Viemed Healthcare, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Financial figures are in U.S. dollars; dollar amounts are in millions unless stated otherwise.
Business context
Viemed provides in-home durable medical equipment and post-acute respiratory care in 45 states. Ventilator rentals remain its principal business. At quarter-end, it had 7,733 active ventilator patients, versus 7,965 a year earlier and 7,892 at December 31, 2020.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $28.4 | $23.8 | +19.4% |
| Gross profit / margin | $17.7 / 62.4% | $15.6 / 65.3% | +14.1% / down 2.9 pts |
| Operating income | $1.3 | $4.6 | −71.1% |
| Net income | $1.7 | $4.2 | −60.3% |
| Diluted EPS | $0.04 | $0.11 | Down |
| Adjusted EBITDA (non-GAAP) | $5.5 | $7.9 | Down 30.5% |
| Operating cash flow | $4.6 | $0.6 | Improved |
- COVID-19 response sales and services generated $3.0 million, up from $1.0 million. Excluding that revenue, revenue increased 11.8%.
- COVID-related work had a 36.2% weighted-average gross margin. Excluding it, gross margin was 65.5%, versus 66.2% a year earlier.
- SG&A rose 37.2% to $14.5 million, reflecting employee growth, incentive compensation and a $2.5 million phantom-share expense, compared with a $0.7 million benefit in Q1 2020. The stock-price-driven phantom-share expense is a material contributor to quarter-to-quarter earnings volatility.
- Cash was $31.1 million at March 31, 2021, versus $31.0 million at year-end 2020 and $8.4 million a year earlier. Operating cash flow was partly offset by $1.7 million of investing outflows and $2.8 million of financing outflows; cash increased $0.1 million during the quarter.
- Total debt was $7.2 million, including $1.9 million current; lease liabilities were $2.4 million. The $10 million revolving credit line was undrawn. The company reported compliance with debt covenants.
- Total assets were $113.0 million and total liabilities $29.6 million at quarter-end. Accounts receivable, net, was $13.3 million; the allowance for doubtful accounts was $8.0 million.
Changes, outlook and risks
- Ventilator rental revenue grew 8.3%; other DME rentals grew 37.5%. COVID-19 response revenue grew 184.1% year over year but management expected lower related revenue for the remainder of 2021, with the amount uncertain.
- Management expects near-term growth to remain slower than in recent periods because of pandemic effects. It expects non-COVID gross margins to remain relatively consistent with Q1 levels through 2021, SG&A to stabilize during the year and decline as a percentage of revenue, and R&D costs to increase. No quantified full-year revenue or earnings guidance is provided.
- Management stated that cash, expected operating cash flow and available credit should cover anticipated needs for at least 12 months from filing. It also noted that COVID-19 could disrupt patient access, staffing, supply chains, collections and demand. Medicare and Medicaid represented 68% of traditional revenue; these programs accounted for 42% of receivables at March 31.
- CMS removed non-invasive ventilators and several other products from the 2021 competitive bidding round; the next round was anticipated to begin in 2024. Future inclusion and reimbursement effects remain uncertain.
- A dispute with Vyaire concerns a $1.4 million equipment prepayment and Vyaire’s $4.7 million counterclaim. Viemed is seeking recovery of funds; $0.9 million for undelivered equipment is recorded in other long-term assets. The company did not accrue a loss on the counterclaim, which it said may be reasonably possible but could not be reliably quantified.
- The company received $3.5 million in HHS Provider Relief Funds in April 2020. It said the funds had been used for pandemic response, but changing reporting requirements or terms could require repayment. The Q1 tax benefit included a $0.9 million discrete benefit from stock-based compensation; the estimated 2021 effective tax rate excluding discrete items was 43.7%.
Important facts for investors to verify
- Whether core ventilator-patient growth and revenue trends recover, and how much future results depend on COVID-related sales and services.
- Receivable collections, allowance adequacy and exposure to reimbursement or billing adjustments, particularly given government-payor concentration.
- The persistence of elevated SG&A, phantom-share remeasurement costs and resulting effects on GAAP earnings and cash flow.
- Outcome and potential financial exposure in the Vyaire dispute, and continued eligibility and compliance with Provider Relief Fund conditions.
- Future reimbursement and competitive-bidding changes, debt-covenant headroom, and remediation of previously disclosed restatement/internal-control issues. Management said disclosure controls were effective and there were no material changes to internal control during the quarter; the filing identifies prior issues among ongoing risk factors.