Viemed Healthcare, Inc. — Q3 2020 Form 10-Q
Business and period: Viemed provides in-home durable medical equipment and post-acute respiratory care across 36 U.S. states. This unaudited filing covers the three and nine months ended September 30, 2020; amounts are U.S. dollars. The company reported approximately 258 respiratory therapists and 499 full-time employees at quarter-end.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $33.4 million | $20.4 million | $100.1 million | $58.8 million |
| Gross profit / margin | $19.5 million / 58.2% | $14.1 million / 69.0% | $60.9 million / 60.9% | $41.8 million / 71.0% |
| Operating income | $4.0 million | $2.2 million | $21.5 million | $6.2 million |
| Net income | $2.8 million | $2.9 million | $26.5 million | $6.1 million |
| Diluted EPS | $0.07 | $0.07 | $0.66 | $0.15 |
| Adjusted EBITDA (non-GAAP) | $7.7 million | $4.9 million | Not stated in the supplied period summary | Not stated in the supplied period summary |
Q3 revenue rose 64.2% year over year; nine-month revenue rose 70.2%. COVID-19 response sales and services contributed $8.6 million in Q3 and $29.3 million year to date. Excluding these sales, revenue increased 22.2% in Q3 and 20.4% for the nine months. Ventilator rental revenue increased 16.0% and 15.1%, respectively, while other DME rentals also grew substantially.
Lower gross margins reflected the COVID-related sales mix, which carried lower margins, and respiratory therapist labor costs. Q3 margin excluding COVID response revenue was 66.2%; the nine-month comparable was 66.3%. Q3 net income was slightly lower than the prior year despite higher operating income, chiefly reflecting higher income tax expense and the absence of the prior-year warrant gain. Nine-month net income includes a $5.3 million tax benefit, primarily from a $7.8 million release of a deferred-tax valuation allowance, as well as a $3.5 million CARES Act Provider Relief Fund payment recorded in other income and a $2.4 million net gain on equipment disposals.
Cash, debt and liquidity
- Cash and cash equivalents were $32.4 million at September 30, 2020, versus $13.4 million at December 31, 2019.
- Nine-month operating cash flow was $29.3 million, compared with $11.7 million in 2019. Investing cash outflow was $3.0 million and financing cash outflow was $7.2 million. Cash increased by $19.0 million.
- Bank term notes totaled $8.1 million, including $1.8 million current; lease liabilities totaled $5.2 million, including $4.2 million current. The $10 million revolving credit line was undrawn. The company reported compliance with debt covenants.
- Management said available cash, expected operating cash flows and the undrawn credit line should cover anticipated needs for at least 12 months. The filing reports a subsequent $2.5 million conversion of accounts payable into a short-term lease payable.
Outlook, risks and unusual items
- Management anticipated further COVID-related revenue during the rest of 2020, but said its amount was uncertain. It expected organic growth to continue at a slower near-term pace because of pandemic-related constraints on hospital access and patient setup.
- Management expected normal-operation gross margins to remain relatively consistent with the quarter through year-end. It expected SG&A, in absolute terms, to remain relatively consistent with Q3 through year-end, while SG&A as a percentage of revenue could rise toward historical levels.
- COVID-19 risks include disrupted patient assessments and setups, supply and staffing shortages, weaker collections, changes in payor or patient mix, and broader economic or regulatory effects. The company cited an $8.8 million receivables allowance and noted that Medicare and Medicaid represented 65% of receivables at quarter-end.
- CMS removed non-invasive ventilators from the 2021 competitive bidding round and later removed oxygen and PAP devices from that round. Management said it could continue furnishing these products in its Medicare-accredited areas, but future bidding rounds remain uncertain.
- Viemed is pursuing a dispute with Vyaire over undelivered equipment and a $1.4 million deposit. Vyaire counterclaimed for $4.7 million; the company had not accrued a liability, stating that a loss was not considered probable and the reasonably possible range could not be determined.
- The $3.5 million Provider Relief Fund payment is subject to program terms and reporting that could change; noncompliance could require repayment. The company also disclosed its transition to U.S. domestic issuer requirements effective January 1, 2021, which may increase compliance costs.
- No numeric full-year revenue or earnings guidance was provided. Management’s outlook is subject to pandemic uncertainty. Disclosure controls were judged effective, and no material change in internal control over financial reporting was reported for the quarter.
Investor verification priorities
- Separate recurring rental and service growth from the significant, potentially temporary COVID-response revenue contribution and related equipment disposal gains.
- Assess earnings quality: the nine-month tax benefit, Provider Relief Fund income and equipment gains materially affect reported results.
- Track gross-margin recovery, patient additions and the pace of hospital-based referrals as pandemic restrictions evolve.
- Monitor receivable collection, allowance adequacy, government-payor exposure and the impact of COVID-related billing adjustments.
- Follow the Vyaire litigation, potential exposure and recovery of the outstanding supplier deposit.
- Confirm ongoing liquidity, lease obligations, covenant compliance and any future changes to Medicare competitive bidding.