Viemed Healthcare, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Amounts are U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context
Viemed provides in-home respiratory durable medical equipment and related services, including ventilator rentals, respiratory therapy and home sleep testing, across 29 states. Ventilator rentals remain the core business, contributing 86.3% of Q2 revenue. The company reported 7,130 active ventilator patients at quarter-end, up 40% from 5,078 a year earlier.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $22.5 | $15.5 | $43.0 | $29.6 |
| Gross profit / margin | $16.9 / 74.8% | $11.3 / 73.0% | $32.3 / 75.0% | $21.9 / 73.9% |
| Operating income / margin | $2.1 / 9.5% | $2.6 / 16.5% | $4.6 / 10.7% | $5.0 / 16.9% |
| Net income / margin | $1.8 / 8.1% | $2.4 / 15.3% | $4.0 / 9.2% | $4.7 / 15.9% |
| Diluted EPS | $0.05 | $0.06 | $0.10 | $0.12 |
| Adjusted EBITDA (non-GAAP) | $4.6 | $4.1 | Not clearly provided for six-month period | Not clearly provided for six-month period |
Q2 revenue increased 45.4% year over year, led by ventilator rental revenue growth of 40.5%; other DME rentals rose 167.9%. Six-month revenue grew 45.1%. Gross margin improved, while operating and net margins declined as SG&A rose faster than revenue. SG&A increased 67.2% in Q2 and 63.3% for the first half, reflecting employee-related costs, phantom share expense and higher bad-debt expense. The Q2 unrealized warrant-liability loss was $0.3 million; the six-month loss was $0.4 million.
Cash flow, balance sheet and liquidity
- Operating cash flow: $6.0 million for the first half, down from $9.0 million in 2018. The increase in receivables used $7.8 million of cash; inventory used $0.8 million.
- Investing and capital spending: Investing cash outflow was $7.5 million, including $7.7 million of property and equipment purchases. Including equipment financed by leases and debt, reported first-half capital expenditures were $17.1 million, versus $6.6 million in 2018. Spending included the new headquarters and rental medical equipment.
- Cash and working capital: Cash was $7.7 million at June 30, versus $10.4 million at year-end. Current assets were $25.1 million and current liabilities $24.1 million.
- Debt and leases: The company recorded $4.8 million under a seven-year term note to finance its headquarters, with an interest-rate swap fixing the effective rate at 4.68%. Lease liabilities totaled $9.5 million, of which $8.4 million was current. The $10 million revolving credit facility was undrawn; the company said it was covenant-compliant.
- Receivables: Net accounts receivable were $12.8 million, with a $6.9 million allowance for doubtful accounts. Bad-debt provision was $3.9 million in the first half. Medicare and Medicaid represented 55% of receivables; together they accounted for 68% of first-half revenue.
Changes, outlook and risks
- Management attributed growth primarily to organic expansion of the ventilator patient base and expects ventilator rentals to remain the main growth driver as it enters new markets and expands existing territories.
- Management expects gross margin to remain broadly consistent for the rest of 2019 and SG&A as a percentage of revenue to trend lower toward historical levels by year-end. No specific revenue or earnings guidance was provided.
- Management stated that cash, expected operating cash flow and the undrawn credit line should fund planned operations, capital spending and debt service for at least 12 months. It also cautioned that additional financing may be needed and may not be available on acceptable terms.
- Key risks include reimbursement-rate changes, reliance on government and other payors, collection estimates and bad-debt exposure, regulatory requirements, competition, and the capital needs of rapid growth. Management reported no material change to previously disclosed risk factors and no material undisclosed off-balance-sheet arrangements.
- Subsequent to quarter-end, $1.563 million of accounts payable was converted to a short-term capital lease. The company also reported related-party property rents of $121,000 for the first half.
Important facts for investors to verify
- Whether receivables and bad-debt provisions remain proportionate to growth, given the significant increase in receivables and first-half cash-flow use.
- Whether the expected SG&A leverage materializes while the company continues hiring and expanding; Q2 net income fell 23.1% despite strong revenue growth.
- Whether capital spending and equipment lease commitments support patient growth without pressuring liquidity; reconcile cash purchases, financed equipment, debt and lease payments.
- Compliance with credit-facility covenants, including the minimum working-capital covenant scheduled to begin quarterly testing on September 30, 2019.
- Performance against management’s stated expectations for stable gross margins and lower SG&A as a percentage of revenue toward year-end.