Viemed Healthcare, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are to Q1 2019 unless stated otherwise. Amounts are in U.S. dollars; financial statement amounts below are in millions unless noted. Viemed provides home respiratory durable medical equipment and services, including ventilator rentals and in-home sleep testing.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Revenue | $23.806 | $18.115 | Up 31.4% |
| Gross profit / margin | $15.553 / 65.3% | $13.074 / 72.2% | Profit up 19.0%; margin fell, largely due to lower-margin COVID-19 response sales |
| Operating income / margin | $4.615 / 19.4% | $2.315 / 12.8% | Operating income nearly doubled; included a $1.169 gain on equipment disposals |
| Net income / diluted EPS | $4.243 / $0.11 | $1.958 / $0.05 | Net income up 116.7% |
| Adjusted EBITDA | $7.869 | $4.466 | Non-GAAP measure; see filing reconciliation and limitations |
| Operating cash flow | $0.607 | $0.650 | Lower than net income, with cash absorbed by working capital |
Ventilator rentals generated $18.792 million, or 78.9% of revenue, up 16.0%. Active ventilator patients increased 25% year over year to 7,965. Other DME rentals rose 167.4% to $2.131 million. COVID-19 response sales contributed $1.040 million; other equipment and supply sales were $1.533 million. COVID-related sales had a 45.9% weighted-average gross margin; excluding those sales, Q1 gross margin was 66.2%.
Cash and cash equivalents were $8.409 million at March 31, down from $13.355 million at year-end. Net cash decreased $4.946 million: operating activities provided $0.607 million, investing used $1.711 million, and financing used $3.842 million. Cash purchases of property and equipment were $4.220 million; equipment financed through finance leases added $3.002 million, for reported total capital expenditures of $7.2 million including lease-financed equipment.
Current assets were $30.151 million and current liabilities were $26.146 million. Debt notes totaled $8.951 million, including $1.772 million current; lease liabilities totaled $9.763 million, including $7.433 million current. The $10 million revolving credit facility was undrawn at quarter-end. The company reported compliance with its financial covenants.
Changes, outlook, and principal risks
- Revenue growth reflected expansion in ventilator patients and other respiratory products, as well as COVID-19-related equipment sales. Management said operations had experienced minimal disruption to date, but the pandemic’s effects on demand, hospital access, collections, staffing, supply availability, and financial results remained uncertain.
- Management expected additional COVID-19 sales in 2020, but their scale was uncertain. It expected normal-operation gross margin and SG&A as a percentage of revenue to remain relatively consistent with Q1 through year-end. The filing provides no quantified full-year revenue or earnings guidance.
- Accounts receivable, net, increased to $15.443 million; the doubtful-account allowance rose to $10.196 million from $7.782 million at year-end, including a $2.846 million Q1 provision. Management cited uncertainty in credit and collection trends. Medicare and Medicaid represented 73% of Q1 revenue and 57% of quarter-end receivables combined.
- CMS removed non-invasive ventilators from the 2021 competitive bidding round, a change expected to last three years. Management said this preserved the ability to furnish those devices in its Medicare-accredited areas, while noting that future bidding treatment is uncertain.
- Subsequent to quarter-end, the company received $3.5 million of Provider Relief Fund payments in April. The funds are not loans, but compliance with terms and reporting requirements is required and could affect whether funds must be returned. This receipt was not included in March 31 cash.
- On May 1, 2020, the company amended its bank loan agreement, extending the credit facility to May 1, 2023 and changing the rate on advances to prime plus 0.50%, subject to a 3.50% floor. The filing also describes a $10 million commercial term note executed that date; investors should distinguish this subsequent financing from quarter-end debt balances.
- A $5.5 million non-cancellable respiratory-equipment purchase commitment was outstanding at March 31. The company also disclosed that its previously identified material weakness in controls over rental revenue accounting was remediated by quarter-end, based on management testing.
Most important facts to verify
- Whether Q1 receivable growth and the increased doubtful-account allowance translate into slower collections, additional reserves, or lower operating cash flow.
- The durability and margins of COVID-19 response sales, equipment disposal gains, and the reported earnings increase; these items may not recur at the same level.
- The terms, funding status, and use of proceeds of the May 1 $10 million term note, alongside the amended revolving facility and existing debt obligations.
- Eligibility, permitted use, reporting obligations, and potential repayment exposure associated with the $3.5 million Provider Relief Fund payment.
- Future Medicare competitive-bidding rules, reimbursement rates, and any changes in the company’s substantial government-payor exposure.
- Ongoing effectiveness of the remediated revenue controls and developments in COVID-19 effects on patient access, supply chains, staffing, and collections.