VIEMED HEALTHCARE, INC. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the accompanying notes included elsewhere in this report. The forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our future development plans, capital resources and requirements, results of operations, and future business performance. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in the section entitled “Special Note Regarding Forward-Looking Statements” immediately preceding Part I of this report. General Matters In this Annual Report on Form 10-K, unless the context otherwise requires, the terms the "Company," "we," "us" and "our" refer to Viemed Healthcare, Inc. and its wholly-owned subsidiaries. We were incorporated on December 14, 2016 pursuant to the Business Corporations Act (British Columbia). As of June 30, 2020, we determined that we no longer qualify as a "foreign private issuer," as defined in Rule 3b-4 of the Exchange Act, for the purposes of the informational requirements of the Exchange Act. As a result, effective January 1, 2021, we became subject to the proxy solicitation rules under Section 14 of the Exchange Act and Regulation FD, and our officers, directors, and principal shareholders became subject to the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. We will continue to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC. As of June 30, 2021, we determined that we no longer qualify as a “smaller reporting company,” but we are not required to comply with the larger company disclosure obligations (subject to certain exemptions and relief from various reporting requirements that are applicable to emerging growth companies) until our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022. As a result, this Annual Report on Form 10-K is only required to comply with the smaller company disclosure obligations. We are an "emerging growth company," as defined in the JOBS Act, and as such, we have elected to comply with certain reduced U.S. public company reporting requirements. Overview We provide an array of home medical equipment, services and supplies, specializing in post-acute respiratory care services in the United States. Our primary objective is to focus on the organic growth of the business and thereby solidify our position as one of the United States’ largest providers of in-home therapy for patients suffering from respiratory diseases. Our respiratory care programs are designed specifically for payors to have the ability to treat patients in the home for less total cost and with a superior quality of care. Our services include respiratory disease management (through the rental of various DME devices), neuromuscular care, in-home sleep testing and sleep apnea treatment, oxygen therapy, and the sale of associated supplies. We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 77.3% and 80.8% of our traditional revenue, excluding COVID-19 response sales and services for the years ended December 31, 2021 and 2020, respectively. We combine the benefits of home ventilation support with licensed RTs to drive improved patient outcomes and reduce costly hospital readmissions. We expect to use a growth model whereby expansion is accomplished through existing service areas as well as in new regions through a cost efficient launch that reduces location expenses. Our licensed RTs currently serve patients in 47 states. We expect to continue to employ more RTs in order to assure our high service model is accomplished in the home. As of December 31, 2021, we employed 274 licensed RTs, representing more than 44% 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. The continued trend of servicing patients in the home rather than in hospitals is aligned with our business objective and we anticipate that this trend will continue to offer growth opportunities for us. We expect to continue to be a solution to the rising health costs in the United States by offering more cost effective, home based solutions while increasing the quality of life for patients fighting serious respiratory diseases. For the year ended December 31, 2021, we generated revenues of $117.1 million and had net income of $9.1 million, compared to revenues of $131.3 million and net income of $31.5 million for the year ended December 31, 2020. Excluding COVID-19 response sales and services, net revenue increased $11.6 million (or 11.9%) from the comparable period in 2020. Our primary sources of capital to date have been from operating cash flows. In addition, our line of credit availability of $10.0 million remains undrawn. Page 30 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020 Trends Affecting our Business On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Various policies and initiatives have been implemented to reduce the transmission of COVID-19, including travel bans and restrictions, the postponement of non-essential medical surgeries, limiting access to medical facilities, and adoption of social distancing and remote working policies. Local, state and national governments continue to emphasize the importance of essential medical personnel and we remain open to meet the needs of our communities. 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. These measures do not appear to be negatively impacting our patient attrition rate at this time, but we cannot assure you that future governmental policies and initiatives will not significantly disrupt our operations or adversely affect our ability to provide services to our patients in the future. In addition, our 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. While governmental and other restrictions have not had a material impact on our consolidated operating results for the year ended December 31, 2021, it is possible that more significant disruptions could occur if the COVID-19 pandemic continues for a prolonged period of time and we cannot assure you that demand for our products and services will continue or that we will be able to maintain operations necessary to satisfy such demand, including sufficient personnel, supply chains and distributions channels. The COVID-19 pandemic has led to significant disruptions and volatility in capital and financial markets. Broad economic factors resulting from the current COVID-19 pandemic, including high unemployment and underemployment levels and reduced consumer spending and confidence, could also affect our service mix, revenue mix, payor mix and patient base, as well as our ability to collect outstanding receivables. Business closures and layoffs in the geographic areas in which we operate may lead to increases in the uninsured and under-insured populations and adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered. Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our financial results and require an increased level of working capital. In addition, we may experience supply chain disruptions, including delays and price increases in equipment and supplies. Staffing, equipment and supplies shortages may also impact our ability to assess potential patients in hospitals and set up and treat patients in the home. We believe we presently have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. The 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. The legislation provides for relief funds to hospitals and other healthcare providers on the front lines of the coronavirus response to support healthcare-related expenses or lost revenue attributable to COVID-19 and to ensure uninsured Americans can get testing and treatment for COVID-19. As a result, we received a general distribution payment from the Provider Relief Fund of $3.5 million in April 2020 and a targeted distribution payment of $1.5 million in November 2021. 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. 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 our ability to comply and may require the return of funds. In accordance with the terms of acceptance for the grant, we believe we have utilized these funds to prevent, prepare for, and respond to the COVID-19 pandemic. The CARES Act also provides for a temporary suspension of the 2% payment sequestration adjustment currently applied to all Medicare fee-for-service claims. In December 2021, President Biden signed into law legislation that extended the suspension on the 2 percent payment sequestration through March 31, 2022. The payment sequestration adjustment was fixed at 1 percent from April 1, 2022 to June 30, 2022 and it returns to 2 percent on July 1, 2022. As part of the CARES Act legislation, certain Payroll Protection Program ("PPP") loans were authorized for small businesses to pay their employees, subject to potential debt forgiveness. We evaluated the PPP extensively and after evaluation, decided not to submit a PPP loan application. 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. CMS and other federal agencies have and are likely to issue rules and regulations to implement the CARES Act. 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. Page 31 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020 While the impact of COVID-19 on our consolidated results of operations for the year ended December 31, 2021 has resulted in an increase in revenues related to additional product sales and services during the period, the overall impact that COVID-19 will continue to have on our consolidated results of operations in future periods remains uncertain and difficult to predict and will depend on, among other factors, the duration and severity of the pandemic, as well as any negative economic conditions arising from the pandemic, our ability to assess potential patients in hospitals and set up and treat patients in the home and the impacts of government actions and administrative regulations on the healthcare industry and broader economy, including through existing and any future stimulus efforts. We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, liquidity and capital resources. If COVID-19 continues to spread or if the response to contain the COVID-19 pandemic is unsuccessful, we could experience a material adverse effect on our business, financial condition, and results of operations. For additional information, see Part I - Item 1A. “Risk Factors.” In 2019, CMS announced the inclusion of non-invasive ventilator products on the list of products subject to the competitive bidding program in Round 2021 which covers the period of January 1, 2021 through December 31, 2023. 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. On October 27, 2020, CMS announced that it had removed 13 of the 15 remaining product categories from Round 2021, including oxygen and PAP devices, because the payment amounts did not achieve expected savings. The next competitive bidding round is anticipated to begin on January 1, 2024. As a result of these announcements, we retain the ability to continue to furnish non-invasive ventilators and oxygen and PAP devices for all of our Medicare accredited areas. We cannot predict at this time the full impact the competitive bidding program and the developments in the competitive bidding program will have on our business and financial condition. In addition, we cannot assure you that non-invasive ventilators and oxygen and PAP devices will not be included on the list of products subject to the competitive bidding program in the future. If changes are made to the competitive program in the future, it could affect our reimbursement and review. The below table highlights summary financial and operational metrics for the trailing eight quarters. (Tabular amounts expressed in thousands of U.S. Dollars, except vent patients) For the quarter ended December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Financial Information: Revenue $ 31,962 $ 29,285 $ 27,399 $ 28,416 $ 31,202 $ 33,447 $ 42,854 $ 23,806 Gross Profit 19,662 18,381 17,625 17,742 19,178 19,453 25,927 15,553 Gross Profit % 62 % 63 % 64 % 62 % 61 % 58 % 61 % 65 % Net Income 4,087 1,789 1,566 1,684 5,071 2,804 19,412 4,243 Cash and Cash Equivalents (As of) 28,408 26,867 31,151 31,097 30,981 32,396 29,707 8,409 Total Assets (As of) 117,962 115,486 111,014 113,001 112,560 113,969 112,178 86,801 Adjusted EBITDA (1) 9,549 7,419 6,847 5,468 9,458 7,720 16,287 7,869 Operational Information: Vent Patients (2) 8,405 8,200 8,103 7,733 7,892 7,788 7,705 7,965 (1) Refer to "Non-GAAP Financial Measures" section below for definition of Adjusted EBITDA. (2) Vent Patients represents the number of active ventilator patients on recurring billing service at the end of each calendar quarter. Critical Accounting Estimates We are required to disclose “critical accounting estimates” which are estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and that have had or are reasonably likely to have a material impact on our financial condition or results of operations of the registrant. We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. The more significant of these policies are summarized in Note 2 to our consolidated financial statements included in Part II, Item 8 of this report. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, the policy noted below could be deemed to meet the SEC’s definition of a critical accounting estimate. Allowance for Doubtful Accounts The Company estimates that a certain portion of receivables from customers may not be collected and maintains an allowance for doubtful accounts. The Company evaluates the net realizable value of accounts receivable as of the date of Consolidated Balance Sheets. Specifically, we consider historical realization data, including current and historical cash collections, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the healthcare industry Page 32 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020 and third-party reimbursement, it is possible that the estimates could change, which could have a material impact on the operations and cash flows. If circumstances related to certain customers change or actual results differ from expectations, our estimate of the recoverability of receivables could fluctuate from that provided for in our consolidated financial statements. A change in estimate could impact bad debt expense and accounts receivable. For the year ended December 31, 2021, our assessment considered business and market disruptions caused by the COVID-19 pandemic and estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for doubtful accounts in future periods. Our allowance for doubtful accounts was $7.0 million and $9.0 million as of December 31, 2021 and 2020, respectively. Results of Operations Comparison of the Years Ended December 31, 2021 and 2020: The following table summarizes our results of operations for the years ended December 31, 2021 and 2020: Year Ended December 31, 2021 % of Total Revenue 2020 % of Total Revenue $ Change % Change Revenue $ 117,062 100.0 % $ 131,309 100.0 % $ (14,247) (10.8) % Cost of revenue 43,652 37.3 % 51,198 39.0 % (7,546) (14.7) % Gross profit 73,410 62.7 % 80,111 61.0 % (6,701) (8.4) % Selling, general and administrative 54,893 46.9 % 52,829 40.2 % 2,064 3.9 % Research and development 2,110 1.8 % 1,083 0.8 % 1,027 94.8 % Stock-based compensation 5,150 4.4 % 4,882 3.7 % 268 5.5 % Depreciation 851 0.7 % 816 0.6 % 35 4.3 % Loss (gain) on disposal of property and equipment 448 0.4 % (2,328) (1.8) % 2,776 NM Other expense (income) (1,622) (1.4) % (3,952) (3.0) % 2,330 (59.0) % Income from operations 11,580 9.9 % 26,781 20.4 % (15,201) (56.8) % Non-operating expenses Income from equity method investments (1,241) (1.1) % (91) (0.1) % (1,150) 1263.7 % Interest expense, net 318 0.3 % 509 0.4 % (191) (37.5) % Net income before taxes 12,503 10.7 % 26,363 20.1 % (13,860) (52.6) % Provision (benefit) for income taxes 3,377 2.9 % (5,167) (3.9) % 8,544 NM Net income $ 9,126 7.8 % $ 31,530 24.0 % $ (22,404) (71.1) % Page 33 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020 Revenue The following table summarizes our revenue for the years ended December 31, 2021 and 2020: Year Ended December 31, 2021 % of Total Revenue 2020 % of Total Revenue $ Change % Change Net revenue from rentals Ventilator rentals, non-invasive and invasive $ 83,849 71.6 % $ 78,286 59.6 % $ 5,563 7.1 % Other durable medical equipment rentals 13,843 11.8 % 9,888 7.5 % 3,955 40.0 % Net revenue from sales and services Equipment and supply sales 8,765 7.5 % 7,357 5.6 % 1,408 19.1 % COVID-19 response sales and services 8,558 7.3 % 34,379 26.2 % (25,821) (75.1) % Service revenues 2,047 1.7 % 1,399 1.1 % 648 46.3 % Total net revenue $ 117,062 100.0 % $ 131,309 100.0 % $ (14,247) (10.8) % For the year ended December 31, 2021, revenue totaled $117.1 million, a decrease of $14.2 million (or 10.8%) from the comparable period in 2020. Excluding COVID-19 response sales and services, net revenue increased $11.6 million (or 11.9%) from the comparable period in 2020. Ventilator rental revenue increased $5.6 million (or 7.1%) due to our organic growth in active ventilator patient base sustained throughout the year. In addition to the ventilator rental revenue growth, rental revenue from other DME grew $4.0 million (or 40.0%) which primarily consisted of product revenue from PAPs, oxygen therapy, and percussion vests. Non-COVID-19 related equipment sales and services combined increased by $1.4 million (or 19.1%) year over year primarily as a result of increasing demand for respiratory supplies, specifically for PAP resupply patients. For the year ended December 31, 2021, net revenue for COVID-19 response sales and services totaled $8.6 million, compared to $34.4 million during the height of the pandemic during the year ended December 31, 2020. 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 2022, the impact of such revenue remains uncertain and dependent on the length and intensity of the COVID-19 pandemic and the availability of 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. We expect growth to occur at an increased rate compared to recent periods which were impacted by COVID-19. Cost of Revenue and Gross Profit For the year ended December 31, 2021, cost of revenue totaled $43.7 million, a decrease of $7.5 million (or 14.7%) from the comparable period in 2020. For the years ended December 31, 2021 and 2020, gross profit percentage increased from approximately 61.0% to approximately 62.7%. 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 to remain relatively consistent with 2021 levels. Selling, General and Administrative Expense For the year ended December 31, 2021, selling, general and administrative expenses totaled $54.9 million, an increase of $2.1 million (or 3.9%) from the comparable period in 2020. Excluding COVID-19 related revenues, selling, general and administrative expenses as a percentage of revenue decreased to 50.6% for the year ended December 31, 2021 compared to 54.5% for the year ended December 31, 2020. This decrease in selling, general and administrative expense as a percentage of revenue as compared to the prior period is primarily attributable to a decrease in employee related expenses associated with variable and incentive based compensation. Phantom stock compensation expense decreased by $1.6 million due 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 as we continue into 2022. Page 34 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020 Research and Development Costs For the year ended December 31, 2021, research and development costs totaled $2.1 million, an increase of $1.0 million (or 94.8%) 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 slightly increase in 2022 relative to 2021 costs. Loss (Gain) on Disposal of Property and Equipment For the year ended December 31, 2021, we recorded a loss on disposal of property and equipment of $0.4 million, compared to a gain of $2.3 million during the comparable period in 2020. For the year ended December 31, 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 were recognized. We expect disposals of equipment to generally remain consistent with long term historical trends, excluding COVID-19 disposals. Other Expense (Income) The decrease of $2.3 million in other income was driven by reductions in current year state and federal government grants. During the year ended December 31, 2020, the Company received and recognized a general distribution payment from the Provider Relief Fund of $3.5 million. For the year ended December 31, 2021 the Company received and recognized a targeted distribution payment of $1.5 million. 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. Stock-Based Compensation For the year ended December 31, 2021, stock-based compensation totaled $5.2 million, an increase of $0.3 million (or 5.5%) from the comparable period in 2020. This increase is attributed to the expense of additional stock-based awards during 2021. 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. Stock-based compensation as a percentage of revenue has historically remained near or below 5%. Interest Expense, Net For the year ended December 31, 2021, net interest expense totaled $0.3 million, a decrease of $0.2 million from the comparable period in 2020. We expect net interest expense to remain materially consistent with 2021 levels. Provision (Benefit) for Income Taxes For the year ended December 31, 2021, the provision for income taxes was a $3.4 million expense, compared to a $5.2 million benefit during the 2020 period. The increase in income tax expense was primarily due to the release of a valuation allowance during the prior period. We expect tax expense to normalize at rates that approximate the federal and state statutory rates. Net Income For the year ended December 31, 2021, net income was $9.1 million, a decrease of $22.4 million (or 71.1%) from the comparable period in 2020. Net income as a percentage of net revenue decreased from 24.0% for the year ended December 31, 2020 to 7.8% for the year ended December 31, 2021, primarily driven by a decrease in COVID-19 response sales and the comparative benefit from income taxes in the prior period, as described above. Non-GAAP Financial Measures The Company uses Adjusted EBITDA, which is a financial measure that is not prepared in accordance with GAAP to analyze its financial results and believes that it is useful to investors, as a supplement to GAAP measures. Management believes Adjusted EBITDA provides helpful information with respect to the Company's operating performance as viewed by management, including a view of the Company's business that is not dependent on the impact of the Company's capitalization structure and items that are not part of the Company's day-to-day operations. Management uses Adjusted EBITDA (i) to compare the Company's operating performance on a consistent basis, (ii) to calculate incentive compensation for the Company's employees, (iii) for planning purposes including the preparation of the Company's internal annual operating budget, and (iv) to evaluate the performance and effectiveness of the Company's operational strategies. Accordingly, management believes that Adjusted EBITDA provides useful information in understanding and evaluating the Company's operating performance in the same manner as management. In calculating Adjusted EBITDA, certain items (mostly non-cash) are excluded from net income including interest, taxes, stock based compensation, and depreciation of property and equipment. Set forth below are descriptions of the financial items that have Page 35 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020 been excluded from net income to calculate Adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income. – Depreciation may be useful for investors to consider because it generally represents the wear and tear on the property and equipment used in our operations. However, we do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating costs. – The amount of interest expense we incur or interest income we generate may be useful for investors to consider and may result in current cash inflows or outflows. 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. – 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. However, stock-based compensation is being excluded from our operating expenses because the decisions which gave rise to these expenses were not made to increase revenue in a particular period, but were made for the Company’s long-term benefit over multiple periods. While strategic decisions, such as those to issue stock-based awards are made to further our long-term strategic objectives and do impact our earnings under GAAP, these items affect multiple periods and management is not able to change or affect these items within any period. – Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes and may reduce or increase the amount of funds otherwise available for use. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business. 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 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Net Income $ 4,087 $ 1,789 $ 1,566 $ 1,684 $ 5,071 $ 2,804 $ 19,412 $ 4,243 Add back: Depreciation 3,120 2,867 2,716 2,609 2,835 2,425 2,190 2,130 Interest expense 69 75 83 91 100 116 135 158 Stock-based compensation 1,305 1,302 1,236 1,307 1,301 1,234 1,196 1,151 Income tax expense (benefit) 968 1,386 1,246 (223) 151 1,141 (6,646) 187 Adjusted EBITDA $ 9,549 $ 7,419 $ 6,847 $ 5,468 $ 9,458 $ 7,720 $ 16,287 $ 7,869 Use of Non-GAAP Financial Measures Adjusted EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. It is not a measurement of our financial performance under GAAP and should not be considered as an alternative to revenue or net income, as applicable, or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of the Company's liquidity, and may not be comparable to other similarly titled measures of other businesses. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our operating results as reported under GAAP. Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations; and other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Liquidity and Capital Resources Cash and cash equivalents at December 31, 2021 was $28.4 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 December 31, 2021. Page 36 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020 Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2021 2020 Net Cash provided by (used in): Operating activities $ 22,494 $ 35,110 Investing activities (19,746) (8,415) Financing activities (5,321) (9,069) Net (decrease) increase in cash and cash equivalents $ (2,573) $ 17,626 Net Cash Provided by Operating Activities Net cash provided by operating activities during the year ended December 31, 2021 was $22.5 million, resulting from net income of $9.1 million, non-cash net income adjustments of $26.9 million and an increase in net operating liabilities of $5.8 million, which was partially offset by an increase in net operating assets of $7.8 million. The non-cash net income adjustments primarily consisted of $6.9 million in change of allowance for doubtful accounts, $11.3 million of depreciation, $3.9 million in change in deferred tax asset, $5.2 million of stock-based compensation, and $1.2 million of income from equity investments. The primary changes in operating assets were an increase in gross accounts receivable of $7.3 million, a net increase in income taxes receivable/(payable) of $2.2 million, and a decrease in accrued liabilities of $4.0 million. Included in our operating cash flows for the period is the receipt of $1.5 million in Provider Relief Funds. Net cash provided by operating activities during the year ended December 31, 2020 was $35.1 million, resulting from net income of $31.5 million, non-cash net income adjustments of $13.8 million and an increase in net operating liabilities of $2.9 million, which was partially offset by an increase in net operating assets of $13.1 million. The non-cash net income adjustments primarily consisted of $9.1 million in change of allowance for doubtful accounts, $9.6 million of depreciation, $2.3 million of gains on disposal of property and equipment, $8.7 million in change in deferred tax asset, $4.9 million of stock-based compensation, $1.4 million in change in inventory reserve and $0.1 million of gain on equity investments. The uses of cash related to changes in operating assets primarily consisted of an increase in gross accounts receivable of $10.0 million, an increase in inventory of $2.3 million and an increase in prepaid expenses and other assets of $0.8 million. 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. The changes in operating liabilities primarily consisted of an increase in accounts payable of $0.2 million, an increase in accrued liabilities of $2.3 million, an increase in deferred revenue of $0.1 million, and an increase in income tax payable of $0.3 million. Net Cash Used in Investing Activities Net cash used in investing activities during the year ended December 31, 2021 was $19.7 million, consisting of $19.7 million of purchases of property and equipment and $0.6 million in equity investments, partially offset by $0.6 million of sales proceeds from the disposal of property and equipment. Included in the purchase of property and equipment are patient capital expenditures of $16.4 million related to medical equipment. Combining cash purchases of property and equipment of $19.7 million and equipment financed through finance leases of less than $0.1 million,our total capital expenditures for the year ended December 31, 2021 were $19.8 million. This represents a $3.7 million, or 23.3%, increase year over year. Net cash used in investing activities during the year ended December 31, 2020 was $8.4 million, consisting of $13.0 million of purchases of property and equipment and $0.6 million in equity investments, partially offset by $5.2 million of COVID-19 response sales proceeds from the disposal of property and equipment. Included in the purchase of property and equipment are patient capital expenditures of $15.6 million related to medical equipment. Combining cash purchases of property and equipment of $13.0 million and equipment financed through finance leases of $3.0 million, our total capital expenditures for the year ended December 31, 2020 were $16.0 million. This represents a $9.4 million, or 36.8%, decrease year over year. Net Cash Used in Financing Activities Net cash used in financing activities during the year ended December 31, 2021 was $5.3 million, consisting of $1.7 million in principal payments on the Term Note (as defined below), $0.2 million in principal payments on the Building Term Note (as defined below), and $2.2 million in repayments of finance lease liabilities, partially offset by $0.1 million proceeds from the exercise of stock options. Page 37 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020 Net cash used in financing activities during the year ended December 31, 2020 was $9.1 million, consisting of $1.6 million in principal payments on the Term Note, $0.2 million in principal payments on the Building Term Note, and $9.2 million in repayments of finance lease liabilities, partially offset by $1.9 million proceeds from the exercise of stock options. Line of Credit The Company maintains a line of credit in the amount of $10.0 million that expires May 1, 2023 under the Commercial Business Loan Agreement. Any amounts advanced on this line will be subject to an interest rate equal to the WSJ prime rate plus a margin of 0.50%, with a 3.50% interest rate floor, and will be secured by substantially all of the Company's assets. There were no borrowings against this line of credit at December 31, 2021 or December 31, 2020. The line of credit allows flexibility in funding our future operations subject to compliance with the covenants described below. Commercial Term Notes On May 30, 2019, the Company entered into an amendment to the loan agreement providing for a term note (the “Building Term Note”) in favor of Hancock Whitney Bank in the principal amount of $4.8 million. The proceeds of the Building Term Note were used to purchase a building to utilize as a new corporate headquarters for the Company. 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 our assets, 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 a third amendment to the loan agreement providing for a term note (the “Term Note") in favor of Hancock Whitney Bank in the principal amount of $5.0 million. The proceeds of the Term Note will be used for general corporate purposes. Beginning October 19, 2019, the Company began making monthly payments towards the outstanding balance. The Term Note matures on September 19, 2022 and is secured by substantially all of our assets. The Term Note bears interest at the rate of 4.60% per annum. Under the terms of the Commercial Business Loan Agreement, the Company is subject to the following financial covenants: Financial Covenant Required Ratio Ratio at December 31, 2021 Total Debt to Adjusted EBITDA (Quarterly) not more than 1.50:1.00 0.22 Fixed Charge Coverage Ratio (Quarterly) not less than 1.35:1.00 4.95 Loan-to-Value Ratio (Quarterly) not more than 0.85 0.68 The Company was in compliance with all covenants under the Commercial Business Loan Agreement in effect at December 31, 2021. Sources of Funds Cash provided by operating activities during the year ended December 31, 2021 was $22.5 million compared to $35.1 million during the year ended December 31, 2020. HHS Provider Relief Funds The Company received a general distribution payment from the Provider Relief Fund of $3.5 million in April 2020 and a targeted distribution payment of $1.5 million in November 2021. 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. There is no US GAAP guidance for for-profit health care entities that receive government grants that are not in the form of an income tax credit, revenue from a contract with a customer or a loan. As such, for-profit entities must determine the appropriate accounting treatment by analogy to other guidance such as International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance , in IFRS. Under IAS 20, we determined that upon receipt of funds, we fully complied with the conditions attached to the grant. We recognized the distributions received from the Provider Relief Fund in the income statement in full during the period of receipt. 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. As of December 31, 2021, the Company had cash and cash equivalents of $28.4 million. Page 38 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020 Use of Funds Our principal uses of cash are funding our new rental assets and other capital purchases, operations, and other working capital requirements. The following table presents our material contractual obligations and commitments to make future payments as of December 31, 2021: Within 12 Months Beyond 12 Months Debt Obligations, including interest $1,714 $4,974 Lease Obligations $490 $287 Total $2,204 $5,261 We anticipate that our operating cash flows will satisfy our material cash requirements for the 12 months after December 31, 2021. In addition to our operating cash flows, we may need to raise additional funds to support our contractual obligations and investing activities beyond such 12 month period, 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. Leases 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 $0.8 million and $0.8 million for the years ended December 31, 2021 and 2020, respectively. Off Balance Sheet Arrangements The Company has no material undisclosed off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its results of operations or financial condition. Recent Accounting Pronouncements See Note 2 – Summary of Significant Account Policies of the Notes to Consolidated Financial Statements for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Page 39 VIEMED HEALTHCARE, INC. (Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts) December 31, 2021 and 2020