VIEMED HEALTHCARE, INC. 10-Q

Item 1. Financial Statements VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Expressed in thousands of U.S. Dollars, except outstanding shares) Note At June 30, 2022 At December 31, 2021 (Unaudited) (Audited) ASSETS Current assets Cash and cash equivalents $ 21,922 $ 28,408 Accounts receivable, net of allowance for doubtful accounts of $ 9,383 and $ 7,031 at June 30, 2022 and December 31, 2021, respectively 2 14,287 12,823 Inventory, net of inventory reserve of $ 0 and $ 1,418 at June 30, 2022 and December 31, 2021, respectively 2 2,853 2,457 Income tax receivable 9 531 1,893 Prepaid expenses and other assets 2,266 1,729 Total current assets $ 41,859 $ 47,310 Long-term assets Property and equipment, net 3 66,685 62,846 Equity investments 2 2,435 2,157 Deferred tax asset 9 3,964 4,787 Other long-term assets 8 961 862 Total long-term assets $ 74,045 $ 70,652 TOTAL ASSETS $ 115,904 $ 117,962 LIABILITIES Current liabilities Trade payables $ 3,702 $ 3,239 Deferred revenue 4,402 3,753 Accrued liabilities 4 8,860 8,875 Current portion of lease liabilities 5 283 464 Current portion of long-term debt 5 612 1,480 Total current liabilities $ 17,859 $ 17,811 Long-term liabilities Accrued liabilities 7 385 757 Long-term lease liabilities 5 207 268 Long-term debt 5 4,226 4,306 Total long-term liabilities $ 4,818 $ 5,331 TOTAL LIABILITIES $ 22,677 $ 23,142 Commitments and Contingencies 8 — — SHAREHOLDERS' EQUITY Common stock - No par value: unlimited authorized; 38,333,089 and 39,640,388 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively 7 $ 14,348 $ 14,014 Additional paid-in capital 9,991 7,749 Accumulated other comprehensive loss ( 56 ) ( 278 ) Retained earnings 68,944 73,335 TOTAL SHAREHOLDERS' EQUITY $ 93,227 $ 94,820 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 115,904 $ 117,962 See accompanying notes to the condensed consolidated financial statements Page 3 VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Expressed in thousands of U.S. Dollars, except share and per share amounts) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, Note 2022 2021 2022 2021 Revenue 2 $ 33,310 $ 27,399 $ 65,565 $ 55,815 Cost of revenue 12,920 9,774 25,432 20,448 Gross profit $ 20,390 $ 17,625 $ 40,133 $ 35,367 Operating expenses Selling, general and administrative 17,536 12,884 33,312 27,393 Research and development 672 583 1,304 922 Stock-based compensation 7 1,271 1,236 2,576 2,543 Depreciation 243 207 480 407 Loss (gain) on disposal of property and equipment ( 110 ) 83 ( 124 ) 159 Other expense ( 223 ) ( 32 ) ( 664 ) ( 53 ) Income from operations $ 1,001 $ 2,664 $ 3,249 $ 3,996 Non-operating income and expenses Income from equity method investments 446 231 769 451 Interest expense, net of interest income 5 ( 59 ) ( 83 ) ( 123 ) ( 174 ) Net income before taxes 1,388 2,812 3,895 4,273 Provision for income taxes 9 421 1,246 1,166 1,023 Net income $ 967 $ 1,566 $ 2,729 $ 3,250 Other comprehensive income (loss) Change in unrealized gain/loss on derivative instruments, net of tax 59 ( 6 ) 222 100 Other comprehensive income (loss) $ 59 $ ( 6 ) $ 222 $ 100 Comprehensive income $ 1,026 $ 1,560 $ 2,951 $ 3,350 Net income per share Basic 10 $ 0.02 $ 0.04 $ 0.07 $ 0.08 Diluted 10 $ 0.02 $ 0.04 $ 0.07 $ 0.08 Weighted average number of common shares outstanding: Basic 10 38,773,580 39,584,064 39,195,317 39,357,992 Diluted 10 39,752,928 41,028,742 40,056,953 40,849,311 See accompanying notes to the condensed consolidated financial statements Page 4 VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Expressed in thousands of U.S. Dollars, except share and per share amounts) (Unaudited) Common Stock Additional paid-in capital Accumulated other comprehensive loss Total Shareholders' equity Shares Amount Retained earnings Shareholders' equity, December 31, 2020 39,185,182 $ 9,181 $ 7,320 $ ( 451 ) $ 65,643 $ 81,693 Stock-based compensation - options — — 1078 — — 1,078 Stock-based compensation - restricted stock — — 229 — — 229 Exercise of options 16,586 65 — — — 65 Shares issued for vesting of restricted stock 556,840 4,403 ( 4,403 ) — — — Shares redeemed to pay income tax ( 181,320 ) — — — ( 1,434 ) ( 1,434 ) Change in accumulated other comprehensive loss, net of tax — — — 106 — 106 Net income — — — — 1,684 1,684 Shareholders' equity, March 31, 2021 39,577,288 $ 13,649 $ 4,224 $ ( 345 ) $ 65,893 $ 83,421 Stock-based compensation - options — — 998 — — 998 Share-based compensation - restricted stock — — 238 — — 238 Exercise of options 11,011 47 — — — 47 Change in accumulated other comprehensive loss, net of tax — — — ( 6 ) — ( 6 ) Net income — — — — 1,566 1,566 Shareholders' equity, June 30, 2021 39,588,299 $ 13,696 $ 5,460 $ ( 351 ) $ 67,459 $ 86,264 Common Stock Additional paid-in capital Accumulated other comprehensive loss Total Shareholders' equity Shares Amount Retained earnings Shareholders' equity, December 31, 2021 39,640,388 $ 14,014 $ 7,749 $ ( 278 ) $ 73,335 $ 94,820 Stock-based compensation - options — — 820 — — 820 Stock-based compensation - restricted stock — — 485 — — 485 Shares issued for vesting of restricted stock 67,010 334 ( 334 ) — — — Shares redeemed to pay income tax ( 23,742 ) — — — ( 119 ) ( 119 ) Shares repurchased under the share repurchase program ( 389,878 ) — — — ( 1,887 ) ( 1,887 ) Change in accumulated other comprehensive loss, net of tax — — — 163 — 163 Net income — — — — 1,762 1,762 Shareholders' equity, March 31, 2022 39,293,778 $ 14,348 $ 8,720 $ ( 115 ) $ 73,091 $ 96,044 Stock-based compensation - options — — 757 — — 757 Stock-based compensation - restricted stock — — 514 — — 514 Shares repurchased under the share repurchase program ( 960,689 ) — — — ( 5,114 ) ( 5,114 ) Change in accumulated other comprehensive loss, net of tax — — — 59 — 59 Net income — — — — 967 967 Shareholders' equity, June 30, 2022 38,333,089 $ 14,348 $ 9,991 $ ( 56 ) $ 68,944 $ 93,227 See accompanying notes to the condensed consolidated financial statements Page 5 VIEMED HEALTHCARE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in thousands of U.S. Dollars) (Unaudited) Six Months Ended June 30, Note 2022 2021 Cash flows from operating activities Net income $ 2,729 $ 3,250 Adjustments for: Depreciation 7,136 5,325 Provision for uncollectible accounts 2 6,300 3,402 Change in inventory reserve ( 1,418 ) — Share-based compensation 7 2,576 2,543 Distributions of earnings received from equity method investments 612 123 Income from equity method investments ( 769 ) ( 451 ) Loss (gain) on disposal of property and equipment ( 124 ) 159 Deferred income tax expense 745 1,005 Net change in working capital Increase in accounts receivable ( 7,764 ) ( 3,163 ) Increase in inventory 1,022 ( 248 ) Increase (decrease) in prepaid expenses and other assets ( 634 ) 311 Increase (decrease) in trade payables ( 243 ) 362 Increase in deferred revenue 649 333 Decrease in accrued liabilities ( 87 ) ( 3,800 ) Change in income tax payable/receivable 1,362 ( 340 ) Net cash provided by operating activities $ 12,092 $ 8,811 Cash flows from investing activities Purchase of property and equipment ( 10,989 ) ( 5,047 ) Investment in equity investments ( 121 ) — Proceeds from sale of property and equipment 3 615 289 Net cash used in investing activities $ ( 10,495 ) $ ( 4,758 ) Cash flows from financing activities Proceeds from exercise of options 7 — 112 Principal payments on notes payable 5 ( 78 ) ( 73 ) Principal payments on term note 5 ( 872 ) ( 833 ) Shares redeemed to pay income tax 7 ( 119 ) ( 1,434 ) Shares repurchased under the share repurchase program 7 ( 7,001 ) — Repayments of lease liabilities ( 13 ) ( 1,655 ) Net cash used in financing activities $ ( 8,083 ) $ ( 3,883 ) Net (decrease) increase in cash and cash equivalents ( 6,486 ) 170 Cash and cash equivalents at beginning of year 28,408 30,981 Cash and cash equivalents at end of period $ 21,922 $ 31,151 Supplemental disclosures of cash flow information Cash paid during the period for interest $ 128 $ 198 Cash paid (received) during the period for income taxes, net of refunds $ ( 940 ) $ 358 Supplemental disclosures of non-cash transactions Net non-cash changes to finance leases $ — $ 12 Net non-cash changes to operating leases $ ( 8 ) $ 355 See accompanying notes to the condensed consolidated financial statements Page 6 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 1. Nature of Business and Operations Viemed Healthcare, Inc. (the "Company"), through its subsidiaries, is a provider of in-home durable medical equipment ("DME") and post-acute respiratory healthcare services in the United States. The Company’s service offerings are focused on effective in-home treatment with clinical practitioners providing therapy and counseling to patients in their homes using cutting edge technology. The Company currently serves patients in 48 states in the United States. The Company was incorporated under the Business Corporations Act (British Columbia) on December 14, 2016. The Company's registered and records office is located at Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia V6C 2Z7 and its corporate office is located at 625 E. Kaliste Saloom Road, Lafayette, Louisiana 70508. The Company is an "emerging growth company," as defined in the JOBS Act, and as such, has elected to comply with certain reduced U.S. public company reporting requirements. Based on the annual assessment performed on June 30, 2022, the Company meets the re-entry thresholds to qualify as a "smaller reporting company" under Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and, as such, has elected to comply with certain reduced U.S. public company reporting requirements. The Company’s common shares are traded in the U.S. on the Nasdaq Capital Market under the symbol "VMD" and in Canada on the Toronto Stock Exchange under the symbol "VMD.TO". 2. Summary of Significant Accounting Policies Principles of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements are unaudited, but reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income and Comprehensive Income, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Cash Flows for the interim periods presented. Our fiscal year ends on December 31. The Condensed Consolidated Balance Sheet as of December 31, 2021 was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto and the report of our independent registered public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year. Basis of consolidation These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated. Use of estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to revenue recognition, accounts receivable and the related allowance for doubtful accounts, income tax provisions, and fair value of financial instruments. Actual results could differ from these estimates. Page 7 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 Accounts receivable Accounts receivable are regularly reviewed for collectability and an allowance is recorded to cover the estimated bad debts and billing modifications. The accounts receivable are presented on the Condensed Consolidated Balance Sheets net of the allowance for doubtful accounts. It is possible that the estimates of the allowance for doubtful accounts could change, which could have a material impact on our operations and cash flows. The Company writes off receivables when the likelihood for collection is remote, and when the Company believes collection efforts have been fully exhausted and it does not intend to devote additional resources in attempting to collect. The write-offs are charged against the allowance for doubtful accounts. For the six months ended June 30, 2022, the Company's evaluation takes into consideration such factors as historical bad debt experience, national and local economic trends and conditions, industry and regulatory conditions, other collection indicators and information about disaggregated receivables. The complexity of many third-party billing arrangements, patient qualification for medical necessity of equipment and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. The estimates and charge-offs for the allowance for doubtful accounts for each reporting period were as follows: June 30, 2022 June 30, 2021 Balance, beginning of year $ 7,031 $ 9,013 Provision for uncollectible accounts 6,300 3,402 Amounts charged off ( 3,948 ) ( 5,127 ) Balance, end of period $ 9,383 $ 7,288 Included in accounts receivable at June 30, 2022 are amounts due from Medicare and Medicaid representing 37 % and 12 %, respectively, and 49 % combined, of total outstanding receivables. As of December 31, 2021, 44 % of total outstanding receivables were amounts due from Medicare and Medicaid. Revenues from Medicare and Medicaid as percentages of the Company's traditional revenue streams, excluding COVID-19 response sales and services, for the three and six months ended June 30, 2022 and 2021 were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Medicare revenues 46 % 54 % 47 % 57 % Medicaid revenues 9 % 10 % 9 % 9 % Total Medicare and Medicaid 55 % 64 % 56 % 66 % Inventory Inventory represents non-serialized respiratory supplies that consist of equipment parts, consumables, and associated product supplies and is expensed at the time of sale or use. The Company values inventory at the lower of cost or net realizable value. Obsolete and unserviceable inventories are valued at estimated net realizable value. Inventory is presented net of a reserve balance of $ 0 and $ 1,418,000 at June 30, 2022 and December 31, 2021, respectively, that relates to COVID-19 response supplies. During the six months ended June 30, 2022, these supplies were determined to be unavailable for sale due to expiration. Accordingly, the previously established inventory reserves were eliminated through disposal. Page 8 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 Property and equipment Property and equipment is presented on the Condensed Consolidated Balance Sheets at historic cost less accumulated depreciation. Major renewals and improvements that extend the useful life of assets are capitalized to the respective property accounts, while maintenance and repairs, which do not extend the useful life of the respective assets, are expensed as incurred. Management has estimated the useful lives of equipment leased to customers. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Property and equipment are amortized on a straight-line basis over their estimated useful lives. Depreciation of medical equipment commences at the date of service, which represents the date that the asset has been delivered to a patient and is put in use and continues through the useful life of the asset. Property and equipment with definite useful lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Equity investments Equity investments on the Condensed Consolidated Balance Sheets are comprised of an investment accounted for under the equity method and an equity investment without a readily determinable fair value which is accounted for under the measurement alternative described in ASC 321-10-35-2. The following table details the Company’s equity investments: June 30, 2022 December 31, 2021 Equity method investments $ 1,116 $ 959 Other equity investments 1,319 1,198 Balance, end of period $ 2,435 $ 2,157 The Company's equity method investments include a 49 % equity interest in Solvet Services, LLC. Investments accounted for under the equity method are investments in unconsolidated entities over whose operating and financial policies the Company has the ability to exercise significant influence but not control. Equity method investments are initially measured at cost in the Condensed Consolidated Balance Sheets with any subsequent adjustments made to the carrying amount of the investment for the Company’s proportionate share of income or loss. Distributions received from the investee reduce the Company’s carrying value of the investment. The Company has recognized its share of income or loss on the gain (loss) from equity method investments within non-operating expenses in the Condensed Consolidated Statements of Income. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the investments may exceed the fair value. No events or changes have occurred as of June 30, 2022 that would affect the carrying value of equity method investments. Other equity investments include an equity interest in VeruStat, Inc and an equity interest in DMEscripts, LLC. Other equity investments are investments without a readily determinable fair value which do not qualify for the practical expedient in ASC 820. For these investments, the Company has elected the measurement alternative which measures the investment at cost, less any impairment. ASU 2019-04 clarifies that if an entity identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, it must measure its equity investment at fair value in accordance with ASC 820 as of the date that the observable transaction occurred. The Company was not aware of any impairment or observable price change adjustments that needed to be made as of June 30, 2022 on its investments in equity securities without a readily determinable fair value. Comprehensive income Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's comprehensive income represents net income adjusted for unrealized gains and losses on derivative instruments, net of tax. Accumulated other comprehensive loss is presented on the accompanying Condensed Consolidated Balance Sheets as a component of shareholders' equity. As a result of the “backward tracing” prohibition in ASC 740, certain previously measured unrealized gains or losses have resulted in the existence of "dangling" amounts within other comprehensive income. The Company has elected the individual security approach to the release of these effects. Under the individual security approach, dangling amounts are tracked on a security-by-security basis and cleared out of the other comprehensive income balance upon sale of each individual security. During the periods presented, none of the individual securities associated with a dangling balance were sold. Page 9 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 Revenue recognition Revenue from a customer consists of the sale and rental of home medical equipment and medical services. Patient revenues are billed to and collections received from Medicare, Medicaid, third-party insurers, co-insurance and patient-pay. Patient revenue is recognized net of contractual adjustments and bad debt based on contractual arrangements with third-party payors, an evaluation of expected collections resulting from the analysis of current and past due accounts, past collection experience in relation to amounts billed and other relevant information. Contractual adjustments result from the differences between the rates charged for services and reimbursement rates paid by government-sponsored healthcare programs and insurance companies for such services. The Company's contracts with customers often include multiple products and services, and the Company evaluates these arrangements to determine the unit of accounting for revenue recognition purposes based on whether the product or service is distinct from other products or services in the arrangement and should be accounted for as a separate performance obligation. A product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and the Company's ability to transfer the goods or services is separately identifiable from other promises in the contractual arrangement with the customer (e.g. patient). Revenue is then allocated to each separately identifiable good or service based on the standalone price of the items underlying the performance obligations. Most of the Company’s products fall in the Medicare Fee-for-Service (“FFS”) program which is a payment model where services are unbundled and paid for separately. These services are paid based on a Medicare determined price that is publicly available on the website for the Centers for Medicare & Medicaid Services (“CMS”). For commercial payors, DME companies must negotiate in-network pricing separately, though in general, the Company’s payors tend to benchmark their contract rates and coverage policies closely to those of Medicare. The Company considers performance obligations for sales and rentals to be met when the customer receives the equipment, and revenue for rentals is recognized over time, over the respective rental period. For revenue associated with DME rentals, the Company recognizes revenue in accordance with ASC 842, “Leases,” (Topic 842). For any DME sales and services, the Company recognizes revenue under FASB ASU 2014-09, “Revenue from Contracts with Customers,” (Topic 606) and related amendments. The Company recognizes equipment rental revenue over the non-cancelable lease term, which varies based on the type of equipment rental, less estimated adjustments, in accordance with Topic 842. The Company has separate contracts with each patient that are not subject to a master lease agreement with any third-party payor. The Company would first consider the lease classification issue (sales-type lease or operating lease) and then appropriately recognize or defer rental revenue over the lease term . Under the Company’s direct commercial staffing arrangements, the Company manages all or a part of a customer’s supplemental workforce needs utilizing its own network of healthcare professionals. As a result, the Company is the principal in this arrangement for revenue recognition purposes. The Company includes the contractual gross billings in revenues with a corresponding increase to cost of revenues for worksite employee payroll costs associated with these services. Alternatively, when the Company acts as agent in the performance of workforce management, revenue is recorded based on contractually agreed upon fees based on the hourly labor of worksite employees. The revenues from each major source are summarized in the following table: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue from rentals Ventilator rentals, non-invasive and invasive $ 22,736 $ 20,305 $ 44,254 $ 40,656 Other durable medical equipment rentals 4,912 3,304 9,271 6,234 Revenue from sales and services Equipment and supply sales 3,245 2,076 6,282 3,844 COVID-19 response sales and services 183 1,136 2,278 4,091 Service revenues 2,234 578 3,480 990 Total revenues $ 33,310 $ 27,399 $ 65,565 $ 55,815 Page 10 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 Revenue Accounting under Topic 842 The Company leases DME such as non-invasive and invasive ventilators, positive airway pressure ("PAP") machines, percussion vests, oxygen concentrator units and other small respiratory equipment to customers for a fixed monthly amount on a month-to-month basis. The customer generally has the right to cancel the lease at any time during the rental period. The Company accounts for these rentals as operating leases. Under FASB ASC Topic 842, the Company recognizes rental revenue on operating leases on a straight-line basis over the contractual lease term which varies based on the type of equipment rental. The lease term begins on the date products are delivered to patients, and revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including Medicare, private commercial payors, and Medicaid. Certain customer co-payments are included in revenue when considered probable of payment, which is generally when paid. Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. Revenue Accounting under Topic 606 The Company sells DME, replacement parts and supplies to customers and recognizes revenue based on contractual payment rates as determined by the payors at the point in time where control of the good or service is transferred through delivery to the customer. The customer and, if applicable, the payors are generally charged at the time that the product is sold. For sales of equipment previously placed in service, proceeds associated with these sales are recorded to gain (loss) on disposal of property and equipment. The Company also provides sleep study services to customers and recognizes revenue when the sleep study results are complete, satisfying the performance obligation. In response to the COVID-19 pandemic, the Company began offering contact and vaccine tracing services, which revenues are recognized in the period in which the service has been provided. The transaction price on equipment sales, sleep studies and contact and vaccine tracing is the amount that the Company expects to receive in exchange for the goods and services provided. Due to the nature of the DME business, gross charges are retail charges and generally do not reflect what the Company is ultimately paid. As such, the transaction price is constrained for the difference between the gross charge and what is estimated to be collected from payors and from patients. The transaction price therefore is predominantly based on contractual payment rates as determined by the payors. The Company does not generally contract with uninsured customers. The payment terms and conditions of customer contracts vary by customer type and the products and services offered. For staffing services, performance obligations in the staffing agreements are satisfied over time when the customer simultaneously receives and consumes the benefits provided as the Company performs the services. Accordingly, revenue from staffing services is recognized as the services are rendered in both principal and agent arrangements. The Company determines its estimates of contractual allowances and discounts based upon contractual agreements, its policies and historical experience. While the rates are fixed for the product or service with the customer and the payors, such amounts typically include co-payments, co-insurance and deductibles, which vary in amounts, and are due from the patient. The Company includes in the transaction price only the amount that the Company expects to be entitled, which is substantially all of the payor billings at contractual rates. The transaction price is initially constrained by the amount of customer co-payments, which are included in the transaction price when considered probable of payment and included in revenue if the product or service has already been provided to the customer. Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. Page 11 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 Returns and refunds are not accepted on equipment sales, sleep study services or contact and vaccine tracing services. The Company does not offer warranties to customers in excess of the manufacturer’s warranty. Any taxes due upon sale of the products or services are not recognized as revenue. The Company does not have any partially or unfilled performance obligations related to contracts with customers and as such, the Company has no contract liabilities as of June 30, 2022. Stock-based compensation The Company accounts for its stock-based compensation in accordance with ASC 718 , "Compensation—Stock Compensation" , which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. Stock–based compensation costs for stock options are determined at the grant date using the Black-Scholes option pricing model. Stock-based compensation costs for restricted stock units ("RSUs") are determined at the grant date based on the closing stock price. The expense of such stock-based compensation awards is recognized using the graded vesting attribution method over the vesting period and the offsetting credit is recorded as an increase in additional paid-in capital. Forfeitures are recorded as incurred. Any excess tax benefit or deficiency is recognized as a component of income taxes and within operating cash flows upon vesting of the share-based award. For the Company’s phantom share units settled in cash, the Company computes the fair value of the phantom share units using the closing price of the equivalent Company's stock value at the end of each period and records a liability based on the percentage of requisite service. Interest rate swaps The Company utilizes an interest rate swap contract to reduce exposure to fluctuations in variable interest rates for future interest payments on the Term Note (as defined below). For determining the fair value of the interest rate swap contract, the Company uses significant other observable market data or assumptions (Level 2 inputs) that market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. These fair value estimates reflect an income approach based on the terms of the interest rate swap contract and inputs corroborated by observable market data including interest rate curves. The Company presents a positive ending period fair value of the interest rate swap contract in other long-term assets, as a component of long-term assets, and a negative ending period fair value of the interest rate swap contract in accrued liabilities, as a component of long-term liabilities on the Condensed Consolidated Balance Sheets. The Company recognizes any differences between the variable interest rate payments and the fixed interest rate settlements from its swap counterparty as an adjustment to interest expense over the life of the swap. If determined to be an effective cash flow hedge, the Company will record the changes in the estimated fair value of the swaps to accumulated other comprehensive income or loss on the Condensed Consolidated Balance Sheets. To the extent that interest rate swaps are determined to be ineffective, the Company would recognize the changes in the estimated fair value of swaps in interest and other non-operating expenses, net in its Condensed Consolidated Statements of Income. Income taxes The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes. The Company's income tax provisions reflect management’s interpretation of country and state tax laws. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business and may remain uncertain for several years after their occurrence. The Company recognizes assets and liabilities for taxation when it is probable that it will receive refunds from or pay taxes to the relevant tax authority. Where the final determination of tax assets and liabilities is different from the amounts that were initially recorded, such differences will impact the current and deferred income taxes provision in the period in which such a determination is made. Changes in tax law or changes in the way tax law is interpreted may also impact our effective tax rate as well as our business and operations. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to temporary differences between the financial statement carrying value of assets and liabilities and their respective income tax bases. Deferred income tax assets or liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be settled. The calculation of current and deferred income taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment concerning the carrying value of assets and liabilities. The current and deferred income tax assets and liabilities are also impacted by expectations about future operating results and the timing of reversal of temporary differences as well as possible audits of tax Page 12 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 filings by regulatory agencies. Changes or differences in these estimates or assumptions may result in changes to the current and deferred tax assets and liabilities on the Condensed Consolidated Balance Sheets and a charge to or recovery of income tax expense. Recently issued accounting pronouncements The Company is an “emerging growth company” as defined by the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can selectively delay the adoption of all accounting standards until those standards would otherwise apply to private companies. The Company has elected to utilize this exemption and, as a result, the Company's condensed consolidated financial statements may not be comparable to the financial statements of issuers that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. To date, however, the Company has not delayed the adoption of any accounting standards except as noted below. Section 107 of the JOBS Act provides that the Company can elect to opt out of the extended transition period at any time, which election is irrevocable. In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets. The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. The standard is effective for fiscal years beginning after December 15, 2022 for smaller reporting companies based on the Company's designation as of November 2019, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures. In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Specifically, the guidance permits an entity, when certain criteria are met, to consider amendments to contracts made to comply with reference rate reform to meet the definition of a modification under GAAP. It further allows hedge accounting to be maintained and a one-time transfer or sale of qualifying held-to-maturity securities. The expedients and exceptions provided by the amendments are permitted to be adopted any time through December 31, 2022 and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain optional expedients elected for certain hedging relationships existing as of December 31, 2022. The Company has a commercial term note that references LIBOR and the Company is currently evaluating how this standard may be applied to specific contract modifications through December 31, 2022. In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance , which improves the transparency of government assistance received by most business entities by requiring the disclosure of: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on a business entity's financial statements. This guidance will be effective for the annual periods beginning after December 15, 2021. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures. Page 13 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 3. Property and Equipment The Company’s fixed assets consist of its medical equipment held for rental, furniture and equipment, real property and related improvements, and vehicles and other various small equipment. The following table details the Company’s fixed assets: June 30, 2022 December 31, 2021 Medical equipment $ 86,055 $ 76,864 Furniture and equipment 2,709 2,521 Land 2,566 2,566 Buildings 7,497 7,682 Leasehold improvements 296 296 Vehicles 1,052 972 Less: Accumulated depreciation ( 33,490 ) ( 28,055 ) Property and equipment, net of accumulated depreciation and amortization $ 66,685 $ 62,846 Depreciation in the amount of $ 3,497,000 and $ 2,509,000 is included in cost of revenue for the three months ended June 30, 2022 and 2021, respectively, and in the amount of $ 6,656,000 and $ 4,918,000 for the six months ended June 30, 2022 and 2021, respectively. Included in medical equipment above is equipment acquired under finance lease obligations whose cost and accumulated depreciation at June 30, 2022 total $ 39,000 and $ 8,000 , respectively. At December 31, 2021, cost and accumulated depreciation on equipment acquired under finance lease obligations was $ 47,000 and $ 5,000 , respectively. 4. Current Liabilities The Company’s short-term accrued liabilities are included within current liabilities and consist of the following: June 30, 2022 December 31, 2021 Accrued trade payables $ 2,185 $ 2,011 Accrued commissions payable 637 452 Accrued bonuses payable 3,015 3,405 Accrued vacation and payroll 1,272 1,226 Current portion of phantom share liability 841 1,118 Accrued other liabilities 910 663 Total accrued liabilities $ 8,860 $ 8,875 5. Debt and Lease Liabilities Senior Credit Facility On February 20, 2018, the Company entered a Commercial Business Loan Agreement (the "Senior Credit Facility") that provides for Term Loans and a Line of Credit with Hancock Whitney Bank. Line of Credit The Company maintains a line of credit in the amount of $ 10.0 million that expires May 1, 2023 under the Commercial Business Loan Agreement. Any amounts advanced on this line will be subject to an interest rate equal to the WSJ prime rate plus a margin of 0.50 %, with a 3.50 % interest rate floor and will be secured by substantially all of the Company's assets. There were no borrowings against this line of credit at June 30, 2022 or December 31, 2021. Page 14 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 Commercial Term Notes On May 30, 2019, the Company entered into a term note (the “Building Term Note”) under the Commercial Business Loan Agreement in the principal amount of $ 4.8 million. The proceeds of the Building Term Note were used to purchase the Company's corporate headquarters. Beginning July 1, 2019, the Company began making monthly payments towards the outstanding balance. The Building Term Note matures on May 30, 2026 and is secured by substantially all of the assets of the borrower, including the real property acquired with the proceeds of the Building Term Note. The Building Term Note bears interest at a variable rate equal to the one month ICE LIBOR index plus a margin of 2.45 % per annum. The Company is required to maintain a loan to value ratio of 85 % with respect to the appraised value of the real property. In connection with the Building Term Note, the Company entered into an interest rate swap transaction (the "Interest Rate Swap Transaction") with Hancock Whitney Bank effectively fixing the interest rate for the Building Term Note at 4.68 %. On September 19, 2019, the Company entered into an additional loan agreement providing for a term note (the “Term Note") under the Commercial Business Loan Agreement in the principal amount of $ 5.0 million. The proceeds of the Term Note were utilized for general corporate purposes. Beginning October 19, 2019, the Company started making monthly principal payments of $ 139,000 towards the outstanding balance. The Term Note matures on September 19, 2022 and is secured by substantially all of the assets of the borrower. The Term Note bears interest at the rate of 4.60 % per annum. The Company incurred immaterial financing costs related to the above term notes. These deferred financing costs are amortized over the term of the loans using the effective interest method. The recorded balances associated with these term notes are as follows: June 30, 2022 December 31, 2021 Notes payable $ 4,838 $ 5,786 Less: Current portion of notes payable ( 612 ) ( 1,480 ) Net long-term notes payable $ 4,226 $ 4,306 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 June 30, 2022. Leases The Company has recognized finance lease liabilities for medical equipment and operating leases for land and buildings that have terms greater than twelve months, as follows: June 30, 2022 December 31, 2021 Lease liabilities $ 490 $ 732 Less: Current portion of lease liabilities ( 283 ) ( 464 ) Net long-term lease liabilities $ 207 $ 268 Included in lease liabilities at June 30, 2022 are finance lease liabilities for medical equipment in the amount of $ 29,000 due between 2022 and 2024. Operating lease liabilities The Company has recognized operating lease liabilities that relate primarily to the lease of land and buildings. These leases contain renewal options that we have not included as part of the Company's assessment of the lease term as it is not reasonably certain that we will exercise these options. These lease liabilities are recorded at present value based on a discount rate of 5.50 %, which was based on the Company's incremental borrowing rate at the time of assessment. At June 30, 2022, the weighted average Page 15 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 lease term was approximately 2.16 years. Operating rental expenses were $ 124,000 and $ 250,000 for the three and six months ended June 30, 2022, respectively, and $ 190,000 and $ 375,000 for the three and six months ended June 30, 2021, respectively. The related assets for operating lease liabilities have been included with property and equipment on the Condensed Consolidated Balance Sheets. 6. Fair Value Measurement Under ASC Topic 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). ASC Topic 820 establishes a hierarchy for inputs to valuation techniques used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. There are three levels to the hierarchy based on the reliability of inputs, as follows: Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets and liabilities in markets that are not active. Level 3 - Unobservable inputs for the asset or liability. The degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. Assets and Liabilities Measured at Fair Value on a Recurring Basis The Company measures certain assets and liabilities at fair value on a recurring basis. There were no transfers between fair value measurement levels during any presented period. The following tables summarize the Company's assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021: At June 30, 2022 (In thousands) Level 1 Level 2 Level 3 Total Recurring Fair Value Measurements: Money market mutual funds $ 13,460 $ — $ — $ 13,460 Interest rate swap — 99 — 99 Total $ 13,460 $ 99 $ — $ 13,559 At December 31, 2021 (In thousands) Level 1 Level 2 Level 3 Total Recurring Fair Value Measurements: Money market mutual funds $ 16,459 $ — $ — $ 16,459 Interest rate swap $ ( 200 ) $ — $ ( 200 ) Total $ 16,459 $ ( 200 ) $ — $ 16,259 Page 16 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 Derivative instruments and hedging activities The Company recognizes its interest rate swaps as either assets or liabilities in the accompanying Condensed Consolidated Balance Sheets at fair value. The valuation of these derivative instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. As of June 30, 2022, the Company holds one interest rate swap contract which matures on May 30, 2026 and has a notional amount of $ 4.4 million. This contract is designated as a cash flow hedge. In the first six months of 2022, ineffective portions of the hedge were immaterial. The fair value was $ 0.1 million (determined based on Level 2 inputs) and is included in other long-term assets as of June 30, 2022. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis The Company measures certain assets and liabilities at fair value on a nonrecurring basis. These assets and liabilities include equity method investments and other equity investments. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the investments may exceed the fair value. The Company's other equity investments are holdings in privately-held companies without a readily determinable market value. The Company remeasures equity securities without readily determinable fair value at fair value when an orderly transaction is identified for an identical or similar investment of the same issuer in accordance with Topic 820. ASU 2019-04 states that the measurement alternative is a nonrecurring fair value measurement. Accordingly, other equity investments without readily determinable fair value are classified within Level 3 in the fair value hierarchy because the Company estimates the value using a combination of observable and unobservable inputs, including valuation ascribed to the issuing company in subsequent financing rounds, volatility in the results of operations of the issuers and rights and obligations of the holdings the Company owns. The Company had no material adjustments of assets and liabilities measured at fair value on a nonrecurring basis during any of the periods presented. There were no transfers between fair value measurement levels during any presented period. 7. Shareholders' Equity Authorized share capital The Company’s authorized share capital consists of an unlimited number of common shares . Issued and outstanding share capital The Company has only one class of stock outstanding, common shares. The authorized stock consists of an unlimited number of common shares with no stated par value, of which 38,333,089 and 39,640,388 shares were issued and outstanding as of June 30, 2022 and December 31, 2021, respectively. For the six months ended June 30, 2022, the Company repurchased and canceled 1,350,567 common shares at a cost of $ 7.0 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 six months ended June 30, 2022. The Company’s retained earnings were reduced by the amount paid for the shares repurchased and cancelled. Stock-based compensation Effective June 11, 2020 (the "Effective Date"), the Company’s shareholders approved the Company's 2020 Long Term Incentive Plan (the "Omnibus Plan"). Upon approval of the Omnibus Plan, no future awards are available to be made under the Company's previous RSU and Option Plans (collectively, the "Former Plan"), and the common shares that were not settled or awarded under the Former Plan as of the Effective Date are available for awards under the Omnibus Plan. The maximum number of common shares that are available for awards under the Omnibus Plan and under any other security-based compensation arrangements adopted by the Company, including the Former Plan, may not exceed 7,758,211 shares (equal to 20 % of the issued and outstanding common shares of the Company on the Effective Date). The maximum amount of the foregoing common shares that may be awarded under the Omnibus Plan as “incentive stock options” is 2,600,000 common shares. As of June 30, 2022, the Company had outstanding options of 4,532,000 and RSUs of 596,000 associated with common shares under the Omnibus Plan. Page 17 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 The following table summarizes stock-based compensation expense for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Stock-based compensation - options $ 757 $ 998 $ 1,577 $ 2,076 Stock-based compensation - restricted stock units 514 238 999 467 Total $ 1,271 $ 1,236 $ 2,576 $ 2,543 At June 30, 2022, there was approximately $ 2,965,000 of total unrecognized pre-tax stock option expense under the Company's equity compensation plans, which is expected to be recognized over a weighted-average period of 1.99 years. As of June 30, 2022, there was approximately $ 1,973,000 of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 1.24 years. Options The following table summarizes stock option activity for the six months ended June 30, 2022: Number of options (000's) Weighted average exercise price (1) Weighted average remaining contractual life Aggregate intrinsic value (2) Balance December 31, 2021 3,822 $ 5.22 7.4 years $ 3,722 Issued 712 5.22 Exercised — — Expired / Forfeited ( 2 ) 5.21 Balance June 30, 2022 4,532 $ 5.22 7.3 years $ 4,139 (1) For presentation purposes, stock options issued with a CAD exercise price have been translated to USD based on the prevailing exchange rate on the date of grant. (2) The aggregate intrinsic value of options outstanding represents the difference between the exercise price of the option and the closing stock price of the Company's common stock on the last trading day of the period ($ 5.38 ). The aggregate intrinsic value of options outstanding was $ 4,138,673 and options exercisable were $ 4,023,548 at June 30, 2022. For the six months ended June 30, 2022, 0 shares of common stock were issued pursuant to the exercise of stock options. At June 30, 2022, the Company had 2,864,000 exercisable stock options outstanding with a weighted average exercise price of $ 4.42 and a weighted average remaining contractual life of 6.5 years. At December 31, 2021, the Company had 1,905,744 exercisable stock options outstanding with a weighted average exercise price of $ 3.70 and a weighted average remaining contractual life of 6.6 years. The Company accounts for its stock-based compensation in accordance with ASC 718 — Compensation—Stock Compensation, which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. Stock–based compensation cost for stock options are determined at the grant date using the Black-Scholes option pricing model. The assumptions used to determine the grant date fair value of the stock options granted during the six months ended June 30, 2022 were as follows: Exercise price $ 5.21 - $ 5.41 Risk-free interest rate 1.41 % - 2.75 % Expected volatility 57.91 % - 57.95 % Expected term 5.49 - 5.58 years Expected dividend yield Nil Fair value on date of grant $ 2.73 - $ 2.91 Page 18 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 Restricted stock units The Company also grants RSUs to directors, officers, and employees. The Company accounts for RSUs using fair value as of the date of issuance. The fair value of the RSUs has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and credited to additional paid-in capital over the vesting period, based on the stock price on the date of grant. RSUs vest generally over a one or three -year period. The Company accounts for forfeitures on RSUs under ASU 2016-09 and recognizes forfeitures in the period in which they occur. The following table summarizes RSU activity for the six months ended June 30, 2022: Number of RSUs (000's) Weighted average grant price (1) Weighted average remaining contractual life Aggregate intrinsic value (2) Balance December 31, 2021 206 $ 6.61 0.68 years $ 1,074 Issued 461 5.22 Vested ( 67 ) 6.13 Expired / Forfeited ( 4 ) 6.48 Balance June 30, 2022 596 $ 5.58 1.24 years $ 3,206 (1) All future equity grants will be awarded in USD, therefore, RSUs issued with a CAD grant price have been translated to USD based on the prevailing exchange rate on the date of grant for presentation purposes. (2) The aggregate intrinsic value of time-based RSUs outstanding was based on the Company's closing stock price on the last trading day of the period ($ 5.38 ). During the three months ended June 30, 2022, the Company issued 19,963 RSUs with a vesting term of three years and a fair value of $ 0.1 million. During the six months ended June 30, 2022, the Company issued 461,132 RSUs with a vesting term of three years and a fair value of $ 2.4 million. Phantom share units The Company has a phantom share unit plan, which it uses for grants to directors, officers, and employees. Phantom share units granted under the plan are non-assignable and are settled in cash at vesting based on the fair value of the Company's common stock on the vesting date. Phantom share units vest annually over a three-year period. The cash-settled phantom share units are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with accrued liability and related expense being recognized over the requisite service period. The following table summarizes phantom share unit activity for the six months ended June 30, 2022: Number of phantom share units (000's) Value of share equivalents (1) Balance December 31, 2021 573 $ 2,991 Issued 238 1,213 Vested ( 265 ) ( 1,389 ) Expired / Forfeited ( 30 ) ( 164 ) Balance June 30, 2022 516 $ 2,774 (1) The value of outstanding share equivalents at the beginning of the period is based on the market price of the Company’s stock at that time, the value of issued share equivalents is based on the market price of the Company’s stock at issuance, the value of vested share equivalents is based on the cash paid at the time of vesting, the values of expired/forfeited share equivalents and outstanding share equivalents at the end of the period and are based on the market price of the Company's stock at the end of the period. The market price of the Company's stock was $ 5.38 on June 30, 2022. The change in fair value of the phantom share units has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and recorded as a liability included in accrued liabilities and long-term accrued liabilities. The total liability associated with phantom share units at June 30, 2022 is $ 1,226,000 , with $ 841,000 of this amount included in current accrued liabilities and the remaining portion of $ 385,000 included in long-term accrued liabilities. Page 19 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 The impact associated with the fair value re-measurement of phantom share units is recorded in selling, general and administrative expenses within the unaudited Condensed Consolidated Statements of Income and Comprehensive Income. The following table summarizes expense (benefit) associated with the phantom share units for the three and six months ended June 30, 2022 and 2021 (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Selling, general, and administrative $ 538 $ ( 106 ) $ 949 $ 2,359 The Company paid cash settlements of $ 1,389,000 and $ 6,282,000 during the six months ended June 30, 2022 and 2021, respectively, pertaining to vestings of cash-settled phantom share units. 8. Commitments and Contingencies The Company accrues estimates for resolution of any legal and other contingencies when losses are probable and reasonably estimable in accordance with ASC 450, Contingencies (“ASC 450”). No less than quarterly, the Company reviews the status of each significant matter underlying a legal proceeding or claim and assess our potential financial exposure. The Company accrues a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to the Company at the time the judgment is made, which may prove to be incomplete or inaccurate or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters. Legal Proceedings As previously disclosed, the Company (through its subsidiary Sleep Management LLC) submitted a purchase order (the “Purchase Order”) in March 2020 to Vyaire Medical, Inc. d/b/a CareFusion Respiratory Technologies (“Vyaire”) for respiratory equipment. The Company ultimately prepaid $ 1.4 million towards the delivery of such respiratory equipment. Vyaire was unable or unwilling to deliver the vast majority of the respiratory equipment referenced in the Purchase Order, and also refused to refund the prepayment amount (less the amounts paid for equipment actually received). On July 29, 2020, the Company (through its subsidiary Sleep Management LLC) filed a lawsuit against Vyaire in the United States District Court for the Western District of Louisiana (the “Court”). This lawsuit was dismissed on December 8, 2020 in connection with the commencement of the lawsuit filed by the Company (through its subsidiary Sleep Management) on November 5, 2020, against Vyaire in the 15th Judicial District Court for the Parish of Lafayette, Louisiana (the “State Court”) seeking damages for breach of contract and seeking a declaratory judgment that the Company is not required to pay any further funds to Vyaire. On December 28, 2020, Vyaire filed its Answer, Affirmative Defenses, and Reconventional Demand (“Reconventional Demand”) with the State Court alleging breach of contract and seeking damages of $ 4.7 million, purportedly for the improper cancellation of the Purchase Order. The Company filed its Answer to the Reconventional Demand on February 12, 2021 and the parties are currently engaged in discovery. The Company continues to believe that it has valid legal and equitable grounds to recover its outstanding prepayment as a result of Vyaire’s failure to deliver the vast majority of the respiratory equipment referenced in the Purchase Order. The Company has determined that a loss related to the Reconventional Demand is not probable, and thus has not accrued a liability related to this claim. Although a loss may be reasonably possible, the Company does not have sufficient information to determine the amount or range of reasonably possible loss with respect to the Reconventional Demand given that the dispute is in the early stages of the legal process. As of June 30, 2022, outstanding funds in the amount of $ 0.9 million related to undelivered respiratory equipment are included within other long-term assets. Governmental and Regulatory Matters From time to time the Company is involved in various external governmental investigations, audits and reviews. Reviews, audits and investigations of this sort can lead to government actions, which can result in the assessment of recoupment of reimbursement, civil or criminal fines or penalties, or other sanctions, including restrictions or changes in the way the Company conducts business, loss of licensure or exclusion from participation in government healthcare programs. Page 20 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 In May of 2021, a final report and recommendation (“Report”) was issued by the OIG regarding an audit by OIG of claims relating to 100 of the Company’s non-invasive ventilation at home (“NIVH”) patients. The OIG asserted that most of the sampled Medicare claims submitted for the monthly rental of non-invasive ventilators did not comply with Medicare requirements. The Company firmly believes that the Report ignores each patient’s diagnosis and supporting documentation of that diagnosis from treating and prescribing physicians and applies clinical guidelines that are contrary to CMS’s accepted standard of care. In late June of 2021, the Company received initial request letters from DME Medicare Administrative Contractors ("MACs") referencing the Report and requesting repayment of purported overpayments. The Company responded to each initial request by submitting a rebuttal and by filing a redetermination appeal as prescribed by the initial request letters and by statute. In September 2021, the MACs informed the Company of unfavorable decisions with respect to the redetermination appeals. In November 2021, the Company filed Reconsideration Appeals with CMS's designated Qualified Independent Contractor ("QIC"). Based on its review, the QIC determined that approximately 77 % of the claims it reviewed were medically necessary and properly payable under Medicare rules and regulations, overturning OIG’s and the MACs' initial recommendations and determinations. As a result of the QIC's reconsideration findings, recalculated principal overpayment requests totaling $ 1.1 million have been issued by the MACs . The Company has filed its appeals with the Administrative Law Judge, and intends to continue to defend itself vigorously through the remaining appeals processes which include, in successive order, Administrative Law Judge, Medicare Appeals Council review, and ultimately through Federal Court, if necess ary. The timing of additional appeals beyond reconsideration are subject to workload constraints of the reviewing body. Based on the current facts and circumstances as the Company understands them, and the nature of the requests, the Company has determined that a loss is not probable but may be reasonably possible. Accordingly, no related accrual has been recorded. The Company estimates that a possible loss, if any, will not exceed the amount of the recalculated overpayment requests. It is possible that the ultimate resolution of this matter, if unfavorable, could materially and adversely affect the Company’s consolidated financial position, consolidated results of operations, or consolidated cash flows. 9. Income Taxes For the six months ended June 30, 2022, the Company recorded income tax expense of $ 1.2 million. Excluding the impact of the discrete taxes, the effective rate for the six months ended June 30, 2022 is 29.4 %. The effective rate differs from the amount computed by applying the statutory federal and state income tax rates to ordinary income before the provision for income taxes due to permanent non-deductible differences. The Company's effective tax rate is based on forecasted annual results which may fluctuate significantly through the rest of the year, in particular due to the uncertainty in our annual forecasts resulting from the unpredictable impact of the COVID-19 pandemic on our operating results. At June 30, 2022 and 2021, the Company had no amounts recorded for uncertain tax positions and does not expect any material changes in uncertain tax benefits during the next 12 months. The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company is subject to U.S. federal income tax as well as income tax in various states. The Company is generally not subject to examination by taxing authorities for years prior to 2018. The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. 10. Earnings Per Share Income per common share is calculated using earnings for the year divided by the weighted average number of shares outstanding during the year . Using the treasury stock method, diluted income per share amounts are calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares by assuming the proceeds received from the exercise of stock options and the vesting of RSUs are used to purchase common shares at the prevailing market rate. Page 21 VIEMED HEALTHCARE, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts) (Unaudited) June 30, 2022 and 2021 The following reflects the earnings and share data used in the basic and diluted earnings per share computations: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Numerator - basic and diluted: Net income attributable to shareholders $ 967 $ 1,566 $ 2,729 $ 3,250 Denominator: Basic weighted-average number of common shares 38,773,580 39,584,064 39,195,317 39,357,992 Diluted weighted-average number of shares 39,752,928 41,028,742 40,056,953 40,849,311 Basic earnings per share $ 0.02 $ 0.04 $ 0.07 $ 0.08 Diluted earnings per share $ 0.02 $ 0.04 $ 0.07 $ 0.08 Denominator calculation from basic to diluted: Basic weighted-average number of common shares 38,773,580 39,584,064 39,195,317 39,357,992 Stock options and other dilutive securities 979,348 1,444,678 861,636 1,491,319 Diluted weighted-average number of shares 39,752,928 41,028,742 40,056,953 40,849,311 Anti-dilutive shares excluded from the calculation consisted of dilutive employee stock options and RSUs that were de minimis in all periods presented. Page 22 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2022 and 2021