VIEMED HEALTHCARE, INC. 10-Q

Item 1. Financial Statements VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Expressed in thousands of U.S. Dollars, except outstanding shares) Note At June 30, 2020 At December 31, 2019 (Unaudited) (Audited) ASSETS Current assets Cash and cash equivalents $ 29,707 $ 13,355 Accounts receivable, net of allowance for doubtful accounts of $ 9,345 and $ 7,782 at June 30, 2020 and December 31, 2019, respectively 2 11,029 11,534 Inventory, net 2 6,580 1,360 Prepaid expenses and other assets 2 1,891 1,562 Total current assets $ 49,207 $ 27,811 Long-term assets Property and equipment 3 55,087 54,772 Equity method investment 59 13 Deferred tax asset 10 7,825 — Total long-term assets $ 62,971 $ 54,785 TOTAL ASSETS $ 112,178 $ 82,596 LIABILITIES Current liabilities Trade payables $ 5,375 $ 4,700 Deferred revenue 3,279 3,315 Income taxes payable 1,490 86 Accrued liabilities 4 14,365 8,968 Current portion of lease liabilities 5 5,467 7,093 Current portion of long-term debt 5 1,794 1,750 Total current liabilities $ 31,770 $ 25,912 Long-term liabilities Accrued liabilities 7 1,030 2,317 Long-term lease liabilities 5 1,527 3,039 Long-term debt 5 6,723 7,629 Total long-term liabilities $ 9,280 $ 12,985 TOTAL LIABILITIES $ 41,050 $ 38,897 Commitments and Contingencies — — SHAREHOLDERS' EQUITY Common stock - No par value: unlimited authorized; 39,082,932 and 37,952,660 issued and outstanding as of June 30, 2020 and December 31, 2019, respectively 7 8,414 3,366 Additional paid-in capital 5,448 6,377 Accumulated other comprehensive loss ( 502 ) ( 157 ) Retained earnings 57,768 34,113 TOTAL SHAREHOLDERS' EQUITY $ 71,128 $ 43,699 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 112,178 $ 82,596 See accompanying notes to the condensed consolidated financial statements Page 3 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 2020 2019 2020 2019 Revenue 2 $ 42,854 $ 20,325 $ 66,660 $ 38,440 Cost of revenue 16,927 5,686 25,180 10,727 Gross profit $ 25,927 $ 14,639 $ 41,480 $ 27,713 Operating Expenses Selling, general and administrative 16,428 11,516 27,005 20,976 Research and development 271 203 445 437 Stock-based compensation 7 1,196 1,034 2,347 1,914 Depreciation 205 138 410 267 (Gain) loss on disposal of property and equipment ( 1,458 ) 85 ( 2,627 ) 141 Other (income) expense 9 ( 3,574 ) ( 1 ) ( 3,574 ) ( 2 ) Income from operations $ 12,859 $ 1,664 $ 17,474 $ 3,980 Non-operating expenses Unrealized loss on warrant conversion liability 6 — 268 — 437 (Gain) loss from equity method investment ( 42 ) 26 ( 15 ) 51 Interest expense, net of interest income 5 135 20 293 46 Net income before taxes 12,766 1,350 17,196 3,446 (Benefit) provision for income taxes 10 ( 6,646 ) 24 ( 6,459 ) 162 Net income $ 19,412 $ 1,326 $ 23,655 $ 3,284 Other Comprehensive Income Change in unrealized loss on derivative instruments, net of tax ( 33 ) ( 148 ) ( 345 ) ( 148 ) Other Comprehensive Loss $ ( 33 ) $ ( 148 ) $ ( 345 ) $ ( 148 ) Comprehensive Income $ 19,379 $ 1,178 $ 23,310 $ 3,136 Net income per share Basic 11 $ 0.50 $ 0.04 $ 0.62 $ 0.09 Diluted 11 $ 0.48 $ 0.03 $ 0.59 $ 0.08 Weighted average number of common shares outstanding: Basic 11 38,665,765 37,686,763 38,348,310 38,165,274 Diluted 11 40,814,238 39,975,307 40,103,016 40,166,855 See accompanying notes to the condensed consolidated financial statements Page 4 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) Common Stock Additional paid-in capital Accumulated other comprehensive loss Total Shareholders' equity Shares Amount Retained earnings Shareholders' equity, December 31, 2018 37,500,815 $ 71 $ 5,390 $ — $ 27,110 $ 32,571 Stock-based compensation - options — — 578 — — 578 Stock-based compensation - restricted stock — — 302 — — 302 Exercise of options 2,418 4 — — — 4 Shares issued for vesting of restricted stock units 539,965 2,202 ( 2,202 ) — — — Shares repurchased and canceled under the Normal Course Issuer Bid ( 365,100 ) — — — ( 1,522 ) ( 1,522 ) Net Income — — — — 1,958 1,958 Shareholders' equity, March 31, 2019 37,678,098 $ 2,277 $ 4,068 $ — $ 27,546 $ 33,891 Stock-based compensation - options — — 705 — — 705 Share-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 accumulated other comprehensive loss — — — ( 148 ) — ( 148 ) Net Income — — — — 1,326 1,326 Shareholders' equity, June 30, 2019 37,697,535 $ 2,350 $ 5,063 $ ( 148 ) $ 28,872 $ 36,137 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 ) — — — Change in accumulated other comprehensive loss — — — ( 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 Stock-based compensation - options — — 933 — — 933 Stock-based compensation - restricted stock — — 263 — — 263 Exercise of options 596,160 1,757 — — — 1,757 Change in accumulated other comprehensive loss — — — ( 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 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 2020 2019 Cash flows from operating activities Net income $ 23,655 $ 3,284 Adjustments for: Depreciation 4,320 2,739 Change in allowance for doubtful accounts 2 5,578 3,859 Share-based compensation 7 2,347 1,914 Unrealized loss on warrant conversion liability 6 — 437 (Gain) loss on equity investment ( 15 ) 51 (Gain) loss on disposal of property and equipment ( 2,627 ) 141 Deferred income taxes (benefit) ( 7,825 ) — Net change in working capital Increase in accounts receivable ( 5,073 ) ( 7,818 ) Increase in inventory ( 5,220 ) ( 825 ) Increase in prepaid expenses and other current assets ( 329 ) ( 109 ) Increase in trade payables 2,044 1,934 (Decrease) increase in deferred revenue ( 36 ) 690 Increase (decrease) in accrued liabilities 3,765 ( 181 ) Increase (decrease) in income tax payable 1,404 ( 153 ) Net cash provided by operating activities $ 21,988 $ 5,963 Cash flows from investing activities Purchase of property and equipment ( 5,729 ) ( 7,700 ) Investment in equity method investment ( 31 ) — Proceeds from sale of property and equipment 5,140 213 Net cash used in investing activities $ ( 620 ) $ ( 7,487 ) Cash flows from financing activities Proceeds from exercise of options 1,772 22 Proceeds from exercise of warrants — 16 (Principal payments) proceeds on notes payable 5 ( 67 ) 4,837 Principal payments on term note 5 ( 795 ) — Shares repurchased and canceled under the Normal Course Issuer Bid — ( 1,522 ) Repayments of lease liabilities, net of proceeds ( 5,926 ) ( 4,551 ) Net cash used in financing activities $ ( 5,016 ) $ ( 1,198 ) Net increase (decrease) in cash and cash equivalents 16,352 ( 2,722 ) Cash and cash equivalents at beginning of year 13,355 10,413 Cash and cash equivalents at end of period $ 29,707 $ 7,691 Supplemental disclosures of cash flow information Cash paid during the period for interest $ 309 $ 52 Cash paid during the period for income taxes, net of refunds received $ ( 38 ) $ 317 Supplemental disclosures of non-cash transactions Property and equipment financed through finance leases $ 2,883 $ 9,438 Property and equipment financed through leases under FASB ASC 842 $ 57 $ 1,919 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, 2020 and 2019 1. Nature of Business and Operations Viemed Healthcare, Inc. (the "Company"), through its subsidiaries, is a provider of in-home durable medical equipment ("DME") and post-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 in their homes using cutting edge technology. The Company currently serves patients in over 35 states in the United States. 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 625 E. Kaliste Saloom Road, Lafayette, Louisiana 70508. As of June 30, 2020, the Company determined that it no longer qualifies as a "foreign private issuer," as defined in Rule 3b-4 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), for the purposes of the informational requirements of the Exchange Act. As a result, effective January 1, 2021, the Company will become subject to the proxy solicitation rules under Section 14 of the Exchange Act and Regulation FD, and the Company's officers, directors, and principal shareholders will become subject to the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. The Company 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 Securities and Exchange Commission (the "SEC"). The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"), and as such, has elected to comply with certain reduced U.S. public company reporting requirements. The Company’s shares are traded in Canada on the Toronto Stock Exchange under the symbol VMD.TO and in the U.S. on the Nasdaq Capital Market under the symbol VMD. 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. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The 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 Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income and Comprehensive Income, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Cash Flows for the interim periods presented. Our fiscal year ends on December 31. The condensed consolidated balance sheet as of December 31, 2019 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 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, 2019. 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 consolidates 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 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. Page 7 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, 2020 and 2019 Use of estimates The preparation of consolidated financial statements in conformity with 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, accounts receivable and the related allowance for doubtful accounts, income tax provisions, and fair value of financial instruments. Actual results could differ from these estimates. As of June 30, 2020, the COVID-19 pandemic is ongoing and the impacts of the pandemic on our business, financial condition and results of operations continue to evolve as of the date of this report. As a result, the impacts remain uncertain and difficult to predict and will depend on, among other factors, the duration and severity of the pandemic, as well as 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 . As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. Accounts receivable 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. 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, 2020, our assessment considered business and market disruptions caused by the COVID-19 pandemic and estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for credit losses in future periods. The estimates and write-offs for the allowance for doubtful accounts for each reporting period were as follows: June 30, 2020 June 30, 2019 Balance, beginning of year $ 7,782 $ 4,266 Provision for bad debts 5,578 3,859 Amounts written off ( 4,015 ) ( 1,251 ) Balance, end of period $ 9,345 $ 6,874 As of June 30, 2020 and 2019, no one customer represented more than 10% of outstanding accounts receivable. The Company does have receivables at June 30, 2020 from Medicare and Medicaid, representing 70 % and 6 %, respectively, and 76 % combined, of total outstanding receivables (December 31, 2019 - 58 %). As these receivables are both from government programs, there is little credit risk associated with these balances; however, these receivables are subject to billing modifications and other adjustments and estimates of the amounts of such adjustments are included in the allowance for doubtful accounts. Page 8 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, 2020 and 2019 Revenues from Medicare and Medicaid as percentages of the Company's traditional revenue streams, excluding COVID-19 response sales, for the three and six month periods ended June 30, 2020, were as follows: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Medicare Revenues 57 % 61 % 61 % 61 % Medicaid Revenues 9 % 8 % 9 % 8 % Total Medicare and Medicaid 66 % 69 % 70 % 69 % Property and equipment Property and equipment is presented on the Condensed 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 1 - 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 deployed to a patient’s address and is put in 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. Prepaid expenses and other assets Prepaid expenses and other current assets consists primarily of refundable deposits made for ventilators that have not been received by the Company, along with prepaid insurance, and prepaid rent. 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. Accumulated other comprehensive loss is presented on the accompanying Condensed Consolidated Balance Sheets as a component of shareholders' equity. Revenue recognition Revenue from a customer consists of any combination of the sale and rental of 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 reimbursement rates paid by government-sponsored healthcare programs and insurance companies for such services. Page 9 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, 2020 and 2019 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 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 . The revenues from each major source are summarized in the following table: Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenue from rentals under Topic 842 Ventilator rentals, non-invasive and invasive $ 19,918 $ 17,573 $ 38,710 $ 33,777 Other durable medical equipment rentals 2,404 1,218 4,535 2,015 Revenue from sales and services under Topic 606 Equipment and supply sales 540 1,075 2,072 1,853 COVID-19 response sales (1) 19,712 — 20,753 — Service revenues 280 459 590 795 Total Revenues $ 42,854 $ 20,325 $ 66,660 $ 38,440 (1) See Management's Discussion and Analysis for further discussion. Revenue Accounting under Topic 842 The Company leases DME 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. The Company considers these rentals to be operating leases. Under FASB Accounting Standards Codification Topic 842, 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. 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. Page 10 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, 2020 and 2019 Revenue Accounting under Topic 606 The Company sells 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. 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 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 Company expects to 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 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. The Company determines its estimates of contractual allowances and discounts based upon contractual agreements, its 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. 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. Returns and refunds are not accepted on either equipment sales or sleep study 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, 2020. Stock-based compensation 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. Stock-based compensation costs for restricted stock units 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. Interest rate 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). Page 11 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, 2020 and 2019 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 Prepaid expenses and other assets, as a component of Long-term Assets, and unrealized losses in Accrued Liabilities, as a component of Long-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 its 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 Accumulated 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 Interest and other non-operating expenses, net in its Condensed Consolidated Statements of Income. Net Income per Share Attributable to Common Stockholders The Company uses the two-class method to compute net income per common share attributable to common stockholders because the Company issued securities, other than common stock, that contractually entitled the holders to participate in dividends and earnings prior to the initial listing. The two-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings. 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 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance modifies the disclosure requirements on fair value measurements. The Company adopted this standard on January 1, 2020 and the adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements. Recently issued accounting pronouncements The Company is an “emerging growth company” as defined by the 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, our 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 the adoption of any accounting 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. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses,” to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The ASU will be effective for interim and annual periods beginning January 1, 2020 for issuers and annual periods beginning January 1, 2023 for non-issuers. The Company anticipates adopting this ASU on January 1, 2023 given its smaller reporting company status and is still evaluating the impact of adoption on the consolidated financial statements in future periods. Page 12 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, 2020 and 2019 In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. Among other things, the ASU expands the scope of the practical expedient that allows entities to exclude the accrued interest component of amortized cost from various disclosures required by ASC 326 to also include certain disclosures required by Topic 320. Entities that elect to apply the practical expedient must disclose the total amount of accrued interest that they exclude from their disclosures of amortized cost. The amendments have the same effective dates as ASU 2016-13 (Topic ASC 326) for entities that have not yet adopted that standard. For entities that early adopted ASU 2016-13 (Topic ASC 326), the amendments are effective for fiscal years beginning after December 15, 2019 and interim periods therein. Entities that early adopted ASU 2016-13 (Topic ASC 326) may early adopt the amendments. In December 2019, the FASB issued ASU No. 2019-12, 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 and simplifies U.S. GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the effect of the new guidance. 3. Property and Equipment The Company’s fixed assets consist of its medical equipment held for rental, furniture and equipment, real property and related improvements, and vehicles and other various small equipment. The following table details the Company’s fixed assets: June 30, 2020 December 31, 2019 Medical equipment $ 59,211 $ 56,202 Furniture and equipment 2,468 2,350 Land 2,138 2,138 Buildings 6,304 6,351 Leasehold improvements 290 301 Vehicles 953 1,110 Less: Accumulated depreciation ( 16,277 ) ( 13,680 ) Property and equipment, net of accumulated depreciation $ 55,087 $ 54,772 Depreciation in the amount of $ 1,985,000 and $ 1,306,000 is included in cost of revenue for the three months ended June 30, 2020 and 2019, respectively, and in the amount of $ 3,910,000 and $ 2,472,000 for the six months ended June 30, 2020 and 2019, respectively. Included in medical equipment above is equipment acquired under capital lease obligations whose cost and accumulated depreciation at June 30, 2020 total $ 9,093,000 and $ 2,282,000 , respectively. At December 31, 2019, cost and accumulated depreciation on equipment acquired under capital lease obligations was $ 15,680,000 and $ 1,337,000 , respectively. Medical equipment purchases with a cost of $ 1,448,000 and $ 2,817,000 were included in accounts payable at June 30, 2020 and December 31, 2019, respectively. 4. Current Liabilities The Company’s short-term accrued liabilities are included within current liabilities and consist of the following: June 30, 2020 December 31, 2019 Accrued trade payables $ 3,898 $ 1,023 Accrued commissions payable 279 371 Accrued bonuses payable 3,864 2,292 Accrued vacation and payroll 1,693 1,502 Current portion of phantom share liability 4,171 3,129 Accrued other liabilities 460 651 Total accrued liabilities $ 14,365 $ 8,968 Page 13 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, 2020 and 2019 5. Debt and lease liabilities Senior Credit Facility On February 20, 2018, the Company entered a Commercial Business Loan Agreement that provides for Term Loans and Lines of Credit with Hancock Whitney Bank. Line of Credit The Company maintains a line of credit in the amount of $ 10.0 million 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 of the Company's assets. There were no borrowings against this line of credit at June 30, 2020 or December 31, 2019. Commercial Term Notes On May 30, 2019, the Company entered into a term note (the “Building Term Note”) under the Commercial Business Loan Agreement in the principal amount of $ 4,845,000 . The proceeds of the Building Term Note were used to purchase the Company's corporate headquarters. Beginning July 1, 2019, the Company began 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 LIBOR index plus a margin of 2.45 % per annum. The Company is required to maintain a loan to value ratio of 85 % with respect to the appraised value of the real property. In connection with 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 $ 5,000,000 . 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 financing costs related to the above term notes. These deferred financing costs are amortized over the term of the loans using the effective interest method. The Company has recognized these term notes, which have terms greater than twelve months, as follows: June 30, 2020 December 31, 2019 Notes payable $ 8,517 $ 9,379 Less: Current portion of notes payable ( 1,794 ) ( 1,750 ) Net long-term notes payable $ 6,723 $ 7,629 Under the terms of the Commercial Business Loan Agreement, the Company is subject to the following financial covenants: Financial Covenant Required Ratio Ratio Total Debt to Adjusted EBITDA (Quarterly) not more than 1.50:1.00 0.45 Fixed Charge Coverage Ratio (Quarterly) not less than 1.35:1.00 17.12 Loan-to-Value Ratio (Quarterly) not more than 0.85 0.72 The Company was in compliance with all covenants in effect at June 30, 2020. Page 14 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, 2020 and 2019 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, 2020 December 31, 2019 Lease liabilities $ 6,994 $ 10,132 Less: Current portion of lease liabilities ( 5,467 ) ( 7,093 ) Net long-term lease liabilities $ 1,527 $ 3,039 Finance lease liabilities The Company has various finance leases for equipment with an implied interest rate at fixed rates up to 9.64 %, secured by equipment, due between 2020 and 2022. The Company's weighted average interest rate was 2.75 % and 0.47 % for all finance lease liabilities outstanding as of June 30, 2020 and 2019, respectively. At June 30, 2020 and 2019, the weighted average lease term was approximately 0.90 years and 0.76 years, respectively. Interest expense related to these finance lease obligations for the three and six months ended June 30, 2020 amounted to $ 42,000 and $ 94,000 , respectively. 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. 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 the 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, 2020, the weighted average lease term was approximately 3.52 years. Operating rental expenses were $ 201,000 and $ 385,000 for the three and six months ended June 30, 2020, respectively, and $ 89,000 and $ 178,000 for the three and six months ended June 30, 2019. Included within these operating lease liabilities are real property leases for real estate from a related party. Rental payments under these related party lease agreements are $ 20,000 per month, plus taxes, utilities and maintenance. Total rental payments for the use of these properties were $ 61,000 and $ 121,000 for the three and six months ended June 30, 2020, respectively, and $ 61,000 and $ 121,000 for the three and six months ended June 30, 2019, respectively. The expense for these related party rents has been included within general and administrative expenses. 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. 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, 2020 and 2019 The Company’s cash and cash equivalents are measured using Level 1 inputs and include cash on hand, deposits in banks, and money market funds. Due to their short-term nature, the carrying amounts reported in the consolidated balance sheets approximate the fair value of cash and cash equivalents. The fair value of debt is classified as Level 2 for the periods presented and approximates its carrying value. Warrants During 2019, the Company had warrants to purchase one common share of the Company denominated in Canadian dollars which is different from the functional currency of the Company, which is U.S. dollars. The conversion feature is treated as a derivative financial liability and the fair value movement during the period is recognized in the Condensed Consolidated Statement of Income and Comprehensive Income. The change in the value of warrants has been recorded as an unrealized (gain) loss on derivative financial liability in the Condensed Consolidated Statements of Income and Comprehensive Income. All unexercised warrants expired during the year ended December 31, 2019. The warrant derivative financial liability was valued using Level 3 inputs from the fair value hierarchy. There were no warrants issued or outstanding during the three and six month periods ended June 30, 2020. A summary of the change in fair value of warrant conversion liability is as follows for the period 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 The Company has 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 Building Term Note. As of June 30, 2020, the notional amount of the interest rate swap was $ 4.7 million and will be amortized over the term of the swap. The fair value was $ 0.5 million (determined based on Level 2 inputs) and is included in Accrued liabilities, as a component of Long-term liabilities as of June 30, 2020. In the first six months of 2020, 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 39,082,932 and 37,952,660 shares were issued and outstanding as of June 30, 2020 and December 31, 2019, respectively. Stock-based compensation The purpose of the Company's RSU and Option Plans (collectively, the "Former Plan") is to provide incentive to employees, directors, officers, management companies, and consultants who provide services to the Company or any of its subsidiaries. The Former Plan is a “fixed” stock plan, whereby the maximum number of the Company's shares reserved for issuance, combined with any equity securities granted under all other compensation arrangements adopted by the Company, may not exceed 7,582,000 shares (equal to 20 % of the issued and outstanding shares of the Company as of the date of the adoption of the Plan). Page 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, 2020 and 2019 As of June 30, 2020, the Company had outstanding issuances of options of 3,040,000 and restricted stock units of 701,000 under the Former Plan. Effective June 11, 2020 (the "Effective Date"), the Company’s shareholders approved the Company's 2020 Long Term Incentive Plan (the "Omnibus Plan"), and the Former Plan was frozen. No future awards will be made under the Former Plan, and the common shares that were not settled or awarded under the ‎Former Plan as of the Effective Date are available for awards under the Omnibus Plan. The maximum number of common ‎shares that are available for awards under the Omnibus Plan ‎and under any other security based compensation arrangements adopted by the Company, including the ‎Former Plan, may not exceed 7,758,000 shares (equal to 20 % of the issued and outstanding common shares of the Company on the ‎Effective Date). The maximum amount of the foregoing common shares that may be awarded under the Omnibus Plan as “incentive stock options” is 2,600,000 Common Shares. The following table summarizes stock-based compensation for the three and six months ended June 30, 2020 and 2019 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Stock-based compensation - options $ 933 $ 705 $ 1,824 $ 1,283 Stock-based compensation - restricted stock units 263 329 523 631 Total $ 1,196 $ 1,034 $ 2,347 $ 1,914 At June 30, 2020, there was approximately $ 4,078,000 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 2.26 years. As of June 30, 2020, there was approximately $ 628,000 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 0.65 years. Options The following table summarizes stock option activity for the six months ended June 30, 2020: Number of options (000's) Weighted average exercise price (CAD$) Weighted average remaining contractual life Aggregate Intrinsic Value (1) Balance December 31, 2019 2,683 $ 4.36 6.7 years $ 7,790 Issued 964 7.44 Exercised ( 601 ) 4.07 Expired / Forfeited ( 6 ) 6.63 Balance June 30, 2020 3,040 $ 5.39 8.2 years $ 16,999 (1) 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. The aggregate intrinsic value of options outstanding was $ 16,999,000 and options exercisable were $ 6,926,000 at June 30, 2020. For the six months ended June 30, 2020, 600,897 shares of common stock were issued pursuant to the exercise of stock options. At June 30, 2020, the Company had 1,043,000 exercisable stock options outstanding with a weighted average exercise price of CAD $ 3.96 and a weighted average remaining contractual life of 6.8 years. At December 31, 2019, the Company had 1,037,000 exercisable stock options outstanding with a weighted average exercise price of CAD $ 3.83 and a weighted average remaining contractual life of 3.5 years. Page 17 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, 2020 and 2019 The fair value of the stock options has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and credited to additional paid-in capital over the vesting period, using the Black-Scholes option pricing model calculated using the following assumptions for issuances during the six months ended June 30, 2020: Exercise price ($CAD) $ 7.44 ($CAD) Risk-free interest rate 1.63 % Expected volatility 65.73 % Expected life of options 10 years Expected dividend yield Nil Fair value on date of grant ($USD) $ 4.10 ($USD) Restricted stock units Under the Plan, the Company also grants restricted stock units to directors, officers, and employees. The Company accounts for restricted stock units using fair value. The fair value of the restricted stock units has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and credited to additional paid-in capital over the vesting period, based on the stock price on the date of grant. Restricted stock units vest generally over a one or three -year period. The Company accounts for forfeitures on restricted stock units under ASU 2016-09 and recognizes forfeitures in the period in which they occur. The following table summarizes restricted stock unit activity for the six months ended June 30, 2020: Number of Restricted Stock Units (000's) Weighted average grant price (CAD$) Weighted average remaining contractual life Aggregate Intrinsic Value (1) Balance December 31, 2019 1,139 $ 2.74 0.55 years $ 7,129 Issued 92 7.44 Vested ( 530 ) 2.54 Expired / Forfeited — — Balance June 30, 2020 701 $ 3.64 0.65 years $ 6,699 (1) The aggregate intrinsic value of time-based restricted stock units outstanding was based on our closing stock price on the last trading day of the period . During the three months ended June 30, 2020, the Company did no t issue any restricted stock units. During the six months ended June 30, 2020, the Company issued 92,088 restricted stock units, with a vesting term of one to three years and a fair value of $ 5.66 ($USD) 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. Phantom share units vest annually over a three -year period. The following table summarizes phantom share unit activity for the six months ended June 30, 2020: Number of Phantom Share Units (000's) Balance December 31, 2019 1,350 Issued 346 Vested ( 601 ) Expired / Forfeited ( 53 ) Balance June 30, 2020 1,042 Page 18 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, 2020 and 2019 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 inputs: Six Months Ended June 30, 2020 Share price $ 13.01 (CAD$) Remaining life of phantom share units 0.86 - 2.86 Years Calculated fair value of phantom share units $ 4,699 The total liability associated with phantom share units at June 30, 2020 is $ 4,699,000 , with $ 4,171,000 of this amount included in current accrued liabilities and the remaining portion of $ 528,000 included in long-term accrued liabilities. Accrued liability and related expense is determined at each reporting period based on the stock price at period end. 8. Commitments Purchase Commitments As of June 30, 2020, the Company had non-cancellable purchase order commitments in the amount of $ 5.0 million for respiratory equipment. An outstanding deposit in the amount of $ 863,000 related to such purchase order commitments is included within other current assets. On July 29, 2020, the Company filed a legal complaint formally requesting a refund of this remaining deposit as the Company believes the supplier is unable to deliver the contracted equipment. The Company is unable to predict what action, if any, might result related to this claim and a loss is not considered probable at June 30, 2020. 9. Other Income "CARES" Act Funds Received The CARES Act created a Provider Relief Fund to support health care-related expenses or lost revenue attributable to the COVID-19 pandemic. The Company received $ 3.5 million of the Provider Relief Funds in April 2020 and has recognized this amount within other income on its Condensed Consolidated Statements of Income. The Department of Health and Human Services 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. 10. Income Taxes At June 30, 2020 and 2019, 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 Coronavirus Aid, Relief and Economic Security Act ("CARES Act") which was signed into law on March 27, 2020 includes various income and payroll tax provisions. As of June 30, 2020, the CARES Act has not had a material impact on our condensed consolidated financial statements, however, the Company is still analyzing these provisions of the CARES Act. Page 19 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, 2020 and 2019 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 2016. Our annual estimated effective tax rate for 2020 is ( 32.81 )%. 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. Included in the annual estimated effective tax rate of ( 32.81 )% is a discrete item described below accounting for ( 44.61 )% of the rate. The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. Pursuant to ASC 740, any change in judgment relating to the beginning of the year valuation allowance balance should be recognized discretely in continuing operations in the interim period in which the change occurs. At June 30, 2020, the Company determined that it was more likely than not that the deferred tax asset would be realized, and made an adjustment to the deferred tax asset valuation allowance, which reduced the provision for income taxes. The Company has recorded a provisional income tax benefit of $ 6.5 million in its Condensed Consolidated Statements of Income and Comprehensive Income for the six months ended June 30, 2020. 11. Earnings Per Share Income per common share is calculated using earnings for the year divided by the weighted average number of shares outstanding during the year . 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, restricted stock units, and warrants are used to purchase common shares at the prevailing market rate. 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, 2020 2019 2020 2019 Numerator - basic and diluted: Net income attributable to shareholders $ 19,412 $ 1,326 $ 23,655 $ 3,284 Denominator: Basic weighted-average number of common shares 38,665,765 37,686,763 38,348,310 38,165,274 Diluted weighted-average number of shares 40,814,238 39,975,307 40,103,016 40,166,855 Basic earnings per share $ 0.50 $ 0.04 $ 0.62 $ 0.09 Diluted earnings per share $ 0.48 $ 0.03 $ 0.59 $ 0.08 Denominator calculation from basic to diluted: Basic weighted-average number of common shares 38,665,765 37,686,763 38,348,310 38,165,274 Stock options and other dilutive securities 2,148,473 2,288,544 1,754,706 2,001,581 Diluted weighted-average number of shares 40,814,238 39,975,307 40,103,016 40,166,855 12. Subsequent Events Conversion of Accounts Payable into Short-term Capital Lease Subsequent to June 30, 2020, the Company entered into a capital lease agreement with a third party and, as a result, $ 2.8 million of accounts payable was converted to a short-term lease payable. Page 20 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2020 and 2019