VIEMED HEALTHCARE, INC. 10-Q

Item 2. 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, and is qualified entirely by, our condensed consolidated financial statements (including Notes to the Condensed Consolidated Financial Statements) and the other consolidated financial information under Item 1 of this Quarterly Report on Form 10-Q. Some of the information in this discussion and analysis includes forward-looking statements that involve risk and uncertainties. Actual results and timing of events could differ from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. Based on the duration and severity of the impacts of the COVID-19 pandemic, including but not limited to any negative economic conditions arising from the pandemic, our ability to assess potential patients in hospitals and set up and treat patients in the home, and the impacts of government actions and administrative regulations on the healthcare industry and broader economy, including through existing and any future stimulus efforts, we are uncertain of the ultimate impact COVID-19 could have on our business, financial condition and results of operations. Forward-Looking Statements Certain statements and information in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 or "forward-looking information" as such term is defined in applicable Canadian securities legislation (collectively, "forward-looking statements"). Any statements other than statements of historical information, including those that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. These forward-looking statements are made as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except as required by applicable law. Forward-looking statements relate to future events or future performance and reflect the expectations or beliefs of management regarding future events, and include, but are not limited to, statements with respect to: operating results; profitability; financial condition and resources; anticipated needs for working capital; liquidity; capital resources; capital expenditures; milestones; licensing milestones; information with respect to future growth and growth strategies; anticipated trends in our industry; our future financing plans; timelines; currency fluctuations; government regulation; unanticipated expenses; commercial or governmental disputes or claims; limitations on insurance coverage or other reimbursement; and availability of cash flow to fund capital requirements. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “potential”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, “believes”, “projects”, or the negatives thereof or variations of such words and phrases or statements that certain actions, events or results “will”, “should”, “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” or the negative of these terms or comparable terminology. Forward-looking statements are based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable. We cannot assure you, however, that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Page 23 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, including those identified under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and the other documents we file with the SEC, including under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, and with the securities regulatory authorities in certain provinces of Canada, which contribute to the possibility that the predicted outcomes may not occur or may be delayed. The risks, uncertainties and other factors, many of which are beyond our control, that could influence actual results include, but are not limited to: the general business, market and economic conditions in the regions in which the we operate; the impact of the COVID-19 pandemic and of the actions taken by governmental authorities, individuals and companies in response to the pandemic on our business, financial condition and results of operations, including on our patient base, revenues, employees, and equipment and supplies; significant capital requirements and operating risks that we may be subject to; our ability to implement business strategies and pursue business opportunities; volatility in the market price of our common shares; our novel business model; the risk that the clinical application of treatments that demonstrate positive results in a study may not be positively replicated or that such test results may not be predictive of actual treatment results or may not result in the adoption of such treatments by providers; the state of the capital markets; the availability of funds and resources to pursue operations; reductions in reimbursement rates and audits of reimbursement claims by various govermental and private payor entities; dependence on few payors; possible new drug discoveries; dependence on key suppliers and the recall of certain Royal Philips BiPAP and CPAP devices and ventilators that we distribute and sell; granting of permits and licenses in a highly regulated business; competition; low profit market segments; disruptions in or attacks (including cyber-attacks) on our information technology, internet, network access or other voice or data communications systems or services; the evolution of various types of fraud or other criminal behavior to which we are exposed; the failure of third parties to comply with their obligations; difficulty integrating newly acquired businesses; the impact of new and changes to, or application of, current laws and regulations; the overall difficult litigation and regulatory environment; increased competition; changes in foreign currency rates; increased funding costs and market volatility due to market illiquidity and competition for funding; critical accounting estimates and changes to accounting standards, policies, and methods used by us; our status as an emerging growth company; and the occurrence of natural and unnatural catastrophic events or health epidemics or concerns, such as the COVID-19 pandemic, and claims resulting from such events or concerns, as well as other general economic, market and business conditions; and other factors beyond our control. General Matters In this Quarterly Report on Form 10-Q, 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 and with the relevant Canadian securities regulatory authorities on the System for Electronic Document Analysis and Retrieval (SEDAR). The Company no longer qualifies as a “smaller reporting company” and is 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) beginning in this Quarterly Report on Form 10. 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. Unless otherwise noted herein, all references to "$" or "USD" are to the currency of the United States and references to "CAD$" or "Canadian dollars" are to the currency of Canada. 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), in-home sleep testing and sleep apnea treatment, oxygen therapy, and the sale of associated supplies. Page 24 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 71.3% of our traditional revenue, excluding COVID-19 response sales and services, and 79.9% of our traditional revenue, excluding the COVID-19 response sales and services, for the three months ended March 31, 2022 and 2021, respectively. We combine the benefits of home ventilation support with licensed Respiratory Therapists ("RTs") to drive improved patient outcomes and reduce costly hospital readmissions. We expect to grow through expansion of existing service areas as well as in new territories through a cost efficient launch that reduces location expenses. Our licensed RTs currently serve patients in 48 states. We expect to continue to employ more RTs in order to assure our high service model is accomplished in the home. As of March 31, 2022, we employed 278 licensed RTs, representing more than 42% 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. 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 three months ended March 31, 2022, 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, a targeted distribution payment of $1.5 million in November 2021, and a general distribution payment of $0.4 million in January of 2022. 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 Department of Health and Human Services has stated that Provider Relief Fund payments are not loans and will not need to be repaid. However, as a condition to the receipt of funds, the Company and any other providers must agree to a detailed set of terms and conditions. CMS has indicated that the terms and conditions may be subject to ongoing changes and reporting. To the extent that reporting requirements and terms and conditions Page 25 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 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. 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 may experience adverse effects. In 2019, CMS announced the inclusion of noninvasive ventilator products on the list of products subject to the competitive bidding program for Round 2021, which covers the period of January 1, 2021 through December 31, 2023. Rental revenue from ventilator products represents a significant portion of our revenues (approximately 71.3% of total traditional revenue, excluding COVID-19 response sales and services, during the three months ended March 31, 2022 ). 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 no sooner than 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, however, we are uncertain if non-invasive ventilators and oxygen and PAP devices will be included in future competitive bidding programs. The below table highlights summary financial and operational metrics for the last eight quarters. (Tabular amounts expressed in thousands of U.S. Dollars, except vent patients) For the quarter ended March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 Financial Information: Revenue $ 32,255 $ 31,962 $ 29,285 $ 27,399 $ 28,416 $ 31,202 $ 33,447 $ 42,854 Gross Profit 19,743 19,662 18,381 17,625 17,742 19,178 19,453 25,927 Gross Profit % 61 % 62 % 63 % 64 % 62 % 61 % 58 % 61 % Net Income 1,762 4,087 1,789 1,566 1,684 5,071 2,804 19,412 Cash (As of) 29,248 28,408 26,867 31,151 31,097 30,981 32,396 29,707 Total Assets (As of) 119,007 117,962 115,486 111,014 113,001 112,560 113,969 112,178 Adjusted EBITDA (1) 7,273 9,549 7,419 6,847 5,468 9,458 7,720 16,287 Operational Information: Vent Patients (2) 8,434 8,405 8,200 8,103 7,733 7,892 7,788 7,705 (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. Page 26 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 Results of Operations Comparison of the Three Months Ended March 31, 2022 and 2021: The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 % of Total Revenue 2021 % of Total Revenue $ Change % Change Revenue $ 32,255 100.0 % $ 28,416 100.0 % $ 3,839 13.5 % Cost of revenue 12,512 38.8 % 10,674 37.6 % 1,838 17.2 % Gross profit 19,743 61.2 % 17,742 62.4 % 2,001 11.3 % Selling, general and administrative 15,776 48.9 % 14,509 51.1 % 1,267 8.7 % Research and development 632 2.0 % 339 1.2 % 293 86.4 % Stock-based compensation 1,305 4.0 % 1,307 4.6 % (2) (0.2) % Depreciation 237 0.7 % 200 0.7 % 37 18.5 % Other income (455) (1.4) % 55 0.2 % (510) NM Income from operations 2,248 7.0 % 1,332 4.7 % 916 68.8 % Non-operating income and expenses Income from equity method investments (323) (1.0) % (220) (0.8) % (103) NM Interest expense, net 64 0.2 % 91 0.3 % (27) (29.7) % Net income before taxes 2,507 7.8 % 1,461 5.1 % 1,046 71.6 % Provision (benefit) for income taxes 745 2.3 % (223) (0.8) % 968 NM Net income $ 1,762 5.5 % $ 1,684 5.9 % $ 78 4.6 % Revenue The following table summarizes our revenue for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 % of Total Revenue 2021 % of Total Revenue $ Change % Change Net revenue from rentals Ventilator rentals, non-invasive and invasive $ 21,518 66.7 % $ 20,351 71.6 % $ 1,167 5.7 % Other durable medical equipment rentals 4,359 13.5 % 2,930 10.3 % 1,429 48.8 % Net revenue from sales and services Equipment and supply sales 3,037 9.4 % 1,768 6.2 % 1,269 71.8 % COVID-19 response sales and services 2,095 6.5 % 2,955 10.4 % (860) (29.1) % Service revenues 1,246 3.9 % 412 1.4 % 834 202.4 % Total net revenue $ 32,255 100.0 % $ 28,416 100.0 % $ 3,839 13.5 % For the three months ended March 31, 2022, revenue totaled $32.3 million, an increase of $3.8 million (or 13.5%) from the comparable period in 2021. Excluding COVID-19 response sales and services revenue, net revenue increased $4.7 million (or 18.5%) from the comparable period in 2021. The net revenue growth was driven by an increase in ventilator rental revenue of $1.2 million (or 5.7%), rental revenue from other DME of $1.4 million (or 48.8%), equipment and supply sales of $1.3 million (or 71.8%), and service revenues of $0.8 million (or 202.4%). The growth in other durable medical equipment rentals and equipment and supply sales has been primarily driven by PAP and oxygen related sales and services. The increase in service revenue is primarily due to the addition of our healthcare staffing offerings. While ventilator rentals continue to make up the majority of our revenue, the growth of PAP and oxygen related sales and services over the comparable period in 2021 is contributing significantly to the diversity of overall revenue mix. Page 27 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 During the three months ended March 31, 2022, net revenue from COVID-19 response sales and services totaled $2.1 million, consisting primarily of contact and vaccine tracing services. Compared to the three months ended March 31, 2021, COVID-19 response sales and services declined by $0.9 million (or 29.1%). While we expect some further COVID-19 response related revenue during the remainder of 2022, the quantity is expected to be lower and impact of such revenue remains uncertain and dependent on the length and intensity of the COVID-19 pandemic and the availability of such equipment, supplies, and services from other suppliers. As we continue to expand geographically into new states and further expand our presence in our existing territories, we expect growth in our active ventilator patient base and our other respiratory offerings, and additional revenue from our new staffing and recruitment division. While we expect growth for the remainder of the current year to exceed growth in pandemic periods, we anticipate that the rate of growth may be impacted by residual effects of the pandemic. Cost of revenue and gross profit For the three months ended March 31, 2022, cost of revenue totaled $12.5 million, an increase of $1.8 million (or 17.2%) from the comparable period in 2021. For the three months ended March 31, 2022, COVID-19 response sales and services accounted for $1.0 million (or 7.7%) of these costs, compared to $1.9 million (or 17.7%) of these costs from the comparable period in 2021. Excluding COVID-19 response sales and services, gross profit percentage for the three months ended March 31, 2022 and 2021 was 61.7% and 65.5%, respectively. Overall gross profit percentage decreased from approximately 62.4% in the three months ended March 31, 2021 to approximately 61.2% in the three months ended March 31, 2022. The decrease in gross profit percentage is due to migration of the revenue mix associated with product and service diversification. Excluding COVID-19 response sales and services, gross profit percentage for the three months ended March 31, 2022 and 2021 was 61.7% and 65.5%, respectively. We expect our gross profit percentage for our normal operations (non-COVID-19 related) to increase slightly through the end of 2022 as a result of growth in lower margin product sales partially offset by growth in higher margin services. Selling, general and administrative expense For the three months ended March 31, 2022, selling, general and administrative expenses totaled $15.8 million, an increase of $1.3 million (or 8.7%) from the comparable prior period. Selling, general, and administrative expenses as a percentage of revenue decreased to 48.9% for the three months ended March 31, 2022 compared to 51.1% for the three months ended March 31, 2021. The increase in overall selling, general and administrative expense as compared to the prior period is primarily due to additional employee related expenses to accommodate the overall growth of the Company. Our full time employee count increased from 528 on March 31, 2021 to 662 on March 31, 2022, an increase of 25.4%. Employee compensation expenses increased $0.8 million (or 8.4%) as a result of higher compensation expense associated with an overall increase in our employee headcount, offset by a decrease related to the impact of our phantom stock plan. The remaining increase in selling, general, and administrative expense over the prior year period is largely due to an increase in auto and travel related expenses associated with increases in travel and in-person activities combined with increasing costs for fuel. We expect that current year selling, general and administrative expenses will remain materially consistent with the current quarter as a percentage of revenue through the end of 2022. Research and development For the three months ended March 31, 2022, research and development expense totaled $0.6 million, an increase of $0.3 million (or 86.4%) from the comparable period in 2021. As we continue to invest in research and development related projects to support our technology initiatives, we expect that associated costs will continue to increase in 2022 relative to 2021 costs. Stock-based compensation For the three months ended March 31, 2022, stock-based compensation totaled $1.3 million, remaining relatively unchanged from the comparable period in 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 three months ended March 31, 2022 and during the comparable period in 2021, net interest expense totaled $0.1 million. As a result of low levels of interest bearing debt, we expect net interest expense to remain relatively consistent with the current quarter through the end of 2022. Page 28 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 Provision (benefit) for income taxes For the three months ended March 31, 2022, the provision for income taxes was $0.7 million, compared to a $0.2 million benefit during the 2021 period. The increase in income tax expense was primarily due to a discrete tax benefit associated with share based compensation during the 2021 period. Excluding discrete items, our annual estimated effective tax rate for 2022 is 28.9%. Net income For the three months ended March 31, 2022, net income was $1.8 million, a increase of $0.1 million (or 4.6%) from the comparable period in 2021. Net income as a percentage of net revenue decreased from 5.9% for the three months ended March 31, 2021 to 5.5% for the three months ended March 31, 2022, primarily due to the increased income tax expense, as described above. Non-GAAP Financial Measures The Company uses Adjusted EBITDA, which is a financial measure that is not prepared in accordance with generally accepted accounting principles in the United States ("GAAP") to analyze its financial results and believes that it is useful to investors, as a supplement to U.S. 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 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. Page 29 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 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 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 Net Income $ 1,762 $ 4,087 $ 1,789 $ 1,566 $ 1,684 $ 5,071 $ 2,804 $ 19,412 Add back: Depreciation 3,397 3,120 2,867 2,716 $ 2,609 $ 2,835 $ 2,425 $ 2,190 Interest expense 64 69 75 83 $ 91 $ 100 $ 116 $ 135 Stock-based compensation 1,305 1,305 1,302 1,236 $ 1,307 $ 1,301 $ 1,234 $ 1,196 Income tax expense (benefit) 745 968 1,386 1,246 $ (223) $ 151 $ 1,141 $ (6,646) Adjusted EBITDA $ 7,273 $ 9,549 $ 7,419 $ 6,847 $ 5,468 $ 9,458 $ 7,720 $ 16,287 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. Page 30 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 Liquidity and Capital Resources Cash and cash equivalents at March 31, 2022 was $29.2 million, compared to $28.4 million at December 31, 2021. 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 March 31, 2022. Cash Flows The following table summarizes our cash flows for the periods indicated: Three Months Ended March 31, 2022 2021 Net Cash provided by (used in): Operating activities $ 7,146 $ 4,628 Investing activities (3,807) (1,698) Financing activities (2,499) (2,814) Net increase in cash and cash equivalents $ 840 $ 116 Net Cash Provided by Operating Activities Net cash provided by operating activities during the three months ended March 31, 2022 was $7.1 million, resulting from net income of $1.8 million and non-cash net income adjustments of $7.4 million and an increase in net operating liabilities of $0.9 million, which was partially offset by an increase in net operating assets of $2.9 million. The non-cash net income adjustments primarily consisted of $3.4 million in change of allowance for doubtful accounts, $3.4 million of depreciation, $0.7 million in change in deferred tax asset, and $1.3 million of stock-based compensation. The primary changes in working capital were an increase in gross accounts receivable of $4.2 million, offset by an increase in income taxes payable of $1.2 million and a decrease in inventory of $1.4 million. Included in our operating cash flows for the period is the receipt of $0.4 million in Provider Relief Funds Net cash provided by operating activities during the three months ended March 31, 2021 was $4.6 million, resulting from net income of $1.7 million and non-cash net income adjustments of $5.4 million and an increase in net operating liabilities of $0.4 million, which was partially offset by an increase in net operating assets of $2.8 million. The non-cash net income adjustments primarily consisted of $1.8 million in change of allowance for doubtful accounts, $2.6 million of depreciation, $0.1 million of loss on disposal of property and equipment, $1.3 million of stock-based compensation, $0.2 million gain on equity investments and $0.2 million change in deferred tax asset. The uses of cash related to changes in operating assets primarily consisted of an increase in accounts receivable of $2.7 million, an increase in prepaid expenses and other current assets of $0.2 million, partially offset by a decrease in inventory of $0.1 million. The changes in operating liabilities primarily consisted of an increase in accounts payable of $0.4 million, partially offset by a decrease in accrued liabilities of $0.1 million. Net Cash Used in Investing Activities Net cash used in investing activities during the three months ended March 31, 2022 was $3.8 million, consisting of $4.0 million of purchases of property and equipment, partially offset by $0.3 million of sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to medical equipment rented to our patients. Cash purchases of property and equipment represents a $2.2 million, or 119.1%, increase year over year. Net cash used in investing activities during the three months ended March 31, 2021 was $1.7 million, consisting of $1.8 million of purchases of property and equipment, partially offset by $0.1 million of sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to medical equipment rented to our patients. Page 31 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 Net Cash Used in Financing Activities Net cash used in financing activities during the three months ended March 31, 2022 was $2.5 million. For the three months ended March 31, 2022, the Company repurchased and canceled 389,878 common shares at a cost of $1.9 million pursuant to the Share Repurchase Program authorized by the Board of Directors on March 7, 2022 (the "2022 Share Repurchase Program"). The Company also acquired and cancelled 23,742 common shares at a cost of $0.1 million to satisfy employee income tax withholding associated with RSUs vesting during the three months ended March 31, 2022. Net cash used in financing activities during the three months ended March 31, 2022 also consisted of $0.4 million in principal payments on the Term Note (as defined below). Net cash used in financing activities during the three months ended March 31, 2021 was $2.8 million, consisting of $0.4 million in proceeds from the Term Note, partially offset by $1.0 million in repayments of finance lease liabilities, and $1.4 million for shares redeemed and canceled for tax withholding in connection with RSUs vested in the period.. 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 March 31, 2022 or December 31, 2021. While we currently have no immediate plans to draw on this line of credit, the line of credit allows flexibility in funding our future operations subject to compliance with the covenants described above. 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 March 31, 2022. 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 makes 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 were used for general corporate purposes. Beginning October 19, 2019, the Company makes 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. Page 32 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 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 March 31, 2022: Within 12 Months Beyond 12 Months Debt Obligations, including interest $ 1,268 $ 4,893 Lease Obligations $ 346 $ 283 Total $1,614 $5,176 We anticipate that our operating cash flows will satisfy our material cash requirements for the 12 months after March 31, 2022. 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 $271,000 and $174,000 for the three months ended March 31, 2022 and 2021, 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. Accounting and Disclosure Matters Critical Accounting Principles and 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. 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 the Company's Annual Report on Form 10-K for the year ended December 31, 2021. 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 Page 33 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) March 31, 2022 and 2021 aging trends, other operating trends and relevant business conditions. Because of continuing changes in the healthcare industry 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 three months ended March 31, 2022, 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 $8.5 million and $8.0 million as of March 31, 2022 and 2021, respectively, and based on our analysis, we believe the reserve is adequate for any exposure to credit losses. Recently Issued Accounting Pronouncements See Note 2 – Summary of Significant Accounting Policies of our Condensed 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. Page 34 VIEMED HEALTHCARE, INC. March 31, 2022 and 2021