Viemed Healthcare, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited results; amounts are U.S. dollars. Viemed provides home medical equipment and post-acute respiratory healthcare services across the United States.
Financial results
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Revenue | $43.3 million | $33.3 million | +30.0% |
| Gross profit / margin | $26.1 million / 60.3% | $20.4 million / 61.2% | Profit +28.0%; margin down 0.9 percentage points |
| Operating income | $2.9 million | $1.0 million | +189.8% |
| Net income / diluted EPS | $2.3 million / $0.06 | $1.0 million / $0.02 | Net income +141.0% |
| Adjusted EBITDA | $9.8 million | $6.5 million | Non-GAAP measure |
First half: Revenue was $82.9 million, up 26.4%; gross profit was $50.1 million, with a 60.5% margin versus 61.2%; operating income was $4.8 million versus $3.2 million; net income was $3.8 million versus $2.7 million; and diluted EPS was $0.10 versus $0.07. Operating cash flow was $18.1 million, compared with $12.1 million in the prior-year period.
Revenue mix and growth: Q2 ventilator rentals grew 13.1% to $25.7 million; other durable medical equipment rentals grew 71.4% to $8.4 million; equipment and supply sales grew 108.9% to $6.8 million. No COVID-19 response revenue was recorded in Q2 or the first half of 2023, versus $0.2 million and $2.3 million, respectively, in 2022. Management attributed growth to expansion of ventilator patients, PAP and oxygen offerings, the resupply program, and staffing services.
Liquidity, debt and capital
At June 30, 2023, cash was $10.2 million versus $16.9 million at year-end 2022. Current assets were $35.9 million and current liabilities $31.6 million. Total assets were $149.1 million, total liabilities $44.6 million, and shareholders’ equity $104.5 million.
Cash declined by $6.7 million during the first half. Investing used $36.1 million, including $27.1 million net cash paid for the HMP acquisition and $10.8 million of property and equipment purchases. Financing provided $11.3 million, including $5.0 million of term-loan proceeds and $8.0 million of revolver borrowings. Balance-sheet debt was approximately $15.3 million, including current and long-term debt; the company also reported $13.0 million outstanding under its senior facilities. The facilities mature in November 2027 and bear variable rates based on SOFR plus a margin. Viemed said it was in compliance with its covenants at quarter-end.
Management believes cash, expected operating cash flow, and available credit are sufficient for at least the next 12 months. Contractual obligations disclosed were $4.8 million due within 12 months and $16.3 million thereafter. The filing notes that additional funding may be needed beyond that period and may not be available on acceptable terms.
Material changes, outlook and risks
- HMP acquisition: Completed June 1 for approximately $29.4 million. Only one month of HMP results is included in Q2. The provisional purchase accounting recorded $29.8 million of goodwill; certain asset valuations remain subject to change. Management expects a fuller-quarter contribution and says the acquisition should support growth and profitability.
- Margins and costs: Gross margin declined as revenue mix shifted toward diversified products and services. Management expects gross margin to improve through the rest of 2023 as inflationary pressures ease and seasonal collection patterns help, partly offset by continued mix changes. It also expects SG&A as a share of revenue to improve through efficiencies and cost stabilization.
- Staffing and financing: Headcount increased 36.2% year over year to 974, partly due to HMP. Management expects higher net interest expense for the rest of 2023 because of acquisition-related borrowing. No numerical revenue or earnings guidance is provided.
- Reimbursement and payer exposure: Medicare and Medicaid represented 54% of traditional first-half revenue; Medicare and Medicaid together represented 41% of receivables at June 30. Reimbursement changes, claim reviews, collection uncertainty, and the future of competitive bidding are material risks. The 75%/25% blended Medicare rate extension runs through the end of the COVID-19 public health emergency or December 31, 2023, whichever is later.
- Legal and regulatory matters: In the Vyaire dispute, Viemed seeks recovery of a prepayment for equipment not delivered; Vyaire asserts a $4.7 million counterclaim. Viemed has not accrued a loss, stating it is not probable, but says a loss may be reasonably possible and cannot be estimated. A $0.9 million related asset remains recorded. Separately, following an administrative appeal overturning the remaining OIG-related claims, the company received the previously remitted funds during the first half of 2023.
- Other considerations: The company identifies acquisition integration and growth execution, reimbursement and regulatory changes, dependence on suppliers and payors, and collectability of receivables as risks. Its $11.0 million allowance for doubtful accounts is a significant estimate. Management reported effective disclosure controls and no material change in internal control during the quarter.
Important facts for investors to verify
- How HMP performs once a full quarter is consolidated, including realization of expected synergies and final purchase-price valuations.
- Whether revenue growth translates into sustained gross-margin and operating-margin improvement as the product mix changes.
- Cash conversion, equipment spending, acquisition-related debt, variable interest costs, and covenant headroom.
- Medicare and Medicaid reimbursement developments, payer mix, receivable aging, and adequacy of the credit-loss allowance.
- Developments in the Vyaire litigation, including potential exposure on the counterclaim and recovery of the recorded prepayment.
- Adjusted EBITDA reconciliation and exclusions; it is a non-GAAP measure and should be considered alongside GAAP results and cash flows.