Viemed(US:VMD)2023-11-01 21:03PART I - FINANCIAL INFORMATION Presents the company's comprehensive financial statements, management's analysis, and disclosures on market risk and internal controls Financial Statements The company's financial statements for the period ended September 30, 2023, show significant growth in assets and liabilities, primarily due to the acquisition of Home Medical Products, Inc. (HMP) Condensed Consolidated Balance Sheets As of September 30, 2023, total assets increased to $149.4 million from $117.0 million, driven by goodwill and property and equipment from the HMP acquisition Balance Sheet Comparison (in thousands) | Account | At September 30, 2023 | At December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $149,400 | $117,043 | | Cash and cash equivalents | $10,078 | $16,914 | | Goodwill | $29,704 | $0 | | Property and equipment, net | $73,423 | $67,743 | | Total Liabilities | $40,586 | $19,949 | | Long-term debt | $8,095 | $0 | | Total Shareholders' Equity | $108,814 | $97,094 | - The acquisition of HMP resulted in the recognition of $29.7 million in goodwill and $0.7 million in identifiable intangibles, which were not present on the balance sheet at the end of 2022874 Condensed Consolidated Statements of Income and Comprehensive Income For Q3 2023, revenue increased 38.2% to $49.4 million and net income surged 176.7% to $2.9 million, reflecting strong organic growth and HMP contributions Income Statement Highlights (in thousands, except EPS) | Metric | Q3 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $49,402 | $35,759 | $132,269 | $101,324 | | Gross Profit | $30,562 | $21,651 | $80,672 | $61,784 | | Income from Operations | $4,206 | $1,469 | $9,041 | $4,718 | | Net Income | $2,919 | $1,055 | $6,766 | $3,784 | | Diluted EPS | $0.07 | $0.03 | $0.17 | $0.09 | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, operating cash flow increased to $31.9 million, while investing activities were dominated by the $28.6 million HMP acquisition Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,928 | $20,064 | | Net cash used in investing activities | ($44,620) | ($16,598) | | Net cash provided by (used in) financing activities | $5,856 | ($10,396) | | Net decrease in cash | ($6,836) | ($6,930) | - The primary use of cash in investing activities was $28.6 million paid for the acquisition of HMP, net of cash acquired18 Notes to the Condensed Consolidated Financial Statements The notes detail accounting policies, the June 2023 HMP acquisition for $29.4 million, debt refinancing, and revenue recognition, alongside legal and audit resolutions - On June 1, 2023, the company acquired Home Medical Products, Inc. (HMP) for approximately $29.4 million in cash, funded by cash on hand and new debt facilities71 Revenue by Source (Nine Months Ended Sep 30, in thousands) | Revenue Source | 2023 | 2022 | | :--- | :--- | :--- | | Ventilator rentals | $79,181 | $68,123 | | Other DME rentals | $26,441 | $15,153 | | Equipment and supply sales | $19,287 | $9,931 | | Service revenues | $7,360 | $5,839 | | COVID-19 response sales | $0 | $2,278 | | Total Revenues | $132,269 | $101,324 | - The company successfully resolved an OIG audit, with an Administrative Law Judge overturning all remaining appealed claims in December 2022, leading to a refund of previously remitted funds120 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong 2023 performance to organic growth and the HMP acquisition, focusing on expanding respiratory care programs amid evolving regulatory trends Overview Viemed provides home medical equipment and post-acute respiratory care services, with ventilator rentals as its core business, driven by a high-service model leveraging Respiratory Therapists - The company's primary revenue source is the rental of non-invasive and invasive ventilators, representing 57.3% of traditional revenue for the three months ended September 30, 2023138 - As of September 30, 2023, the company employed 374 licensed Respiratory Therapists, who are central to its in-home service model139 Trends Affecting Our Business Key trends include the end of the COVID-19 Public Health Emergency, extension of CARES Act reimbursement rates, and the continued exclusion of non-invasive ventilators from competitive bidding - The COVID-19 Public Health Emergency ended on May 11, 2023, leading to the expiration of many waivers and flexibilities that were available during the pandemic141 - The Consolidated Appropriations Act, 2023 extended the 75/25 blended Medicare reimbursement rate in non-competitive bidding/non-rural areas through the end of the COVID-19 PHE or December 31, 2023, whichever is later146 - CMS removed non-invasive ventilators, oxygen, and PAP devices from the Round 2021 competitive bidding program, and has not announced a new round of bidding as the current contracts expire on December 31, 2023144145 Results of Operations For Q3 2023, revenue grew 38.2% and net income surged 176.7%, while nine-month revenue increased 30.5% with improved operating leverage Q3 2023 vs Q3 2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $49,402 | $35,759 | 38.2% | | Gross Profit | $30,562 | $21,651 | 41.2% | | Income from Operations | $4,206 | $1,469 | 186.3% | | Net Income | $2,919 | $1,055 | 176.7% | YTD 2023 vs YTD 2022 Performance (in thousands) | Metric | YTD 2023 | YTD 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $132,269 | $101,324 | 30.5% | | Gross Profit | $80,672 | $61,784 | 30.6% | | Income from Operations | $9,041 | $4,718 | 91.6% | | Net Income | $6,766 | $3,784 | 78.8% | - The increase in revenue was driven by organic expansion of the active ventilator patient base and significant growth in other DME rentals (oxygen, PAP, percussion vests) and equipment sales, partly due to the HMP acquisition155164 Non-GAAP Financial Measures The company uses Adjusted EBITDA, a non-GAAP measure, to analyze operating performance, reporting $12.1 million for Q3 2023 and $30.2 million for the nine-month period Adjusted EBITDA Reconciliation (Quarterly, in thousands) | Quarter Ended | Sep 30, 2023 | Jun 30, 2023 | Mar 31, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net Income | $2,919 | $2,330 | $1,517 | $2,438 | $1,055 | | Adjusted EBITDA | $12,081 | $9,810 | $8,328 | $9,306 | $6,982 | - Management uses Adjusted EBITDA to compare operating performance, calculate incentive compensation, for internal budgeting, and to evaluate operational strategies173 Liquidity and Capital Resources As of September 30, 2023, the company had $10.1 million in cash, with management confident in sufficient liquidity from operations and credit facilities to fund future growth - Cash and cash equivalents stood at $10.1 million at September 30, 2023, down from $16.9 million at December 31, 2022, largely due to the HMP acquisition177 - The company refinanced its debt in November 2022, securing new credit facilities maturing in November 2027, which were utilized for the HMP acquisition185186 - For the nine months ended September 30, 2023, net cash from operations was $31.9 million, while net cash used in investing was $44.6 million, primarily for the HMP acquisition178181 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the company - The company has indicated that there are no applicable quantitative and qualitative disclosures about market risk for this reporting period199 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the end of the period, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023200202 - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2023201 PART II - OTHER INFORMATION Details legal proceedings, key risk factors, and information regarding equity securities and use of proceeds Legal Proceedings The company is subject to various legal actions in the ordinary course of business, with details on commitments and contingencies provided in Note 9 - The company may be subject to various legal actions and proceedings; refer to Note 9—Commitments and Contingencies for details204 Risk Factors The company highlights risks associated with its strategic growth plan, which relies on acquisitions, including integration challenges and potential failure to deliver expected synergies - A key risk factor is the company's strategic growth plan involving acquisitions, which may not succeed due to integration challenges, competition for targets, or failure to realize synergies206207 - Integration risks include difficulties combining business cultures, managing patient transitions, assuming unforeseen liabilities, and retaining key employees from acquired companies208 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities, repurchased shares for tax withholding on RSUs, and terminated its 2022 Share Repurchase Program - In Q3 2023, the company repurchased 8,501 common shares at an average price of $8.12 to satisfy tax withholding on vested RSUs212 - The company's 2022 Share Repurchase Program, authorized on March 7, 2022, was terminated on September 30, 2023212 - The company has not declared or paid any dividends and does not anticipate doing so in the foreseeable future, with restrictions in place under its 2022 Senior Credit Facilities213