,926 | | $ | 74,533 | | $ | 46,597 |
14. Income taxes
As of June 30, 2023 and September 30, 2022, the Company's net deferred tax asset or liability was zero. Cumulative net deferred tax assets, which is primarily the net operating loss carryforward, are fully reserved, as there is not sufficient evidence to conclude it is more likely than not the net deferred tax assets are realizable. There is no current payable for federal income taxes. Prepaid state and local income taxes of $259,000 has been included within “Prepaid and other current assets” in the condensed consolidated interim statements of financial position as of June 30, 2023. Accrued state and local taxes payable of $246,000 has been included within “Accrued liabilities” in the condensed consolidated interim statements of financial position as of September 30, 2022. The provision (benefit) for income taxes relates to state and local income taxes, and was ($323,000) and $10,000 for the three and nine months ended June 30, 2023, respectively, and $155,000 and $458,000 for the three and nine months ended June 30, 2022, respectively.
15. | Income (loss) per share |
Income (loss) per common share is calculated using the weighted average number of common shares outstanding during the period. Diluted loss per share amounts are calculated giving effect to the potential dilution that would occur from the incremental shares issued if in-the-money 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 warrants are used to purchase common shares at the prevailing market price. For periods with a net loss, the potential dilutive shares were excluded because their effect is anti-dilutive.
The following reflects the earnings and share data used in the basic and diluted income (loss) per share computations:
| | | | | | | | | | | | |
|
| Three months |
| Three months |
| Nine months |
| Nine months | ||||
| | ended June 30, | | ended June 30, | | ended June 30, | | ended June 30, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Net income (loss) | | $ | (1,034) | | $ | 163 | | $ | (1,460) | | $ | 3,069 |
Basic weighted average number of shares | |
| 40,584 | |
| 33,559 | |
| 37,434 | |
| 33,449 |
Diluted weighted average number of shares | |
| 40,584 | |
| 37,863 | |
| 37,434 | |
| 38,109 |
Basic earnings (loss) per share | | $ | (0.03) | | $ | 0.00 | | $ | (0.04) | | $ | 0.09 |
Diluted earnings (loss) per share | | $ | (0.03) | | $ | 0.00 | | $ | (0.04) | | $ | 0.08 |
Page | 15 |
Quipt Home Medical Corp.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS (UNAUDITED) JUNE 30, 2023 and 2022
(Tabular dollar amounts expressed in thousands of US Dollars, except per share amounts)
The effect of instruments exercisable or convertible to common shares for the three and nine months ended June 30, 2023 were excluded from the calculation of diluted loss per share because their effect is anti-dilutive.
16. | Related party transactions |
The Company has six leases for office, warehouse, and retail space with a rental company affiliated with the Company’s Chief Executive Officer, the majority of which were entered into in 2015, five of which were renewed on October 1, 2022. The leases have a combined area of 74,520 square feet. Lease payments under these leases were approximately $65,000 and $52,000 per month for the nine months ended June 30, 2023 and 2022, respectively, with increases on October 1 of each year equal to the greater of (i) the Consumer Price Index for All Urban Consumers (CPI-U), and (ii) 3%. One lease expires in June 2026 and the remaining five leases expire on September 30, 2029.
Expense for Board of Directors’ fees were $69,000 and $89,000 for the three months ended June 30, 2023 and 2022, respectively. Expense for Board of Directors’ fees were $226,000 and $230,000 for the nine months ended June 30, 2023 and 2022, respectively. Stock-based compensation for the Board of Directors was $672,000 and $303,000 for the three months ended June 30, 2023 and 2022, respectively. Stock-based compensation for the Board of Directors was $1,476,000 and $540,000 for the nine months ended June 30, 2023 and 2022, respectively.
Key management personnel also participate in the Company’s share option program (see Note 11). The Company recorded compensation to key management personnel as follows:
| | | | | | | | | | | | |
|
| Three months |
| Three months |
| Nine months |
| Nine months | ||||
| | ended June 30, | | ended June 30, | | ended June 30, | | ended June 30, | ||||
| | 2023 | | 2022 | | 2023 | | 2022 | ||||
Salaries and benefits | | $ | 299 | | $ | 240 | | $ | 846 | | $ | 751 |
Stock-based compensation | |
| 676 | |
| 1,183 | |
| 1,669 | |
| 2,851 |
Total | | $ | 975 | | $ | 1,423 | | $ | 2,515 | | $ | 3,602 |
17. | Subsequent event |
On July 31, 2023, the Company made an investment of $1.5 million to purchase an approximate 10% equity stake in DMEScripts LLC, an independent e-prescribe company in the US that automates the medical equipment ordering process. This technology is dedicated to improving the patient, prescriber, and provider experience by eliminating inefficiencies and reducing paperwork. The investment ensures the Company’s participation in the future growth of e-prescription usage within the durable medical equipment industry.
Page | 16 |