Viemed Healthcare, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited interim financial statements; amounts below are U.S. dollars. Viemed provides in-home durable medical equipment and post-acute respiratory care in 49 states.
Financial performance
| Metric | Q3 2022 | Q3 2021 | First nine months 2022 | First nine months 2021 |
|---|---|---|---|---|
| Revenue | $35.8 million | $29.3 million | $101.3 million | $85.1 million |
| Gross profit / margin | $21.7 million / 60.5% | $18.4 million / 62.8% | $61.8 million / 61.0% | $53.7 million / 63.2% |
| Operating income | $1.5 million | $2.9 million | $4.7 million | $6.9 million |
| Net income / diluted EPS | $1.1 million / $0.03 | $1.8 million / $0.04 | $3.8 million / $0.09 | $5.0 million / $0.12 |
| Adjusted EBITDA | $7.0 million | $7.4 million | $20.7 million | $19.7 million |
Revenue increased 22.1% in Q3 and 19.1% for the nine-month period. Excluding COVID-19 response revenue, management reported growth of 28.5% and 24.5%, respectively. Ventilator rentals remained the largest revenue stream; other DME rentals, equipment and supply sales, and service revenue also grew. Nine-month COVID-19 response revenue declined to $2.3 million from $5.5 million; Q3 had none.
Despite higher revenue, net income fell 41.0% in Q3 and 24.9% year to date. Gross margin declined, while SG&A rose 33.3% in Q3 and 25.4% year to date, reflecting employee growth and compensation, commissions, travel and fuel costs. Net margin was 3.0% in Q3 versus 6.1% a year earlier, and 3.7% for nine months versus 5.9%.
Cash flow, balance sheet and debt
- Nine-month operating cash flow was $20.1 million, up from $13.8 million. Investing cash outflow was $16.6 million, including $17.3 million of property and equipment purchases, primarily rental medical equipment. Financing cash outflow was $10.4 million, including $8.9 million of share repurchases. Cash decreased $6.9 million.
- Cash and cash equivalents were $21.5 million at September 30, 2022, versus $28.4 million at year-end 2021. Current assets were $42.9 million and current liabilities $20.6 million.
- Notes payable totaled $4.3 million; lease liabilities were $0.5 million. The $5.0 million general-purpose term note matured and was repaid in September 2022. The remaining building note matures in 2026; its interest rate is effectively fixed at 4.68% through a swap. The $10.0 million credit line, expiring May 2023, was undrawn. The company reported compliance with loan covenants.
- Management believed available cash, operating cash flows and credit availability would fund operations, growth, capital expenditures and debt service for at least 12 months from the filing date. Nine-month capital expenditures exceeded operating cash flow by approximately $2.7 million.
Outlook, risks and unusual items
- Management expected growth for the remainder of 2022, supported by geographic expansion, ventilator patients, respiratory offerings and staffing services, while noting residual pandemic effects could affect growth. It expected gross margin to remain relatively consistent with Q3 levels and SG&A to decline as a percentage of revenue as costs stabilized. These are expectations, not reported results.
- Active ventilator patients increased to 9,127 at quarter-end from 8,200 a year earlier. Viemed employed 722 full-time employees, including 280 licensed respiratory therapists.
- Credit and reimbursement estimates are significant judgment areas. The allowance for doubtful accounts was $8.5 million, up from $7.1 million at year-end; Medicare and Medicaid represented 46% of receivables. Management cited uncertainty from billing complexity, collection trends and healthcare reimbursement.
- In a Medicare audit matter, a reviewing contractor overturned about 77% of sampled claims; recalculated overpayment requests totaled $1.1 million. The company remitted the funds and recorded them in other long-term assets, recorded no loss accrual, and estimated any possible loss would not exceed the recalculated requests. An administrative hearing occurred November 1, 2022, after quarter-end; the company was awaiting a decision.
- In a dispute with Vyaire over prepaid respiratory equipment, $0.9 million remained in other long-term assets. Vyaire counterclaimed for $4.7 million; the company recorded no accrual, stating a loss was not probable, though reasonably possible.
- The company repurchased 1.67 million shares for $8.9 million in the first nine months under its 2022 program. Repurchases reduce cash available for growth and the program may be changed or discontinued. COVID-19 demand, supply and labor costs, payor audits and reimbursement, and regulatory changes remain risks.
Important facts for investors to verify
- Whether revenue growth can translate into improved margins and earnings as staffing, labor and product mix pressures evolve.
- Receivables quality, the adequacy of the $8.5 million doubtful-account allowance, and exposure to Medicare and Medicaid reimbursement.
- Developments and ultimate financial outcomes in the Medicare audit appeals and Vyaire litigation.
- Cash use for rental equipment and share repurchases, and the effect on liquidity and growth investment needs.
- Actual results versus management’s year-end 2022 growth and margin expectations, including the uncertain contribution from COVID-19 services.
Adjusted EBITDA is a non-GAAP measure and should be considered alongside, not as a substitute for, GAAP results or cash flows.