What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-02 compared with 2022-03-07 · 89 added, 121 removed, 243 unchanged (46% of the section changed)

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As a result, effective January 1, 2021, we became subject to the proxy solicitation rules under Section 14 of the Exchange Act and Regulation FD, and our officers, directors, and principal shareholders became subject to the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

We will continue to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC.

As of June 30, 2021, we determined that we no longer qualify as a “smaller reporting company,” but we are not required to comply with the larger company disclosure obligations (subject to certain exemptions and relief from various reporting requirements that are applicable to emerging growth companies) until our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.

As a result, this Annual Report on Form 10-K is only required to comply with the smaller company disclosure obligations.

We 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)

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.

Based on the annual assessment performed on June 30, 2022, the Company met the re-entry thresholds to qualify as a "smaller reporting company" under Rule 12b-2 of the Exchange Act, and, as such, has elected to comply with certain reduced U.S.

public company reporting requirements.

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

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

We expect to use a growth model whereby expansion is accomplished through existing service areas as well as in new regions through a cost efficient launch that reduces location expenses.

Our licensed RTs currently serve patients in 47 states.

We expect to grow through expansion of existing service areas as well as in new territories through a cost efficient launch that reduces location expenses.

We currently serve patients in all 50 states.

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

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Excluding COVID-19 response sales and services, net revenue increased $28.1 million (or 25.9%) from the comparable period in 2021.

Our primary sources of capital to date have been from operating cash flows.

In addition, our line of credit availability of $10.0 million remains undrawn.

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Our primary sources of capital to date have been from operating cash flows.

Our existing commercial credit facilities provide access to additional liquidity through a revolving credit facility of up to $30.0 million and a delayed draw term loan facility of up to $30.0 million.

An accordion feature allows the Company to increase the size of such facilities by up to an additional $30.0 million, subject to certain conditions, for a total borrowing capacity of up to $90 million.

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.

Various policies and initiatives were 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.

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

These measures do not appear to be negatively impacting our patient attrition rate at this time, but we cannot assure you that future governmental policies and initiatives will not significantly disrupt our operations or adversely affect our ability to provide services to our patients in the future.

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

While governmental and other restrictions have not had a material impact on our consolidated operating results for the year ended December 31, 2021, it is possible that more significant disruptions could occur if the COVID-19 pandemic continues for a prolonged period of time and we cannot assure you that demand for our products and services will continue or that we will be able to maintain operations necessary to satisfy such demand, including sufficient personnel, supply chains and distributions channels.

At this time, COVID-19 related measures do not appear to be negatively impacting our patient attrition rate, 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.

On January 30, 2023, the U.S.

government announced that it plans to end the COVID-19 PHE on May 11, 2023.

At the end of the COVID-19 PHE, many waivers and flexibilities available during the COVID-19 pandemic will become unavailable.

While COVID-19 related measures have not had a material impact on our consolidated operating results for the year ended December 31, 2022, we cannot predict at this time the impact that the end of the COVID-19 PHE will have on our business and financial condition.

It is also possible that the U.S.

government will ultimately decide not to end the COVID-19 PHE on May 11, 2023, creating additional uncertainties about our future business and financial condition.

Accordingly, 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.

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The legislation provides for relief funds to hospitals and other healthcare providers on the front lines of the coronavirus response to support healthcare-related expenses or lost revenue attributable to COVID-19 and to ensure uninsured Americans can get testing and treatment for COVID-19.

As a result, we received a general distribution payment from the Provider Relief Fund of $3.5 million in April 2020 and a targeted distribution payment of $1.5 million in November 2021.

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 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.

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In December 2021, President Biden signed into law legislation that extended the suspension on the 2 percent payment sequestration through March 31, 2022.

The payment sequestration adjustment was fixed at 1 percent from April 1, 2022 to June 30, 2022 and it returns to 2 percent on July 1, 2022.

As part of the CARES Act legislation, certain Payroll Protection Program ("PPP") loans were authorized for small businesses to pay their employees, subject to potential debt forgiveness.

We evaluated the PPP extensively and after evaluation, decided not to submit a PPP loan application.

The payment sequestration adjustment was fixed at 1 percent from April 1, 2022 to June 30, 2022 and it returned 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.

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While the impact of COVID-19 on our consolidated results of operations for the year ended December 31, 2021 has resulted in an increase in revenues related to additional product sales and services during the period, the overall impact that COVID-19 will continue to have on our consolidated results of operations in future periods remains uncertain and difficult to predict and will depend on, among other factors, the duration and severity of the pandemic, as well as any negative economic conditions arising from the pandemic, our ability to assess potential patients in hospitals and set up and treat patients in the home and the impacts of government actions and administrative regulations on the healthcare industry and broader economy, including through existing and any future stimulus efforts.

While the impact of COVID-19 on our consolidated results of operations for the year ended December 31, 2022 has resulted in supplemental revenues related to COVID-19 response sales and services during the period, revenues related to COVID-19 response sales and services decreased in 2022 when compared to 2021 and the overall impact that COVID-19 will continue to have on our consolidated results of operations in future periods remains uncertain and difficult to predict and will depend on, among other factors, the duration and severity of the pandemic, as well as any negative economic conditions arising from the pandemic, our ability to assess potential patients in hospitals and set up and treat patients in the home and the impacts of government actions and administrative regulations on the healthcare industry and broader economy, including through existing and any future stimulus efforts.

We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, liquidity and capital resources.

If COVID-19 continues to spread or if the response to contain the COVID-19 pandemic is unsuccessful, we could experience a material adverse effect on our business, financial condition, and results of operations.

If COVID-19 intensifies or if the response to contain the COVID-19 pandemic is unsuccessful, we could experience a material adverse effect on our business, financial condition, and results of operations.

For additional information, see Part I - Item 1A.

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On October 27, 2020, CMS announced that it had removed 13 of the 15 remaining product categories from Round 2021, including oxygen and PAP devices, because the payment amounts did not achieve expected savings.

The next competitive bidding round is anticipated to begin on January 1, 2024.

As a result of these announcements, we retain the ability to continue to furnish non-invasive ventilators and oxygen and PAP devices for all of our Medicare accredited areas.

We cannot predict at this time the full impact the competitive bidding program and the developments in the competitive bidding program will have on our business and financial condition.

In addition, we cannot assure you that non-invasive ventilators and oxygen and PAP devices will not be included on the list of products subject to the competitive bidding program in the future.

If changes are made to the competitive program in the future, it could affect our reimbursement and review.

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, oxygen, and PAP devices will be included in future competitive bidding programs.

The current Round 2021 contracts expire on December 31, 2023 and CMS has not announced a new round of competitive bidding.

Historically, CMS announces new rounds of competitive bidding and starts the process approximately 18 months prior to the contract start date.

The below table highlights summary financial and operational metrics for the trailing eight quarters.

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Critical Accounting Estimates

We are required to disclose “critical accounting estimates” which are estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and that have had or are reasonably likely to have a material impact on our financial condition or results of operations of the registrant.

We 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 the financial condition or results of operations of the registrant.

We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States.

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Specifically, we consider historical realization data, including current and historical cash collections, accounts receivable aging trends, other operating trends and relevant business conditions.

Because of continuing changes in the healthcare industry

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

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and third-party reimbursement, it is possible that the estimates could change, which could have a material impact on the operations and cash flows.

and cash flows.

If circumstances related to certain customers change or actual results differ from expectations, our estimate of the recoverability of receivables could fluctuate from that provided for in our consolidated financial statements.

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

For the year ended December 31, 2021, our assessment considered business and market disruptions caused by the COVID-19 pandemic and estimates of expected emerging credit and collectability trends.

The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for doubtful accounts in future periods.

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Depreciation 1,012 0.7 % 851 0.7 % 161 18.9 %

Loss (gain) on disposal of property and equipment 448 0.4 % (2,328) (1.8) % 2,776 NM

Loss on disposal of property and equipment 346 0.2 % 448 0.4 % (102) NM

Other expense (income) (989) (0.7) % (1,622) (1.4) % 633 (39.0) %

Income from operations 8,252 5.9 % 11,580 9.9 % (3,328) (28.7) %

Non-operating expenses

Non-operating income and expenses

Income from equity method investments 935 0.7 % 1,241 1.1 % (306) (24.7) %

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Net income before taxes 8,990 6.5 % 12,503 10.7 % (3,513) (28.1) %

Provision (benefit) for income taxes 3,377 2.9 % (5,167) (3.9) % 8,544 NM

Provision for income taxes 2,768 2.0 % 3,377 2.9 % (609) NM

Net income $ 6,222 4.5 % $ 9,126 7.8 % $ (2,904) (31.8) %

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Ventilator rentals, non-invasive and invasive $ 92,710 66.8 % $ 83,849 71.6 % $ 8,861 10.6 %

Other durable medical equipment rentals 13,843 11.8 % 9,888 7.5 % 3,955 40.0 %

Other home medical equipment rentals 21,446 15.4 % 13,843 11.8 % 7,603 54.9 %

Net revenue from sales and services

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Total net revenue $ 138,832 100.0 % $ 117,062 100.0 % $ 21,770 18.6 %

For the year ended December 31, 2021, revenue totaled $117.1 million, a decrease of $14.2 million (or 10.8%) from the comparable period in 2020.

For the year ended December 31, 2022, revenue totaled $138.8 million, an increase of $21.8 million (or 18.6%) from the comparable period in 2021.

Excluding COVID-19 response sales and services, net revenue increased $28.1 million (or 25.9%) from the comparable period in 2021.

Ventilator rental revenue increased $8.9 million (or 10.6%) due to our organic growth in active ventilator patient base sustained throughout the year.

In addition to the ventilator rental revenue growth, rental revenue from other DME grew $4.0 million (or 40.0%) which primarily consisted of product revenue from PAPs, oxygen therapy, and percussion vests.

Non-COVID-19 related equipment sales and services combined increased by $1.4 million (or 19.1%) year over year primarily as a result of increasing demand for respiratory supplies, specifically for PAP resupply patients.

For the year ended December 31, 2021, net revenue for COVID-19 response sales and services totaled $8.6 million, compared to $34.4 million during the height of the pandemic during the year ended December 31, 2020.

In addition to the ventilator rental revenue growth, rental revenue from other HME grew $7.6 million (or 54.9%) which primarily consisted of product revenue from continued national expansion of PAP, oxygen therapy, and percussion vest activities.

Equipment and supply sales have increased by $5.2 million (or 58.9%) year over year and are primarily driven by growth associated with PAP resupply and other sleep offerings.

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, as well as our healthcare staffing offerings, is contributing significantly to the diversity of our overall revenue mix.

For the year ended December 31, 2022, net revenue for COVID-19 response sales and services totaled $2.3 million, compared to $8.6 million during the year ended December 31, 2021.

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

While we expect further COVID-19 response related revenue during 2022, the impact of such revenue remains uncertain and dependent on the length and intensity of the COVID-19 pandemic and the availability of equipment, supplies, and services from other suppliers.

As we continue to expand geographically and further penetrate existing territories, we expect growth in our active ventilator patient

base and ventilator rental revenue, as well as in our other growing respiratory offerings.

We expect growth to occur at an increased rate compared to recent periods which were impacted by COVID-19.

The magnitude and persistence of future COVID-19 response sales and services revenue remains uncertain and is dependent on the intensity and length of the COVID-19 pandemic and the demand for ongoing services from primarily governmental customers.

Cost of Revenue and Gross Profit

For the year ended December 31, 2021, cost of revenue totaled $43.7 million, a decrease of $7.5 million (or 14.7%) from the comparable period in 2020.

For the years ended December 31, 2021 and 2020, gross profit percentage increased from approximately 61.0% to approximately 62.7%.

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

We expect our gross profit percentage for our normal operations to remain relatively consistent with 2021 levels.

For the year ended December 31, 2022, cost of revenue totaled $54.2 million, an increase of $10.5 million (or 24.1%) from the comparable period in 2021.

Gross profit percentage decreased from approximately 62.7% to approximately 61.0% from the year ended December 31, 2021 to year ended December 31, 2022, respectively.

The decrease in gross profit percentage is due to migration of the revenue mix associated with product and service diversification.

As inflationary cost pressures subside and inflation adjusted reimbursements increase in upcoming periods, gross profit percentage for our normal operations is expected to increase, offset by some decreases associated with product and service diversification.

Selling, General and Administrative Expense

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expenses as a percentage of revenue decreased to 49.9% for the year ended December 31, 2022 compared to 50.6% for the year ended December 31, 2021.

This decrease in selling, general and administrative expense as a percentage of revenue as compared to the prior period is primarily attributable to a decrease in employee related expenses associated with variable and incentive based compensation.

Phantom stock compensation expense decreased by $1.6 million due to the impact from remeasurement of our phantom stock plan.

As we continue to grow into new markets and increase our employee count, we expect selling, general and administrative expenses will grow proportionally as a percentage of revenue as we continue into 2022.

The increase in overall selling, general and administrative expense as compared to the prior period is primarily attributable to additional employee related expenses related to the overall growth of the Company.

Employee compensation expenses increased $10.4 million (or 38%) as a result of the increases in our employee headcount, volume based sales commissions and market based individual compensation rates associated with inflation.

Our full time employee count increased by 19% from 627 on December 31, 2021 to 743 on December 31, 2022.

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 selling, general and administrative expenses will decline as a percentage of

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revenue in 2023 as costs stabilize relative to revenue growth.

Research and Development Costs

For the year ended December 31, 2022, research and development costs totaled $2.7 million, an increase of $0.6 million (or 27.8%) 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 slightly increase in 2022 relative to 2021 costs.

Loss (Gain) on Disposal of Property and Equipment

For the year ended December 31, 2021, we recorded a loss on disposal of property and equipment of $0.4 million, compared to a gain of $2.3 million during the comparable period in 2020.

For the year ended December 31, 2020, as a result of our COVID-19 response efforts, certain of our previously placed in service property and equipment was sold and gains resulting from these disposals were recognized.

We expect disposals of equipment to generally remain consistent with long term historical trends, excluding COVID-19 disposals.

As we continue to invest in research and development related projects to support our technology initiatives, we expect that the associated costs will remain consistent in 2023 relative to 2022 costs.

Other Expense (Income)

The decrease of $0.6 million in other income was driven by reductions in current year state and federal government grants.

During the year ended December 31, 2020, the Company received and recognized a general distribution payment from the Provider Relief Fund of $3.5 million.

For the year ended December 31, 2021 the Company received and recognized a targeted distribution payment of $1.5 million.

During the year ended December 31, 2021, the Company received and recognized a targeted distribution payment of $1.5 million from the Provider Relief Fund.

The Company received a general distribution payment of $0.4 million in 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 as described in detail above.

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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%.

Revenue growth has historically exceeded the growth in stock based compensation and stock-based compensation as a percentage of revenue is expected to continue to decline.

Interest Expense, Net

For the year ended December 31, 2022, net interest expense totaled $0.2 million, a decrease of $0.1 million from the comparable period in 2021.

We expect net interest expense to remain materially consistent with 2021 levels.

Provision (Benefit) for Income Taxes

For the year ended December 31, 2021, the provision for income taxes was a $3.4 million expense, compared to a $5.2 million benefit during the 2020 period.

The increase in income tax expense was primarily due to the release of a valuation allowance during the prior period.

We expect tax expense to normalize at rates that approximate the federal and state statutory rates.

For the year ended December 31, 2022, the provision for income taxes was a $2.8 million expense, compared to a $3.4 million expense during the 2021 period.

Excluding the effect of discrete items, our annual estimated effective tax rate for 2022 is 30.6%.

For the year ended December 31, 2022, net income was $6.2 million, a decrease of $2.9 million (or 31.8%) from the comparable period in 2021.

Net income as a percentage of net revenue decreased from 24.0% for the year ended December 31, 2020 to 7.8% for the year ended December 31, 2021, primarily driven by a decrease in COVID-19 response sales and the comparative benefit from income taxes in the prior period, as described above.

Net income as a percentage of net revenue decreased from 7.8% for the year ended December 31, 2021 to 4.5% for the year ended December 31, 2022, primarily driven by a decrease in higher margin COVID-19 response sales and an increase to selling, general, and administrative expenses associated with inflationary pressures, as described above.

Non-GAAP Financial Measures

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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

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.

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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.

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Cash and cash equivalents at December 31, 2022 was $16.9 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 primary non-recurring uses of excess cash during the period were associated with the 2022 Share Repurchase Program and the repayment of debt.

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

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

Additionally, the Company maintains a $10.0 million line of credit with Hancock Whitney Bank, which was fully undrawn as of December 31, 2021.

In addition, our existing commercial credit facilities were fully undrawn as of December 31, 2022.

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Financing activities (15,266) (5,321)

Net (decrease) increase in cash and cash equivalents $ (2,573) $ 17,626

Net decrease in cash and cash equivalents $ (11,494) $ (2,573)

Net Cash Provided by Operating Activities

Net cash provided by operating activities during the year ended December 31, 2022 was $27.7 million, resulting from net income of $6.2 million, increased by non-cash net income adjustments of $30.6 million, a change in net operating liabilities of $3.1 million, and $1.1 million of distributions from equity method investments, and decreased by a change in net operating assets of $13.2 million.

The non-cash net income adjustments primarily consisted of $10.0 million of provision for uncollectible accounts, $15.6 million of depreciation, $5.2 million of stock-based compensation, and $0.9 million of income from equity investments.

The primary changes in operating assets and liabilities were an increase in gross accounts receivable of $12.6 million, an increase in prepaid expenses and other assets of $2.8 million, a net increase in income taxes payable of $1.9 million, and a decrease in accrued liabilities of $2.5 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 year ended December 31, 2021 was $22.5 million, resulting from net income of $9.1 million, non-cash net income adjustments of $26.9 million and an increase in net operating liabilities of $5.8 million, which was partially offset by an increase in net operating assets of $7.8 million.

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The primary changes in operating assets were an increase in gross accounts receivable of $7.3 million, a net increase in income taxes receivable/(payable) of $2.2 million, and a decrease in accrued liabilities of $4.0 million.

Included in our operating cash flows for the period is the receipt of $1.5 million in Provider Relief Funds.

Net cash provided by operating activities during the year ended December 31, 2020 was $35.1 million, resulting from net income of $31.5 million, non-cash net income adjustments of $13.8 million and an increase in net operating liabilities of $2.9 million, which was partially offset by an increase in net operating assets of $13.1 million.

The non-cash net income adjustments primarily consisted of $9.1 million in change of allowance for doubtful accounts, $9.6 million of depreciation, $2.3 million of gains on disposal of property and equipment, $8.7 million in change in deferred tax asset, $4.9 million of stock-based compensation, $1.4 million in change in inventory reserve and $0.1 million of gain on equity investments.

The uses of cash related to changes in operating assets primarily consisted of an increase in gross accounts receivable of $10.0 million, an increase in inventory of $2.3 million and an increase in prepaid expenses and other assets of $0.8 million.

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

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

The changes in operating liabilities primarily consisted of an increase in accounts payable of $0.2 million, an increase in accrued liabilities of $2.3 million, an increase in deferred revenue of $0.1 million, and an increase in income tax payable of $0.3 million.

Included in operating cash flows for the period is the receipt of $1.5 million in Provider Relief Funds.

Net Cash Used in Investing Activities

Net cash used in investing activities during the year ended December 31, 2022 was $24.0 million, consisting of $22.9 million of purchases of property and equipment, $2.0 million in debt investments, and $0.1 million in equity investments, partially offset by $1.1 million of sales proceeds from the disposal of property and equipment.

Purchases of property and equipment during the year ended December 31, 2022 were primarily related to medical equipment rented to our patients.

Cash purchases of property and equipment represents a $3.2 million, or 32.0%, increase year over year.

Net cash used in investing activities during the year ended December 31, 2021 was $19.7 million, consisting of $19.7 million of purchases of property and equipment and $0.6 million in equity investments, partially offset by $0.6 million of sales proceeds from the disposal of property and equipment.

Included in the purchase of property and equipment are patient capital expenditures of $16.4 million related to medical equipment.

Combining cash purchases of property and equipment of $19.7 million and equipment financed through finance leases of less than $0.1 million,our total capital expenditures for the year ended December 31, 2021 were $19.8 million.

This represents a $3.7 million, or 23.3%, increase year over year.

Net cash used in investing activities during the year ended December 31, 2020 was $8.4 million, consisting of $13.0 million of purchases of property and equipment and $0.6 million in equity investments, partially offset by $5.2 million of COVID-19 response sales proceeds from the disposal of property and equipment.

Included in the purchase of property and equipment are patient capital expenditures of $15.6 million related to medical equipment.

Combining cash purchases of property and equipment of $13.0 million and equipment financed through finance leases of $3.0 million, our total capital expenditures for the year ended December 31, 2020 were $16.0 million.

This represents a $9.4 million, or 36.8%, decrease year over year.

Net Cash Used in Financing Activities

Net cash used in financing activities during the year ended December 31, 2021 was $5.3 million, consisting of $1.7 million in principal payments on the Term Note (as defined below), $0.2 million in principal payments on the Building Term Note (as defined below), and $2.2 million in repayments of finance lease liabilities, partially offset by $0.1 million proceeds from the exercise of stock options.

Net cash used in financing activities during the year ended December 31, 2022 was $15.3 million, consisting of 1,794,163 repurchased and canceled common shares at a cost of $9.6 million pursuant to the share repurchase program authorized by the Board of Directors on March 7, 2022 (the "2022 Share Repurchase Program"), $1.3 million in principal payments on the term note under the prior Commercial Business Loan Agreement with Hancock Whitney Bank (the “Term Note”), and $4.5 million in principal payments on the building term note under the prior Commercial Business Loan Agreement with Hancock Whitney Bank (the "Building Term Note"), and $0.1 million for shares repurchased and canceled for tax withholding in connection with RSUs vested in the period, partially offset by $0.3 million proceeds from the exercise of stock options.

Net cash used in financing activities during the year ended December 31, 2021 was $5.3 million, consisting of $1.7 million in principal payments on the Term Note, $0.2 million in principal payments on the Building Term Note, and $2.2 million in repayments of finance lease liabilities, partially offset by $0.1 million proceeds from the exercise of stock options.

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December 31, 2022 and 2021

Net cash used in financing activities during the year ended December 31, 2020 was $9.1 million, consisting of $1.6 million in principal payments on the Term Note, $0.2 million in principal payments on the Building Term Note, and $9.2 million in repayments of finance lease liabilities, partially offset by $1.9 million proceeds from the exercise of stock options.

Line of Credit

The Company maintains a line of credit in the amount of $10.0 million that expires May 1, 2023 under the Commercial Business Loan Agreement.

Any amounts advanced on this line will be subject to an interest rate equal to the WSJ prime rate plus a margin of 0.50%, with a 3.50% interest rate floor, and will be secured by substantially all of the Company's assets.

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

The line of credit allows flexibility in funding our future operations subject to compliance with the covenants described below.

Commercial Term Notes

On May 30, 2019, the Company entered into an amendment to the loan agreement providing for a term note (the “Building Term Note”) in favor of Hancock Whitney Bank in the principal amount of $4.8 million.

The proceeds of the Building Term Note were used to purchase a building to utilize as a new corporate headquarters for the Company.

Beginning July 1, 2019, the Company began making monthly payments towards the outstanding balance.

The Building Term Note matures on May 30, 2026 and is secured by substantially all of our assets, including the real property acquired with the proceeds of the Building Term Note.

The Building Term Note bears interest at a variable rate equal to the one month ICE LIBOR index plus a margin of 2.45% per annum.

The Company is required to maintain a loan to value ratio of 85% with respect to the appraised value of the real property.

In connection with the Building Term Note, the Company entered into an interest rate swap transaction (the "Interest Rate Swap Transaction") with Hancock Whitney Bank effectively fixing the interest rate for the Building Term Note at 4.68%.

On September 19, 2019, the Company entered into a third amendment to the loan agreement providing for a term note (the “Term Note") in favor of Hancock Whitney Bank in the principal amount of $5.0 million.

The proceeds of the Term Note will be used for general corporate purposes.

Beginning October 19, 2019, the Company began making monthly payments towards the outstanding balance.

The Term Note matures on September 19, 2022 and is secured by substantially all of our assets.

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

Under the terms of the Commercial Business Loan Agreement, the Company is subject to the following financial covenants:

Financial Covenant Required Ratio Ratio at December 31, 2021

Total Debt to Adjusted EBITDA (Quarterly) not more than 1.50:1.00 0.22

Fixed Charge Coverage Ratio (Quarterly) not less than 1.35:1.00 4.95

Loan-to-Value Ratio (Quarterly) not more than 0.85 0.68

The Company was in compliance with all covenants under the Commercial Business Loan Agreement in effect at December 31, 2021.

Senior Credit Facilities

On November 29, 2022, the Company refinanced its existing borrowings under the prior Commercial Business Loan Agreement with Hancock Whitney Bank and entered into a new credit agreement (the "2022 Senior Credit Facilities") with the lenders from time to time party thereto, and Regions Bank, as administrative agent and collateral agent that provides for an up to $30 million revolving credit facility (the "2022 Revolving Credit Facility") and an up to $30 million delayed draw term loan facility (the "2022 Term Loan Facility"), both maturing in November 2027.

The proceeds of the 2022 Revolving Credit Facility may be used to refinance existing indebtedness, for working capital purposes, capital expenditures and other general corporate purposes (including permitted acquisitions), and to pay transaction fees, costs and expenses related to the Senior Credit Facilities.

The proceeds of the 2022 Term Loan Facility and any additional term loans established in accordance with the 2022 Senior Credit Facilities may be used to finance permitted acquisitions and to pay transaction fees, costs and expenses related to such acquisitions.

At December 31, 2022, there were no borrowings outstanding under the 2022 Senior Credit Facilities.

The interest rates per annum applicable to the 2022 Senior Credit Facilities are Term SOFR (as defined in the 2022 Senior Credit Facilities) plus an applicable margin, which ranges from 2.625% to 3.375%, or, at the option of the Company, a Base Rate (as defined in the 2022 Senior Credit Facilities) plus an applicable margin, which ranges from 1.625% to 2.375%.

The 2022 Senior Credit Facilities require the Company to comply with certain affirmative, as well as certain negative covenants that, among other things, will restrict, subject to certain exceptions, the ability of the Company to incur indebtedness, grant liens, make investments, engage in acquisitions, mergers or consolidations and pay dividends and other restricted payments.

The 2022 Senior Credit Facilities also include certain financial covenants, which generally include, but are not limited to the following:

• Consolidated Total Leverage Ratio ( defined generally as total indebtedness to adjusted EBITDA) of not greater than (i) for any fiscal quarter ending during the period from the closing date to and including December 31, 2024, 2.75 to 1.0 and (ii) for any fiscal quarter ending on and after March 31, 2025, 2.50 to 1.0, subject to certain adjustments following a material acquisition.

• Consolidated Fixed Charge Coverage Ratio ( defined generally as (a) adjusted EBITDA minus capital expenditures minus cash taxes to (b) the sum of scheduled principal payments plus cash interest expense plus restricted payments) of not less than 1.25:1.0.

The Company was in compliance with all covenants under the 2022 Senior Credit Facilities in effect at December 31, 2022.

Sources of Funds

Cash provided by operating activities during the year ended December 31, 2022 was $27.7 million compared to $22.5 million during the year ended December 31, 2021.

HHS Provider Relief Funds

The Company received a general distribution payment from the Provider Relief Fund of $3.5 million in April 2020 and a targeted distribution payment of $1.5 million in November 2021.

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

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

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

There is no US GAAP guidance for for-profit health care entities that receive government grants that are not in the form of an income tax credit, revenue from a contract with a customer or a loan.

As such, for-profit entities must determine the appropriate accounting treatment by analogy to other guidance such as International Accounting Standards (IAS) 20, Accounting for Government Grants and Disclosure of Government Assistance , in IFRS.

Under IAS 20, we determined that upon receipt of funds, we fully complied with the conditions attached to the grant.

We recognized the distributions received from the Provider Relief Fund in the income statement in full during the period of receipt.

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

As of December 31, 2022, the Company had cash and cash equivalents of $16.9 million.

VIEMED HEALTHCARE, INC.

(Tabular amounts expressed in thousands of U.S.

Dollars, except per share amounts)

December 31, 2021 and 2020

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

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Total $ 520 $ 209

We anticipate that our operating cash flows will satisfy our material cash requirements for the 12 months after December 31, 2021.

Except for the funding of potential acquisitions and investments, we anticipate that our operating cash flows will satisfy our material cash requirements for the 12 months after December 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.

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Any additional equity financing may be dilutive to our stockholders.

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

VIEMED HEALTHCARE, INC.

(Tabular amounts expressed in thousands of U.S.

Dollars, except per share amounts)

December 31, 2022 and 2021

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis