VIEMED HEALTHCARE, INC. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with, and is qualified entirely by, our condensed consolidated financial statements (including Notes to the Condensed Consolidated Financial Statements) and the other consolidated financial information under Item 1 of this Quarterly Report on Form 10-Q. Some of the information in this discussion and analysis includes forward-looking statements that involve risk and uncertainties. Actual results and timing of events could differ from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Forward-Looking Statements Certain statements and information in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 or "forward-looking information" as such term is defined in applicable Canadian securities legislation (collectively, "forward-looking statements"). Any statements other than statements of historical information, including those that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. These forward-looking statements are made as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except as required by applicable law. Forward-looking statements relate to future events or future performance and reflect the expectations or beliefs of management regarding future events, and include, but are not limited to, statements with respect to: operating results; profitability; financial condition and resources; anticipated needs for working capital; liquidity; capital resources; capital expenditures; milestones; licensing milestones; information with respect to future growth and growth strategies; anticipated trends in our industry; our future financing plans; timelines; currency fluctuations; government regulation; unanticipated expenses; commercial disputes or claims; limitations on insurance coverage or other reimbursement; and availability of cash flow to fund capital requirements. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “potential”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, “believes”, “projects”, or the negatives thereof or variations of such words and phrases or statements that certain actions, events or results “will”, “should”, “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” or the negative of these terms or comparable terminology. Forward-looking statements are based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable. We cannot assure you, however, that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Page 26 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, including those identified under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and the other documents we file with the SEC, including under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, and with the securities regulatory authorities in certain provinces of Canada, which contribute to the possibility that the predicted outcomes may not occur or may be delayed. The risks, uncertainties and other factors, many of which are beyond our control, that could influence actual results include, but are not limited to: the general business, market and economic conditions in the regions in which the we operate; the impact of the COVID-19 pandemic and the actions taken by governmental authorities, individuals and companies in response to the pandemic on our business, financial condition and results of operations, including on our patient base, revenues, employees, and equipment and supplies; significant capital requirements and operating risks that we may be subject to; our ability to implement business strategies and pursue business opportunities; volatility in the market price of our common shares; our novel business model; the state of the capital markets; the availability of funds and resources to pursue operations; reductions in reimbursement rates and audits of reimbursement claims by various governmental and private payor entities; dependence on few payors; possible new drug discoveries; dependence on key suppliers; granting of permits and licenses in a highly regulated business; competition; disruptions in or attacks (including cyber-attacks) on our information technology, internet, network access or other voice or data communications systems or services; the evolution of various types of fraud or other criminal behavior to which we are exposed; difficulty integrating newly acquired businesses; the impact of new and changes to, or application of, current laws and regulations; the overall difficult litigation and regulatory environment; increased competition; increased funding costs and market volatility due to market illiquidity and competition for funding; critical accounting estimates and changes to accounting standards, policies, and methods used by us; our status as an emerging growth company and a smaller reporting company; and the occurrence of natural and unnatural catastrophic events or health epidemics or concerns, such as the COVID-19 pandemic, and claims resulting from such events or concerns, as well as other general economic, market and business conditions; and other factors beyond our control. General Matters In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms the "Company," "we," "us" and "our" refer to Viemed Healthcare, Inc. and its wholly-owned subsidiaries. We were incorporated on December 14, 2016 pursuant to the Business Corporations Act (British Columbia). As of June 30, 2020, we determined that we no longer qualify as a "foreign private issuer," as defined in Rule 3b-4 of the Exchange Act, for the purposes of the informational requirements of the Exchange Act. As a result, effective January 1, 2021, we became subject to the proxy solicitation rules under Section 14 of the Exchange Act and Regulation FD, and our officers, directors, and principal shareholders became subject to the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. We will continue to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC and with the relevant Canadian securities regulatory authorities on the System for Electronic Document Analysis and Retrieval (SEDAR). We are an "emerging growth company," as defined in the JOBS Act and a "smaller reporting company" under Rule 12b-2 of the Exchange Act, and as such, we have elected to comply with certain reduced U.S. public company reporting requirements. Unless otherwise noted herein, all references to "$" or "USD" are to the currency of the United States and references to "CAD$" or "Canadian dollars" are to the currency of Canada. Overview We provide an array of home medical equipment, services and supplies, specializing in post-acute respiratory care services in the United States. Our primary objective is to focus on the organic growth of the business and thereby solidify our position as one of the United States’ largest providers of in-home therapy for patients suffering from respiratory diseases. Our respiratory care programs are designed specifically for payors to have the ability to treat patients in the home for less total cost and with a superior quality of care. Our services include respiratory disease management (through the rental of various HME devices), neuromuscular care, in-home sleep testing and sleep apnea treatment, oxygen therapy, and the sale of associated supplies. We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 59.4% and 68.6% of our traditional revenue, excluding COVID-19 response sales and services, for the three months ended June 30, 2023 and 2022, respectively, and 61.4% and 69.9% for the six months ended June 30, 2023 and 2022, respectively. We combine the benefits of home ventilation support with licensed Respiratory Therapists ("RTs") to drive improved patient outcomes and reduce costly hospital readmissions. Page 27 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 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. As of June 30, 2023, we employed 330 licensed RTs, representing approximately 34% of our company-wide employee count. By focusing overhead costs on personnel that service the patient rather than physical location costs, we anticipate that we will efficiently scale our business in regions that are currently not being effectively serviced. The continued trend of servicing patients in the home rather than in hospitals is aligned with our business objective and we anticipate that this trend will continue to offer growth opportunities for us. We expect to continue to be a solution to the rising health costs in the United States by offering more cost effective, home based solutions while increasing the quality of life for patients fighting serious respiratory diseases. Trends Affecting our Business On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Various policies and initiatives 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. On May 11, 2023, the COVID-19 Public Health Emergency declared by the Secretary of HHS under Public Health Service Act section 319 ("COVID-19 PHE") ended. The U.S. Food and Drug Administration has announced in the Federal Register that the Emergency Use Authorization for certain ventilators and PAP and RAD devices will be in effect until November 7, 2023, 180 days beyond the end of the COVID-19 PHE. 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 six months ended June 30, 2023, we cannot predict at this time the impact that the end of the COVID-19 PHE will have on our 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. Broad economic factors resulting from the current COVID-19 pandemic, including high unemployment and underemployment levels and reduced consumer spending and confidence, could also affect our service mix, revenue mix, payor mix and patient base, as well as our ability to collect outstanding receivables. Business closures and layoffs in the geographic areas in which we operate may lead to increases in the uninsured and under-insured populations and adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered. Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our financial results and require an increased level of working capital. In addition, we may experience supply chain disruptions, including delays and price increases in equipment and supplies. Staffing, equipment and supplies shortages may also impact our ability to assess potential patients in hospitals and set up and treat patients in the home. 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 II - Item 1A. “Risk Factors.” The CARES Act, which was signed into law on March 27, 2020, provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. We are continuing to monitor any effects or requirements that may result from the CARES Act as many of the provisions in the CARES Act are temporary and may require us to modify our operations and compliance procedures. CMS and other federal agencies have and are likely to issue rules and regulations to implement the CARES Act. The impact of these rules and regulations are unknown and may affect us. To the extent these provisions will expire as stated in the CARES Act, we will be required to unwind any changes. In 2019, CMS announced the inclusion of non-invasive ventilator products on the list of products subject to the competitive bidding program in Round 2021 which covers the period of January 1, 2021 through December 31, 2023. On March 9, 2020, CMS announced that due to the COVID-19 pandemic, the United States President’s exercise of the Defense Production Act, public concern regarding access to ventilators, and the non-invasive ventilators product category being new to the competitive bidding program, non-invasive ventilators were removed as a product category from Round 2021. On October 27, 2020, CMS announced that it had removed 13 of the 15 remaining product categories from Round 2021, including oxygen and PAP devices, because the payment amounts did not achieve expected savings. 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 Page 28 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 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 CARES Act introduced a new blended rate for HME furnished in non-rural or contiguous non-competitive bidding areas that is based on 75% of the adjusted fee schedule amount and 25% of the unadjusted fee schedule amount. The Consolidated Appropriations Act, 2023 further extended the 75/25 blended Medicare reimbursement rate in non-competitive bidding/non-rural areas through the end of the COVID-19 PHE or December 31, 2023, whichever is later, after which it will revert to 100% of the Medicare fee schedule. The CARES Act also provided for a temporary suspension of the 2% payment sequestration adjustment currently applied to all Medicare fee-for-service claims. In December 2021, President Biden signed into law legislation that extended the suspension on the 2 percent payment sequestration through March 31, 2022. The payment sequestration adjustment was fixed at 1 percent from April 1, 2022 to June 30, 2022 and it returned to 2 percent on July 1, 2022. The Statutory Pay-As-You-Go Act of 2010 ("PAYGO") required that automatic payment cuts of 4% be put into place if a statutory action is projected to create a net increase in the deficit over either five or 10 years. The enactment of the American Rescue Plan Act in 2021 would have triggered PAYGO sequestration in 2021. In the Protecting Medicare & American Farmers from Sequester Cuts Act, Congress delayed the PAYGO sequestration until January 1, 2023. The Consolidated Appropriations Act, 2023 further prevented implementation of the PAYGO Medicare 4% sequester through the end of 2024. If not renewed, the PAYGO payment adjustment could have an adverse effect on our business, financial condition and results of operations. In its 2023 DMEPOS Fee Schedule, CMS also announced the fee schedule adjustment based on the annual change to the Consumer Pricing Index for all urban areas. Items that were subject to the competitive bidding program in former competitive bidding areas will receive a 6.4% reimbursement rate increase. Items that were subject to the competitive bidding program in non-competitive bidding areas will receive a 9.1% reimbursement rate increase. Items not subject to the competitive bidding program will receive an 8.7% reimbursement rate increase. While we cannot predict what Medicare payment rates or coverage determinations will be in effect in future years, changes to payment rates or benefit coverages may materially impact its financial condition and results of operations. The below table highlights summary financial and operational metrics for the last eight quarters. (Tabular amounts expressed in thousands of U.S. Dollars, except vent patients) For the quarter ended June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Financial Information: Revenue $ 43,311 $ 39,556 $ 37,508 $ 35,759 $ 33,310 $ 32,255 $ 31,962 $ 29,285 Gross Profit $ 26,106 $ 24,004 $ 22,896 $ 21,651 $ 20,390 $ 19,743 $ 19,662 $ 18,381 Gross Profit % 60 % 61 % 61 % 61 % 61 % 61 % 62 % 63 % Net Income $ 2,330 $ 1,517 $ 2,438 $ 1,055 $ 967 $ 1,762 $ 4,087 $ 1,789 Cash (As of) $ 10,224 $ 23,544 $ 16,914 $ 21,478 $ 21,922 $ 29,248 $ 28,408 $ 26,867 Total Assets (As of) $ 149,117 $ 124,634 $ 117,043 $ 119,419 $ 115,904 $ 119,007 $ 117,962 $ 115,486 Adjusted EBITDA (1) $ 9,810 $ 8,328 $ 9,306 $ 6,982 $ 6,458 $ 7,273 $ 9,549 $ 7,419 Operational Information: Vent Patients (2) 10,005 9,337 9,306 9,127 8,837 8,434 8,405 8,200 (1) Refer to "Non-GAAP Financial Measures" section below for definition of Adjusted EBITDA. (2) Vent Patients represents the number of active ventilator patients on recurring billing service at the end of each calendar quarter. Page 29 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 Results of Operations Comparison of the Three Months Ended June 30, 2023 and 2022: The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022: Three Months Ended June 30, 2023 % of Total Revenue 2022 % of Total Revenue $ Change % Change Revenue $ 43,311 100.0 % $ 33,310 100.0 % $ 10,001 30.0 % Cost of revenue 17,205 39.7 % 12,920 38.8 % 4,285 33.2 % Gross profit 26,106 60.3 % 20,390 61.2 % 5,716 28.0 % Selling, general and administrative 20,563 47.5 % 17,536 52.6 % 3,027 17.3 % Research and development 758 1.8 % 672 2.0 % 86 12.8 % Stock-based compensation 1,471 3.4 % 1,271 3.8 % 200 15.7 % Depreciation 298 0.7 % 243 0.7 % 55 22.6 % Loss (gain) on disposal of property and equipment 117 0.3 % (110) (0.3) % 227 (206.4) % Other expense (income) (2) — % (223) (0.7) % 221 (99.1) % Income from operations 2,901 6.7 % 1,001 3.0 % 1,900 189.8 % Non-operating income and expenses Income from equity method investments 137 0.3 % 446 1.3 % (309) (69.3) % Interest expense, net 20 — % (59) (0.2) % 79 (133.9) % Net income before taxes 3,058 7.1 % 1,388 4.2 % 1,670 120.3 % Provision (benefit) for income taxes 728 1.7 % 421 1.3 % 307 72.9 % Net income $ 2,330 5.4 % $ 967 2.9 % $ 1,363 141.0 % Revenue The following table summarizes our revenue for the three months ended June 30, 2023 and 2022: Three Months Ended June 30, 2023 % of Total Revenue 2022 % of Total Revenue $ Change % Change Net revenue from rentals Ventilator rentals, non-invasive and invasive $ 25,712 59.4 % $ 22,736 68.3 % $ 2,976 13.1 % Other durable medical equipment rentals 8,419 19.4 % 4,912 14.8 % 3,507 71.4 % Net revenue from sales and services Equipment and supply sales 6,778 15.6 % 3,245 9.7 % 3,533 108.9 % COVID-19 response sales and services — — % 183 0.5 % (183) (100.0) % Service revenues 2,402 5.6 % 2,234 6.7 % 168 7.5 % Total net revenue $ 43,311 100.0 % $ 33,310 100.0 % $ 10,001 30.0 % For the three months ended June 30, 2023, net revenue totaled $43.3 million, an increase of $10.0 million (or 30.0%) from the comparable period in 2022. Excluding COVID-19 response sales and services revenue, net revenue increased $10.2 million (or 30.7%) from the comparable period in 2022. The net revenue growth was associated with an increase in ventilator rental revenue of $3.0 million (or 13.1%) which can be primarily attributed to the organic expansion of our active ventilator patient base. In addition to the ventilator rental revenue growth, net revenue growth was also driven by an increase in rental revenue from other DME of $3.5 million (or 71.4%), consisting of rental revenue from continued national expansion of PAP, oxygen therapy, and percussion vest activities. Equipment and supply sales increased by $3.5 million (or 108.9%), primarily driven by the continued growth of the PAP resupply program and other sleep offerings. Service revenues increased by $0.2 million (or 7.5%) primarily due to the growth of healthcare staffing services. 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. Page 30 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 There were no COVID-19 response sales and services during the three months ended June 30, 2023, compared to $0.2 million during the three months ended June 30, 2022. 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. The financial results of the acquired operations relating to the recent HMP acquisition (as discussed in Note 3 – Business Combinations) were reflected for just one month during the three months ended June 30, 2023, and primarily impacted sleep related products and services. We expect the HMP acquisition to have a more meaningful impact in the upcoming quarter when results of operations will be reflected for the entire period. The HMP acquisition is expected to further enhance our growth and overall profitability. Cost of revenue and gross profit For the three months ended June 30, 2023, cost of revenue totaled $17.2 million, an increase of $4.3 million (or 33.2%) from the comparable period in 2022. Overall gross profit percentage decreased from 61.2% in the three months ended June 30, 2022 to 60.3% in the three months ended June 30, 2023. The decline in gross profit percentage is primarily attributable to the migration of our revenue mix, which reflects our deliberate efforts towards product and service diversification, aimed at further enhancing our market position. As a result of subsiding inflationary cost pressures and the positive effects of seasonality in collection rates, gross profit percentage for our normal operations is expected to increase through the end of 2023, partially offset by the impacts of continued product and service diversification. Selling, general and administrative expense Selling, general, and administrative expenses as a percentage of revenue decreased to 47.5% for the three months ended June 30, 2023 compared to 52.6% for the three months ended June 30, 2022. Selling, general and administrative expenses totaled $20.6 million for the three months ended June 30, 2023, an increase of $3.0 million (or 17.3%) from the comparable prior period. The increase in overall selling, general and administrative expense as compared to the prior period is primarily attributable to additional employee related expenses to accommodate the overall growth of the Company. Our full time employee count increased from 715 on June 30, 2022 to 974 on June 30, 2023, an increase of 36.2%, which was partially due to the acquisition of HMP on June 1, 2023. Employee compensation expenses increased $2.3 million (or 22%) as a result of the increase in our employee headcount and increases in incentive and volume based compensation. We expect that current year selling, general and administrative expenses as a percentage of revenue will continue to improve through the end of 2023 due to increased efficiencies and costs stabilization relative to revenue growth. Research and development For the three months ended June 30, 2023, research and development expense totaled $0.8 million, an increase of $0.1 million (or 12.8%) from the comparable period in 2022. As we continue to invest in research and development related projects to support our technology initiatives, we expect that associated costs will remain consistent in 2023 relative to 2022 costs. Stock-based compensation For the three months ended June 30, 2023, stock-based compensation totaled $1.5 million, an increase of 15.7% from the comparable period in 2022. We anticipate that as we expand our workforce, incorporating stock-based awards as a component of employee compensation, stock-based compensation expenses will correspondingly rise. Historically, revenue growth has outpaced the growth in stock-based compensation, and as a result, the percentage of stock-based compensation relative to revenue is expected to continue declining. Interest expense, net As a result of the issuance of debt to fund the acquisition of HMP, we expect net interest expense to increase accordingly for the remainder of 2023. Provision for income taxes For the three months ended June 30, 2023, the provision for income taxes was a $0.7 million expense, compared to $0.4 million during the comparable period in 2022. The increase in income tax expense was primarily due to the increase in pre-tax income. Our annual estimated effective tax rate for 2023 is 28.6%. Page 31 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 Net income For the three months ended June 30, 2023, net income was $2.3 million, an increase of $1.4 million (or 141.0%) from the comparable period in 2022. Net income as a percentage of net revenue increased from 2.9% for the three months ended June 30, 2022 to 5.4% for the three months ended June 30, 2023, primarily due to improvements in selling, general, and administrative expenses associated with increased efficiencies and stabilizing costs. Page 32 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 Comparison of the Six Months Ended June 30, 2023 and 2022: The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022: Six Months Ended June 30, 2023 % of Total Revenue 2022 % of Total Revenue $ Change % Change Revenue $ 82,867 100.0 % $ 65,565 100.0 % $ 17,302 26.4 % Cost of revenue 32,757 39.5 % 25,432 38.8 % 7,325 28.8 % Gross profit 50,110 60.5 % 40,133 61.2 % 9,977 24.9 % Selling, general and administrative 40,325 48.7 % 33,312 50.8 % 7,013 21.1 % Research and development 1,538 1.9 % 1,304 2.0 % 234 17.9 % Stock-based compensation 2,862 3.5 % 2,576 3.9 % 286 11.1 % Depreciation 538 0.6 % 480 0.7 % 58 12.1 % Loss (gain) on disposal of property and equipment 95 0.1 % (124) (0.2) % 219 NM Other expense (income) (83) (0.1) % (664) (1.0) % 581 (87.5) % Income from operations 4,835 5.8 % 3,249 5.0 % 1,586 48.8 % Non-operating expenses Income from equity method investments 172 0.2 % 769 1.2 % (597) NM Interest expense, net 69 0.1 % (123) (0.2) % 192 (156.1) % Net income before taxes 5,076 6.1 % 3,895 5.9 % 1,181 30.3 % Provision for income taxes 1,229 1.5 % 1,166 1.8 % 63 NM Net income $ 3,847 4.6 % $ 2,729 4.2 % $ 1,118 41.0 % Revenue The following table summarizes our revenue for the six months ended June 30, 2023 and 2022: Six Months Ended June 30, 2023 % of Total Revenue 2022 % of Total Revenue $ Change % Change Net revenue from rentals Ventilator rentals, non-invasive and invasive $ 50,859 61.4 % $ 44,254 67.5 % $ 6,605 14.9 % Other durable medical equipment rentals 15,325 18.5 % 9,271 14.1 % 6,054 65.3 % Net revenue from sales and services Equipment and supply sales 11,542 13.9 % 6,282 9.6 % 5,260 83.7 % COVID-19 response sales and services — — % 2,278 3.5 % (2,278) (100.0) % Service revenues 5,141 6.2 % 3,480 5.3 % 1,661 47.7 % Total net revenue $ 82,867 100.0 % $ 65,565 100.0 % $ 17,302 26.4 % For the six months ended June 30, 2023, revenue totaled $82.9 million, an increase of $17.3 million (or 26.4%) from the comparable period in 2022. Excluding COVID-19 response sales and services revenue, net revenue increased $19.6 million (or 30.9%) from the comparable period in 2022. The net revenue increase was comprised of an increase in ventilator rental revenue of $6.6 million (or 14.9%), rental revenue from other DME of $6.1 million (or 65.3%), equipment and supply sales of $5.3 million (or 83.7%), and service revenue of $1.7 million (or 47.7%). The growth in other durable medical equipment rentals and equipment and supply sales has been primarily driven by the continued national expansion of PAP, oxygen therapy, and percussion vest activities. The increase in equipment sales and supplies is primarily driven by the success of our PAP resupply program 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 organic and acquired 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. Page 33 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 There were no COVID-19 response sales and services during the six months ended June 30, 2023, compared to $2.3 million during the comparable six month period in 2022. 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 six months ended June 30, 2023, cost of revenue totaled $32.8 million, an increase of $7.3 million (or 28.8%) from the comparable period in 2022. Overall gross profit percentage decreased from 61.2% for the six months ended June 30, 2022 to 60.5% for the six months ended June 30, 2023. The decline in gross profit percentage is primarily attributable to the migration of our revenue mix, which reflects our deliberate efforts towards product and service diversification, aimed at further enhancing our market position. As a result of subsiding inflationary cost pressures and the positive effects of seasonality in collection rates, gross profit percentage for our normal operations is expected to increase through the end of 2023, partially offset by the impacts of continued product and service diversification. Selling, general and administrative expense Selling, general, and administrative expenses as a percentage of revenue decreased to 48.7% for the six months ended June 30, 2023 compared to 50.8% for the six months ended June 30, 2022. Selling, general and administrative expenses totaled $40.3 million for the six months ended June 30, 2023, an increase of $7.0 million (or 21.1%) from the comparable period in 2022. The overall increase in selling, general and administrative expense as compared to the prior period is primarily due to additional employee related expenses to accommodate the overall growth of the Company and transaction costs related to the acquisition of HMP. Our full time employee count increased from 715 on June 30, 2022 to 974 on June 30, 2023, an increase of 36.2%, which was partially due to the acquisition of HMP on June 1, 2023. Employee compensation expenses increased $5.4 million (or 27%) as a result of the increase in our employee headcount and increases in incentive and volume based compensation. Included in this amount is a $0.9 million increase related to the impact of our phantom stock plan which is measured at fair value as of the end of the reporting period based on closing stock price. During the six months ended June 30, 2023, our stock price increased by 29.3%, resulting in an increase in the accrual of the related phantom stock expense. We expect that current year selling, general and administrative expenses as a percentage of revenue will continue to improve through the end of 2023 due to increased efficiencies and costs stabilization relative to revenue growth. Research and development For the six months ended June 30, 2023, research and development expense totaled $1.5 million, an increase of $0.2 million (or 17.9%) from the comparable period in 2022. As we continue to invest in research and development related projects to support our technology initiatives, we expect that associated costs will remain consistent in 2023 relative to 2022 costs. Stock-based compensation For the six months ended June 30, 2023, stock-based compensation totaled $2.9 million, an increase of 11.1% from the comparable period in 2022. We anticipate that as we expand our workforce, incorporating stock-based awards as a component of employee compensation, stock-based compensation expenses will correspondingly rise. Historically, revenue growth has outpaced the growth in stock-based compensation, and as a result, the percentage of stock-based compensation relative to revenue is expected to continue declining. Interest expense, net As a result of the issuance of debt to fund the acquisition of HMP, we expect net interest expense to increase accordingly for the remainder of 2023. Provision for income taxes For the six months ended June 30, 2023, the provision for income taxes was a $1.2 million expense, compared to $1.2 million during the comparable period in 2022. The resulting decrease in the overall effective tax rate as a percentage of pre-tax income was due to the impact of discrete tax benefits associated with stock-based compensation between periods. Our annual estimated effective tax rate for 2023 is 28.6%. Page 34 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 Net income For the six months ended June 30, 2023, net income was $3.8 million, an increase of $1.1 million (or 41.0%) from the comparable period in 2022. Net income as a percentage of revenue increased from 4.2% for the six months ended June 30, 2022 to 4.6% for the six months ended June 30, 2023, primarily due to improvements in selling, general, and administrative expenses associated with increased efficiencies and stabilizing costs. Non-GAAP Financial Measures The Company uses Adjusted EBITDA, which is a financial measure that is not prepared in accordance with generally accepted accounting principles in the United States ("GAAP") to analyze its financial results and believes that it is useful to investors, as a supplement to U.S. GAAP measures. Management believes Adjusted EBITDA provides helpful information with respect to the Company’s operating performance as viewed by management, including a view of the Company’s business that is not dependent on the impact of the Company’s capitalization structure and items that are not part of the Company’s day-to-day operations. Management uses Adjusted EBITDA (i) to compare the Company’s operating performance on a consistent basis, (ii) to calculate incentive compensation for the Company’s employees, (iii) for planning purposes, including the preparation of the Company’s internal annual operating budget, and (iv) to evaluate the performance and effectiveness of the Company’s operational strategies. Accordingly, management believes that Adjusted EBITDA provides useful information in understanding and evaluating the Company’s operating performance in the same manner as management. In calculating Adjusted EBITDA, certain items (mostly non-cash) are excluded from net income including interest, taxes, stock based compensation, and depreciation of property and equipment. Beginning with financial results reported for periods in fiscal year 2023, Adjusted EBITDA also excludes transaction costs and expenses related to acquisition and integration efforts associated with recently announced or completed acquisitions. This modification enables investors to compare period-over-period results on a more consistent basis without the effects of acquisitions. We have recast Adjusted EBITDA for prior periods when reported to conform to the modified presentation. The following table is a reconciliation of Net income, the most directly comparable GAAP measure, to Adjusted EBITDA, on a historical basis for the periods indicated: For the quarter ended June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 Net Income $ 2,330 $ 1,517 $ 2,438 $ 1,055 $ 967 $ 1,762 $ 4,087 $ 1,789 Add back: Depreciation 5,207 4,762 4,373 4,120 3,740 3,397 3,120 2,867 Interest expense (income) (20) (49) 32 42 59 64 69 75 Stock-based compensation (a) 1,471 1,391 1,317 1,309 1,271 1,305 1,305 1,302 Transaction costs (b) 94 206 — — — — — — Income tax expense 728 501 1,146 456 421 745 968 1,386 Adjusted EBITDA $ 9,810 $ 8,328 $ 9,306 $ 6,982 $ 6,458 $ 7,273 $ 9,549 $ 7,419 (a) Represents non-cash, equity-based compensation expense associated with option and RSU awards. (b) Represents transaction costs and expenses related to acquisition and integration efforts associated with recently announced or completed acquisitions. Use of Non-GAAP Financial Measures Adjusted EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. It is not a measurement of our financial performance under GAAP and should not be considered as an alternative to revenue or net income, as applicable, or any other performance measures derived in accordance with GAAP or as an alternative to cash flows from operating activities as a measure of the Company's liquidity, and may not be comparable to other similarly titled measures of other companies or businesses. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our operating results as reported under GAAP. Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations; and other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. Page 35 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 Liquidity and Capital Resources Cash and cash equivalents at June 30, 2023 was $10.2 million, compared to $16.9 million at December 31, 2022. Based on our current plan of operations, we believe this amount, when combined with expected cash flows from operations and amounts available under our line of credit will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months from the date of this filing. The Company utilizes short term financing arrangements with a major supplier that could be extended over a longer term if there was a need for additional liquidity. Cash Flows The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, 2023 2022 Net Cash provided by (used in): Operating activities $ 18,119 $ 12,092 Investing activities (36,112) (10,495) Financing activities 11,303 (8,083) Net decrease in cash and cash equivalents $ (6,690) $ (6,486) Net Cash Provided by Operating Activities Net cash provided by operating activities during the six months ended June 30, 2023 was $18.1 million, resulting from net income of $3.8 million, increased by non-cash net income adjustments of $12.3 million and a change in net operating liabilities of $1.7 million, which was offset by a change in net operating assets of $0.3 million. The non-cash net income adjustments primarily consisted of $10.0 million of depreciation, $2.9 million of stock-based compensation, $0.2 million gain on equity investments and a $0.7 million change in deferred tax asset. The primary changes in working capital were an increase in net accounts receivable of $0.5 million, an increase in income taxes receivable of $1.0 million, offset by a decrease in other assets of $2.1 million and an increase in accrued liabilities of $1.6 million. Net cash provided by operating activities during the six months ended June 30, 2022 was $12.1 million, primarily resulting from net income of $2.7 million, increased by non-cash net income adjustments of $8.1 million and a change in net operating liabilities of $0.3 million, and decreased by a change in net operating assets of $0.3 million. The non-cash net income adjustments primarily consisted of $7.1 million of depreciation, $2.6 million of stock-based compensation, $0.8 million gain on equity investments and a $0.7 million change in deferred tax asset. The primary changes in working capital were an increase in net accounts receivable of $1.5 million, offset by an increase in income taxes payable of $1.4 million and a decrease in inventory of $1.0 million. Included in our operating cash flows for the period is the receipt of $0.4 million in Provider Relief Funds. Net Cash Used in Investing Activities Net cash used in investing activities during the six months ended June 30, 2023 was $36.1 million, primarily due to the net cash paid for the acquisition of HMP of $27.1 million. Net cash used in investing activities during the period also consisted of $10.8 million of purchases of property and equipment, partially offset by $1.8 million of sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to medical equipment rented to our patients. Cash purchases of property and equipment represents a $0.2 million, or 2.1%, decrease year over year. Net cash used in investing activities during the six months ended June 30, 2022 was $10.5 million, consisting of $11.0 million of purchases of property and equipment, partially offset by $0.6 million of sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to medical equipment rented to our patients. Page 36 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 Net Cash Provided by Financing Activities Net cash provided by financing activities during the six months ended June 30, 2023 was $11.3 million. For the six months ended June 30, 2023, proceeds from the 2022 Term Loan Facility (as defined below) were $5.0 million and proceeds from the 2022 Revolving Credit Facility (as defined below) were $8.0 million, which were used to partially fund the cash acquisition of HMP. Principal payments on acquired revolving and term loans were $2.4 million during the six months ended June 30, 2023. The Company acquired and cancelled 66,734 common shares at a cost of $0.5 million to satisfy employee income tax withholding associated with RSUs vestings while proceeds from the exercise of options during the six months ended June 30, 2023 were $1.2 million. Net cash used in financing activities during the six months ended June 30, 2022 was $8.1 million. 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. Net cash used in financing activities during the six months ended June 30, 2022 also included $0.9 million in principal payments on the Term Note (as defined below). 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 $30.0 million revolving credit facility (the "2022 Revolving Credit Facility") and an up to $30.0 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 2022 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. Outstanding borrowings under the 2022 Term Loan Facility and 2022 Revolving Credit Facility were $5 million and $8 million, respectively, as of June 30, 2023. 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 June 30, 2023. Page 37 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 Use of Funds Our principal uses of cash are funding the purchase of rental assets and other capital purchases, funding of business combinations, operations, and other working capital requirements. The following table presents our material contractual obligations and commitments to make future payments as of June 30, 2023: Within 12 Months Beyond 12 Months Debt Obligations, including interest $ 4,374 $ 16,000 Lease Obligations $ 377 $ 257 Total $4,751 $16,257 Except for the funding of potential business combinations and investments, we anticipate that our operating cash flows will satisfy our material cash requirements for the 12 months after June 30, 2023. In addition to our operating cash flows, we may need to raise additional funds to support our contractual obligations and investing activities beyond such 12 month period, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. We may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders. Retirement Plan The Company maintains a 401(k) retirement plan for employees to which eligible employees can contribute a percentage of their pre-tax compensation. Matching employer contributions to the 401(k) plan totaled $325,000 and $351,000 for the three months ended June 30, 2023 and 2022, respectively, and $735,000 and $622,000 for the six months ended June 30, 2023 and 2022, respectively. Off balance sheet arrangements The Company has no material undisclosed off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its results of operations or financial condition. Accounting and Disclosure Matters Critical Accounting Principles and Estimates We are required to disclose “critical accounting estimates” which are estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and that have had or are reasonably likely to have a material impact on our financial condition or results of operations. We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. The more significant of these policies are summarized in Note 2 to our consolidated financial statements included in Part II, Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Not all significant accounting policies require management to make difficult, subjective or complex judgments. However, the policy noted below could be deemed to meet the SEC’s definition of a critical accounting estimate. Page 38 VIEMED HEALTHCARE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (Tabular amounts expressed in thousands of US Dollars, except per share amounts) June 30, 2023 and 2022 Allowance for Doubtful Accounts The Company estimates that a certain portion of receivables from customers may not be collected and maintains an allowance for doubtful accounts. The Company evaluates the net realizable value of accounts receivable as of the date of Consolidated Balance Sheets. Specifically, we consider historical realization data, including current and historical cash collections, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the healthcare industry and third-party reimbursement, it is possible that the estimates could change, which could have a material impact on the operations and cash flows. If circumstances related to certain customers change or actual results differ from expectations, our estimate of the recoverability of receivables could fluctuate from that provided for in our consolidated financial statements. A change in estimate could impact bad debt expense and accounts receivable. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for doubtful accounts in future periods. Our allowance for doubtful accounts was $11.0 million and $9.4 million as of June 30, 2023 and 2022, respectively, and based on our analysis, we believe the reserve is adequate for any exposure to credit losses. Recently Issued Accounting Pronouncements See Note 2 – Summary of Significant Accounting Policies of our Condensed Consolidated Financial Statements for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows. Page 39 VIEMED HEALTHCARE, INC. June 30, 2023 and 2022 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable.