Viemed Healthcare, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Viemed provides in-home durable medical equipment and post-acute respiratory care in 46 U.S. states. Amounts below are U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $27.4m | $42.9m | $55.8m | $66.7m |
| Gross profit / margin | $17.6m / 64.3% | $25.9m / 60.5% | $35.4m / 63.4% | $41.5m / 62.2% |
| Operating income | $2.7m | $12.9m | $4.0m | $17.5m |
| Net income | $1.6m | $19.4m | $3.3m | $23.7m |
| Diluted EPS | $0.04 | $0.48 | $0.08 | $0.59 |
| Adjusted EBITDA | $6.8m | $16.3m | Not stated in the provided reconciliation | Not stated in the provided reconciliation |
Revenue fell 36.1% in Q2 and 16.3% for the first half year over year, principally because COVID-19 response sales and services declined sharply from the pandemic-driven 2020 comparison. Excluding those revenues, management reported growth of 13.5% in Q2 and 12.7% for the first half. Ventilator rentals increased 7.1% in Q2 and 8.0% year to date; other DME rentals increased 44.4% and 41.4%, respectively.
Q2 gross margin improved year over year, but excluding COVID-19 response activity it was 65.5%, versus 66.6% in Q2 2020. Management attributed margin changes to product and service mix and expected normal-operations gross margin to remain relatively consistent through year-end. Q2 net income was also affected by the absence of the prior-year $3.5m Provider Relief Fund income and a prior-year tax benefit; first-half 2020 included a $6.5m income tax benefit following a deferred-tax valuation allowance adjustment.
Cash flow, balance sheet, and liquidity
- Six-month operating cash flow was $8.8m, down from $22.0m. Investing cash outflow was $4.8m, including $5.0m of property and equipment purchases; financing cash outflow was $3.9m.
- Cash was $31.2m at June 30, 2021, versus $31.0m at December 31, 2020. Total assets were $111.0m and shareholders’ equity was $86.3m.
- Current assets were $47.0m and current liabilities $18.3m. Accounts receivable, net, was $12.1m; the allowance for doubtful accounts was $7.3m.
- Term-note debt totaled $6.7m, including $1.9m current; lease liabilities totaled $1.9m. The $10.0m revolving credit line was undrawn. The company reported compliance with loan covenants.
- Management said cash, expected operating cash flows, and available credit were expected to fund operations, growth, capital expenditures, and debt service for at least 12 months from the filing date.
Outlook, risks, and unusual items
- Management anticipated continued growth in ventilator patients and other respiratory services, but said near-term growth could be slower than historical levels because of pandemic-related disruption to access to referral sources. Active ventilator patients were 8,103 at quarter-end, versus 7,705 a year earlier.
- Management expected further COVID-19 response revenue during 2021, but anticipated it would decline; the amount remained uncertain. The filing gives no quantified revenue or earnings guidance.
- Medicare sequestration suspension was extended through December 31, 2021. The next competitive bidding round was expected no sooner than January 1, 2024; inclusion of relevant equipment in future rounds remained uncertain.
- An HHS OIG audit challenged Medicare claims for 100 non-invasive ventilation-at-home patients. Viemed disputed the findings and appealed repayment requests. Management considered a loss not probable but reasonably possible; the affected claim population within the four-year reopening period was less than $9m, and management estimated any possible loss would not exceed that amount. No accrual was recorded.
- In a separate Vyaire equipment dispute, Vyaire sought $4.7m in damages; Viemed sought recovery of its prepayment for undelivered equipment. The case was in discovery, no loss accrual was recorded, and $0.9m related to undelivered equipment remained in other long-term assets.
- Philips’ June 2021 recall of certain BiPAP, CPAP, and ventilator devices could cause product shortages, replacement delays, costs, or litigation. Viemed said the full scope of effects was not yet known.
- Revenue depends substantially on government reimbursement: Medicare and Medicaid represented 64% of traditional Q2 revenue, excluding COVID-19 response revenue. The filing also cites reimbursement audits, collection estimates, supplier dependence, and pandemic uncertainty as risks.
Investor verification priorities
- Track growth in recurring ventilator and other DME rentals separately from volatile COVID-19 response revenue.
- Monitor operating cash conversion, accounts-receivable collectability, and the adequacy of the doubtful-account allowance.
- Follow the OIG/CMS appeal process and assess potential repayment exposure against the stated less-than-$9m claim population.
- Check Philips recall replacement availability and any resulting patient, supply, legal, or financial effects.
- Review the Vyaire litigation and recoverability of the $0.9m prepayment asset, as well as debt maturities and covenant compliance.
Adjusted EBITDA is a non-GAAP measure and should be considered alongside, not as a substitute for, GAAP results or operating cash flow.