VIEMED HEALTHCARE, INC. 10-K

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. Discussion in this Form 10-K includes results of operations and financial condition for 2024 and 2023 and year-over-year comparisons between 2024 and 2023. For discussion on results of operations and financial condition pertaining to 2022 and year-over-year comparisons between 2023 and 2022, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023. 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 subsidiaries in which it has a controlling financial interest. 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). 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, the sale of associated supplies, and healthcare staffing services. We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 55.6% and 59.2% of our revenue for the years ended December 31, 2024 and 2023, 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. Viemed anticipates expanding its workforce of RTs to support the Company's growth and ensure the high service model is maintained in the home. As of December 31, 2024, we employed 404 licensed RTs, representing approximately 34% of our company-wide employee count. Beyond fulfilling its internal staffing needs, Viemed also provides healthcare staffing and recruitment services, offering tailored workforce solutions to external healthcare institutions and partners seeking qualified clinical professionals. 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 territories 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 care 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, 2024, we generated revenues of $224.3 million and had net income of $11.4 million, compared to revenues of $183.0 million and net income of $10.2 million for the year ended December 31, 2023. Net revenue increased $41.2 million (or 22.5% ) from the comparable period in 2023. Revenue derived from the rental and sale of home medical equipment represented a combined 91.0% and 94.2%, respectively, of Viemed’s 2024 and 2023 revenue. Page 31 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 relating to 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 2025 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 2.4% 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. Page 32 The below table highlights summary financial and operational metrics for the last eight quarters (expressed in thousands of U.S. Dollars, except operational information). For the quarter ended December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Financial Information: Revenue $ 60,695 $ 58,004 $ 54,965 $ 50,593 $ 50,739 $ 49,402 $ 43,311 $ 39,556 Gross Profit $ 36,138 $ 34,371 $ 32,892 $ 29,802 $ 32,111 $ 30,562 $ 26,106 $ 24,004 Gross Profit % 60 % 59 % 60 % 59 % 63 % 62 % 60 % 61 % Net Income attributable to Viemed Healthcare, Inc. $ 4,316 $ 3,878 $ 1,468 $ 1,603 $ 3,477 $ 2,919 $ 2,330 $ 1,517 Cash and Cash Equivalents (As of) $ 17,540 $ 11,347 $ 8,807 $ 7,309 $ 12,839 $ 10,078 $ 10,224 $ 23,544 Total Assets (As of) $ 177,069 $ 169,526 $ 163,947 $ 154,875 $ 154,895 $ 149,400 $ 149,117 $ 124,634 Adjusted EBITDA (1) $ 14,242 $ 13,954 $ 12,813 $ 10,098 $ 12,845 $ 12,081 $ 9,810 $ 8,328 Operational Information: Vent Patients (2) 11,795 11,374 10,905 10,450 10,327 10,244 10,005 9,337 PAP Therapy Patients (3) 21,338 19,478 17,349 15,726 14,900 14,788 13,313 8,097 Sleep Resupply Patients (4) 24,478 22,143 20,185 18,904 18,902 18,544 12,572 7,279 (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. (3) PAP Therapy Patients represents the number of distinct patients billed for PAP therapy services during each calendar quarter. (4) Sleep Resupply Patients represents the number of distinct patients who received supplies through our sleep resupply program during 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 our financial condition or results of operations. We follow financial accounting and reporting policies that are in accordance with accounting principles generally accepted in the United States. The more significant of these policies are summarized in Note 2 to our consolidated financial statements included in Part II, Item 8 of 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 recorded based upon contractually agreed-upon rates, reduced by estimated adjustments for variable consideration for implicit price concessions related to sales revenues and estimated probable losses related to rental revenues. 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 net of these adjustments. 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 amount, an adjustment is made in the period that these payment differences are determined. Page 33 Results of Operations Comparison of the Years Ended December 31, 2024 and 2023: The following table summarizes our results of operations for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 % of Total Revenue 2023 % of Total Revenue $ Change % Change Revenue $ 224,257 100.0 % $ 183,008 100.0 % $ 41,249 22.5 % Cost of revenue 91,054 40.6 % 70,225 38.4 % 20,829 29.7 % Gross profit 133,203 59.4 % 112,783 61.6 % 20,420 18.1 % Selling, general and administrative 106,199 47.4 % 87,884 48.0 % 18,315 20.8 % Research and development 3,068 1.3 % 2,782 1.5 % 286 10.3 % Stock-based compensation 6,285 2.8 % 5,849 3.2 % 436 7.5 % Depreciation and amortization 1,483 0.6 % 1,391 0.8 % 92 6.6 % Loss (gain) on disposal of property and equipment (1,905) (0.8) % 645 0.4 % (2,550) (395.3) % Other expense (income), net 173 0.1 % (98) (0.1) % 271 (276.5) % Income from operations 17,900 8.0 % 14,330 7.8 % 3,570 24.9 % Non-operating income and expenses Income (expense) from investments (954) (0.4) % 485 0.3 % (1,439) (296.7) % Interest expense, net (776) (0.4) % (424) (0.2) % (352) 83.0 % Net income before taxes 16,170 7.2 % 14,391 7.9 % 1,779 12.4 % Provision for income taxes 4,761 2.1 % 4,148 2.3 % 613 14.8 % Net income $ 11,409 5.1 % $ 10,243 5.6 % $ 1,166 11.4 % Net income attributable to noncontrolling interest 144 0.1 % — — % 144 NM Net income attributable to Viemed Healthcare, Inc. $ 11,265 5.0 % $ 10,243 5.6 % $ 1,022 10.0 % Revenue The following table summarizes our revenue for the years ended December 31, 2024 and 2023: Year Ended December 31, 2024 % of Total Revenue 2023 % of Total Revenue $ Change % Change Net revenue from rentals Ventilator rentals, non-invasive and invasive $ 124,577 55.6 % $ 108,258 59.2 % $ 16,319 15.1 % Other home medical equipment rentals 48,651 21.7 % 38,315 20.9 % 10,336 27.0 % Net revenue from sales and services Equipment and supply sales 30,896 13.7 % 25,770 14.1 % 5,126 19.9 % Service revenues 20,133 9.0 % 10,665 5.8 % 9,468 88.8 % Total net revenue $ 224,257 100.0 % $ 183,008 100.0 % $ 41,249 22.5 % For the year ended December 31, 2024, revenue totaled $224.3 million, an increase of $41.2 million (or 22.5%) from the comparable period in 2023. The primary driver of this growth was our ventilator rental revenue, which increased by $16.3 million (or 15.1%) due to higher patient volumes associated with strong demand for ventilation services. Additionally, rental revenue from other Home Medical Equipment (HME) increased by $10.3 million (or 27.0%) due to an expanding patient base, robust demand for Positive Airway Pressure (PAP) therapy, oxygen therapy, and percussion vest services. Equipment and supply sales grew by $5.1 million (or 19.9%) largely attributable to the success of our sleep resupply program, which was further enhanced by the integration of resupply programs from acquisitions. Furthermore, services revenue experienced an increase of $9.5 million (or 88.8%), primarily due to the growth of healthcare staffing offerings. While ventilator rentals continue to make up the majority of our revenue, the growth of PAP and oxygen related sales, as well as our healthcare staffing offerings, is contributing 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 other home medical offerings. Page 34 Cost of Revenue and Gross Profit For the year ended December 31, 2024, cost of revenue totaled $91.1 million, an increase of $20.8 million (or 29.7%) from the comparable period in 2023. Gross profit percentage decreased from approximately 61.6% to approximately 59.4% from the year ended December 31, 2023 to the year ended December 31, 2024, respectively. The decrease in gross profit percentage is primarily due to migration of the revenue mix associated with product and service diversification. In 2025, gross profit in absolute dollars is expected to continue increasing, supported by overall revenue growth, subsiding inflationary cost pressures, and favorable reimbursement rate adjustments. However, gross profit percentage is likely to be negatively impacted by the continued diversification of our product and service offerings. Selling, General and Administrative Expense Selling, general and administrative expenses as a percentage of revenue improved to 47.4% for the year ended December 31, 2024 compared to 48.0% for the year ended December 31, 2023. Selling, general and administrative expenses totaled $106.2 million for the year ended December 31, 2024, an increase of $18.3 million (or 20.8%) from the comparable period in 2023. The improvement in selling, general, and administrative expenses as a percentage of revenue is attributable to economies of scale and improvements in operational efficiencies. The overall increase in selling, general and administrative expense as compared to the prior period is primarily attributable to additional employee related expenses to accommodate the overall growth of the Company, which was partially due to the acquisition of Home Medical Products, Inc. (“HMP”) on June 1, 2023. Our full-time employee count increased from 996 on December 31, 2023 to 1,179 on December 31, 2024, an increase o f 18% . Employee compensation expenses increased $13.3 million (or 21% ) as 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 2025 due to increased efficiencies and costs optimization efforts. Research and Development Costs For the year ended December 31, 2024, research and development costs totaled $3.1 million, an increase of $0.3 million (or 10.3%) from the comparable period in 2023. 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 2025 relative to 2024 costs. Stock-Based Compensation For the year ended December 31, 2024, stock-based compensation totaled $6.3 million, an increase of $0.4 million (or 7.5%) from the comparable period in 2023. We anticipate that as we expand our workforce, incorporating stock-based awards as a component of employee compensation, stock-based compensation expenses will rise correspondingly. Historically, revenue growth has outpaced the growth in stock-based compensation. As we transition more of our stock-based compensation from phantom stock liability awards to equity awards, we expect stock-based compensation expense to increase in 2025. Loss (gain) on disposal of property and equipment For the year ended December 31, 2024, gain on disposal of property and equipment totaled $1.9 million compared to loss on disposal of property and equipment of $0.6 million for the year ended December 31, 2023. The gain primarily resulted from proceeds related to the sale of recalled ventilators back to the manufacturer. We anticipate additional future gains from the disposal of eligible devices, as the proceeds from these disposals are expected to exceed their net book value. Income (expense) from investments For the year ended December 31, 2024, expense from investments totaled $1.0 million compared to income from investments of $0.5 million from the comparable period in 2023. The change is primarily driven by a loss recognized on a debt investment during the current year. Interest Expense, Net For the year ended December 31, 2024, net interest expense totaled $0.8 million, an increase of $0.4 million from the comparable period in 2023. The increase in net interest expense is primarily due to outstanding borrowings as a result of debt issued to fund acquisitions. We expect to utilize positive cash flow to further reduce outstanding debt which would result in a reduction in net interest expense in 2025 relative to 2024. Page 35 Provision for Income Taxes For the year ended December 31, 2024, the provision for income taxes was a $4.8 million expense, compared to a $4.1 million expense during the 2023 period. Our annual estimated effective tax rate for 2024 is 29.4% . Net Income For the year ended December 31, 2024, net income was $11.4 million, an increase of $1.2 million (or 11.4%) from the comparable period in 2023. The increase in net income was primarily a result of the organic growth of the business and expansion of the patient base. Net income as a percentage of net revenue decreased from 5.6% for the year ended December 31, 2023 to 5.1% for the year ended December 31, 2024, primarily due to non-operating investment losses and an impairment of outstanding litigation funds receivable. Page 36 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"). Adjusted EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. 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. 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. 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. In calculating Adjusted EBITDA, certain items (mostly non-cash) are excluded from net income including depreciation and amortization of capitalized assets, net interest expense (income), stock based compensation, transaction costs, impairment of assets, and taxes. 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, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Net Income attributable to Viemed Healthcare, Inc. $ 4,316 $ 3,878 $ 1,468 $ 1,603 $ 3,477 $ 2,919 $ 2,330 $ 1,517 Add back: Depreciation & amortization 6,366 6,408 6,309 6,285 5,918 5,975 5,207 4,762 Interest expense (income) 147 225 254 150 256 237 (20) (49) Stock-based compensation (a) 1,521 1,712 1,620 1,432 1,534 1,453 1,471 1,391 Transaction costs (b) 11 12 221 110 61 177 94 206 Impairment of assets (c) — 125 2,173 — — — — — Income tax expense 1,881 1,594 768 518 1,599 1,320 728 501 Adjusted EBITDA $ 14,242 $ 13,954 $ 12,813 $ 10,098 $ 12,845 $ 12,081 $ 9,810 $ 8,328 (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. (c) Represents impairments of the fair value of investment and litigation-related assets. Liquidity and Capital Resources Cash and cash equivalents at December 31, 2024 was $17.5 million, compared to $12.8 million at December 31, 2023. Typically, our principal source of liquidity is the collection of our patient accounts receivable. In addition to our collection of patient accounts receivable, from time to time, we can and do obtain additional sources of liquidity through the incurrence of indebtedness. Based on our current plan of operations, we believe cash and cash equivalents, 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. Page 37 The Company had historically utilized Change Healthcare, a subsidiary of UnitedHealth Group, to submit patient claims to certain non-Medicare payors for reimbursement. UnitedHealth Group announced that on February 21, 2024, Change Healthcare’s information technology systems were impacted by a cybersecurity incident. Although this incident did not impact our day-to-day operations or patient care delivery, it did cause delays in submitting patient claims to certain payors. By the end of the second quarter of 2024, the Company had replaced Change Healthcare as its clearinghouse and resumed claims submissions using alternative platforms for all claims. However, the delayed claims submissions resulted in a temporary reduction of our operating cash flow and an increase to our accounts receivable during the year ended December 31, 2024. Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2024 2023 Net Cash provided by (used in): Operating activities $ 39,089 $ 45,212 Investing activities (30,699) (52,113) Financing activities (3,689) 2,826 Net increase (decrease) in cash and cash equivalents $ 4,701 $ (4,075) Net Cash Provided by Operating Activities Net cash provided by operating activities during the year ended December 31, 2024 was $39.1 million, resulting from net income of $11.4 million, increased by net income adjustments of $27.3 million and offset by an increase in non-cash working capital of $0.4 million. The net income adjustments primarily consisted of $25.4 million of depreciation and amortization, $6.3 million of stock-based compensation, and an impairment loss on debt investment of $1.3 million, partially offset by a $3.8 million change in deferred tax asset and a $1.9 million gain on disposal of property and equipment. The primary change in non-cash working capital was an increase in net accounts receivable of $6.1 million, partially offset by an increase in accrued liabilities of $2.9 million. 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 non-cash 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, partially 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, partially offset by an increase in net accounts receivable of $1.1 million. Net Cash Used in Investing Activities Net cash used in investing activities during the year ended December 31, 2024 was $30.7 million. Net cash used for capital expenditures during the period was $27.5 million and consisted of $37.8 million of purchases of property and equipment, partially offset by $10.3 million of sales proceeds from the disposal of property and equipment. Net cash used for capital expenditures represents a $3.9 million, or 17%, increase year over year. Purchases of property and equipment were primarily related to medical equipment rented to our patients. Net cash used in investing activities also included $3.0 million of net cash paid for the acquisition of East Alabama HomeMed, LLC ("HomeMed") and $1.0 million for an equity investment. 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 . Net cash used for capital expenditures during the period was $23.5 million and consisted of $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 were primarily related to medical equipment rented to our patients. Page 38 Net Cash Provided by (Used in) Financing Activities Net cash used in financing activities during the year ended December 31, 2024 was $3.7 million. Proceeds from the 2022 Revolving Credit Facility (as defined below) were $3.0 million, which was used to fund the HomeMed acquisition. Subsequent to the HomeMed acquisition, principal payments on the 2022 Revolving Credit Facility were $5.0 million. Principal payments on the 2022 Term Loan Facility (as defined below) were $0.3 million. Additionally, principal payments on acquired loans were $0.8 million during the year ended December 31, 2024. The Company acquired and cancelled 142,985 common shares at a cost of $1.1 million to satisfy employee income tax withholding associated with RSUs vestings while proceeds from the exercise of options during the year ended December 31, 2024 were $1.0 million. 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. Sources of Liquidity Our principal source of liquidity is our operating cash flow, which is supplemented by extended payment terms from our suppliers and amounts available under the 2022 Senior Credit Facilities. 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. On May 28, 2024, the Company entered into a First Amendment to the 2022 Senior Credit Facilities that (a) extends the delayed draw term loan commitment expiration date to November 29, 2025, from its initial expiration date of May 29, 2024, and (b) provides for other technical amendments. 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 were $4.6 million as of December 31, 2024. There were no outstanding borrowings under the 2022 Revolving Credit Facility as of December 31, 2024. The interest rates per annum applicable to the 2022 Senior Credit Facilities are Term SOFR 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, 2024. Page 39 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, 2024: Within 12 Months Beyond 12 Months Debt Obligations, including interest $ 758 $ 4,720 Lease Obligations 1,054 2,237 Total $ 1,812 $ 6,957 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, 2024. In addition to our operating cash flows, we may need to raise additional funds to support our contractual obligations and investing activities beyond such 12 month period, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. We may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders. 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 $1.6 million and $1.4 million for the years ended December 31, 2024 and 2023, 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.