Viemed Healthcare, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; unaudited. Viemed provides in-home durable medical equipment and post-acute respiratory care in more than 35 U.S. states. Unless noted, amounts below are U.S. dollars in millions.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $42.9 | $20.3 | $66.7 | $38.4 |
| Gross profit | $25.9 | $14.6 | $41.5 | $27.7 |
| Gross margin | 60.5% | 72.0% | 62.2% | 72.1% |
| Net income | $19.4 | $1.3 | $23.7 | $3.3 |
| Diluted EPS | $0.48 | $0.03 | $0.59 | $0.08 |
| Operating cash flow | — | $22.0 | $6.0 |
Q2 revenue rose 110.8%; six-month revenue rose 73.4%. COVID-19 response sales contributed $19.7 million in Q2 and $20.8 million year to date. Excluding those sales, revenue grew 13.9% in Q2 and 19.4% year to date, principally from ventilator and other respiratory-equipment rentals. Active ventilator patients were 7,705 at quarter-end, up 8% year over year.
COVID response sales carried lower margins: management reported Q2 gross margin of 66.6% excluding those sales, versus 60.5% reported. For the first half, the comparable adjusted margin was 66.4%, versus 62.2% reported. SG&A was $16.4 million in Q2 and $27.0 million year to date. Q2 adjusted EBITDA, a non-GAAP measure, was $16.3 million.
Financial position and liquidity
- Cash and cash equivalents were $29.7 million at June 30, up from $13.4 million at year-end 2019. Current assets were $49.2 million and current liabilities $31.8 million.
- Six-month operating cash flow was $22.0 million; investing cash outflow was $0.6 million and financing cash outflow was $5.0 million. Investing cash flow included $5.1 million of equipment-sale proceeds; cash purchases of property and equipment were $5.7 million.
- Term debt was $8.5 million, including $1.8 million current; lease liabilities totaled $7.0 million. The $10.0 million credit line was undrawn. The company reported compliance with debt covenants.
- Accounts receivable, net, was $11.0 million, with a $9.3 million doubtful-account allowance. The company recorded a $5.6 million bad-debt provision during the first half. Medicare and Medicaid represented 76% of receivables.
Material changes, outlook and risks
- Reported earnings benefited materially from unusual items: $3.5 million of CARES Act Provider Relief Fund income, a $2.6 million net gain on disposal of property and equipment, and a $6.5 million income-tax benefit from releasing a valuation allowance and recognizing a deferred tax asset. These items make reported net income and margins less representative of recurring operations.
- COVID-19 increased equipment demand and sales, but also restricted hospital access and slowed new patient setups. Management said further response sales were possible in 2020, but their amount was uncertain; it expected traditional growth to slow in the near term. Management expected normal-operation gross margins to remain relatively consistent and SG&A in absolute terms to remain relatively consistent through year-end, while SG&A as a share of revenue could rise.
- Management believed cash, expected operating cash flow and available credit would fund operations and planned capital needs for at least 12 months. It cautioned that pandemic duration, patient access, supply availability and pricing, reimbursement, and receivable collectability could materially affect results and liquidity.
- CMS removed non-invasive ventilators from the 2021–2023 Medicare competitive-bidding round; future inclusion remains uncertain. The company’s ventilator rental business is a major revenue source.
- At June 30, the company had $5.0 million in non-cancellable respiratory-equipment purchase commitments. It filed a July 29 complaint seeking return of an $863,000 deposit, believing the supplier could not deliver; management did not consider a loss probable at quarter-end.
- Effective January 1, 2021, Viemed expected to lose foreign-private-issuer status, bringing additional U.S. reporting and compliance requirements. The filing also identifies the pandemic and previously disclosed restatement/internal-control matters among risks. Management stated disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- How much of future revenue and earnings comes from recurring rentals versus temporary COVID-related sales, grants and equipment-disposal gains.
- Whether the $9.3 million receivables allowance adequately reflects collection and billing-adjustment risk, particularly as receivables are concentrated in government payors.
- The outcome of the supplier-deposit dispute and the company’s ability to obtain committed equipment.
- Whether ventilators could return to Medicare competitive bidding and the potential effect on reimbursement and patient economics.
- The sustainability of liquidity and margins if pandemic-related sales decline, patient onboarding remains constrained, or equipment and staffing costs rise.