Item 7. Management’s Discussion and Analysis
Item 7. 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 our financial statements and the accompanying notes included elsewhere in this report. The forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our future development plans, capital resources and requirements, results of operations, and future business performance. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in the section entitled “Special Note Regarding Forward-Looking Statements” immediately preceding Part I of this report.
General Matters
In this Annual Report on Form 10-K, 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).
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.
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 59.2% and 67.9% of our traditional revenue, excluding COVID-19 response sales and services for the years ended December 31, 2023 and 2022, respectively. We combine the benefits of home ventilation support with licensed RTs to drive improved patient outcomes and reduce costly hospital readmissions.
We expect to grow through expansion of existing service areas as well as in new territories through a cost efficient launch that reduces location expenses. 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 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.
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.
For the year ended December 31, 2023, we generated revenues of $183.0 million and had net income of $10.2 million, compared to revenues of $138.8 million and net income of $6.2 million for the year ended December 31, 2022. Excluding COVID-19 response sales and services, net revenue increased $46.5 million (or 34.0%) from the comparable period in 2022.
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VIEMED HEALTHCARE, INC.
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts)
December 31, 2023 and 2022
Our primary sources of capital to date have been from operating cash flows. Our existing commercial credit facilities provide access to additional liquidity through a revolving credit facility of up to $30.0 million and a delayed draw term loan facility of up to $30.0 million. An accordion feature allows the Company to increase the size of such facilities by up to an additional $30.0 million, subject to certain conditions, for a total borrowing capacity of up to $90 million.
Trends Affecting our Business
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.
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VIEMED HEALTHCARE, INC.
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts)
December 31, 2023 and 2022
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 December 31,
2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022
Financial Information:
Revenue $ 50,739 $ 49,402 $ 43,311 $ 39,556 $ 37,508 $ 35,759 $ 33,310 $ 32,255
Gross Profit 32,111 30,562 26,106 24,004 22,896 21,651 20,390 19,743
Gross Profit % 63 % 62 % 60 % 61 % 61 % 61 % 61 % 61 %
Net Income 3,477 2,919 2,330 1,517 2,438 1,055 967 1,762
Cash and Cash Equivalents (As of) 12,839 10,078 10,224 23,544 16,914 21,478 21,922 29,248
Total Assets (As of) 154,895 149,400 149,117 124,634 117,043 119,419 115,904 119,007
Adjusted EBITDA (1)
12,845 12,081 9,810 8,328 9,306 6,982 6,458 7,273
Operational Information:
Vent Patients (2)
10,327 10,244 10,005 9,337 9,306 9,127 8,837 8,434
(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.
Critical Accounting Estimates
We are required to disclose “critical accounting estimates” which are estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and that have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant.
We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. The more significant of these policies are summarized in Note 2 to our consolidated financial statements included in Part II, Item 8 of this report. Not all significant accounting policies require management to make difficult, subjective or complex judgments. 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.
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VIEMED HEALTHCARE, INC.
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts)
December 31, 2023 and 2022
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022:
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022:
Year Ended December 31,
2023 % of Total Revenue 2022 % of Total Revenue $
Change %
Change
Revenue $ 183,008 100.0 % $ 138,832 100.0 % $ 44,176 31.8 %
Cost of revenue 70,225 38.4 % 54,152 39.0 % 16,073 29.7 %
Gross profit 112,783 61.6 % 84,680 61.0 % 28,103 33.2 %
Selling, general and administrative 87,884 48.0 % 68,161 49.1 % 19,723 28.9 %
Research and development 2,782 1.5 % 2,696 1.9 % 86 3.2 %
Stock-based compensation 5,849 3.2 % 5,202 3.7 % 647 12.4 %
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 %
Non-operating income and expenses
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 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 %
Revenue
The following table summarizes our revenue for the years ended December 31, 2023 and 2022:
Year Ended December 31,
2023 % of Total Revenue 2022 % of Total Revenue $
Change %
Change
Net revenue from rentals
Ventilator rentals, non-invasive and invasive $ 108,258 59.2 % $ 92,710 66.8 % $ 15,548 16.8 %
Other home medical equipment rentals 38,315 20.9 % 21,446 15.4 % 16,869 78.7 %
Net revenue from sales and services
Equipment and supply sales 25,770 14.1 % 13,927 10.0 % 11,843 85.0 %
COVID-19 response sales and services — — % 2,278 1.6 % (2,278) (100.0) %
Service revenues 10,665 5.8 % 8,471 6.1 % 2,194 25.9 %
Total net revenue $ 183,008 100.0 % $ 138,832 100.0 % $ 44,176 31.8 %
For the year ended December 31, 2023, revenue totaled $183.0 million, an increase of $44.2 million (or 31.8%) from the comparable period in 2022. Excluding COVID-19 response sales and services, net revenue increased $46.5 million (or 34.0%) from the comparable period in 2022. 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. ("HMP"). 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. 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.
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VIEMED HEALTHCARE, INC.
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts)
December 31, 2023 and 2022
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
For the year ended December 31, 2023, research and development costs totaled $2.8 million, an increase of $0.1 million (or 3.2%) 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 the associated costs will remain consistent in 2024 relative to 2023 costs.
Stock-Based Compensation
For the year ended December 31, 2023, stock-based compensation totaled $5.8 million, an increase of $0.6 million (or 12.4%) from the comparable period in 2022. This increase is attributed to the expense of additional stock-based awards during 2023. 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, 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. Our annual estimated effective tax rate for 2023 is 28.8%.
Net Income
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.
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VIEMED HEALTHCARE, INC.
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts)
December 31, 2023 and 2022
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:
For the quarter ended December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022
Net Income $ 3,477 $ 2,919 $ 2,330 $ 1,517 $ 2,438 $ 1,055 $ 967 $ 1,762
Add back:
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 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.
Liquidity and Capital Resources
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 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.
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VIEMED HEALTHCARE, INC.
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts)
December 31, 2023 and 2022
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
2023 2022
Net Cash provided by (used in):
Operating activities $ 45,212 $ 27,748
Investing activities (52,113) (23,976)
Financing activities 2,826 (15,266)
Net decrease in cash and cash equivalents $ (4,075) $ (11,494)
Net Cash Provided by Operating Activities
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, 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, 2022 was $24.0 million, consisting of $22.9 million of purchases of property and equipment, $2.0 million in debt investments, and $0.1 million in equity investments, partially offset by $1.1 million of sales proceeds from the disposal of property and equipment. Purchases of property and equipment during the year ended December 31, 2022 were primarily related to medical equipment rented to our patients.
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.
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VIEMED HEALTHCARE, INC.
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts)
December 31, 2023 and 2022
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 $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%.
The 2022 Senior Credit Facilities require the Company to comply with certain affirmative, as well as certain negative covenants that, among other things, will restrict, subject to certain exceptions, the ability of the Company to incur indebtedness, grant liens, make investments, engage in acquisitions, mergers or consolidations and pay dividends and other restricted payments. The 2022 Senior Credit Facilities also include certain financial covenants, which generally include, but are not limited to the following:
• Consolidated Total Leverage Ratio ( defined generally as total indebtedness to adjusted EBITDA) of not greater than (i) for any fiscal quarter ending during the period from the closing date to and including December 31, 2024, 2.75 to 1.0 and (ii) for any fiscal quarter ending on and after March 31, 2025, 2.50 to 1.0, subject to certain adjustments following a material acquisition.
• Consolidated Fixed Charge Coverage Ratio ( defined generally as (a) adjusted EBITDA minus capital expenditures minus cash taxes to (b) the sum of scheduled principal payments plus cash interest expense plus restricted payments) of not less than 1.25:1.0.
The Company was in compliance with all covenants under the 2022 Senior Credit Facilities in effect at December 31, 2023.
Sources of Funds
Cash provided by operating activities during the year ended December 31, 2023 was $45.2 million compared to $27.7 million during the year ended December 31, 2022.
As of December 31, 2023, the Company had cash and cash equivalents of $12.8 million.
Use of Funds
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:
Within 12 Months Beyond 12 Months
Debt Obligations, including interest $ 1,617 $ 7,911
Lease Obligations 1,130 2,666
Total $ 2,747 $ 10,577
Except for the funding of potential acquisitions and investments, we anticipate that our operating cash flows will satisfy our material cash requirements for the 12 months after December 31, 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-
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VIEMED HEALTHCARE, INC.
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts)
December 31, 2023 and 2022
linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders.
Leases
Leases under which we assume substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lesser of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to the asset. The associated lease liability is drawn down over the life of the lease by allocating a portion of each lease payment to the liability with the remainder being recognized as finance charges. Leases that do not transfer the risks and rewards of ownership to the Company are treated as operating leases and are expensed as incurred.
Retirement Plan
The Company maintains a 401(k) retirement plan for employees to which eligible employees can contribute a percentage of their pre-tax compensation. Matching employer contributions to the 401(k) plan totaled $1.4 million and $1.1 million for the years ended December 31, 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.
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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VIEMED HEALTHCARE, INC.
(Tabular amounts expressed in thousands of U.S. Dollars, except per share amounts)
December 31, 2023 and 2022