What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-08-03 · 120 added, 164 removed, 392 unchanged (42% of the section changed)

5 unchanged sentences

We are closely monitoring the impact of the COVID-19 pandemic on our business.

The suspension of Medicare sequestration through December 31, 2021 (resulting in a 2% increase in Medicare payments to all providers) and recent regulatory guidance from CMS expanding telemedicine and reducing documentation requirements during the emergency period are expected to result in increased revenues for certain products and services.

The suspension of Medicare sequestration through December 31, 2021 (resulting in a 2% increase in Medicare payments to all providers) and regulatory guidance from CMS expanding telemedicine and reducing documentation requirements during the emergency period are expected to result in increased revenues for certain products and services.

However, based on the duration and severity of the impacts of the COVID-19 pandemic, including but not limited to any negative economic conditions arising from the pandemic, our ability to assess potential patients in hospitals and set up and treat patients in the home, and the impacts of government actions and administrative regulations on the healthcare industry and broader economy, including through existing and any future stimulus efforts, we are uncertain of the ultimate impact COVID-19 could have on our business, financial condition and results of operations.

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(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

September 30, 2021 and 2020

By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, including those identified under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and the other documents we file with the SEC, including under “Item 1A.

39 unchanged sentences

Unless otherwise noted herein, all references to "$" or "USD" are to the currency of the United States and references to "CAD$" or "Canadian dollars" are to the currency of Canada.

VIEMED HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

September 30, 2021 and 2020

We provide an array of home medical equipment, services and supplies, specializing in post-acute respiratory care services in the United States.

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Our services include respiratory disease management (through the rental of various DME devices), in-home sleep testing and sleep apnea treatment, oxygen therapy, and the sale of associated supplies.

In December of 2020, we acquired a 5% interest in VeruStat, Inc, a newly created company focusing on remote patient monitoring (“RPM”).

We hold an approximate 10% equity interest in VeruStat, Inc, a company focusing on remote patient monitoring (“RPM”).

The investment is part of an ongoing initiative to enable our salesforce to offer a new revenue source to its physician network around the country.

RPM platforms allow physicians to bill for safely monitoring patients inside of the home that are struggling with chronic diseases.

The VeruStat RPM solution will be placed in the home in conjunction with Viemed’s existing patient engagement platform (“PEP”).

VIEMED HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 77.3% and 81.9% of our traditional revenue, excluding COVID-19 response sales and services, for the three months ended June 30, 2021 and 2020, respectively, and 78.6% and 82.0% for the six months ended June 30, 2021 and 2020, respectively.

The VeruStat RPM solution can be placed in the home in conjunction with Viemed’s existing patient engagement platform (“PEP”).

During the three months ended September 30, 2021, we formed Viemed Healthcare Staffing LLC, a healthcare staffing division.

The underlying recruiting platform is expected to support internal resource fulfillment as well as external, contractual placement of allied health and nursing professionals.

We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 76.5% and 80.2% of our traditional revenue, excluding COVID-19 response sales and services, for the three months ended September 30, 2021 and 2020, respectively, and 77.9% and 82.9% for the nine months ended September 30, 2021 and 2020, respectively.

We combine the benefits of home ventilation support with licensed Respiratory Therapists ("RTs") to drive improved patient outcomes and reduce costly hospital readmissions.

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We expect to continue to employ more RTs in order to assure our high service model is accomplished in the home.

As of June 30, 2021, we employed 285 licensed RTs, representing approximately 50% of our company-wide employee count.

As of September 30, 2021, we employed 280 licensed RTs, representing approximately 47% of our company-wide employee count.

By focusing overhead costs on personnel that service the patient rather than physical location costs, we anticipate that we will efficiently scale our business in regions that are currently not being effectively serviced.

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Employee and patient safety is our first priority, and as a result, we put preparedness plans in place for our employees, especially our clinical personnel, and modified our clinical protocols to limit unnecessary patient encounters in order to ensure the safety of our employees as well as the safety of our patients.

These measures have not had a material adverse impact on our consolidated operating results for the three months ended June 30, 2021, but we have experienced curtailment of revenue growth in certain of our product categories due to the disruption in our access to physician and facility referral sources.

These measures have not had a material adverse impact on our consolidated operating results for the three months ended September 30, 2021, but we have experienced curtailment of revenue growth in certain of our product categories due to the disruption in our access to physician and facility referral sources.

This curtailment was slightly offset by revenue related to COVID-19 response sales and services.

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In addition, our current ability to assess potential patients in hospitals varies by hospital and city, but overall our business of setting up new patients in the home is continuing although at lower levels than in recent periods.

VIEMED HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

September 30, 2021 and 2020

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was signed into law on March 27, 2020, provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments.

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1868 into law, which further extended the suspension of Medicare sequestration until December 31, 2021.

VIEMED HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

We are continuing to monitor any effects or requirements that may result from the CARES Act as many of the provisions in the CARES Act are temporary and may require us to modify our operations and compliance procedures.

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The impact of these rules and regulations are unknown and may affect us.

To the extent these provisions will expire as stated in the CARES Act, we will be required to unwind any changes.

To the extent these provisions will expire as stated in the CARES Act, we may experience adverse effects.

In 2019, CMS announced the inclusion of noninvasive ventilator products on the list of products subject to the competitive bidding program for Round 2021, which covers the period of January 1, 2021 through December 31, 2023.

Rental revenue from ventilator products represents a significant portion of our revenues (approximately 78.6% of total traditional revenue, excluding COVID-19 response sales and services, for the six months ended June 30, 2021).

Rental revenue from ventilator products represents a significant portion of our revenues (approximately 77.9% of total traditional revenue, excluding COVID-19 response sales and services, for the nine months ended September 30, 2021).

On March 9, 2020, CMS announced that due to the COVID-19 pandemic, the United States President's exercise of the Defense Production Act, public concern regarding access to ventilators, and the non-invasive ventilators product category being new to the competitive bidding program, non-invasive ventilators were removed as a product category from Round 2021.

5 unchanged sentences

Dollars, except vent patients)

For the quarter ended June 30,

2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019

For the quarter ended September 30,

2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Financial Information:

15 unchanged sentences

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

September 30, 2021 and 2020

Results of Operations

Comparison of the Three Months Ended June 30, 2021 and 2020:

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020:

Three Months Ended June 30,

Comparison of the Three Months Ended September 30, 2021 and 2020:

The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020:

Three Months Ended September 30,

2021 % of Total Revenue 2020 % of Total Revenue $

6 unchanged sentences

Depreciation 211 0.7 % 202 0.6 % 9 4.5 %

Loss (gain) on disposal of property and equipment 83 0.3 % (1,458) (3.4) % 1,541 NM

Loss on disposal of property and equipment 145 0.5 % 203 0.6 % (58) (28.6) %

Other expense (income) (32) (0.1) % (19) (0.1) % (13) 68.4 %

Income from operations 2,919 10.0 % 4,040 12.1 % (1,121) (27.7) %

Non-operating expenses

Loss (gain) from equity method investments (231) (0.8) % (42) (0.1) % (189) 450.0 %

Non-operating income and expenses

Income from equity method investments (331) (1.1) % (21) (0.1) % (310) 1476.2 %

Interest expense, net 75 0.3 % 116 0.3 % (41) (35.3) %

Net income before taxes 3,175 10.8 % 3,945 11.8 % (770) (19.5) %

Provision (benefit) for income taxes 1,246 4.5 % (6,646) (15.5) % 7,892 NM

Provision for income taxes 1,386 4.7 % 1,141 3.4 % 245 21.5 %

Net income $ 1,789 6.1 % $ 2,804 8.4 % $ (1,015) (36.2) %

The following table summarizes our revenue for the three months ended June 30, 2021 and 2020:

Three Months Ended June 30,

The following table summarizes our revenue for the three months ended September 30, 2021 and 2020:

Three Months Ended September 30,

2021 % of Total Revenue 2020 % of Total Revenue $

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Total net revenue $ 29,285 100.0 % $ 33,447 100.0 % $ (4,162) (12.4) %

For the three months ended June 30, 2021, net revenue totaled $27.4 million, a decrease of $15.5 million (or 36.1%) from the comparable period in 2020.

For the three months ended September 30, 2021, net revenue totaled $29.3 million, a decrease of $4.2 million (or 12.4%) from the comparable period in 2020.

Excluding COVID-19 response sales and services revenue, net revenue increased $2.9 million (or 11.8%) from the comparable period in 2020.

The non-COVID-19 related net revenue growth was primarily driven by an increase in ventilator rental revenue of $1.4 million (or 7.1%) and rental revenue from other DME of $1.0 million (or 44.4%) related to oxygen therapy and PAPs.

Non-COVID-19 related equipment sales and services combined increased by $0.8 million (or 39.5%) from the comparable three month period in 2020, primarily as a result of increasing demand for home sleep studies and respiratory supplies for our PAP patients.

The non-COVID-19 related net revenue growth was driven by an increase in ventilator rental revenue of $1.3 million (or 6.7%) and rental revenue from other DME of $0.9 million (or 35.8%) primarily associated with oxygen and PAP rentals.

Non-COVID-19 related equipment sales and services combined increased by $0.6 million (or 28.3%) from the comparable three month period in 2020, primarily as a result of increasing demand for PAPs and respiratory supplies for our PAP patients.

VIEMED HEALTHCARE, INC.

1 unchanged sentence

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

During the three months ended June 30, 2021, net revenue of COVID-19 response sales and services totaled $1.1 million, compared to $19.7 million during the comparable three month period in 2020 during the height of the pandemic.

September 30, 2021 and 2020

During the three months ended September 30, 2021, net revenue for COVID-19 response sales and services totaled $1.5 million, compared to $8.6 million during the comparable three month period in 2020 during the height of the pandemic.

Current period COVID-19 response sales and services consist primarily of contact and vaccination tracing services.

While we expect further COVID-19 response related revenue during the remainder of 2021, the incremental revenue is expected to decline and impact of such revenue remains uncertain and dependent on the length and intensity of the COVID-19 pandemic and the availability of such equipment, supplies, and services from other suppliers.

While we expect further COVID-19 response related revenue during the remainder of 2021, the impact of such revenue remains uncertain and dependent on the length and intensity of the COVID-19 pandemic and the availability of such equipment, supplies, and services from other suppliers.

As we continue to expand geographically and further penetrate existing territories, we expect growth in our active ventilator patient base and ventilator rental revenue, as well as in our other growing respiratory offerings, though in the short term we anticipate growth to occur at a slightly slower rate than historically realized.

Cost of revenue and gross profit

For the three months ended June 30, 2021, cost of revenue totaled $9.8 million, a decrease of $7.2 million (or 42.3%) from the comparable period in 2020.

For the three months ended June 30, 2021, COVID-19 response sales and services accounted for $0.7 million (or 7.4%) of these costs, compared to $9.2 million (or 54.3%) of these costs from the comparable period in 2020.

Gross profit percentage increased from 60.5% in the three months ended June 30, 2020 to 64.3% in the three months ended June 30, 2021.

Excluding COVID-19 response sales and services, gross profit percentage for the three months ended June 30, 2021 and 2020 was 65.5% and 66.6%, respectively.

The reduction in overall gross profit percentage is due to fluctuations in product and service mix, including the significant increase in net revenue for non-ventilator related products and services.

For the three months ended September 30, 2021, cost of revenue totaled $10.9 million, a decrease of $3.1 million (or 22.1%) from the comparable period in 2020.

For the three months ended September 30, 2021, COVID-19 response sales and services accounted for $0.9 million (or 7.9%) of these costs, compared to $5.6 million (or 39.8%) of these costs from the comparable period in 2020.

Gross profit percentage increased from 58.2% in the three months ended September 30, 2020 to 62.8% in the three months ended September 30, 2021.

The increase in overall gross profit percentage is due to declines in lower margin COVID-19 response sales and services as well as fluctuations in product and service mix.

We expect our gross profit percentage for our normal operations (non-COVID-19 related) to remain relatively consistent with the current quarter through the end of 2021.

Selling, general and administrative expense

For the three months ended June 30, 2021, selling, general and administrative expenses totaled $12.9 million, a decrease of $3.5 million (or 21.6%) from the comparable prior period.

Selling, general, and administrative expenses as a percentage of revenue increased to 47.0% for the three months ended June 30, 2021 compared to 38.3% for the three months ended June 30, 2020.

The decrease in overall selling, general and administrative expense as compared to the prior period is primarily attributable to a decrease in employee related expenses associated with variable and incentive based compensation, including share based phantom stock compensation.

Variable and incentive compensation declined $6.0 million from the comparable period, including a $4.4 million decrease related to the remeasurement of the impact of our phantom stock plan.

For the three months ended September 30, 2021, selling, general and administrative expenses totaled $13.3 million, a decrease of $0.3 million (or 2.1%) from the comparable prior period.

Excluding COVID-19 related revenues, selling, general and administrative expenses as a percentage of revenue decreased to 47.6% for the three months ended September 30, 2021 compared to 52.4% for the three months ended September 30, 2020.

Phantom stock compensation expense also decreased by $0.4 million related to the impact from remeasurement of our phantom stock plan.

As we continue to grow into new markets and increase our employee count, we expect selling, general and administrative expenses will grow proportionally as a percentage of revenue through the end of 2021.

Research and development

For the three months ended June 30, 2021, research and development expense totaled $0.6 million, an increase of $0.3 million (or 115.1%) from the comparable period in 2020.

For the three months ended September 30, 2021, research and development expense totaled $0.6 million, an increase of $0.3 million (or 137.0%) from the comparable period in 2020.

As we continue to invest in research and development related projects to support our technology initiatives, we expect that associated costs will continue to increase in 2021 relative to 2020 costs.

Loss on disposal of property and equipment

For the three months ended June 30, 2021, we recorded a loss on disposal of property and equipment of $0.1 million, compared to a gain of $1.5 million during the comparable period in 2020.

During the three months ended June 30, 2020, as a result of our COVID-19 response efforts, certain of our previously placed in service property and equipment was sold and gains resulting from these disposals was recognized.

We expect disposals of equipment to generally remain consistent with historical trends.

Other expense (income)

During the three months ended June 30, 2020, we recorded income from the receipt of Provider Relief Fund payments of $3.5 million in April 2020.

Payments from the Provider Relief Fund are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic as described in detail above.

There was no receipt of payments from the Provider Relief Fund during the three months ended June 30, 2021.

We expect other expense (income) to remain at immaterial levels.

VIEMED HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

Stock-based compensation

For the three months ended June 30, 2021, stock-based compensation totaled $1.2 million, remaining consistent with the comparable period in 2020.

For the three months ended September 30, 2021, stock-based compensation totaled $1.3 million, an increase of $0.1 million (or 5.5%) from the comparable period in 2020.

We expect that as we continue to increase our employee count and utilize stock-based awards as an aspect of employee compensation, stock-based compensation expense will increase accordingly.

1 unchanged sentence

Interest expense, net

For the three months ended June 30, 2021, net interest expense totaled $0.1 million, a decrease of $0.1 million (or 38.5%) from the comparable period in 2020, as a result of declines in index rates associated with loans.

For the three months ended September 30, 2021, net interest expense totaled $0.1 million, remaining consistent with the comparable period in 2020.

We expect net interest expense to remain relatively consistent with the current quarter through the end of 2021.

Provision (benefit) for income taxes

For the three months ended June 30, 2021, the provision for income taxes was a $1.2 million expense, compared to a $6.6 million benefit during the 2020 period.

At June 30, 2020, the Company determined that it was more likely than not that deferred tax assets would be realized, and during the three month period ended June 30, 2020, made an adjustment to the deferred tax asset valuation allowance, which resulted in a net benefit for the period.

Our annual estimated effective tax rate for 2021 is 44.1%.

For the three months ended June 30, 2021, net income was $1.6 million, a decrease of $17.8 million (or 91.9%) from the comparable period in 2020.

Net income as a percentage of net revenue decreased from 45.3% for the three months ended June 30, 2020 to 5.7% for the three months ended June 30, 2021, primarily due to the decrease in COVID-19 related activities and the comparative benefit from income taxes in the prior period, as described above.

Comparison of the Six Months Ended June 30, 2021 and 2020:

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

Provision for income taxes

For the three months ended September 30, 2021, the provision for income taxes was a $1.4 million expense, compared to a $1.1 million expense during the 2020 period, an increase of $0.2 million (or 21.5%).

Excluding the benefit of discrete items, our annual estimated effective tax rate for 2021 is 43.4%.

VIEMED HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

September 30, 2021 and 2020

For the three months ended September 30, 2021, net income was $1.8 million, a decrease of $1.0 million (or 36.2%) from the comparable period in 2020.

Net income as a percentage of net revenue decreased from 8.4% for the three months ended September 30, 2020 to 6.1% for the three months ended September 30, 2021, primarily due to the decrease in COVID-19 related activities and the increase in the provision for income taxes, as described above.

Comparison of the Nine Months Ended September 30, 2021 and 2020:

The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

2021 % of Total Revenue 2020 % of Total Revenue $

9 unchanged sentences

Income from operations 6,915 8.1 % 21,514 21.5 % (14,599) (67.9) %

Non-operating expenses

Loss (gain) from equity method investments (451) (0.8) % (15) — % (436) NM

Non-operating income and expenses

Income from equity method investments (782) (0.9) % (36) — % (746) NM

Interest expense, net 249 0.3 % 409 0.4 % (160) (39.1) %

5 unchanged sentences

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

The following table summarizes our revenue for the six months ended June 30, 2021 and 2020:

Six Months Ended June 30,

September 30, 2021 and 2020

The following table summarizes our revenue for the nine months ended September 30, 2021 and 2020:

Nine Months Ended September 30,

2021 % of Total Revenue 2020 % of Total Revenue $

7 unchanged sentences

Total net revenue $ 85,100 100.0 % $ 100,107 100.0 % $ (15,007) (15.0) %

For the six months ended June 30, 2021, revenue totaled $55.8 million, a decrease of $10.8 million (or 16.3%) from the comparable period in 2020.

For the nine months ended September 30, 2021, revenue totaled $85.1 million, a decrease of $15.0 million (or 15.0%) from the comparable period in 2020.

Non-COVID-19 related net revenue increased $8.8 million (or 12.4%) from the comparable period in 2020.

Ventilator rental revenue increased $3.3 million (or 5.6%) due to our growth in active ventilator patient base.

In addition to the ventilator rental revenue growth, rental revenue from other DME grew $1.8 million (or 41.4%) from oxygen therapy and PAPs.

In the short term, we anticipate our growth to occur at a slower rate than in recent periods as a result of the pandemic.

Non-COVID-19 related equipment sales and services combined increased by $1.0 million (or 25.6%) from the comparable period in 2020, primarily as a result of increasing demand for home sleep studies and associated supplies for our PAP patients.

In addition to the ventilator rental revenue growth, rental revenue from other DME grew $2.6 million (or 36.9%) primarily from oxygen therapy and PAPs.

In the short term, we anticipate our growth to occur at a slower rate than in historical periods as a result of the pandemic.

Non-COVID-19 related equipment sales and services combined increased by $2.8 million (or 57.0%) from the comparable period in 2020, primarily as a result of increasing demand for home sleep studies, PAPs, and associated supplies for our PAP patients.

Cost of revenue and gross profit

For the six months ended June 30, 2021, cost of revenue totaled $20.4 million, a decrease of $4.7 million (or 18.8%) from the comparable period in 2020.

For the six months ended June 30, 2021 and 2020, gross profit percentage increased from 62.2% to 63.4%.

Excluding COVID-19 response sales and services, gross profit percentage for the six months ended June 30, 2021 was 65.5%.

For the nine months ended September 30, 2021, cost of revenue totaled $31.4 million, a decrease of $7.8 million (or 20.0%) from the comparable period in 2020.

For the nine months ended September 30, 2021, COVID-19 response sales and services accounted for $3.5 million (or 11.1%) of these costs, compared to $15.3 million (or 39.1%) of these costs from the comparable period in 2020.

Gross profit percentage increased from 60.9% in the nine months ended September 30, 2020 to 63.2% in the nine months ended September 30, 2021.

The increase in overall gross profit percentage is due to declines in lower margin COVID-19 response sales and services as well as fluctuations in product and service mix.

We expect our gross profit percentage for our normal operations (non-COVID-19 related) to remain relatively consistent with the current quarter through the end of 2021.

Selling, general and administrative expense

For the six months ended June 30, 2021, selling, general and administrative expenses totaled $27.4 million, an increase of $0.4 million (or 1.4%) from the comparable period in 2020.

Excluding COVID-19 related revenues, selling, general and administrative expenses as a percentage of net revenue decreased to 53.0% for the six months ended June 30, 2021, compared to 58.8% for the six months ended June 30, 2020.

The change in overall selling, general and administrative expense as compared to the prior year period is attributable to lower variable and incentive based employee compensation and higher employee related expenses to accommodate the overall growth of the Company, as our full time employee count increased to 575 at June 30, 2021, compared to 459 at June 30, 2020, an increase of 25.3%.

For the nine months ended September 30, 2021, selling, general and administrative expenses totaled $40.7 million, an increase of $0.1 million (or 0.2%) from the comparable period in 2020.

Excluding COVID-19 related revenues, selling, general and administrative expenses as a percentage of net revenue decreased to 51.1% for the nine months ended September 30, 2021, compared to 56.6% for the nine months ended September 30, 2020.

The decrease in selling, general and administrative expense as a percentage of non-COVID-19 related revenues as compared to the prior year period is attributable to lower variable and incentive based employee compensation partially offset by higher employee related expenses to accommodate the overall growth of the Company, as our full time employee count increased to 597 at September 30, 2021, compared to 499 at September 30, 2020, an increase of 19.6%.

We expect selling, general and administrative expenses will grow proportionally as a percentage of revenue through the end of 2021.

Research and development

For the six months ended June 30, 2021, research and development expense totaled $0.9 million, an increase of $0.5 million (or 107.2%) from the comparable period in 2020.

For the nine months ended September 30, 2021, research and development expense totaled $1.5 million, an increase of $0.8 million (or 117.7%) from the comparable period in 2020.

As we continue to invest in research and development related projects to support our technology initiatives, we expect that associated costs will continue to increase in 2021 relative to 2020 costs.

2 unchanged sentences

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

September 30, 2021 and 2020

Loss on disposal of property and equipment

For the six months ended June 30, 2021, we recorded a loss on disposal of property and equipment of $0.2 million, compared to a gain of $2.6 million during the comparable period in 2020.

As a result of our efforts for the COVID-19 response as described above, certain of our previously placed in service property and equipment was sold.

As a result, during the six months ended June 30, 2020, we recorded sales proceeds on used equipment of $5.0 million which resulted in a net gain on disposal for related equipment of $3.5 million, partially offset by a loss of $0.8 million on property and equipment unrelated to COVID-19.

We expect disposals of equipment to generally remain consistent with historical trends through the remainder of the year.

For the nine months ended September 30, 2021, we recorded a loss on disposal of property and equipment of $0.3 million, compared to a gain of $2.4 million during the comparable period in 2020.

As a result of our efforts for the COVID-19 response as described above, certain of our previously placed in service property and equipment was sold during the nine month period ended September 30, 2020.

As a result, we recorded a net gain on disposal for related equipment during the prior comparable period.

We expect disposals of equipment to generally remain consistent with historical trends, excluding COVID-19 related disposals, through the remainder of the year.

Other expense (income)

During six months ended June 30, 2020, we recorded income from the receipt of Provider Relief Fund payments of $3.5 million in April 2020.

During nine months ended September 30, 2020, we recorded income from the receipt of Provider Relief Fund payments of $3.5 million in April 2020.

There was no receipt of payments from the Provider Relief Fund during the six months ended June 30, 2021.

There was no receipt of payments from the Provider Relief Fund during the nine months ended September 30, 2021.

Stock-based compensation

For the six months ended June 30, 2021, stock-based compensation totaled $2.5 million, an increase of $0.2 million (or 8.4%) from the comparable period in 2020.

For the nine months ended September 30, 2021, stock-based compensation totaled $3.8 million, an increase of $0.3 million (or 7.4%) from the comparable period in 2020.

We expect that as we continue to increase our employee count and utilize stock-based awards as an aspect of employee compensation, stock-based compensation expense will increase accordingly.

1 unchanged sentence

Interest expense, net

For the six months ended June 30, 2021, net interest expense totaled $0.2 million, a decrease of $0.1 million from the comparable period in 2020, as a result of declines in index rates associated with loans.

For the nine months ended September 30, 2021, net interest expense totaled $0.2 million, a decrease of $0.2 million (or 39.1%) from the comparable period in 2020, as a result of declines in index rates associated with loans.

We expect net interest expense to remain materially consistent through the end of 2021.

Provision (benefit) for income taxes

For the six months ended June 30, 2021, the provision for income taxes was a $1.0 million expense, compared to a $6.5 million benefit during the 2020 period.

At June 30, 2020, the Company determined that it was more likely than not that deferred tax assets would be realized, and during the six month period ended June 30, 2020, made an adjustment to the deferred tax asset valuation allowance, which resulted in a net benefit for the period.

As we continue to incur substantial capital expenditures to acquire medical equipment to accommodate our patient base growth, combined with the deferred tax assets, we expect most near-term cash tax payments for federal and state tax liabilities to remain relatively consistent.

For the six months ended June 30, 2021, net income was $3.3 million, a decrease of $20.4 million (or 86.3%) from the comparable period in 2020.

Net income as a percentage of revenue decreased from 35.5% for the six months ended June 30, 2020 to 5.8% for the six months ended June 30, 2021, driven by a decrease in COVID-19 related sales and the comparative benefit from income taxes in the prior period, as described above.

For the nine months ended September 30, 2021, the provision for income taxes was a $2.4 million expense, compared to a $5.3 million benefit during the 2020 period.

During the nine month period ended September 30, 2020, the Company determined it was more likely than not that deferred tax assets would be realized and made an adjustment to the deferred tax asset valuation allowance, which resulted in a net benefit for the period.

Excluding the benefit of discrete items, our annual estimated effective tax rate for 2021 is 43.4%.

For the nine months ended September 30, 2021, net income was $5.0 million, a decrease of $21.4 million (or 81.0%) from the comparable period in 2020.

Net income as a percentage of revenue decreased from 26.4% for the nine months ended September 30, 2020 to 5.9% for the nine months ended September 30, 2021, driven by a decrease in COVID-19 related sales and the comparative benefit from income taxes in the prior period, as described above.

Non-GAAP Financial Measures

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(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

September 30, 2021 and 2020

In calculating Adjusted EBITDA, certain items (mostly non-cash) are excluded from net income including interest, taxes and depreciation of property and equipment.

4 unchanged sentences

However, we do not consider the amount of interest expense or interest income to be a representative component of the day-to-day operating performance of our business.

– Unrealized loss on warrant conversion liability may be useful for investors to consider as it represents changes in the fair value of warrants and exchangeable shares of subsidiaries, driven predominantly by changes in our share price and exchange rates.

These changes are non-cash, as is the settlement of the underlying derivative liability, which occurs upon the conversion of the derivative instrument into common shares of the Company.

– Stock-based compensation may be useful for investors to consider because it is an estimate of the non-cash component of compensation received by the Company’s directors, officers, employees and consultants.

4 unchanged sentences

The following table is a reconciliation of Net income, the most directly comparable GAAP measure, to Adjusted EBITDA, on a historical basis for the periods indicated:

For the quarter ended June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019

For the quarter ended September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Net Income $ 1,789 $ 1,566 $ 1,684 $ 5,071 $ 2,804 $ 19,412 $ 4,243 $ 2,388

1 unchanged sentence

Interest expense 75 83 91 100 116 135 158 212

Unrealized (gain) loss on warrant conversion liability — — — — — $ — $ — $ (800)

Stock-based compensation 1,302 1,236 1,307 1,301 1,234 1,196 1,151 908

10 unchanged sentences

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

September 30, 2021 and 2020

Liquidity and Capital Resources

Cash and cash equivalents at June 30, 2021 was $31.2 million, compared to $31.0 million at December 31, 2020.

Cash and cash equivalents at September 30, 2021 was $26.9 million, compared to $31.0 million at December 31, 2020.

Based on our current plan of operations, we believe this amount, when combined with expected cash flows from operations and amounts available under our line of credit will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months from the date of this filing.

The Company utilizes short term leases with a major supplier that could be extended over a longer term if there was a need for additional liquidity.

Additionally, the Company maintains a $10.0 million line of credit with Hancock Whitney Bank which was fully undrawn as of June 30, 2021.

Additionally, the Company maintains a $10.0 million line of credit with Hancock Whitney Bank which was fully undrawn as of September 30, 2021.

The following table summarizes our cash flows for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

Net Cash provided by (used in):

2 unchanged sentences

Financing activities (4,770) (7,231)

Net increase in cash and cash equivalents $ 170 $ 16,352

Net (decrease) increase in cash and cash equivalents $ (4,114) $ 19,041

Net Cash Provided by Operating Activities

Net cash provided by operating activities during the six months ended June 30, 2021 was $8.8 million, resulting from net income of $3.3 million and non-cash net income adjustments of $12.0 million, which was partially offset by a decrease in net operating liabilities of $3.4 million and an increase in net operating assets of $3.1 million.

The non-cash net income adjustments primarily consisted of $3.4 million in change of allowance for doubtful accounts, $5.3 million of depreciation, $0.2 million of loss on disposal of property and equipment, $2.5 million of stock-based compensation, $0.5 million gain on equity investments and $1.0 million change in deferred tax asset.

The uses of cash related to changes in operating assets primarily consisted of an increase in accounts receivable of $3.2 million and an increase in inventory of $0.2 million, partially offset by a decrease in prepaid expenses and other assets of $0.3 million.

The changes in operating liabilities primarily consisted of an increase in accounts payable of $0.4 million, and an increase in deferred revenue of $0.3 million, partially offset by a decrease in accrued liabilities of $3.8 million and a decrease in income tax payable of $0.3 million.

Net cash provided by operating activities during the six months ended June 30, 2020 was $22.0 million, resulting from net income of $23.7 million, non-cash net income adjustments of $1.8 million, and an increase in net operating liabilities of $7.2 million, which was partially offset by an increase in net operating assets of $10.6 million.

Net cash provided by operating activities during the nine months ended September 30, 2021 was $13.8 million, resulting from net income of $5.0 million and non-cash net income changes of $19.1 million, which was partially offset by a decrease in cash resulting from a change in operating assets and liabilities of $10.5 million.

The non-cash net income changes primarily consisted of $5.3 million in change of allowance for doubtful accounts, $8.2 million of depreciation, $0.3 million of loss on disposal of property and equipment, $3.8 million of stock-based compensation, $0.8 million income from equity investments and $2.4 million of deferred income tax expense.

The primary changes in operating assets and liabilities relate to an increase in accounts receivable of $5.6 million, an increase in prepaid expenses and other assets of $2.3 million, an increase in accounts payable of $2.6 million, a net increase in income taxes receivable/(payable) of $1.8 million, and a decrease in accrued liabilities of $3.7 million.

Net cash provided by operating activities during the nine months ended September 30, 2020 was $29.3 million, resulting from net income of $26.5 million, non-cash net income adjustments of $7.3 million, and an increase in net operating liabilities of $5.7 million, which was partially offset by an increase in net operating assets of $10.2 million.

The non-cash net income adjustments primarily consisted of $7.0 million in change of allowance for doubtful accounts, $6.7 million of depreciation, $2.4 million of gains on disposal of property and equipment, change in deferred tax asset of $7.6 million and $3.6 million of stock-based compensation.

1 unchanged sentence

The changes in operating liabilities primarily consisted of an increase in accounts payable of $2.7 million and an increase in accrued liabilities of $2.4 million.

The increase in our operating assets was primarily driven by accounts receivable related to COVID-19 response sales occurring during the quarter.

The increase in our operating assets was primarily driven by accounts receivable related to COVID-19 response sales and services occurring during the period.

Included in our operating cash flows for the period is the receipt of $3.5 million in Provider Relief Funds.

Net Cash Used in Investing Activities

Net cash used in investing activities during the six months ended June 30, 2021 was $4.8 million, consisting of $5.0 million of purchases of property and equipment, partially offset by $0.3 million of sales proceeds from the disposal of property and equipment.

Net cash used in investing activities during the nine months ended September 30, 2021 was $13.2 million, consisting of $13.1 million of purchases of property and equipment and $0.6 million in equity investments, partially offset by $0.5 million of sales proceeds from the disposal of property and equipment.

Purchases of property and equipment were primarily related to medical equipment rented to our patients.

Combining cash purchases of property and equipment and equipment financed through finance leases, our total capital expenditures for the six months ended June 30, 2021 were $5.1 million.

This represents a $3.6 million, or 41.3%, decrease year over year.

Combining cash purchases of property and equipment and equipment financed through finance leases, our total capital expenditures for the nine months ended September 30, 2021 were $13.1 million.

This represents a $1.9 million, or 17.1%, increase year over year.

VIEMED HEALTHCARE, INC.

1 unchanged sentence

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

Net cash used in investing activities during the six months ended June 30, 2020 was $0.6 million, consisting of $5.7 million of purchases of property and equipment, partially offset by $5.1 million of COVID-19 response sales proceeds from the disposal of property and equipment.

September 30, 2021 and 2020

Net cash used in investing activities during the nine months ended September 30, 2020 was $3.0 million, consisting of $8.2 million of purchases of property and equipment, partially offset by $5.2 million of COVID-19 response sales proceeds from the disposal of property and equipment.

Purchases of property and equipment were primarily related to medical equipment rented to our patients.

Combining cash purchases of property and equipment of $5.7 million and equipment financed through finance leases of $2.9 million, our total capital expenditures for the six months ended June 30, 2020 were $8.6 million.

Combining cash purchases of property and equipment of $8.2 million and equipment financed through finance leases of $3.0 million, our total capital expenditures for the nine months ended September 30, 2020 were $11.2 million.

Net Cash Used in Financing Activities

Net cash used in financing activities during the six months ended June 30, 2021 was $3.9 million, consisting of $0.8 million in principal payments on the Term Note (as defined below), $1.7 million in repayments of finance lease liabilities, and $1.4 million for shares redeemed and canceled for tax withholding in connection with RSUs vested in the period.

Net cash used in financing activities during the six months ended June 30, 2020 was $5.0 million, consisting of $0.8 million in principal payments on the Term Note and $5.9 million in repayments of finance lease liabilities, partially offset by $1.8 million of proceeds from the exercise of stock options.

Net cash used in financing activities during the nine months ended September 30, 2021 was $4.8 million, consisting of $1.3 million in principal payments on the Term Note (as defined below), $2.1 million in repayments of finance lease liabilities, and $1.4 million for shares redeemed and canceled for tax withholding in connection with RSUs vested in the period.

Net cash used in financing activities during the nine months ended September 30, 2020 was $7.2 million, consisting of $1.2 million in principal payments on the Term Note and $7.7 million in repayments of finance lease liabilities, partially offset by $1.8 million of proceeds from the exercise of stock options.

Line of Credit

1 unchanged sentence

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, 2021 or December 31, 2020.

There were no borrowings against this line of credit at September 30, 2021 or December 31, 2020.

While we currently have no immediate plans to draw on this line of credit, the line of credit allows flexibility in funding our future operations subject to compliance with the covenants described above.

2 unchanged sentences

The Credit Agreement also contains certain customary events of default, including, among other things, failure to make payments when due thereunder and failure to observe or perform certain covenants.

The Company was in compliance with all covenants under the Commercial Business Term Loan Agreement in effect at June 30, 2021.

The Company was in compliance with all covenants under the Commercial Business Term Loan Agreement in effect at September 30, 2021.

Commercial Term Notes

11 unchanged sentences

The Term Note bears interest at the rate of 4.60% per annum.

Sources of funds

Our cash provided by operating activities in the six months ended June 30, 2021 was $8.8 million compared to $22.0 million in the six months ended June 30, 2020.

VIEMED HEALTHCARE, INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

HHS Provider Relief Funds

During the quarter ending June 30, 2020, the Company received $3.5 million of Provider Relief Funds from the HHS that was provided to eligible healthcare providers out of the $100 billion Public Health and Social Services Emergency Fund provided for in the CARES Act.

The funds are allocated to eligible healthcare providers for expenses and lost revenue attributable to the COVID-19 pandemic.

The HHS has stated that Provider Relief Fund payments are not loans and will not need to be repaid.

However, as a condition to the receipt of funds, the Company and any other providers must agree to a detailed set of terms and conditions.

CMS has indicated that the terms and conditions may be subject to ongoing changes and reporting.

To the extent that reporting requirements and terms and conditions are modified, it may affect the Company's ability to comply and may require the return of funds.

In accordance with the terms of acceptance for the grant, the Company has utilized these funds to prevent, prepare for, and respond to the COVID-19 pandemic.

As of June 30, 2021, we had cash and cash equivalents of $31.2 million.

Our principal uses of cash are funding our new rental assets and other capital purchases, operations, and other working capital requirements.

Our cash provided by operating activities has accumulated over time and now is a significant source of capital to the business.

We may need to raise additional funds to support our investing operations, and such funding may not be available to us on acceptable terms, or at all.

If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected.

We may seek to raise additional funds through equity, equity-linked or debt financings.

If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations.

Any additional equity financing may be dilutive to our stockholders.

For the six months ended June 30, 2021, the Company repurchased and canceled 181,320 common shares at a cost of $1.4 million due to tax withholding for RSUs vesting.

The Company’s retained earnings were reduced by the amount paid for the shares repurchased for cancellation.

Leases under which we assume substantially all the risks and rewards of ownership are classified as capital leases.

Upon initial recognition, the leased asset is measured at an amount equal to the lesser of its fair value and the present value of the minimum lease payments.

Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to the asset.

The associated lease liability is drawn down over the life of the lease by allocating a portion of each lease payment to the liability with the remainder being recognized as finance charges.

Leases that do not transfer the risks and rewards of ownership to the Company are treated as operating leases and are expensed as incurred.

Retirement Plan

The Company maintains a 401(k) retirement plan for employees to which eligible employees can contribute a percentage of their pre-tax compensation.

Matching employer contributions to the 401(k) plan totaled $283,000 and $223,000 for the three months ended June 30, 2021 and 2020, respectively, and $457,000 and $402,000 for the six months ended June 30, 2021 and 2020, respectively.

Off balance sheet arrangements

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(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

September 30, 2021 and 2020

Accounting and Disclosure Matters

36 unchanged sentences

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

September 30, 2021 and 2020

Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required to record net revenue and accounts receivable at their net realizable values.

5 unchanged sentences

Any taxes due upon sale of the products or services are not recognized as revenue.

We do not have any partially or unfilled performance obligations related to contracts with customers and as such, we have no contract liabilities as of June 30, 2021.

We do not have any partially or unfilled performance obligations related to contracts with customers and as such, we have no contract liabilities as of September 30, 2021.

Allowance for doubtful accounts

5 unchanged sentences

A change in estimate could impact bad debt expense and accounts receivable.

Our allowance for doubtful accounts was $7.3 million and $9.3 million as of June 30, 2021 and 2020, respectively, and based on our analysis, we believe the reserve is adequate for any exposure to credit losses.

Our allowance for doubtful accounts was $7.1 million and $8.8 million as of September 30, 2021 and 2020, respectively, and based on our analysis, we believe the reserve is adequate for any exposure to credit losses.

Stock-based compensation

8 unchanged sentences

Our fair value estimates reflect an income approach based on the terms of the interest rate swap contract and inputs corroborated by observable market data including interest rate curves.

We include unrealized gains in 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 presents a positive ending period fair value of the interest rate swap contract in other long-term assets, as a component of long-term assets, and a negative ending period fair value of the interest rate swap contract in accrued liabilities, as a component of long-term liabilities on the Condensed Consolidated Balance Sheets.

We recognize any differences between the variable interest rate payments and the fixed interest rate settlements from our swap counterparty as an adjustment to interest expense over the life of the swap.

4 unchanged sentences

(Tabular amounts expressed in thousands of US Dollars, except per share amounts)

June 30, 2021 and 2020

September 30, 2021 and 2020

We are subject to income taxes in numerous jurisdictions.

13 unchanged sentences

VIEMED HEALTHCARE, INC.

June 30, 2021 and 2020

September 30, 2021 and 2020

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis