Viemed Healthcare, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results are presented in U.S. dollars. Viemed provides in-home durable medical equipment and post-acute respiratory care across 46 U.S. states.
Financial results
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Revenue | $29.3m | $33.4m | $85.1m | $100.1m |
| Gross profit / margin | $18.4m / 62.8% | $19.5m / 58.2% | $53.7m / 63.2% | $60.9m / 60.9% |
| Operating income | $2.9m | $4.0m | $6.9m | $21.5m |
| Net income | $1.8m | $2.8m | $5.0m | $26.5m |
| Diluted EPS | $0.04 | $0.07 | $0.12 | $0.66 |
| Operating cash flow | Not separately stated | Not separately stated | $13.8m | $29.3m |
Q3 Adjusted EBITDA, a non-GAAP measure, was $7.4m versus $7.7m; nine-month Adjusted EBITDA was $19.7m versus $31.9m. Cash and cash equivalents were $26.9m at September 30, down from $31.0m at year-end 2020. Total debt was $6.3m, plus $1.3m of lease liabilities. The company reported $47.4m of current assets and $20.2m of current liabilities. Its $10m revolving credit line was undrawn, and it reported compliance with debt covenants.
Changes versus prior periods
- Q3 revenue declined 12.4% year over year; excluding COVID-19 response revenue, management reported growth of 11.8%. Nine-month revenue fell 15.0%, while non-COVID revenue grew 12.4%.
- COVID-19 response revenue fell to $1.5m in Q3 from $8.6m and to $5.5m for nine months from $29.3m. Ventilator rental revenue grew 6.7% in Q3 and 5.6% for nine months; other DME rental revenue increased 35.8% and 36.9%, respectively.
- Gross margin improved, reflecting a lower proportion of lower-margin COVID-19 sales and changes in product mix. Nine-month net income also reflects the absence of the prior-year $3.5m Provider Relief Fund income, a $2.4m prior-year equipment disposal gain, and a $5.3m prior-year tax benefit from releasing a deferred-tax valuation allowance.
- Nine-month operating cash flow was lower than the prior year, with management citing working-capital uses, including increased receivables and prepaid expenses and lower accrued liabilities. Investing cash outflow was $13.2m, mainly for medical equipment; financing cash outflow was $4.8m.
Outlook, risks and unusual items
- Management expects ventilator patient and rental growth, but at a slower near-term pace than historically. It expects normal-operation gross margin to remain relatively consistent with Q3 through year-end 2021; SG&A and research and development spending were expected to increase with expansion and technology investment. No numerical revenue or earnings guidance is provided.
- Management stated available cash, expected operating cash flows and the undrawn credit line should fund operations, growth, capital expenditures and debt service for at least 12 months from filing.
- Medicare contractors issued unfavorable decisions on initial appeals concerning an OIG audit of 100 home non-invasive ventilation patients. The company disputes the findings and intends to appeal. It recorded no liability, determining a loss was not probable; the population of potentially affected claims, including possible interest, was approximately $9m, and management said any possible loss would not exceed that amount. An unfavorable outcome could materially affect results, financial position or cash flows.
- A dispute with Vyaire involves a $0.9m prepayment for equipment not delivered and a $4.7m counterclaim. The company recorded the $0.9m as an other long-term asset and accrued no liability for the counterclaim, assessing a loss as not probable.
- The Philips recall of certain BiPAP, CPAP and ventilator devices could constrain supply, delay patient placements, or lead to litigation and other costs. The company said the full scope of potential effects was unknown.
- Other key exposures include reimbursement audits and recoupments, dependence on Medicare/Medicaid and other payors, COVID-19-related disruption, supplier availability, and uncertainty in estimates for collections and reimbursement. Medicare and Medicaid represented 46% of receivables at quarter-end.
Investor verification points
- Track the OIG/MAC appeal process, potential repayment exposure and any subsequent accrual or cash impact.
- Monitor Philips recall-related device availability, patient replacements, and any resulting costs or claims.
- Assess whether non-COVID revenue growth and ventilator patient growth offset the continuing decline in COVID-19 response sales.
- Review receivables, allowance for doubtful accounts, collections and operating cash conversion; nine-month operating cash flow was $13.8m versus $29.3m.
- Confirm the status and recoverability of the Vyaire prepayment and the outcome of its counterclaim.
- Distinguish GAAP earnings and cash flows from Adjusted EBITDA, a non-GAAP measure; verify future results against management’s qualitative outlook rather than numerical guidance.