What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-03-06 compared with 2023-03-02 · 137 added, 148 removed, 184 unchanged (61% of the section changed)

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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).

As of June 30, 2023, 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, 2024.

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

We are an "emerging growth company," as defined in the JOBS Act, and as such, we have elected to comply with certain reduced U.S.

public company reporting requirements.

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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Our respiratory care programs are designed specifically for payors to have the ability to treat patients in the home for less total cost and with a superior quality of care.

Our services include respiratory disease management (through the rental of various DME devices), neuromuscular care, in-home sleep testing and sleep apnea treatment, oxygen therapy, and the sale of associated supplies.

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 59.2% and 67.9% of our traditional revenue, excluding COVID-19 response sales and services for the years ended December 31, 2023 and 2022, respectively.

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

As of December 31, 2022, we employed 292 licensed RTs, representing more than 39% of our company-wide employee count.

As of December 31, 2023, we employed 372 licensed RTs, representing approximately 37% 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.

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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.

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.

Broad economic factors resulting from the current COVID-19 pandemic, including high unemployment and underemployment levels and reduced consumer spending and confidence, could also affect our service mix, revenue mix, payor mix and patient base, as well as our ability to collect outstanding receivables.

Business closures and layoffs in the geographic areas in which we operate may lead to increases in the uninsured and under-insured populations and adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered.

Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our financial results and require an increased level of working capital.

In addition, we may experience supply chain disruptions, including delays and price increases in equipment and supplies.

Staffing, equipment and supplies shortages may also impact our ability to assess potential patients in hospitals and set up and treat patients in the home.

We believe we presently have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times.

The CARES Act, which was signed into law on March 27, 2020, provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments.

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

As a result, we received a general distribution payment from the Provider Relief Fund of $3.5 million in April 2020, a targeted distribution payment of $1.5 million in November 2021, and a general distribution payment of $0.4 million in January 2022.

Payments from the Provider Relief Fund are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic.

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

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

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

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

In accordance with the terms of acceptance for the grant, we believe we have utilized these funds to prevent, prepare for, and respond to the COVID-19 pandemic.

The CARES Act also provides for a temporary suspension of the 2% payment sequestration adjustment currently applied to all Medicare fee-for-service claims.

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

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

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.

Home medical equipment markets are witnessing sustained expansion, with a notable focus on the complex respiratory and Obstructive Sleep Apnea ("OSA") device segments.

Analysts in the industry anticipate a consistent and robust growth trajectory, projecting Compound Annual Growth Rates ("CAGR") of approximately 6% for respiratory devices and 8% for OSA devices.

This upward trend underscores the increasing demand for innovative solutions in respiratory care and sleep apnea management, highlighting the industry's responsiveness to evolving healthcare needs.

As technological advancements and awareness drive the adoption of these specialized devices, we believe the HME markets, particularly in respiratory and OSA, are positioned for continuous expansion, offering promising opportunities for both providers and consumers alike.

The aging population remains a pivotal driver for the industry, as the elderly, constituting a substantial portion of HME patients, are expected to represent a higher percentage of the overall population.

Projections from industry analysts indicate a consistent annual growth in the number of Medicare beneficiaries, contributing to ongoing patient volume growth.

A significant contributing factor to the industry's growth is the rising incidence of chronic diseases.

Factors such as increasing obesity rates, consequences of past smoking prevalence, under-diagnosis of certain health conditions, and higher diagnosis rates for chronic diseases collectively shape the industry.

There is a notable shift towards home-based treatment for these conditions.

The industry is undergoing a transition to value-based healthcare, with both government and commercial payors increasingly adopting models that emphasize the transition of patients from acute care settings to home care.

We believe HME providers are well-positioned to benefit from this industry shift.

Advancements in technology and medical equipment have led to an increased prevalence of in-home treatments.

The broader range of treatments administered in patient homes is expected to continue growing.

Projections from industry analysts indicate that U.S.

home healthcare spending will increase, reaching $250 billion by 2031, with a CAGR of approximately 7%.

Market consolidation is a notable trend favoring larger, financially stable players.

The decline in the number of smaller regional players is attributed to the capital investment and scale required to compete effectively.

This has led to a more consolidated and competitive landscape in the DME market.

Despite these positive trends, the industry faces challenges such as cost containment efforts of payors.

The consolidation of managed care payors into larger purchasing groups has increased negotiating power, resulting in pricing pressure on HME providers.

In addition to ongoing negotiations contract management with third party payors to secure fair reimbursement, HME providers are engaging in value-based contracting, focusing on outcomes and patient satisfaction.

These value-based contracts leverage data analytics to demonstrate the cost-effectiveness and quality of durable medical goods and provide evidence-based data to payors demonstrating the long-term benefits and cost savings associated with the use of certain medical goods.

Impact of Inflation

The Company faces current and potential future inflationary pressures driven by factors such as general cost increases, supply chain disruptions, and governmental policies.

The manufacturing and distribution costs of Viemed's patient equipment are affected by rising material, labor, and transportation expenses, including fuel costs.

Persistent inflation may impact overall demand, increase operating costs, and affect profit margins, potentially adversely affecting Viemed's business and financial performance.

In its 2024 DMEPOS Fee Schedule, CMS 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 2.9% reimbursement rate increase.

Items that were subject to the competitive bidding program in non-competitive bidding areas received a 3.0% reimbursement rate increase.

Items not subject to the competitive bidding program received a 2.6% reimbursement rate increase.

Future volatility in general price inflation and its impact on material availability, shipping, warehousing, and operational overhead could further impact financial results.

Viemed attempts to address these pressures through its inflation-linked reimbursement contracts, negotiation, leveraging its purchasing power and embracing technology, such as its proprietary clinical management platform.

VIEMED HEALTHCARE, INC.

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December 31, 2023 and 2022

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 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.

“Risk Factors.”

In 2019, CMS announced the inclusion of non-invasive ventilator products on the list of products subject to the competitive bidding program in Round 2021 which covers the period of January 1, 2021 through December 31, 2023.

On March 9, 2020, CMS announced that due to the COVID-19 pandemic, the United States President’s exercise of the Defense Production Act, public concern regarding access to ventilators, and the non-invasive ventilators product category being new to the competitive bidding program, non-invasive ventilators were removed as a product category from Round 2021.

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

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.

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

(Tabular amounts expressed in thousands of U.S.

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Not all significant accounting policies require management to make difficult, subjective or complex judgments.

However, the policy noted below could be deemed to meet the SEC’s definition of a critical accounting estimate.

Allowance for Doubtful Accounts

The Company estimates that a certain portion of receivables from customers may not be collected and maintains an allowance for doubtful accounts.

The Company evaluates the net realizable value of accounts receivable as of the date of Consolidated Balance Sheets.

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

Because of continuing changes in the healthcare industry and third-party reimbursement, it is possible that the estimates could change, which could have a material impact on the operations

However, the policies noted below could be deemed to meet the SEC’s definition of a critical accounting estimate.

Accounts Receivable

Accounts receivable are presented at net realizable values that reflect the consideration we expect to receive which is inclusive of adjustments for price concessions.

Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required in order to record revenues and accounts receivable at their net realizable values.

Management’s evaluation takes into consideration such factors as historical realization data, including current and historical cash collections, accounts receivable aging trends, other operating trends and relevant business conditions.

Inherent in these estimates is the risk that they may have to be revised or updated as additional information becomes available.

It is possible that management’s estimates could change, which could have an impact on operations and cash flows.

Specifically, the complexity of many third-party billing arrangements, patient qualification for medical necessity of equipment and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded.

If the payment amount received differs from the estimated net realizable amount, an adjustment is made to the net realizable amount in the period that these payment differences are determined.

Business Combinations

The Company applies the acquisition method of accounting for business acquisitions.

The results of operations of the businesses acquired by the Company are included as of the respective acquisition date.

The acquisition-date fair value of the consideration transferred, including the fair value of any contingent consideration, is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition.

To the extent the acquisition-date fair value of the consideration transferred exceeds the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill.

Patient relationships, medical records and patient lists are not reported as separate intangible assets due to the regulatory requirements and lack of contractual agreements, but are part of goodwill.

Customer related relationships are not reported as separate intangible assets, but are also part of goodwill as authorizing physicians are under no obligation to refer the Company’s services to their patients, who are free to change physicians and service providers at any time.

The Company may adjust the preliminary purchase price allocation, as necessary, as it obtains more information regarding asset valuations and liabilities assumed that existed but were not available at the acquisition date, which is generally up to one year after the acquisition closing date.

Acquisition related costs are recognized separately from the business combination and are expensed as incurred.

VIEMED HEALTHCARE, INC.

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December 31, 2023 and 2022

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 $8.5 million and $7.0 million as of December 31, 2022 and 2021, respectively.

Results of Operations

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Stock-based compensation 5,849 3.2 % 5,202 3.7 % 647 12.4 %

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

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) %

Depreciation and amortization

1,391 0.8 % 1,012 0.7 % 379 37.5 %

Loss on disposal of property and equipment 645 0.4 % 346 0.2 % 299 86.4 %

Other income, net

(98) (0.1) % (989) (0.7) % 891 (90.1) %

Income from operations 14,330 7.8 % 8,252 5.9 % 6,078 73.7 %

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Income from equity method investments

485 0.3 % 935 0.7 % (450) (48.1) %

Interest expense, net (424) (0.2) % (197) (0.1) % (227) 115.2 %

Net income before taxes 14,391 7.9 % 8,990 6.5 % 5,401 60.1 %

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

Provision for income taxes 4,148 2.3 % 2,768 2.0 % 1,380 49.9 %

Net income $ 10,243 5.6 % $ 6,222 4.5 % $ 4,021 64.6 %

VIEMED HEALTHCARE, INC.

(Tabular amounts expressed in thousands of U.S.

Dollars, except per share amounts)

December 31, 2022 and 2021

The following table summarizes our revenue for the years ended December 31, 2023 and 2022:

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Excluding COVID-19 response sales and services, net revenue increased $46.5 million (or 34.0%) from the comparable period in 2022.

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 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 net revenue increase was comprised of increases in ventilator rental revenue of $15.5 million (or 16.8%), rental revenue from other HME of $16.9 million (or 78.7%), equipment and supply sales of $11.8 million (or 85.0%), and service revenues of $2.2 million (or 25.9%).

The growth in other home medical equipment rentals has been primarily driven by the continued national expansion of PAP, oxygen therapy, and percussion vest activities and the acquisition of Home Medical Products, Inc.

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 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.

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, 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

For the year ended December 31, 2022, selling, general and administrative expenses totaled $68.2 million, an increase of $13.3 million (or 24.2%) from the comparable period in 2021.

Excluding COVID-19 related revenues, selling, general and administrative

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.

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

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.

As we continue to expand geographically into new territories and further expand our presence in our existing territories, we expect continued growth in our active ventilator patient base and our other respiratory offerings.

VIEMED HEALTHCARE, INC.

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revenue in 2023 as costs stabilize relative to revenue growth.

Cost of Revenue and Gross Profit

For the year ended December 31, 2023, cost of revenue totaled $70.2 million, an increase of $16.1 million (or 29.7%) from the comparable period in 2022.

Gross profit percentage increased from approximately 61.0% to approximately 61.6% from the year ended December 31, 2022 to year ended December 31, 2023, respectively.

The increase 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.

Gross profit percentage is expected to remain relatively stable in upcoming periods due to subsiding inflationary cost pressures and the positive effects associated with reimbursement rates, offset by some decreases associated with product and service diversification.

Selling, General and Administrative Expense

Selling, general and administrative expenses as a percentage of revenue decreased to 48.0% for the year ended December 31, 2023 compared to 49.1% for the year ended December 31, 2022.

Selling, general and administrative expenses totaled $87.9 million for the year ended December 31, 2023, an increase of $19.7 million (or 28.9%) 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 743 on December 31, 2022 to 996 on December 31, 2023, an increase o f 34%, which was partially due to the acquisition of HMP on June 1, 2023.

Employee compensation expenses increase d $10.4 million (or 27%) a s a result of the increase in our employee headcount and increases in incentive and volume based compensation.

We expect that selling, general and administrative expenses as a percentage of revenue will continue to improve in 2024 due to increased efficiencies and costs stabilization relative to revenue growth.

Research and Development Costs

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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 2024 relative to 2023 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, 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.

Stock-Based Compensation

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This increase is attributed to the expense of additional stock-based awards during 2023.

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.

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.

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

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.

For the year ended December 31, 2023, net interest expense totaled $0.4 million, an increase of $0.2 million from the comparable period in 2022.

As a result of continued paydowns on debt issued to fund the acquisition of HMP, we expect net interest expense to decrease in 2024 relative to 2023.

Provision (Benefit) for Income Taxes

For the year ended December 31, 2023, the provision for income taxes was a $4.1 million expense, compared to a $2.8 million expense during the 2022 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 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

The Company uses Adjusted EBITDA, which is a financial measure that is not prepared in accordance with GAAP to analyze its financial results and believes that it is useful to investors, as a supplement to GAAP measures.

Management believes Adjusted EBITDA provides helpful information with respect to the Company's operating performance as viewed by management, including a view of the Company's business that is not dependent on the impact of the Company's capitalization structure and items that are not part of the Company's day-to-day operations.

Management uses Adjusted EBITDA (i) to compare the Company's operating performance on a consistent basis, (ii) to calculate incentive compensation for the Company's employees, (iii) for planning purposes including the preparation of the Company's internal annual operating budget, and (iv) to evaluate the performance and effectiveness of the Company's operational strategies.

Accordingly, management believes that Adjusted EBITDA provides useful information in understanding and evaluating the Company's operating performance in the same manner as management.

In calculating Adjusted EBITDA, certain items (mostly non-cash) are excluded from net income including interest, taxes, stock based compensation, and depreciation of property and equipment.

Set forth below are descriptions of the financial items that have 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.

Our annual estimated effective tax rate for 2023 is 28.8%.

For the year ended December 31, 2023, net income was $10.2 million, an increase of $4.0 million (or 64.6%) from the comparable period in 2022.

Net income as a percentage of net revenue increased from 4.5% for the year ended December 31, 2022 to 5.6% for the year ended December 31, 2023, primarily due to improvements in selling, general, and administrative expenses associated with increased efficiencies and stabilizing costs.

VIEMED HEALTHCARE, INC.

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December 31, 2023 and 2022

– The amount of interest expense we incur or interest income we generate may be useful for investors to consider and may result in current cash inflows or outflows.

However, we do not consider the amount of interest expense or interest income to be a representative component of the day-to-day operating performance of our business.

– Stock-based compensation may be useful for investors to consider because it is an estimate of the non-cash component of compensation received by the Company’s directors, officers, employees and consultants.

However, stock-based compensation is being excluded from our operating expenses because the decisions which gave rise to these expenses were not made to increase revenue in a particular period, but were made for the Company’s long-term benefit over multiple periods.

While strategic decisions, such as those to issue stock-based awards are made to further our long-term strategic objectives and do impact our earnings under GAAP, these items affect multiple periods and management is not able to change or affect these items within any period.

– Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes and may reduce or increase the amount of funds otherwise available for use.

However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

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 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 net interest expense (income), taxes, stock based compensation, depreciation of property and equipment, and amortization of intangible assets.

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:

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Net Income $ 3,477 $ 2,919 $ 2,330 $ 1,517 $ 2,438 $ 1,055 $ 967 $ 1,762

Depreciation 4,373 4,120 3,740 3,397 3,120 2,867 2,716 2,609

Interest expense 32 42 59 64 69 75 83 91

Stock-based compensation 1,317 1,309 1,271 1,305 1,305 1,302 1,236 1,307

Income tax expense (benefit) 1,146 456 421 745 968 1,386 1,246 (223)

Depreciation & amortization

5,918 5,975 5,207 4,762 4,373 4,120 3,740 3,397

Interest expense (income)

256 237 (20) (49) 32 42 59 64

Stock-based compensation (a)

1,534 1,453 1,471 1,391 1,317 1,309 1,271 1,305

Transaction costs (b)

61 177 94 206 — — — —

Income tax expense

1,599 1,320 728 501 1,146 456 421 745

Adjusted EBITDA $ 12,845 $ 12,081 $ 9,810 $ 8,328 $ 9,306 $ 6,982 $ 6,458 $ 7,273

(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 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.

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Cash and cash equivalents at December 31, 2023 was $12.8 million, compared to $16.9 million at December 31, 2022.

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.

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

The primary non-recurring use of excess cash during the 2023 period was to fund the acquisition of HMP.

Based on our current plan of operations, we believe this amount, when combined with expected cash flows from operations and amounts available under our 2022 Senior 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 has also historically utilized short term financing arrangements with suppliers that could be extended over a longer term if there was a need for additional liquidity.

VIEMED HEALTHCARE, INC.

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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.

The non-cash net income adjustments primarily consisted of $6.9 million in change of allowance for doubtful accounts, $11.3 million of depreciation, $3.9 million in change in deferred tax asset, $5.2 million of stock-based compensation, and $1.2 million of income from equity investments.

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

Included in 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, 2023 was $45.2 million, resulting from net income of $10.2 million, increased by net income adjustments of $27.2 million and a change in net working capital of $7.8 million.

The net income adjustments primarily consisted of $21.9 million of depreciation and amortization, $5.8 million of stock-based compensation, and $1.0 million of distributions of earnings received from equity method investments, offset by a $1.4 million deferred income tax benefit.

The primary changes in working capital were an increase in accrued liabilities of $5.0 million, a decrease in prepaid expenses and other assets of $2.2 million, and a net increase in income taxes payable of $2.2 million, offset by an increase in net accounts receivable of $1.1 million.

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 net income adjustments of $21.7 million and a change in net working capital of $0.1 million.

The net income adjustments primarily consisted of $15.6 million of depreciation and amortization, $5.2 million of stock-based compensation, $1.7 million of deferred income tax expense, and $1.1 million of distributions of earnings received from equity method investments, offset by a $1.4 million change in inventory reserve.

The primary changes in working capital were an increase in net accounts receivable of $2.6 million and an increase in prepaid expenses and other assets of $2.8 million, offset by an increase in accrued liabilities of $2.5 million and a net increase in income taxes payable of $1.9 million.

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.

Net cash used in investing activities during the year ended December 31, 2023 was $52.1 million, primarily due to the net cash paid for the acquisition of HMP of $28.6 million and $26.1 million of purchases of property and equipment, partially offset by $2.6 million of sales proceeds from the disposal of property and equipment.

Purchases of property and equipment during the year ended December 31, 2023 were primarily related to medical equipment rented to our patients.

Cash purchases of property and equipment represents a $3.2 million, or 14.0%, 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.

Net Cash Used in Financing Activities

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.

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

Net Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities during the year ended December 31, 2023 was $2.8 million.

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.

During the year ended December 31, 2023, principal payments on the 2022 Senior Credit Facilities (as defined below) were $6.1 million.

Additionally, principal payments on acquired loans were $4.6 million during the year ended December 31, 2023.

The Company acquired and cancelled 75,235 common shares at a cost of $0.6 million to satisfy employee income tax withholding associated with RSUs vestings while proceeds from the exercise of options during the year ended December 31, 2023 were $1.3 million.

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 on March 7, 2022 and terminated on September 30, 2023 (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”),$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.

VIEMED HEALTHCARE, INC.

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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.

Outstanding borrowings under the 2022 Term Loan Facility and 2022 Revolving Credit Facility were $4.9 million and $2.0 million, respectively, as of December 31, 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%.

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As of December 31, 2023, the Company had cash and cash equivalents of $12.8 million.

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

Our principal uses of cash are funding the purchase of rental assets and other capital purchases, the repayment of debt, funding of

acquisitions, operations, and other working capital requirements.

Our contractual obligations primarily relate to the repayment of existing debt and contractual obligations for operating and finance leases.

The following table presents our material contractual obligations and commitments to make future payments as of December 31, 2023:

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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.

We may seek to raise additional funds through equity, equity-

VIEMED HEALTHCARE, INC.

2 unchanged sentences

December 31, 2023 and 2022

linked or debt financings.

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 finance leases.

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The Company has no material undisclosed off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its results of operations or financial condition.

Recent Accounting Pronouncements

See Note 2 – Summary of Significant Account Policies of the Notes to Consolidated Financial Statements for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows.

Recently Issued Accounting Pronouncements

See Note 2 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows.

Quantitative and Qualitative Disclosures About Market Risk

5 unchanged sentences

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