VIEMED HEALTHCARE, INC. 10-Q

Item 1. Financial Statements VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Expressed in thousands of U.S. Dollars, except outstanding shares) Note At September 30, 2021 At December 31, 2020 (Unaudited) (Audited) ASSETS Current assets Cash and cash equivalents $ 26,867 $ 30,981 Accounts receivable, net of allowance for doubtful accounts of $ 7,115 and $ 9,013 at September 30, 2021 and December 31, 2020, respectively 2 12,696 12,373 Inventory, net of inventory reserve of $ 1,237 and $ 1,353 at September 30, 2021 and December 31, 2020, respectively 2 2,622 2,310 Income tax receivable 1,420 — Prepaid expenses and other assets 3,761 1,511 Total current assets $ 47,366 $ 47,175 Long-term assets Property and equipment, net 3 59,036 55,056 Equity investments 2 1,942 733 Deferred tax asset 9 6,281 8,733 Other long-term assets 8 861 863 Total long-term assets $ 68,120 $ 65,385 TOTAL ASSETS $ 115,486 $ 112,560 LIABILITIES Current liabilities Trade payables $ 4,734 $ 2,096 Deferred revenue 3,795 3,409 Income taxes payable — 340 Accrued liabilities 4 9,283 12,595 Current portion of lease liabilities 5 481 2,741 Current portion of long-term debt 5 1,906 1,836 Total current liabilities $ 20,199 $ 23,017 Long-term liabilities Accrued liabilities 7 730 1,292 Long-term lease liabilities 5 834 762 Long-term debt 5 4,347 5,796 Total long-term liabilities $ 5,911 $ 7,850 TOTAL LIABILITIES $ 26,110 $ 30,867 Commitments and Contingencies 8 — — SHAREHOLDERS' EQUITY Common stock - No par value: unlimited authorized; 39,630,446 and 39,185,182 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 7 $ 13,957 $ 9,181 Additional paid-in capital 6,501 7,320 Accumulated other comprehensive loss ( 330 ) ( 451 ) Retained earnings 69,248 65,643 TOTAL SHAREHOLDERS' EQUITY $ 89,376 $ 81,693 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 115,486 $ 112,560 See accompanying notes to the condensed consolidated financial statements Page 3 VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Expressed in thousands of U.S. Dollars, except share and per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, Note 2021 2020 2021 2020 Revenue 2 $ 29,285 $ 33,447 $ 85,100 $ 100,107 Cost of revenue 10,904 13,994 31,352 39,174 Gross profit $ 18,381 $ 19,453 $ 53,748 $ 60,933 Operating expenses Selling, general and administrative 13,260 13,550 40,653 40,555 Research and development 576 243 1,498 688 Stock-based compensation 7 1,302 1,234 3,845 3,581 Depreciation 211 202 618 612 Loss (gain) on disposal of property and equipment 145 203 304 ( 2,424 ) Other expense (income) ( 32 ) ( 19 ) ( 85 ) ( 3,593 ) Income from operations $ 2,919 $ 4,040 $ 6,915 $ 21,514 Non-operating income and expenses Income from equity method investments ( 331 ) ( 21 ) ( 782 ) ( 36 ) Interest expense, net of interest income 5 75 116 249 409 Net income before taxes 3,175 3,945 7,448 21,141 Provision (benefit) for income taxes 9 1,386 1,141 2,409 ( 5,318 ) Net income $ 1,789 $ 2,804 $ 5,039 $ 26,459 Other comprehensive income (loss) Change in unrealized gain/loss on derivative instruments, net of tax 21 24 121 ( 321 ) Other comprehensive income (loss) $ 21 $ 24 $ 121 $ ( 321 ) Comprehensive income $ 1,810 $ 2,828 $ 5,160 $ 26,138 Net income per share Basic 10 $ 0.05 $ 0.07 $ 0.13 $ 0.69 Diluted 10 $ 0.04 $ 0.07 $ 0.12 $ 0.66 Weighted average number of common shares outstanding: Basic 10 39,607,540 39,107,640 39,442,088 38,603,267 Diluted 10 40,659,353 41,155,668 40,716,747 40,377,608 See accompanying notes to the condensed consolidated financial statements Page 4 VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Expressed in thousands of U.S. Dollars, except share and per share amounts) (Unaudited) Common Stock Additional paid-in capital Accumulated other comprehensive loss Total Shareholders' equity Shares Amount Retained earnings Shareholders' equity, December 31, 2019 37,952,660 $ 3,366 $ 6,377 $ ( 157 ) $ 34,113 $ 43,699 Stock-based compensation - options — — 891 — — 891 Stock-based compensation - restricted stock — — 260 — — 260 Exercise of options 4,737 15 — — — 15 Shares issued for vesting of restricted stock units 529,375 3,276 ( 3,276 ) — — — Change in accumulated other comprehensive loss, net of tax — — — ( 312 ) — ( 312 ) Net income — — — — 4,243 4,243 Shareholders' equity, March 31, 2020 38,486,772 $ 6,657 $ 4,252 $ ( 469 ) $ 38,356 $ 48,796 Stock-based compensation - options — — 933 — — 933 Share-based compensation - restricted stock — — 263 — — 263 Exercise of options 596,160 1,757 — — — 1,757 Change in accumulated other comprehensive loss, net of tax — — — ( 33 ) — ( 33 ) Net income — — — — 19,412 19,412 Shareholders' equity, June 30, 2020 39,082,932 $ 8,414 $ 5,448 $ ( 502 ) $ 57,768 $ 71,128 Stock-based compensation - options — — 945 — — 945 Stock-based compensation - restricted stock — — 289 — — 289 Exercise of options 2,400 8 — — — 8 Shares issued for vesting of restricted stock units 59,850 663 ( 663 ) — — — Change in accumulated other comprehensive loss, net of tax — — — 24 — 24 Net income — — — — 2,804 2,804 Shareholders' equity, September 30, 2020 39,145,182 $ 9,085 $ 6,019 $ ( 478 ) $ 60,572 $ 75,198 See accompanying notes to the condensed consolidated financial statements Page 5 VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Expressed in thousands of U.S. Dollars, except share and per share amounts) (Unaudited) Common Stock Additional paid-in capital Accumulated other comprehensive loss Total Shareholders' equity Shares Amount Retained earnings Shareholders' equity, December 31, 2020 39,185,182 $ 9,181 $ 7,320 $ ( 451 ) $ 65,643 $ 81,693 Stock-based compensation - options — — 1,078 — — 1,078 Stock-based compensation - restricted stock — — 229 — — 229 Exercise of options 16,586 65 — — — 65 Shares issued for vesting of restricted stock units 556,840 4,403 ( 4,403 ) — — — Shares redeemed to pay income tax ( 181,320 ) — — — ( 1,434 ) ( 1,434 ) Change in accumulated other comprehensive loss, net of tax — — — 106 — 106 Net income — — — — 1,684 1,684 Shareholders' equity, March 31, 2021 39,577,288 $ 13,649 $ 4,224 $ ( 345 ) $ 65,893 $ 83,421 Stock-based compensation - options — — 998 — — 998 Stock-based compensation - restricted stock — — 238 — — 238 Exercise of options 11,011 47 — — — 47 Change in accumulated other comprehensive loss, net of tax — — — ( 6 ) — ( 6 ) Net income — — — — 1,566 1,566 Shareholders' equity, June 30, 2021 39,588,299 $ 13,696 $ 5,460 $ ( 351 ) $ 67,459 $ 86,264 Stock-based compensation - options — — 1,051 — — 1,051 Stock-based compensation - restricted stock — — 251 — — 251 Shares issued for vesting of restricted stock units 42,147 261 ( 261 ) — — — Change in accumulated other comprehensive loss, net of tax — — — 21 — 21 Net income — — — — 1,789 1,789 Shareholders' equity, September 30, 2021 39,630,446 $ 13,957 $ 6,501 $ ( 330 ) $ 69,248 $ 89,376 See accompanying notes to the condensed consolidated financial statements Page 6 VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of U.S. Dollars) (Unaudited) Nine Months Ended September 30, Note 2021 2020 Cash flows from operating activities Net income $ 5,039 $ 26,459 Adjustments for: Depreciation 8,192 6,745 Change in allowance for doubtful accounts 2 5,250 7,031 Change in inventory reserve ( 116 ) — Share-based compensation 7 3,845 3,581 Distributions of earnings received from equity method investments 172 — Income from equity method investments ( 782 ) ( 36 ) Loss (gain) on disposal of property and equipment 304 ( 2,424 ) Deferred income tax expense (benefit) 2,410 ( 7,593 ) Net change in working capital Increase in accounts receivable ( 5,573 ) ( 6,986 ) Increase in inventory ( 196 ) ( 1,402 ) Increase in prepaid expenses and other assets ( 2,259 ) ( 1,771 ) Increase in trade payables 2,638 2,739 Increase in deferred revenue 386 297 (Decrease) increase in accrued liabilities ( 3,711 ) 2,397 Change in income tax payable/receivable ( 1,760 ) 282 Net cash provided by operating activities $ 13,839 $ 29,319 Cash flows from investing activities Purchase of property and equipment ( 13,080 ) ( 8,204 ) Investment in equity investments ( 599 ) ( 30 ) Proceeds from sale of property and equipment 496 5,187 Net cash used in investing activities $ ( 13,183 ) $ ( 3,047 ) Cash flows from financing activities Proceeds from exercise of options 112 1,780 Principal payments on notes payable 5 ( 113 ) ( 104 ) Principal payments on term note 5 ( 1,255 ) ( 1,199 ) Shares redeemed to pay income tax 7 ( 1,434 ) — Repayments of lease liabilities ( 2,080 ) ( 7,708 ) Net cash used in financing activities $ ( 4,770 ) $ ( 7,231 ) Net (decrease) increase in cash and cash equivalents ( 4,114 ) 19,041 Cash and cash equivalents at beginning of year 30,981 13,355 Cash and cash equivalents at end of period $ 26,867 $ 32,396 Supplemental disclosures of cash flow information Cash paid during the period for interest $ 278 $ 437 Cash paid during the period for income taxes, net of refunds received $ 1,760 $ 1,975 Supplemental disclosures of non-cash transactions Net non-cash changes to finance lease balances $ 42 $ 3,002 Net non-cash changes to operating lease balances $ 372 $ 57 See accompanying notes to the condensed consolidated financial statements Page 7 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 1. Nature of Business and Operations Viemed Healthcare, Inc. (the "Company"), through its subsidiaries, is a provider of in-home durable medical equipment ("DME") and post-acute respiratory healthcare services in the United States. The Company’s service offerings are focused on effective in-home treatment with clinical practitioners providing therapy and counseling to patients in their homes using cutting edge technology. The Company currently serves patients in 46 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. The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act (the "JOBS Act") and a "smaller reporting company" under Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and, as such, has elected to comply with certain reduced U.S. public company reporting requirements. The Company’s common shares are traded in the U.S. on the Nasdaq Capital Market under the symbol VMD and in Canada on the Toronto Stock Exchange ("TSX") under the symbol VMD.TO. 2. Summary of Significant Accounting Policies Principles of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements are unaudited, but reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income and Comprehensive Income, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Cash Flows for the interim periods presented. Our fiscal year ends on December 31. The Condensed Consolidated Balance Sheet as of December 31, 2020 was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto and the report of our independent registered public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year. Basis of consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated. Use of estimates The preparation of consolidated financial statements in conformity with 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. Accounts receivable Accounts receivable are regularly reviewed for collectability and an allowance is recorded to cover the estimated bad debts and billing modifications. The accounts receivable are presented on the Condensed Consolidated Balance Sheets net of the allowance for doubtful accounts. It is possible that the estimates of the allowance for doubtful accounts could change, which could have a material impact on our operations and cash flows. Page 8 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 The Company writes off receivables when the likelihood for collection is remote, and when the Company believes collection efforts have been fully exhausted and it does not intend to devote additional resources in attempting to collect. The write-offs are charged against the allowance for doubtful accounts. For the nine months ended September 30, 2021, our evaluation takes into consideration such factors as historical bad debt experience, national and local economic trends and conditions, industry and regulatory conditions, other collection indicators and information about disaggregated receivables. The complexity of many third-party billing arrangements, patient qualification for medical necessity of equipment and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. The estimates and write-offs for the allowance for doubtful accounts for each reporting period were as follows: September 30, 2021 September 30, 2020 Balance, beginning of year $ 9,013 $ 7,782 Change in allowance for doubtful accounts 5,250 7,031 Amounts written off ( 7,148 ) ( 6,025 ) Balance, end of period $ 7,115 $ 8,788 Included in accounts receivable at September 30, 2021 are amounts due from Medicare and Medicaid which represent 36 % and 10 %, respectively, and 46 % combined, of total outstanding receivables. As of December 31, 2020, 46 % of total outstanding receivables were due from Medicare and Medicaid. Revenues from Medicare and Medicaid as percentages of the Company's traditional revenue streams, excluding COVID-19 response sales and services, for the three and nine months ended September 30, 2021 and 2020 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Medicare revenues 53 % 57 % 56 % 58 % Medicaid revenues 9 % 9 % 9 % 8 % Total Medicare and Medicaid 62 % 66 % 65 % 66 % 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 $ 1,237,000 and $ 1,353,000 at September 30, 2021 and December 31, 2020, respectively, that relates to COVID-19 response supplies. Property and equipment Property and equipment is presented on the Condensed Consolidated Balance Sheets at historic cost less accumulated depreciation. Major renewals and improvements that extend the useful life of assets are capitalized to the respective property accounts, while maintenance and repairs, which do not extend the useful life of the respective assets, are expensed as incurred. Management has estimated the useful lives of equipment leased to customers. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Property and equipment are amortized on a straight-line basis over their estimated useful lives. 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. Page 9 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 Equity investments Equity investments on the Condensed Consolidated Balance Sheets are comprised of an investment accounted for under the equity method and an equity investment without a readily determinable fair value which is accounted for under the measurement alternative described in ASC 321-10-35-2. The following table details the Company’s equity investments: September 30, 2021 December 31, 2020 Equity method investments $ 744 $ 134 Other equity investments 1,198 599 Balance, end of period $ 1,942 $ 733 Investments accounted for under the equity method are investments in unconsolidated entities over whose operating and financial policies the Company has the ability to exercise significant influence but not control. Equity method investments are initially measured at cost in the Condensed Consolidated Balance Sheets with a n y subsequent adjustments made to the carrying amount of the investment for the Company’s proportionate share of income or loss. The Company has recognized its share of income or loss on the gain (loss) from equity method investments within non-operating expenses in the Condensed Consolidated Statements of Income. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the investments may exceed the fair value. No events or changes have occurred as of September 30, 2021 that would affect the carrying value of equity method investments. Other equity investments are investments without a readily determinable fair value which do not qualify for the practical expedient in ASC 820. For these investments, the Company has elected the measurement alternative which measures the investment at cost, less any impairment. ASU 2019-04 clarifies that if an entity identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, it must measure its equity investment at fair value in accordance with ASC 820 as of the date that the observable transaction occurred. The Company was not aware of any impairment or observable price change adjustments that needed to be made as of September 30, 2021 on its investments in equity securities without a readily determinable fair value. Comprehensive income Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income represents net income adjusted for unrealized gains and losses on derivative instruments, net of tax. Accumulated other comprehensive loss is presented on the accompanying Condensed Consolidated Balance Sheets as a component of shareholders' equity. As a result of the “backward tracing” prohibition in ASC 740, certain previously measured unrealized gains or losses have resulted in the existence of "dangling" amounts within other comprehensive income. The Company has elected the individual security approach to the release of these effects. Under the individual security approach, dangling amounts are tracked on a security-by-security basis and cleared out of the other comprehensive income balance upon sale of each individual security. During the periods presented, none of the individual securities associated with a dangling balance were sold. Revenue recognition Revenue from a customer consists of any combination of the sale and rental of DME and/or patient medical services. Revenues are billed to and collections received from Medicare, Medicaid, third-party insurers, co-insurance and patient-pay. Revenue is recognized net of contractual adjustments and bad debt based on contractual arrangements with third-party payors, an evaluation of expected collections resulting from the analysis of current and past due accounts, past collection experience in relation to amounts billed and other relevant information. Contractual adjustments result from the differences between the rates charged for services and reimbursement rates paid by government-sponsored healthcare programs and insurance companies for such services. Page 10 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 The Company's contracts with customers often include multiple products and services, and the Company evaluates these arrangements to determine the unit of accounting for revenue recognition purposes based on whether the product or service is distinct from other products or services in the arrangement and should be accounted for as a separate performance obligation. A product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and the Company's ability to transfer the goods or services is separately identifiable from other promises in the contractual arrangement with the customer (e.g. patient). Revenue is then allocated to each separately identifiable good or service based on the standalone price of the items underlying the performance obligations. Most of the Company’s products fall in the Medicare Fee-for-Service (“FFS”) program which is a payment model where services are unbundled and paid for separately. These services are paid based on a Medicare determined price that is publicly available on the website for the Centers for Medicare & Medicaid Services (“CMS”). For commercial payors, DME companies must negotiate in-network pricing separately, though in general, the Company’s payors tend to benchmark their contract rates and coverage policies closely to those of Medicare. The Company considers performance obligations for sales and rentals to be met when the customer receives the equipment, and revenue for rentals is recognized over time, over the respective rental period. For revenue associated with DME rentals, the Company recognizes revenue in accordance with ASC 842, “Leases,” (Topic 842). For any DME sales and services, the Company recognizes revenue under FASB ASU 2014-09, “Revenue from Contracts with Customers,” (Topic 606) and related amendments. The Company recognizes equipment rental revenue over the non-cancelable lease term, which is one month , less estimated adjustments, in accordance with Topic 842. The Company has separate contracts with each patient that are not subject to a master lease agreement with any third-party payor. The Company would first consider the lease classification issue (sales-type lease or operating lease) and then appropriately recognize or defer rental revenue over the lease term . The revenues from each major source are summarized in the following table: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue from rentals Ventilator rentals, non-invasive and invasive $ 21,305 $ 19,962 $ 61,962 $ 58,672 Other durable medical equipment rentals 3,598 2,649 9,833 7,184 Revenue from sales and services Equipment and supply sales 2,415 1,890 6,258 3,962 COVID-19 response sales and services 1,452 8,553 5,542 29,306 Service revenues 515 393 1,505 983 Total revenues $ 29,285 $ 33,447 $ 85,100 $ 100,107 Revenue Accounting under Topic 842 The Company leases DME such as non-invasive and invasive ventilators, positive airway pressure ("PAP") machines, percussion vests, oxygen concentrator units and other small respiratory equipment to customers for a fixed monthly amount on a month-to-month basis. The customer generally has the right to cancel the lease at any time during the rental period. The Company accounts for these rentals as operating leases. Under FASB ASC Topic 842, the Company recognizes rental revenue on operating leases on a straight-line basis over the contractual lease term which varies based on the type of equipment rental. The lease term begins on the date products are delivered to patients, and revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including Medicare, private commercial payors, and Medicaid. Certain customer co-payments are included in revenue when considered probable of payment, which is generally when paid. Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. Page 11 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 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 and vaccine 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 and vaccine tracing is the amount that the Company expects to receive in exchange for the goods and services provided. Due to the nature of the 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 and vaccine tracing services. The Company does not offer warranties to customers in excess of the manufacturer’s warranty. Any taxes due upon sale of the products or services are not recognized as revenue. The Company does not have any partially or unfilled performance obligations related to contracts with customers and as such, the Company has no contract liabilities as of September 30, 2021. 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 restricted stock units ("RSUs") are determined at the grant date based on the closing stock price. The expense of such stock-based compensation awards is recognized using the graded vesting attribution method over the vesting period and the offsetting credit is recorded as an increase in additional paid-in capital. Forfeitures are recorded as incurred. Any excess tax benefit or deficiency is recognized as a component of income taxes and within operating cash flows upon vesting of the share-based award. For the Company’s phantom share units settled in cash, the Company computes the fair value of the phantom share units using the closing price of the equivalent Company's stock value at the end of each period and records a liability based on the percentage of requisite service. Interest rate swaps The Company utilizes an interest rate swap contract to reduce exposure to fluctuations in variable interest rates for future interest payments on the Term Note (as defined below). Page 12 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 For determining the fair value of the interest rate swap contract, the Company uses significant other observable market data or assumptions (Level 2 inputs) that market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. These fair value estimates reflect an income approach based on the terms of the interest rate swap contract and inputs corroborated by observable market data including interest rate curves. The Company 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. The Company recognizes any differences between the variable interest rate payments and the fixed interest rate settlements from its swap counterparty as an adjustment to interest expense over the life of the swap. If determined to be an effective cash flow hedge, the Company will record the changes in the estimated fair value of the swaps to accumulated other comprehensive income or loss on the Condensed Consolidated Balance Sheets. To the extent that interest rate swaps are determined to be ineffective, the Company would recognize the changes in the estimated fair value of swaps in interest and other non-operating expenses, net in its Condensed Consolidated Statements of Income. 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 we will receive refunds from or pay taxes to the relevant tax authority. Where the final determination of tax assets and liabilities is different from the amounts that were initially recorded, such differences will impact the current and deferred income taxes provision in the period in which such a determination is made. Changes in tax law or changes in the way tax law is interpreted may also impact our effective tax rate as well as our business and operations. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to temporary differences between the financial statement carrying value of assets and liabilities and their respective income tax bases. Deferred income tax assets or liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be settled. The calculation of current and deferred income taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment concerning the carrying value of assets and liabilities. The current and deferred income tax assets and liabilities are also impacted by expectations about future operating results and the timing of reversal of temporary differences as well as possible audits of tax filings by regulatory agencies. Changes or differences in these estimates or assumptions may result in changes to the current and deferred tax assets and liabilities on the Condensed Consolidated Balance Sheets and a charge to or recovery of income tax expense. Recently adopted accounting pronouncements 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 GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The Company adopted this standard on January 1, 2020, which did not have any impact on the Company’s condensed consolidated financial statements. Recently issued accounting pronouncements The Company is an “emerging growth company” as defined by the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can selectively delay the adoption of all accounting standards until those standards would otherwise apply to private companies. The Company has elected to utilize this exemption and, as a result, our condensed consolidated financial statements may not be comparable to the financial statements of issuers that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. To date, however, the Company has not delayed the adoption of any accounting standards except as noted below. Section 107 of the JOBS Act provides that the Company can elect to opt out of the extended transition period at any time, which election is irrevocable. Page 13 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets. The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. The standard is effective for fiscal years beginning after December 15, 2022 for smaller reporting companies, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Specifically, the guidance permits an entity, when certain criteria are met, to consider amendments to contracts made to comply with reference rate reform to meet the definition of a modification under GAAP. It further allows hedge accounting to be maintained and a one-time transfer or sale of qualifying held-to-maturity securities. The expedients and exceptions provided by the amendments are permitted to be adopted any time through December 31, 2022 and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain optional expedients elected for certain hedging relationships existing as of December 31, 2022. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures. 3. Property and Equipment The Company’s fixed assets consist of its medical equipment held for rental, furniture and equipment, real property and related improvements, and vehicles and other various small equipment. The following table details the Company’s fixed assets: September 30, 2021 December 31, 2020 Medical equipment $ 72,795 $ 63,307 Furniture and equipment 2,410 2,722 Land 2,138 2,138 Buildings 5,863 5,966 Leasehold improvements 296 290 Vehicles 972 922 Less: Accumulated depreciation ( 25,438 ) ( 20,289 ) Property and equipment, net of accumulated depreciation and amortization $ 59,036 $ 55,056 Depreciation in the amount of $ 2,656,000 and $ 2,224,000 is included in cost of revenue for the three months ended September 30, 2021 and 2020, respectively, and in the amount of $ 7,574,000 and $ 6,133,000 for the nine months ended September 30, 2021 and 2020, respectively. Included in medical equipment above is equipment acquired under finance lease obligations whose cost and accumulated depreciation at September 30, 2021 total $ 1,098,000 and $ 222,000 , respectively. At December 31, 2020, cost and accumulated depreciation on equipment acquired under finance lease obligations was $ 6,900,000 and $ 885,000 , respectively. Page 14 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 4. Current Liabilities The Company’s short-term accrued liabilities are included within current liabilities and consist of the following: September 30, 2021 December 31, 2020 Accrued trade payables $ 2,265 $ 1,252 Accrued commissions payable 388 278 Accrued bonuses payable 2,912 5,190 Accrued vacation and payroll 2,027 844 Current portion of phantom share liability 1,002 4,485 Accrued other liabilities 689 546 Total accrued liabilities $ 9,283 $ 12,595 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 Line 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 September 30, 2021 or December 31, 2020. Commercial Term Notes On May 30, 2019, the Company entered into a term note (the “Building Term Note”) under the Commercial Business Loan Agreement in the principal amount of $ 4.8 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 (the "Interest Rate Swap Transaction") with Hancock Whitney Bank effectively fixing the interest rate for the Building Term Note at 4.68 %. On September 19, 2019, the Company entered into an additional loan agreement providing for a term note (the “Term Note") under the Commercial Business Loan Agreement in the principal amount of $ 5.0 million. The proceeds of the Term Note were utilized for general corporate purposes. Beginning October 19, 2019, the Company started making monthly principal payments of $ 139,000 towards the outstanding balance. The Term Note matures on September 19, 2022 and is secured by substantially all of the assets of the borrower. The Term Note bears interest at the rate of 4.60 % per annum. The Company incurred immaterial 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. Page 15 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 The recorded balances associated with these term notes, which have terms greater than twelve months, are as follows: September 30, 2021 December 31, 2020 Notes payable $ 6,253 $ 7,632 Less: Current portion of notes payable ( 1,906 ) ( 1,836 ) Net long-term notes payable $ 4,347 $ 5,796 Under the Commercial Business Loan Agreement, the Company is subject to several restrictive covenants that, among other things, impose operating and financial restrictions on the Company. Financial covenants include a Total Debt to Adjusted EBITDA, a Loan-to-Value Ratio and a Fixed Charged Coverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains certain customary events of default, including, among other things, failure to make payments when due thereunder and failure to observe or perform certain covenants. The Company was in compliance with all covenants under the Commercial Business Term Loan Agreement in effect at September 30, 2021. 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: September 30, 2021 December 31, 2020 Lease liabilities $ 1,315 $ 3,503 Less: Current portion of lease liabilities ( 481 ) ( 2,741 ) Net long-term lease liabilities $ 834 $ 762 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 2024. The Company's weighted average interest rate was 3.74 % and 3.17 % for all finance lease liabilities outstanding as of September 30, 2021 and 2020, respectively. At September 30, 2021 and 2020, the weighted average lease term was approximately 1.05 years and 0.73 years, respectively. Interest expense related to these finance lease obligations for the three and nine months ended September 30, 2021 amounted to $ 4,000 and $ 35,000 , respectively. Interest expense related to these finance lease obligations for the three and nine months ended September 30, 2020 amount to $ 34,000 and $ 128,000 , 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 September 30, 2021, the weighted average lease term was approximately 3.39 years. Operating rental expenses were $ 194,000 and $ 570,000 for the three and nine months ended September 30, 2021, respectively, and $ 191,000 and $ 575,000 for the three and nine months ended September 30, 2020, respectively. The related assets for operating lease liabilities have been included with property and equipment on the Condensed Consolidated Balance Sheets. Included within these operating lease liabilities are real property leases for real estate from a related party. On August 1, 2015, the Company entered ten-year triple net lease agreements for office space with an entity that is affiliated with the Company's CEO, Casey Hoyt, and President, Michael Moore. Rental payments under these related party lease agreements are $ 20,000 per month, plus taxes, utilities and maintenance. Total rental payments for the use of these properties were $ 81,000 and $ 194,000 for the three and nine months ended September 30, 2021, respectively, and $ 58,000 and $ 180,000 for the three and nine months ended September 30, 2020, respectively. The expense for these related party rents has been included within selling, general and administrative expenses. Page 16 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 6. Fair Value Measurement Under ASC Topic 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). ASC Topic 820 establishes a hierarchy for inputs to valuation techniques used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. There are three levels to the hierarchy based on the reliability of inputs, as follows: Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets and liabilities in markets that are not active. Level 3 - Unobservable inputs for the asset or liability. The degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. Assets and Liabilities Measured at Fair Value on a Recurring Basis The Company measures certain assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during any presented period. The following tables summarize the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020: At September 30, 2021 (In thousands) Level 1 Level 2 Level 3 Total Recurring Fair Value Measurements: Money market mutual funds $ 21,452 $ — $ — $ 21,452 Interest rate swap — ( 270 ) — ( 270 ) Total $ 21,452 $ ( 270 ) $ — $ 21,182 At December 31, 2020 (In thousands) Level 1 Level 2 Level 3 Total Recurring Fair Value Measurements: Money market mutual funds $ 25,662 $ — $ — $ 25,662 Interest rate swap — ( 433 ) — ( 433 ) Total $ 25,662 $ ( 433 ) $ — $ 25,229 Derivative instruments and hedging activities The Company recognizes its interest rate swaps as either assets or liabilities in the accompanying Condensed Consolidated Balance Sheets at fair value. The valuation of these derivative instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. As of September 30, 2021, the Company holds one interest rate swap contract which matures on May 30, 2026 and has a notional amount of $ 4.5 million. This contract is designated as a cash flow hedge. In the first nine months of 2021, ineffective portions of the hedge were immaterial. The fair value was $( 0.3 ) million (determined based on Level 2 inputs) and is included in accrued liabilities, as a component of long-term liabilities as of September 30, 2021. Page 17 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis We measure certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities include equity method investments and other equity investments. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the investments may exceed the fair value. The Company's other equity investments are holdings in a privately-held company without a readily determinable market value. The Company remeasures equity securities without readily determinable fair value at fair value when an orderly transaction is identified for an identical or similar investment of the same issuer in accordance with Topic 820. ASU 2019-04 states that the measurement alternative is a nonrecurring fair value measurement. Accordingly, other equity investments without readily determinable fair value are classified within Level 3 in the fair value hierarchy because the Company estimates the value using a combination of observable and unobservable inputs, including valuation ascribed to the issuing company in subsequent financing rounds, volatility in the results of operations of the issuers and rights and obligations of the holdings we own. The Company had no material adjustments of assets and liabilities measured at fair value on a nonrecurring basis during any of the periods presented. There were no transfers between fair value measurement levels during any presented period. 7. Shareholders' Equity Authorized share capital The Company’s authorized share capital consists of an unlimited number of common shares . Issued and outstanding share capital The Company has only one class of stock outstanding, common shares. The authorized stock consists of an unlimited number of common shares with no stated par value, of which 39,630,446 and 39,185,182 shares were issued and outstanding as of September 30, 2021 and December 31, 2020, respectively. For the nine months ended September 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. Stock-based compensation Effective June 11, 2020 (the "Effective Date"), the Company’s shareholders approved the Company's 2020 Long Term Incentive Plan (the "Omnibus Plan"). Upon approval of the Omnibus Plan, no future awards are available to be made under the Company's previous RSU and Option Plans (collectively, 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 7,758,211 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 September 30, 2021, the Company had outstanding options of 3,772,000 and RSUs of 219,000 associated with common shares under the Omnibus Plan. The following table summarizes stock-based compensation expense for the three and nine months ended September 30, 2021 and 2020 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Stock-based compensation - options $ 1,051 $ 945 $ 3,127 $ 2,769 Stock-based compensation - restricted stock units 251 289 718 812 Total $ 1,302 $ 1,234 $ 3,845 $ 3,581 Page 18 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 At September 30, 2021, there was approximately $ 3,495,000 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 2.00 years. As of September 30, 2021, there was approximately $ 852,000 of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 0.90 years. Options The following table summarizes stock option activity for the nine months ended September 30, 2021: Number of options (000's) Weighted average exercise price (1) Weighted average remaining contractual life Aggregate intrinsic value (2) Balance December 31, 2020 3,057 $ 4.37 7.9 years $ 10,362 Issued 829 8.60 Exercised ( 28 ) 3.87 Expired / Forfeited ( 86 ) 8.32 Balance September 30, 2021 3,772 $ 5.21 7.7 years $ 4,343 (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 $ 4,343,000 and options exercisable were $ 3,798,000 at September 30, 2021. For the nine months ended September 30, 2021, 27,597 shares of common stock were issued pursuant to the exercise of stock options. At September 30, 2021, the Company had 1,882,000 exercisable stock options outstanding with a weighted average exercise price of $ 3.65 and a weighted average remaining contractual life of 6.8 years. 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. The Company accounts for its stock-based compensation in accordance with ASC 718 — Compensation—Stock Compensation, which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. Stock–based compensation cost for stock options are determined at the grant date using the Black-Scholes option pricing model. The assumptions used to determine the grant date fair value of the stock options granted during the nine months ended September 30, 2021 were as follows: Exercise price $ 8.57 - $ 9.77 Risk-free interest rate 0.60 % - 1.39 % Expected volatility 64.55 % - 67.57 % Expected term 5.65 - 5.76 years Expected dividend yield Nil Fair value on date of grant $ 5.05 - $ 5.57 Restricted stock units The Company also grants RSUs to directors, officers, and employees. The Company accounts for RSUs using fair value as of the date of issuance. The fair value of the RSUs has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and credited to additional paid-in capital over the vesting period, based on the stock price on the date of grant. RSUs vest generally over a one or three-year period. The Company accounts for forfeitures on RSUs under ASU 2016-09 and recognizes forfeitures in the period in which they occur. Page 19 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 The following table summarizes RSU activity for the nine months ended September 30, 2021: Number of RSUs (000's) Weighted average grant price (1) Weighted average remaining contractual life Aggregate intrinsic value (2) Balance December 31, 2020 684 $ 3.04 0.22 years $ 5,308 Issued 145 7.34 Vested ( 600 ) 2.66 Expired / Forfeited ( 10 ) 6.80 Balance September 30, 2021 219 $ 6.72 0.90 years $ 1,217 (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 three months ended September 30, 2021, the Company issued 81,394 RSUs with a vesting term of one year and a fair value of $ 6.38 per share. During the nine months ended September 30, 2021, the Company issued 144,700 RSUs with a vesting term of one to three years and a fair value of $ 7.34 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. The cash-settled phantom share units are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with accrued liability and related expense being recognized over the requisite service period. The following table summarizes phantom share unit activity for the nine months ended September 30, 2021: Number of phantom share units (000's) Value of share equivalents (1) Balance December 31, 2020 985 $ 7,642 Issued 394 3,766 Vested ( 656 ) ( 6,282 ) Expired / Forfeited ( 109 ) ( 601 ) Balance September 30, 2021 614 $ 3,407 (1) The value of outstanding share equivalents at the beginning of the period is based on the market price of the Company’s stock at that time, the value of issued share equivalents is based on the market price of the Company’s stock at issuance, the value of vested share equivalents is based on the cash paid at the time of vesting, the values of expired/forfeited share equivalents and outstanding share equivalents at the end of the period and are based on the market price of the Company's stock at the end of the period. The market price of the Company's stock was $ 5.55 on September 30, 2021. The change in fair value of the phantom share units has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and recorded as a liability included in accrued liabilities and long-term accrued liabilities. The total liability associated with phantom share units at September 30, 2021 is $ 1,462,000 , with $ 1,002,000 of this amount included in current accrued liabilities and the remaining portion of $ 460,000 included in long-term accrued liabilities. Page 20 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 The impact associated with the fair value re-measurement of phantom share units is recorded in selling, general and administrative expenses within the unaudited Condensed Consolidated Statements of Income and Comprehensive Income. The following table summarizes expense associated with the phantom share units for the three and nine months ended September 30, 2021 and 2020 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Selling, general and administrative $ 41 $ 459 $ 2,400 $ 4,070 The Company paid cash settlements of $ 6,282,000 and $ 4,201,000 during the nine months ended September 30, 2021 and 2020, respectively, pertaining to vestings of cash-settled phantom share units. 8. Commitments and Contingencies 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. Legal Proceedings As previously disclosed, the Company (through its subsidiary Sleep Management LLC) submitted a purchase order (the “Purchase Order”) in March 2020 to Vyaire Medical, Inc. d/b/a CareFusion Respiratory Technologies (“Vyaire”) for respiratory equipment. The Company ultimately prepaid $ 1.4 million towards the delivery of such respiratory equipment. Vyaire was unable or unwilling to deliver the vast majority of the respiratory equipment referenced in the Purchase Order, and also refused to refund the prepayment amount (less the amounts paid for equipment actually received). On July 29, 2020, the Company (through its subsidiary Sleep Management LLC) filed a lawsuit against Vyaire in the United States District Court for the Western District of Louisiana (the “Court”). This lawsuit was dismissed on December 8, 2020 in connection with the commencement of the lawsuit filed by the Company (through its subsidiary Sleep Management) on November 5, 2020, against Vyaire in the 15th Judicial District Court for the Parish of Lafayette, Louisiana (the “State Court”) seeking damages for breach of contract and seeking a declaratory judgment that the Company is not required to pay any further funds to Vyaire. On December 28, 2020, Vyaire filed its Answer, Affirmative Defenses, and Reconventional Demand (“Reconventional Demand”) with the State Court alleging breach of contract and seeking damages of $ 4.7 million, purportedly for the improper cancellation of the Purchase Order. The Company filed its Answer to the Reconventional Demand on February 12, 2021 and the parties are currently engaged in discovery. We continue to believe that we have valid legal and equitable grounds to recover our outstanding prepayment as a result of Vyaire’s failure to deliver the vast majority of the respiratory equipment referenced in the Purchase Order. We have determined that a loss related to the Reconventional Demand is not probable, and thus have not accrued a liability related to this claim. Although a loss may be reasonably possible, we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the Reconventional Demand given that the dispute is in the early stages of the legal process. As of September 30, 2021, outstanding funds in the amount of $ 0.9 million related to undelivered respiratory equipment are included within other long-term assets. Governmental and Regulatory Matters From time to time we are involved in various external governmental investigations, audits and reviews. Reviews, audits and investigations of this sort can lead to government actions, which can result in the assessment of recoupment of reimbursement, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way we conduct business, loss of licensure or exclusion from participation in government healthcare programs. Page 21 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 In May of 2021, a final report and recommendation (“Report”) was issued by the U.S. Department of Health and Human Services Office of the Inspector General (“OIG”) regarding an audit by OIG of claims relating to one hundred (100) of the Company’s non-invasive ventilation at home (“NIVH”) patients. The OIG asserted that most of the sampled Medicare claims submitted for the monthly rental of non-invasive ventilators did not comply with Medicare requirements. The Company firmly believes that the Report ignores each patient’s diagnosis and supporting documentation of that diagnosis from treating and prescribing physicians and applies clinical guidelines that are contrary to CMS’s accepted standard of care. In late June of 2021, the Company received initial request letters from DME Medicare Administrative Contractors ("MACs") referencing the Report and requesting repayment of purported overpayments. The Company responded to each initial request by submitting a rebuttal and by filing a redetermination appeal as prescribed by the initial request letters and by statute. In September 2021, the MACs informed the Company of unfavorable decisions with respect to the redetermination appeals. The Company intends to continue to defend itself vigorously through the remaining appeals processes which include, in successive order, Reconsideration appeals, Administrative Law Judge appeals, Medicare Appeals Council review, and ultimately through Federal Court, if necess ary. The Reconsideration appeals are required to be submitted in writing to the designated Quality Independent Contractor ("QIC") within 180 days of receiving the redetermination appeals letter. The QIC has 60 days to render a reconsideration decision. The timing of additional appeals beyond reconsideration are subject to workload constraints of the reviewing body. Based on initial discussions with CMS, a review of the current facts and circumstances as we understand them, and the nature of the requests, we have determined that a loss is not probable but may be reasonably possible. Accordingly, no related accrual has been recorded. The value of the population of associated claims within the 4-year reopening period prescribed by statute, including any potential interest, is approximately $ 9 million. Man agement estimates that a possible loss, if any, will not exceed this amount. It is possible that the ultimate resolution of this matter, if unfavorable, could materially and adversely affect the Company’s consolidated financial position, consolidated results of operations, or consolidated cash flows. 9. Income Taxes For the nine months ended September 30, 2021, the Company recorded income tax expense of $ 2.4 million, which includes a discrete tax benefit of $ 0.8 million for excess tax benefits associated with stock-based compensation arrangements. Excluding the impact of the discrete tax benefit, the effective rate for the nine months ended September 30, 2021 is 43.4 %. The effective rate differs from the amount computed by applying the statutory federal and state income tax rates to ordinary income before the provision for income taxes due to permanent non-deductible differences. Our effective tax rate is based on forecasted annual results which may fluctuate significantly through the rest of the year, in particular due to the uncertainty in our annual forecasts resulting from the unpredictable impact of the COVID-19 pandemic on our operating results. During the nine months ended September 30, 2020, the Company released a valuation allowance associated with deferred tax assets, resulting in a $ 5.3 million benefit during that period. At September 30, 2021 and 2020, the Company had no amounts recorded for uncertain tax positions and does not expect any material changes in uncertain tax benefits during the next 12 months. The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company is subject to U.S. federal income tax as well as income tax in various states. The Company is generally not subject to examination by taxing authorities for years prior to 2016. 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. 10. 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 the vesting of RSUs are used to purchase common shares at the prevailing market rate. Page 22 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) September 30, 2021 and 2020 The following reflects the earnings and share data used in the basic and diluted earnings per share computations: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Numerator - basic and diluted: Net income attributable to shareholders $ 1,789 $ 2,804 $ 5,039 $ 26,459 Denominator: Basic weighted-average number of common shares 39,607,540 39,107,640 39,442,088 38,603,267 Diluted weighted-average number of shares 40,659,353 41,155,668 40,716,747 40,377,608 Basic earnings per share $ 0.05 $ 0.07 $ 0.13 $ 0.69 Diluted earnings per share $ 0.04 $ 0.07 $ 0.12 $ 0.66 Denominator calculation from basic to diluted: Basic weighted-average number of common shares 39,607,540 39,107,640 39,442,088 38,603,267 Stock options and other dilutive securities 1,051,813 2,048,028 1,274,659 1,774,341 Diluted weighted-average number of shares 40,659,353 41,155,668 40,716,747 40,377,608 Anti-dilutive shares excluded from the calculation consisted of dilutive employee stock options and RSUs that were de minimis in all periods presented. Page 23 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