VIEMED HEALTHCARE, INC. 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm F-2 Consolidated Statements of Financial Position F- 3 Consolidated Statements of Income and Comprehensive Income F-4 Consolidated Statements of Changes in Shareholders' Equity F-5 Consolidated Statements of Cash Flows F-6 Notes to the Financial Statements F-7 Page F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Viemed Healthcare, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Viemed Healthcare, Inc. (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. New Orleans, Louisiana March 3, 2021 VIEMED HEALTHCARE, INC. CONSOLIDATED BALANCE SHEETS (Expressed in thousands of U.S. Dollars, except outstanding shares) Note At December 31, 2020 At December 31, 2019 ASSETS Current assets Cash and cash equivalents 2 $ 30,981 $ 13,355 Accounts receivable, net of allowance for doubtful accounts of $ 9,013 and $ 7,782 at December 31, 2020 and December 31, 2019, respectively 2 12,373 11,534 Inventory, net of inventory reserve of $ 1,353 and $ 0 at December 31, 2020 and December 31, 2019, respectively 2 2,310 1,360 Prepaid expenses and other assets 2 1,511 1,562 Total current assets $ 47,175 $ 27,811 Long-term assets Property and equipment, net 3 55,056 54,772 Equity investments 733 13 Deferred tax asset 10 8,733 — Other long-term assets 8 863 — Total long-term assets $ 65,385 $ 54,785 TOTAL ASSETS $ 112,560 $ 82,596 LIABILITIES Current liabilities Trade payables $ 2,096 $ 4,700 Deferred revenue 3,409 3,315 Income taxes payable 340 86 Accrued liabilities 4 12,595 8,968 Current portion of lease liabilities 5 2,741 7,093 Current portion of long-term debt 5 1,836 1,750 Total current liabilities $ 23,017 $ 25,912 Long-term liabilities Accrued liabilities 7 1,292 2,317 Long-term lease liabilities 5 762 3,039 Long-term debt 5 5,796 7,629 Total long-term liabilities $ 7,850 $ 12,985 TOTAL LIABILITIES $ 30,867 $ 38,897 Commitments and Contingencies — — SHAREHOLDERS' EQUITY Common stock - No par value: unlimited authorized; 39,185,182 and 37,952,660 issued and outstanding as of December 31, 2020 and December 31, 2019, respectively 7 9,181 3,366 Additional paid-in capital 7,320 6,377 Accumulated other comprehensive loss ( 451 ) ( 157 ) Retained earnings 65,643 34,113 TOTAL SHAREHOLDERS' EQUITY $ 81,693 $ 43,699 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 112,560 $ 82,596 See accompanying notes to the consolidated financial statements Page F-3 VIEMED HEALTHCARE, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Expressed in thousands of U.S. Dollars, except share and per share amounts) Year Ended December 31, Note 2020 2019 Revenue 2 $ 131,309 $ 80,256 Cost of revenue 51,198 24,250 Gross profit $ 80,111 $ 56,006 Operating expenses Selling, general and administrative 52,829 41,381 Research and development 1,083 848 Stock-based compensation 7 4,882 3,886 Depreciation 816 671 (Gain) loss on disposal of property and equipment ( 2,328 ) 360 Other (income) expense 9 ( 3,952 ) 3 Income from operations $ 26,781 $ 8,857 Non-operating expenses Unrealized gain on warrant conversion liability 6 — ( 363 ) (Gain) loss from equity investments ( 91 ) 110 Interest expense, net of interest income 5 509 314 Net income before taxes 26,363 8,796 (Benefit) provision for income taxes 10 ( 5,167 ) 271 Net income $ 31,530 $ 8,525 Other comprehensive income Change in unrealized loss on derivative instruments, net of tax ( 294 ) ( 157 ) Other comprehensive loss $ ( 294 ) $ ( 157 ) Comprehensive income $ 31,236 $ 8,368 Net income per share Basic 11 $ 0.81 $ 0.23 Diluted 11 $ 0.78 $ 0.21 Weighted average number of common shares outstanding: Basic 11 38,743,516 37,716,864 Diluted 11 40,525,737 39,747,509 See accompanying notes to the consolidated financial statements Page F-4 VIEMED HEALTHCARE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Expressed in thousands of U.S. Dollars, except share and per share amounts) 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 — — 2,642 — — 2,642 Stock-based compensation - restricted stock — — 1,244 — — 1,244 Exercise of warrants 133,170 260 — — — 260 Exercise of options 42,168 136 — — — 136 Shares issued for vesting of restricted stock units 641,607 2,899 ( 2,899 ) — — — Shares repurchased and canceled under the Normal Course Issuer Bid ( 365,100 ) — — — ( 1,522 ) ( 1,522 ) Change in accumulated other comprehensive loss — — — ( 157 ) — ( 157 ) Net income — — — — 8,525 8,525 Shareholders' equity, December 31, 2019 37,952,660 $ 3,366 $ 6,377 $ ( 157 ) $ 34,113 $ 43,699 Stock-based compensation - options — — 3,810 — — 3,810 Stock-based compensation - restricted stock — — 1,072 — — 1,072 Exercise of options 643,297 1,876 — — — 1,876 Shares issued for vesting of restricted stock units 589,225 3,939 ( 3,939 ) — — — Change in accumulated other comprehensive loss, net of tax — — — ( 294 ) — ( 294 ) Net income — — — — 31,530 31,530 Shareholders' equity, December 31, 2020 39,185,182 $ 9,181 $ 7,320 $ ( 451 ) $ 65,643 $ 81,693 See accompanying notes to the consolidated financial statements Page F-5 VIEMED HEALTHCARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of U.S. Dollars) Year Ended December 31, Note 2020 2019 Cash flows from operating activities Net income $ 31,530 $ 8,525 Adjustments for: Depreciation 9,582 6,400 Change in allowance for doubtful accounts 2 9,116 9,811 Change in inventory reserve 1,353 — Share-based compensation 7 4,882 3,886 Unrealized gain on warrant conversion liability 6 — ( 363 ) (Gain) loss on equity investments ( 91 ) 110 (Gain) loss on disposal of property and equipment ( 2,328 ) 360 Deferred income taxes (benefit) ( 8,733 ) — Net change in working capital Increase in accounts receivable ( 9,955 ) ( 12,506 ) Increase in inventory ( 2,303 ) ( 306 ) Increase in prepaid expenses and other assets ( 812 ) ( 733 ) Increase in trade payables 213 783 Increase in deferred revenue 94 725 Increase in accrued liabilities 2,308 2,461 Increase (decrease) in income tax payable 254 ( 66 ) Net cash provided by operating activities $ 35,110 $ 19,087 Cash flows from investing activities Purchase of property and equipment ( 13,044 ) ( 13,385 ) Investment in equity investments ( 629 ) — Proceeds from sale of property and equipment 5,258 574 Net cash used in investing activities $ ( 8,415 ) $ ( 12,811 ) Cash flows from financing activities Proceeds from exercise of options 1,876 136 Proceeds from exercise of warrants — 260 (Principal payments) net proceeds on notes payable 5 ( 142 ) 4,446 (Principal payments) net proceeds on term note 5 ( 1,605 ) 4,933 Shares repurchased and canceled under the Normal Course Issuer Bid — ( 1,522 ) Repayments of lease liabilities ( 9,198 ) ( 11,587 ) Net cash used in financing activities $ ( 9,069 ) $ ( 3,334 ) Net increase in cash and cash equivalents 17,626 2,942 Cash and cash equivalents at beginning of year 13,355 10,413 Cash and cash equivalents at end of period $ 30,981 $ 13,355 Supplemental disclosures of cash flow information Cash paid during the period for interest $ 559 $ 333 Cash paid during the period for income taxes, net of refunds received $ 3,311 $ 338 Supplemental disclosures of non-cash transactions Property and equipment financed through finance leases $ 3,002 $ 12,011 Property and equipment financed through leases under FASB ASC 842 $ 57 $ 615 See accompanying notes to the consolidated financial statements Page F-6 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 Notes to Consolidated Financial Statements 1. Nature of Business and Operations Viemed Healthcare, Inc. (the "Company"), through its subsidiaries, is a provider of in-home 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 39 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 became 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 became 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 JOBS Act, and as such, has elected to comply with certain reduced U.S. public company reporting requirements. The Company’s common shares are traded in Canada on the TSX 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 Basis of Presentation The accompanying financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC. In the opinion of management, all adjustments, consisting of only normal recurring adjustments that are necessary to present fairly the financial position, results of operations, and cash flows have been made. 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 from which it will derive its revenues and incur expenses 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 F-7 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to revenue recognition, 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 December 31, 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. Cash and Cash Equivalents Cash and cash equivalents consist of cash and temporary investments with an original maturity of three months or less that are readily convertible to known amounts of cash that are subject to insignificant risk or change. At December 31, 2020 and 2019, our cash was held primarily in checking and money market accounts . Cash and cash equivalents consist of the following at December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Cash $ 5,319 $ 3,974 Money market accounts 25,662 9,381 Total cash and cash equivalents $ 30,981 $ 13,355 Accounts Receivable and Allowance for Doubtful Accounts 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 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 year ended December 31, 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 doubtful accounts in future periods. The estimates and write-offs for the allowance for doubtful accounts for each reporting period were as follows: December 31, 2020 December 31, 2019 Balance, beginning of year $ 7,782 $ 4,266 Change in allowance for doubtful accounts 9,116 9,811 Amounts written off ( 7,885 ) ( 6,295 ) Balance, end of period $ 9,013 $ 7,782 As of December 31, 2020 and 2019, no one customer represented more than 10% of outstanding accounts receivable. The Company does have receivables at December 31, 2020 from Medicare and Medicaid, representing 35 % and 11 %, respectively, and 46 % 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 F-8 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 Revenues from Medicare and Medicaid as percentages of the Company's traditional revenue streams, excluding COVID-19 response sales and services, for the years ended December 31, 2020 and 2019 were as follows: Year Ended December 31, 2020 2019 Medicare revenues 63 % 56 % Medicaid revenues 10 % 8 % Total Medicare and Medicaid revenues 73 % 64 % Inventory Inventory represents non-serialized respiratory supplies that consist of equipment parts, consumables, and associated product supplies and is expensed at the time of sale or use. The Company values inventory at the lower of cost or net realizable value. Obsolete and unserviceable inventories are valued at estimated net realizable value . Inventory is presented net of a reserve balance of $ 1,353,000 and $ 0 at December 31, 2020 and 2019, respectively, that relates to COVID-19 response supplies. Property and Equipment Property and equipment is presented on the 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 delivered to a patient and is put in use and continues through the useful life of the asset. Property and equipment 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 prepaid expenses such as insurance and rent. Equity Investments Investments in unconsolidated entities, over whose operating and financial policies the Company has the ability to exercise significant influence but not control, are accounted for using the equity method of accounting. Equity method investments are initially measured at cost in the Consolidated Balance Sheets with any subsequent adjustments made to the carrying amount of the investment for the Company’s proportionate share of income or loss. The Company has recognized its share of income or loss within non-operating expenses in Consolidated Statements of Income. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the investments may exceed the fair value. No events or changes have occurred as of December 31, 2020 that would affect the carrying value of equity method investments. The Company measures equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions, as defined, for identical or similar investments of the same issuer. The Company was not aware of any impairment or observable price change adjustments that needed to be made as of December 31, 2020 on its investments in equity securities without a readily determinable fair value. Page F-9 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 Comprehensive Income Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income represents net income adjusted for unrealized gains and losses on derivative instruments, net of tax. Accumulated other comprehensive loss is presented on the accompanying 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. 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 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 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: Year Ended December 31, 2020 2019 Revenue from rentals under Topic 842 Ventilator rentals, non-invasive and invasive $ 78,286 $ 69,067 Other durable medical equipment rentals 9,888 5,379 Revenue from sales and services under Topic 606 Equipment and supply sales 7,357 4,395 COVID-19 response sales and services 34,379 — Service revenues 1,399 1,415 Total revenues $ 131,309 $ 80,256 Revenue Accounting under Topic 842 The Company leases DME such as non-invasive and invasive ventilators, 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. Page F-10 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 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 equipment is 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. 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 sleep study results are complete, satisfying the performance obligation. In response to the COVID-19 pandemic, the Company began offering contact tracing services, which revenues are recognized in the period in which the service has been provided. The transaction price on equipment sales, sleep studies, and contact tracing 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 equipment sales, sleep study services or contact tracing services. The Company does not offer warranties to customers in excess of the manufacturer’s warranty. Any taxes due upon sale of the products or services are not recognized as revenue. The Company does not have any partially or unfilled performance obligations related to contracts with customers and as such, the Company has no contract liabilities as of December 31, 2020 or 2019. 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 costs for stock options are determined at the grant date using the Black-Scholes option pricing model. Stock-based compensation costs for RSUs are determined at the grant date based on the closing stock price. The expense of such stock-based compensation awards is recognized using the graded vesting attribution method over the vesting period and the offsetting credit is recorded as an increase in additional paid-in capital. Forfeitures are recorded as incurred. Any excess tax benefit or deficiency is recognized as a component of income taxes and within operating cash flows upon vesting of the share-based award. Page F-11 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 For the Company’s phantom share units settled in cash, the Company computes the fair value of the phantom share units using the closing price of the Company's stock at the end of each period and records a liability based on the percentage of requisite service. Interest Rate 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). 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 Other Long-term assets, as a component of long-term assets, and unrealized losses in accrued liabilities, as a component of long-term liabilities on the 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 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 on its Consolidated Statements of Income. Income Taxes The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes. The Company’s income tax provisions reflect management’s interpretation of country and state tax laws. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business and may remain uncertain for several years after their occurrence. The Company recognizes assets and liabilities for taxation when it is probable that the Company will receive refunds or pay taxes to the relevant tax authority. Where the final determination of tax assets and liabilities is different from the amounts that were initially recorded, such differences will impact the current and deferred income taxes provision in the period in which such determination is made. Changes in tax law or changes in the way tax law is interpreted may also impact the Company’s effective tax rate as well as its business and operations. Income tax expense consists of current and deferred tax expense. Current and deferred tax are recognized in profit or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income. Current tax is recognized and measured at the amount expected to be recovered from or payable to the taxation authorities based on the income tax rates enacted at the end of the reporting period and includes any adjustment to taxes payable in respect of previous years. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to temporary differences between the financial statement carrying value of assets and liabilities and their respective income tax bases. Deferred income tax assets or liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be settled. The calculation of current and deferred income taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment concerning the carrying value of assets and liabilities. The current and deferred income tax assets and liabilities are also impacted by expectations about future operating results and the timing of reversal of temporary differences as well as possible audits of tax filings by regulatory agencies. Changes or differences in these estimates or assumptions may result in changes to the current and deferred tax assets and liabilities on the Consolidated Balance Sheets and a charge to or recovery of income tax expense. Deferred tax is recognized on any temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable earnings. The effect of a change in the enacted tax rates is recognized in net earnings and comprehensive income or in equity depending on the item to which the adjustment relates. Deferred tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax assets are evaluated for recoverability based on whether it is more likely than not that sufficient taxable earnings will be available to allow all or part of the asset to be recovered. See Note 10 for details on income taxes recognized. Page F-12 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 Impairment of Long-Lived Assets The Company follows ASC Topic 360, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the asset group’s carrying amounts may not be recoverable. In performing the review for recoverability, if future undiscounted cash flows (excluding interest charges) from the use and ultimate disposition of the assets are less than their carrying values, an impairment loss represented by the difference between its fair value and carrying value, is recognized. When properties are classified as held for sale they are recorded at the lower of the carrying amount or the expected sales price less costs to sell. There were no impairment charges recognized during the fiscal years ended December 31, 2020 and 2019. Net Income per Share Attributable to Common Stockholders Basic net income per common share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential stock-based awards outstanding during the period using the treasury stock method. Dilutive potential stock-based awards include outstanding common stock options and time-based RSUs. 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 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, 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 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. 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. Page F-13 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 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: December 31, 2020 December 31, 2019 Medical equipment $ 63,307 $ 56,202 Furniture and equipment 2,722 2,350 Land 2,138 2,138 Buildings 5,966 6,351 Leasehold improvements 290 301 Vehicles 922 1,110 Less: Accumulated depreciation ( 20,289 ) ( 13,680 ) Property and equipment, net of accumulated depreciation and amortization $ 55,056 $ 54,772 Depreciation in the amount of $ 8,765,000 and $ 5,729,000 is included in cost of revenue for the years ended December 31, 2020 and 2019, respectively. Included in medical equipment above is equipment acquired under finance lease obligations whose cost and accumulated depreciation at December 31, 2020 total $ 6,900,000 and $ 885,000 , respectively. At December 31, 2019, cost and accumulated depreciation on equipment acquired under finance lease obligations was $ 15,680,000 and $ 1,337,000 , respectively. Medical equipment purchases with a cost of $ 0 and $ 2,817,000 were included in accounts payable at December 31, 2020 and 2019, respectively. 4. Current Liabilities The Company’s short-term accrued liabilities are included within current liabilities and consist of the following: December 31, 2020 December 31, 2019 Accrued trade payables $ 1,252 $ 1,023 Accrued commissions payable 278 371 Accrued bonuses payable 5,190 2,292 Accrued vacation and payroll 844 1,502 Current portion of phantom share liability 4,485 3,129 Accrued other liabilities 546 651 Total accrued liabilities $ 12,595 $ 8,968 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 December 31, 2020 or 2019. Page F-14 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 Commercial Term Notes On May 30, 2019, the Company entered into a term note (“Building Term Note”) under the Commercial Business Loan Agreement in the principal amount of $ 4.8 million. 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 ("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 (“Term Note") under the Commercial Business Loan Agreement in the principal amount of $ 5.0 million. The proceeds of the Term Note were utilized for general corporate purposes. Beginning October 19, 2019, the Company began 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: December 31, 2020 December 31, 2019 Notes payable $ 7,632 $ 9,379 Less: Current portion of notes payable ( 1,836 ) ( 1,750 ) Net long-term notes payable $ 5,796 $ 7,629 Future minimum principal and interest obligations for the term notes required over the next five years as of December 31, 2020, as follows: Principal Payments Interest Payments (1) 2021 $ 1,836 $ 319 2022 1,479 234 2023 167 201 2024 177 194 2025 186 185 Thereafter 3,787 89 Total $ 7,632 $ 1,222 (1) Interest payments under the term notes have effective interest rates of 4.68 % and 4.60 % per annum. Under the terms of the Commercial Business Loan Agreement, the Company is subject to the following financial covenants: Financial Covenant Required Ratio Ratio at December 31, 2020 Total Debt to Adjusted EBITDA (Quarterly) not more than 1.50:1.00 0.27 Fixed Charge Coverage Ratio (Quarterly) not less than 1.35:1.00 3.12 Loan-to-Value Ratio (Quarterly) not more than 0.85 0.71 The Company was in compliance with all covenants under the Commercial Business Term Loan Agreement in effect at December 31, 2020. Page F-15 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 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: December 31, 2020 December 31, 2019 Lease liabilities $ 3,503 $ 10,132 Less: Current portion of lease liabilities ( 2,741 ) ( 7,093 ) Net long-term lease liabilities $ 762 $ 3,039 Finance Lease Liabilities The Company has various finance leases for equipment with an implied interest rate at fixed rates up to 9.61 %, secured by equipment, due between 2021 and 2022. The Company's weighted average interest rate was 3.97 % and 2.48 % for all finance lease liabilities outstanding as of December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, the weighted average lease term was approximately 0.59 years and 1.07 years, respectively. Future minimum principal and interest payments for finance lease obligations required over the next five years as of December 31, 2020, as follows: Principal Payments Interest Payments 2021 $ 2,147 $ 35 2022 11 — Total $ 2,158 $ 35 Interest expense related to these finance lease obligations for the years ended December 31, 2020 and 2019 amounted to $ 155,000 and $ 147,000 , 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 December 31, 2020, the weighted average lease term was approximately 3.32 years. Future minimum principal and interest payments for operating lease liabilities required over the next five years as of December 31, 2020, as follows: Principal Payments Interest Payments 2021 $ 594 $ 53 2022 212 36 2023 224 24 2024 226 12 2025 89 1 Thereafter — — Total $ 1,345 $ 126 Operating rental expenses for the years ended December 31, 2020 and 2019 amounted to $ 759,000 and $ 408,000 , respectively. The related assets for operating lease liabilities have been included with property and equipment on the Consolidated Balance Sheets. Page F-16 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 Included within these operating lease liabilities are real property leases for real estate from a related party. On August 1, 2015, the Company entered a ten -year triple net lease agreement for office space with a rental company that is affiliated with the Company’s CEO, Casey Hoyt, and President, Michael Moore. 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 $ 237,000 and $ 242,000 for the years ended December 31, 2020 and 2019, respectively. The expense for these related party rents has been included within selling, 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. 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 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 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 year ended December 31, 2020. There were 133,000 warrants exercised at a weighted average price of $ 2.60 (CAD$) per common share and 44,000 warrants that expired during the year ended December 31, 2019. A summary of the change in fair value of warrant conversion liability is as follows for the period ended December 31, 2019: Warrant Conversion Liability Balance December 31, 2018 $ 363 Warrants issued — Unrealized gain on warrant conversion liability ( 363 ) Balance December 31, 2019 $ — Page F-17 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 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 December 31, 2020, the notional amount of the interest rate swap was $ 4,600,000 and will be amortized over the term of the swap. The fair value was $ 433,000 (determined based on Level 2 inputs) and is included in accrued liabilities, as a component of long-term liabilities as of December 31, 2020. During 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, with no stated par value. 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 39,185,182 and 37,952,660 shares were issued and outstanding as of December 31, 2020 and 2019, respectively. On November 26, 2018, the Company announced that the TSX had accepted the Company’s notice of intention to make a NCIB for its common shares in compliance with the requirements of the TSX. As of November 29, 2018, the Company was able to commence making purchases of up to a maximum of 1,875,575 common shares, which represented approximately 5 % of the Company’s issued and outstanding common shares at the time. The NCIB covered the period from November 29, 2018 to November 28, 2019. For the year ended December 31, 2019, the Company re-purchased and canceled 365,100 common shares at a cost of $ 1,522,000 pursuant to the NCIB that went into effect on November 29, 2018. Total shares repurchased under the NCIB were 775,803 as of December 31, 2019. The Company’s retained earnings were reduced by the amount paid for the shares repurchased for cancellation. Warrants All outstanding warrants expired unexercised on August 27, 2019. The following table summarizes warrant activity during the year ended December 31, 2019: Number of warrants (000's) Weighted average exercise price (CAD$) Balance December 31, 2018 177 $ 2.60 Issued — — Exercised ( 133 ) 2.60 Expired ( 44 ) 2.60 Balance December 31, 2019 — $ — 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 Former Plan). Page F-18 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 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. As of December 31, 2020, the Company had outstanding issuances of options of 3,057,000 and RSUs of 684,000 under the Omnibus Plan. The following table summarizes stock-based compensation for the years ended December 31, 2020 and 2019: Year Ended December 31, 2020 2019 Stock-based compensation - options $ 3,810 $ 2,642 Stock-based compensation - restricted stock units 1,072 1,244 Total $ 4,882 $ 3,886 At December 31, 2020, there was approximately $ 2,872,000 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 2.03 years. As of December 31, 2020, there was approximately $ 580,000 of total unrecognized pre-tax compensation expense related to outstanding time-based RSUs that is expected to be recognized over a weighted average period of 0.22 years. Options The following table summarizes stock option activity for the years ended December 31, 2020 and 2019: Number of options (000's) Weighted average exercise price (1) Weighted average remaining contractual life Aggregate intrinsic value (2) Balance December 31, 2018 1,545 $ 2.67 5.8 years $ 1,605 Issued 1,269 4.34 Exercised ( 42 ) 3.38 Expired / Forfeited ( 89 ) 5.65 Balance December 31, 2019 2,683 $ 3.36 6.7 years $ 7,790 Issued 1,089 6.18 Exercised ( 643 ) 3.15 Expired / Forfeited ( 72 ) 4.58 Balance December 31, 2020 3,057 $ 4.37 7.9 years $ 10,362 (1) For presentation purposes, stock options issued with a CAD exercise price have been translated to USD based on the prevailing exchange rate on the date of grant. (2) The aggregate intrinsic value of options outstanding represents the difference between the exercise price of the option and the closing stock price of our common stock on the last trading day of the period. The aggregate intrinsic value of options outstanding was $ 10,362,000 and options exercisable were $ 4,534,000 at December 31, 2020. During the fiscal years ended December 31, 2020 and 2019, 643,297 and 42,168 shares of common stock were issued pursuant to the exercise of stock options, respectively. At December 31, 2020, the Company had 971,000 exercisable stock options outstanding with a weighted average exercise price of $ 3.09 and a weighted average remaining contractual life of 6.9 years. At December 31, 2019, the Company had 1,037,000 exercisable stock options outstanding with a weighted average exercise price of $ 3.02 and a weighted average remaining contractual life of 3.5 years. Page F-19 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 The fair value of the stock options has been charged to the Consolidated Statements of 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 years ended December 31, 2020 and 2019: 2020 2019 Exercise price $ 5.70 - $ 10.44 $ 4.13 - $ 7.30 (1) Risk-free interest rate 0.39 % - 1.63 % 1.59 % - 1.96 % Expected volatility 66 % - 85 % 73 % - 81 % Expected term 5.63 - 10 years 10 years Expected dividend yield Nil Nil Fair value on date of grant $ 4.10 - $ 7.23 $ 3.40 - $ 5.52 (1) For presentation purposes, stock options issued with a CAD exercise price have been translated to USD based on the prevailing exchange rate on the date of grant. Restricted Stock Units The Company also grants RSUs to directors, officers, and employees. The Company accounts for RSUs using fair value. The fair value of the RSUs has been charged to the Consolidated Statements of Income and credited to additional paid-in capital over the vesting period, based on the stock price on the date of grant. RSUs vest generally over a one or three -year period. The Company accounts for forfeitures on RSUs under ASU 2016-09 and recognizes forfeitures in the period in which they occur. The following table summarizes restricted stock unit activity for the years ended December 31, 2020 and 2019: Number of RSUs (000's) Weighted average grant price (1) Weighted average remaining contractual life Aggregate intrinsic value (2) Balance December 31, 2018 1,715 $ 1.93 1.01 years $ 6,575 Issued 120 5.19 Vested ( 641 ) 2.13 Expired / Forfeited ( 55 ) 1.81 Balance December 31, 2019 1,139 $ 2.16 0.55 years $ 7,129 Issued 144 7.29 Vested ( 589 ) 2.33 Expired / Forfeited ( 10 ) 5.70 Balance December 31, 2020 684 $ 3.04 0.22 years $ 5,308 (1) All future equity grants will be awarded in USD, therefore, RSUs issued with a CAD grant price have been translated to USD based on the prevailing exchange rate on the date of grant for presentation purposes. (2) The aggregate intrinsic value of time-based RSUs outstanding was based on our closing stock price on the last trading day of the period. During the year ended December 31, 2020, the Company issued 144,177 RSUs, with a vesting term of one to three years and a fair value between $ 5.70 and $ 10.44 per share. During the year ended December 31, 2019, the Company issued 120,444 RSUs, with a vesting term of one to three years and a fair value between $ 4.13 and $ 6.27 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 based on the fair value of the Company's common stock on the vesting date. Phantom share units vest annually over a three -year period. Page F-20 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 The following table summarizes phantom share unit activity for the years ended December 31, 2020 and 2019: Number of phantom share units (000's) Balance December 31, 2018 1,692 Issued 351 Vested ( 550 ) Expired / Forfeited ( 143 ) Balance December 31, 2019 1,350 Issued 346 Vested ( 601 ) Expired / Forfeited ( 110 ) Balance December 31, 2020 985 The cash-settled phantom share units are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with accrued liability and related expense being recognized over the requisite service period. The change in fair value of the phantom share units has been charged to the Consolidated Statements of Income and recorded as a liability included in accrued liabilities and long-term accrued liabilities, using a valuation method with the following inputs: December 31, 2020 December 31, 2019 Share price (Nasdaq closing price at period end) $ 7.76 $ 6.20 Remaining life of phantom share units 0.36 - 2.36 Years 0.36 - 2.36 Years Calculated fair value of phantom share units $ 5,344 $ 5,290 The total liability associated with phantom share units at December 31, 2020 is $ 5,344,000 , with $ 4,485,000 of this amount included in current accrued liabilities and the remaining portion of $ 859,000 included in long-term accrued liabilities. The impact associated with the fair value remeasurement of phantom share units is recorded in selling, general and administrative expenses within the Consolidated Statements of Income. The following table summarizes expenses associated with the phantom share units for the years ended December 31, 2020 and 2019: Year Ended December 31, 2020 2019 Selling, general and administrative $ 4,255 $ 6,082 The Company paid cash settlements of $ 4,201,000 and $ 3,386,000 during the years ended December 31, 2020 and 2019, respectively, pertaining to vestings of cash-settled phantom share units. 8. Commitments and Contingencies Litigation The Company accrues estimates for resolution of any legal and other contingencies when losses are probable and reasonably estimable in accordance with ASC 450, Contingencies (“ASC 450”). No less than quarterly, we review the status of each significant matter underlying a legal proceeding or claim and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made, which may prove to be incomplete or inaccurate or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. Page F-21 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 In March 2020, the Company (through its subsidiary Sleep Management) entered into a purchase order (the “Purchase Order”) with Vyaire Medical, Inc. d/b/a CareFusion Respiratory Technologies (“Vyaire”) for respiratory equipment and paid $ 1.4 million (the “Deposit”) towards the delivery of such respiratory equipment. As of December 31, 2020, outstanding supplier deposits in the amount of $ 0.9 million related to such Deposit are included within other long-term assets. Vyaire was unable to deliver the vast majority of the respiratory equipment referenced in the Purchase Order. On July 29, 2020, the Company (through its subsidiary Sleep Management) filed a lawsuit against Vyaire in the United States District Court for the Western District of Louisiana (the “Federal Court”). This lawsuit was dismissed on December 8, 2020 in connection with the commencement of the State Court lawsuit described below. On November 5, 2020, the Company (through its subsidiary Sleep Management) filed a lawsuit against Vyaire in the 15th Judicial District Court for the Parish of Lafayette, Louisiana (the “State Court”) seeking damages for breach of contract and seeking a declaratory judgment that the Company is not required to pay any further funds to Vyaire. On December 28, 2020, Vyaire filed its Answer, Affirmative Defenses, and Reconventional Demand (“Reconventional Demand”) with the State Court alleging breach of contract and seeking damages of $ 4.7 million, purportedly for the improper cancellation of the Purchase Order. We continue to believe that we have valid legal and equitable grounds to recover our outstanding Deposit as a result of Vyaire’s failure to deliver the vast majority of the respiratory equipment referenced in the Purchase Order. We have not concluded that a loss related to the Reconventional Demand is probable, nor have we accrued a liability related to this claim. Although a loss may be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the Counterclaim given that the dispute is in the early stages of the legal process. Retirement Plan The Company maintains a 401(k) retirement plan for employees to which eligible employees can contribute a percentage of their pre-tax compensation. Matching employer contributions to the 401(k) plan totaled $ 0.8 million and $ 0.6 million for the years ended December 31, 2020 and 2019. 9. Other Income CARES Act Funds Received The CARES Act created a Provider Relief Fund to support healthcare-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 Consolidated Statements of Income. The HHS has stated that Provider Relief Fund payments are not loans and will not need to be repaid. However, as a condition to the receipt of funds, the Company and any other providers must agree to a detailed set of terms and conditions. CMS has indicated that the terms and conditions may be subject to ongoing changes and reporting. To the extent that reporting requirements and terms and conditions are modified, it may affect the Company’s ability to comply and may require the return of funds. In accordance with the terms of acceptance for the grant, the Company has utilized these funds to prevent, prepare for, and respond to the COVID-19 pandemic. 10. Income Taxes Income taxes are computed in accordance with the provisions of ASC Topic 740, which requires, among other things, a liability approach to calculating deferred income taxes. The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in its consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company is required to make certain estimates and judgments about the application of tax law, the expected resolution of uncertain tax positions and other matters. In the event that uncertain tax positions are resolved for amounts different than the Company’s estimates, or the related statutes of limitations expire without the assessment of additional income taxes, the Company will be required to adjust the amounts of related assets and liabilities in the period in which such events occur. Such adjustment may have a material impact on the Company’s income tax provision and results of operations. At December 31, 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. Page F-22 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 The CARES Act which was signed into law on March 27, 2020 includes various income and payroll tax provisions. As of December 31, 2020, the CARES Act has not had a material impact on the Company's consolidated financial statements. However, the Company is still analyzing these provisions of the CARES Act. 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. The Company's effective tax rate for 2020 is ( 19.60 )%, as compared to the effective tax rate of 3.08 % for the year ended December 31, 2019. Included in the annual effective tax rate of ( 19.60 )% is a discrete benefit described below accounting for ( 29.19 )%. The following table reconciles income taxes calculated at the combined U.S. federal and statutory tax rate with income tax expense in the financial statements: Year Ended December 31, 2020 December 31, 2019 Net income before income taxes $ 26,363 $ 8,796 Statutory income tax rate 21.0 % 21.0 % Computed provision for (recovery of) income taxes 5,536 1,847 State income tax expense 839 632 Permanent differences ( 41 ) 264 Deferred balance adjustments ( 469 ) ( 922 ) Tax rate changes — — Changes in valuation allowance for deferred tax assets ( 11,032 ) ( 1,550 ) Provision for (recovery of) income taxes $ ( 5,167 ) $ 271 The significant components of the provision for income taxes for the years ended December 31, 2020 and 2019 are as follows: Year Ended December 31, 2020 December 31, 2019 Current taxes: Federal $ 2,547 $ — State 1,019 271 Foreign — — Total current taxes 3,566 271 Deferred taxes: Federal $ ( 6,699 ) $ — State ( 2,034 ) — Foreign — — Total deferred taxes ( 8,733 ) — Provision for (recovery of) income taxes $ ( 5,167 ) $ 271 Deferred Income Taxes Deferred tax assets and liabilities are measured using enacted tax rates expected to apply when the differences are expected to be recovered or settled. The determination of the ability of the Company to utilize tax loss carry forwards to offset deferred tax liabilities requires management to exercise judgment and make certain assumptions about the future performance of the Company. Management is required to assess whether it is “probable” that the Company will benefit from these prior losses and other deferred tax assets. Changes in economic conditions and other factors could result in revisions to the estimates of the benefits to be realized or the timing of utilizing the losses. Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset. A deferred tax asset has been recognized to the extent that the recoverability of deferred income tax assets is considered probable. Page F-23 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 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 released the valuation allowance placed on its deferred tax assets of $ 11.1 million. This release of the valuation allowance was treated partially as a discrete item of $ 7.8 million and partially as part of the effective tax rate for the current year movement of the deferred prior to release in the amount of $ 3.3 million in the Company's June 30, 2020 effective tax rate computation. The significant components of the Company’s deferred tax assets and liabilities are as follows: Year Ended December 31, 2020 December 31, 2019 Deferred tax assets: Net operating losses - US $ — $ 2,460 State fixed asset and net operating losses 783 — Goodwill (a) 11,894 13,149 Allowance for doubtful accounts 2,334 2,016 Accrued compensation and other 1,438 595 Accrued phantom stock 1,384 1,370 Stock-based compensation 2,205 1,516 Deferred revenue — 858 Lease liability 348 460 Charitable contributions — 12 Other 112 40 UNICAP 363 5 Total deferred tax assets $ 20,861 $ 22,481 Deferred tax liabilities: Right-of-use asset $ ( 348 ) $ ( 460 ) Property and equipment ( 11,465 ) ( 10,949 ) Total deferred liabilities $ ( 11,813 ) $ ( 11,409 ) Valuation allowance: Net deferred tax asset before valuation allowance $ 9,048 $ 11,072 Less: valuation allowance ( 315 ) ( 11,072 ) Net deferred tax asset $ 8,733 $ — (a) The Company elected to report the acquired assets at fair value at the time of the Company’s acquisition by PHM in 2015, and thus carries a goodwill asset for tax purposes subsequent to the transaction. The goodwill is amortized over 15 years for tax purposes. Page F-24 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 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 . Using the treasury stock method, diluted income per share amounts are calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares by assuming the proceeds received from the exercise of stock options and RSUs 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: Year Ended December 31, 2020 2019 Numerator - basic and diluted: Net income attributable to shareholders $ 31,530 $ 8,525 Denominator: Basic weighted average number of common shares 38,743,516 37,716,864 Diluted weighted average number of shares 40,525,737 39,747,509 Basic earnings per share $ 0.81 $ 0.23 Diluted earnings per share $ 0.78 $ 0.21 Denominator calculation from basic to diluted: Basic weighted average number of common shares 38,743,516 37,716,864 Stock options and other dilutive securities 1,782,221 2,030,645 Diluted weighted average number of shares 40,525,737 39,747,509 12. Subsequent Events Repurchase and Cancellation of Vested Shares In connection with the RSUs vested in January 2021, the Company repurchased 181,320 shares at fair value and used cash on hand to satisfy statutory tax withholding obligations. These shares were subsequently cancelled by the Company. Page F-25 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 13. Unaudited Summarized Quarterly Financial Information The Company has prepared the quarterly statements of income data on a basis consistent with the audited financial statements. In the opinion of management, the financial information reflects all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of this data. The results of historical periods are not necessarily indicative of the results of operations for any future period. The following tables set forth our unaudited quarterly statements of income data for each of the eight quarters in the period ended December 31, 2020: Q4 Q3 Q2 Q1 2020 2020 2020 2020 Consolidated Statements of Operations Data: Revenue $ 31,202 $ 33,447 $ 42,854 $ 23,806 Gross profit 19,178 19,453 25,927 15,553 Operating income 5,267 4,040 12,859 4,615 Net income 5,071 2,804 19,412 4,243 Net income per share: Basic $ 0.13 $ 0.07 $ 0.50 $ 0.11 Diluted $ 0.12 $ 0.07 $ 0.48 $ 0.11 Weighted average shares outstanding Basic 39,161,215 39,107,640 38,665,765 38,030,854 Diluted 41,043,419 41,155,668 40,814,238 39,677,983 Note: the amounts for each quarter are computed independently, and, due to the computation formula, the sum of the four quarters may not equal the year. Q4 Q3 Q2 Q1 2019 2019 2019 2019 Consolidated Statements of Operations Data: Revenue $ 21,448 $ 20,368 $ 20,325 $ 18,115 Gross profit $ 14,243 $ 14,050 $ 14,639 $ 13,074 Operating income 2,691 2,186 1,664 2,316 Net income 2,388 2,853 1,326 1,958 Net income per share: Basic $ 0.06 $ 0.08 $ 0.04 $ 0.05 Diluted $ 0.06 $ 0.07 $ 0.03 $ 0.05 Weighted average shares outstanding Basic 37,952,660 37,812,921 37,686,763 37,827,058 Diluted 40,148,149 40,051,422 39,975,307 39,449,123 Note: the amounts for each quarter are computed independently, and, due to the computation formula, the sum of the four quarters may not equal the year. Page F-26 VIEMED HEALTHCARE, INC. (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2020 and 2019 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.