Business context and reporting period
Viemed Healthcare, Inc. provides in-home durable medical equipment and post-acute respiratory care services across 48 U.S. states. This unaudited Form 10-Q covers the three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Dollar amounts below are U.S. dollars.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $32.3 million | $28.4 million; up 13.5% |
| Gross profit / margin | $19.7 million / 61.2% | $17.7 million / 62.4% |
| Operating income | $2.2 million | $1.3 million |
| Net income / diluted EPS | $1.8 million / $0.04 | $1.7 million / $0.04 |
| Adjusted EBITDA (non-GAAP) | $7.3 million | $5.5 million |
| Operating cash flow | $7.1 million | $4.6 million |
| Cash and cash equivalents (March 31) | $29.2 million | $28.4 million at December 31, 2021 |
At March 31, 2022, total assets were $119.0 million, total liabilities $23.0 million, and shareholders’ equity $96.0 million. Notes payable totaled $5.3 million, including $1.0 million current; lease liabilities totaled $0.6 million. The $10.0 million revolving credit line was undrawn, and the company reported compliance with its debt covenants. A $5.0 million term note matures September 19, 2022; the separate building note matures in 2026. Capital expenditures were $4.0 million, primarily for rental medical equipment. The company repurchased 389,878 shares for $1.9 million under its new program.
Material changes versus Q1 2021
- Revenue excluding COVID-19 response sales and services rose 18.5%. Ventilator rentals increased 5.7%; other DME rentals rose 48.8%; equipment and supply sales rose 71.8%; and service revenue rose 202.4%. COVID-19 response revenue declined 29.1% to $2.1 million.
- Gross margin fell to 61.2% from 62.4%; excluding COVID-19 revenue, management reported a decline to 61.7% from 65.5%, attributing the pressure to changes in product and service mix.
- Net income increased 4.6%, while net margin decreased to 5.5% from 5.9%, primarily due to higher income tax expense. SG&A increased 8.7% in dollars but declined as a share of revenue to 48.9% from 51.1%.
- Operating cash flow improved, but receivables increased $4.2 million. The allowance for doubtful accounts rose to $8.5 million from $7.0 million at year-end; the filing identifies reimbursement and collection estimates as a key uncertainty.
- Active ventilator patients reached 8,434, compared with 7,733 a year earlier. Employee headcount increased 25.4% to 662.
Outlook, risks, contingencies, and unusual items
- No numerical revenue or earnings guidance is provided. Management expects 2022 growth to exceed growth in pandemic periods, while noting residual pandemic effects may affect the growth rate. It expects lower COVID-related revenue, gross margin for normal operations to increase slightly through year-end, SG&A to remain materially consistent as a percentage of revenue, and R&D costs to rise.
- Management believes cash, expected operating cash flow, and available credit are sufficient for at least 12 months from the filing date. It also notes possible funding needs beyond that period and that additional financing may not be available on acceptable terms.
- Medicare and Medicaid represented 58% of traditional revenue in Q1 2022, down from 68% a year earlier; together they represented 50% of outstanding receivables at quarter-end. Changes in reimbursement, audits, billing adjustments, or collections could affect results and cash flow.
- An OIG audit challenged Medicare claims for non-invasive ventilators. The company is appealing; it says a loss is not probable but reasonably possible, with an estimated possible loss not exceeding approximately $9 million. No liability was accrued. An unfavorable outcome could materially affect financial position, results, or cash flows.
- In a dispute with Vyaire Medical, the company seeks recovery of a prepayment for equipment not delivered; Vyaire has asserted a $4.7 million counterclaim. No loss accrual was recorded, and the filing says the possible loss cannot yet be estimated. A $0.9 million amount related to undelivered equipment remains in other long-term assets.
- Other uncertainties include COVID-19 effects, staffing and supply availability, payor reimbursement and receivable collectability, and the competitive-bidding outlook. Medicare sequestration was scheduled to resume at 1% for April–June 2022 and 2% from July 2022.
Important facts for investors to verify
- Track receivable aging, allowance adequacy, and cash collections, given the increase in receivables and reliance on reimbursement estimates.
- Monitor the OIG appeal and potential exposure of up to approximately $9 million, plus the Vyaire litigation and recoverability of the $0.9 million asset.
- Review the September 2022 term-note maturity, debt covenant compliance, and subsequent refinancing or repayment disclosures.
- Assess whether revenue growth and diversification offset lower gross margins, declining COVID-related revenue, and higher operating investment.
- Distinguish GAAP results from Adjusted EBITDA, which the company identifies as a supplemental non-GAAP measure with limitations.