Viemed(VMD) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section covers Viemed Healthcare, Inc.'s unaudited financial statements and management's analysis for Q3 and 9M 2020 and 2019 Item 1. Financial Statements This section presents Viemed Healthcare, Inc.'s unaudited financial statements and related notes for Q3 and 9M 2020 and 2019 Condensed Consolidated Balance Sheets This section details the company's financial position, including assets, liabilities, and equity, as of September 30, 2020, and December 31, 2019 | ASSETS (in thousands of U.S. Dollars) | September 30, 2020 (Unaudited) | December 31, 2019 (Audited) | | :------------------------------------ | :----------------------------- | :-------------------------- | | Cash and cash equivalents | $32,396 | $13,355 | | Accounts receivable, net | $11,489 | $11,534 | | Inventory, net | $2,762 | $1,360 | | Prepaid expenses and other assets | $3,333 | $1,562 | | Total current assets | $49,980 | $27,811 | | Property and equipment, net | $56,317 | $54,772 | | Deferred tax asset | $7,593 | — | | TOTAL ASSETS | $113,969 | $82,596 | | LIABILITIES (in thousands of U.S. Dollars) | September 30, 2020 (Unaudited) | December 31, 2019 (Audited) | | :------------------------------------ | :----------------------------- | :-------------------------- | | Trade payables | $7,553 | $4,700 | | Accrued liabilities | $12,793 | $8,968 | | Current portion of lease liabilities | $4,207 | $7,093 | | Current portion of long-term debt | $1,815 | $1,750 | | Total current liabilities | $30,348 | $25,912 | | Long-term debt | $6,261 | $7,629 | | TOTAL LIABILITIES | $38,771 | $38,897 | | SHAREHOLDERS' EQUITY (in thousands of U.S. Dollars) | September 30, 2020 (Unaudited) | December 31, 2019 (Audited) | | :------------------------------------ | :----------------------------- | :-------------------------- | | Common stock | $9,085 | $3,366 | | Retained earnings | $60,572 | $34,113 | | TOTAL SHAREHOLDERS' EQUITY | $75,198 | $43,699 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $113,969 | $82,596 | - Total assets increased by $31.37 million (38.0%) from $82.60 million at December 31, 2019, to $113.97 million at September 30, 2020, primarily driven by a significant increase in cash and cash equivalents and the recognition of a deferred tax asset[8] - Total shareholders' equity increased by $31.49 million (72.0%) from $43.70 million at December 31, 2019, to $75.20 million at September 30, 2020, largely due to an increase in retained earnings[8] Condensed Consolidated Statements of Income and Comprehensive Income This section details the company's financial performance, including revenue, expenses, and net income, for Q3 and 9M ended September 30, 2020 and 2019 | (in thousands of U.S. Dollars) | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :----------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $33,447 | $20,368 | $100,107 | $58,808 |\ | Cost of revenue | $13,994 | $6,318 | $39,174 | $17,045 |\ | Gross profit | $19,453 | $14,050 | $60,933 | $41,763 |\ | Income from operations | $4,040 | $2,186 | $21,514 | $6,166 |\ | Net income before taxes | $3,945 | $2,904 | $21,141 | $6,350 |\ | Provision (benefit) for income taxes | $1,141 | $51 | $(5,318) | $213 |\ | Net income | $2,804 | $2,853 | $26,459 | $6,137 |\ | Basic EPS | $0.07 | $0.08 | $0.69 | $0.17 |\ | Diluted EPS | $0.07 | $0.07 | $0.66 | $0.15 | - Revenue for the three months ended September 30, 2020, increased by 64.2% to $33.45 million from $20.37 million in the prior year period[10] - For the nine months, revenue increased by 70.2% to $100.11 million from $58.81 million[10] - Net income for the nine months ended September 30, 2020, significantly increased by 331.1% to $26.46 million from $6.14 million in the prior year period, largely due to a tax benefit and increased operational income[10] Condensed Consolidated Statements of Changes in Shareholders' Equity This section tracks changes in shareholders' equity, including common stock, paid-in capital, and retained earnings, for 9M ended September 30, 2020 | (in thousands of U.S. Dollars) | Shares (Sep 30, 2020) | Amount (Sep 30, 2020) | Additional paid-in capital (Sep 30, 2020) | Retained earnings (Sep 30, 2020) | Total Shareholders' equity (Sep 30, 2020) | | :----------------------------- | :-------------------- | :-------------------- | :---------------------------------------- | :------------------------------- | :---------------------------------------- | | Balance December 31, 2019 | 37,952,660 | $3,366 | $6,377 | $34,113 | $43,699 | | Stock-based compensation - options | — | — | $891 | — | $891 | | Stock-based compensation - restricted stock | — | — | $260 | — | $260 | | Exercise of options | 4,737 | $15 | — | — | $15 | | Shares issued for vesting of restricted stock units | 529,375 | $3,276 | $(3,276) | — | — | | Net Income | — | — | — | $4,243 | $4,243 | | Balance March 31, 2020 | 38,486,772 | $6,657 | $4,252 | $38,356 | $48,796 | | Stock-based compensation - options | — | — | $933 | — | $933 | | Stock-based compensation - restricted stock | — | — | $263 | — | $263 | | Exercise of options | 596,160 | $1,757 | — | — | $1,757 | | Net Income | — | — | — | $19,412 | $19,412 | | Balance June 30, 2020 | 39,082,932 | $8,414 | $5,448 | $57,768 | $71,128 | | Stock-based compensation - options | — | — | $945 | — | $945 | | Stock-based compensation - restricted stock | — | — | $289 | — | $289 | | Exercise of options | 2,400 | $8 | — | — | $8 | | Shares issued for vesting of restricted stock units | 59,850 | $663 | $(663) | — | — | | Net Income | — | — | — | $2,804 | $2,804 | | Balance September 30, 2020 | 39,145,182 | $9,085 | $6,019 | $60,572 | $75,198 | - Total shareholders' equity increased from $43.70 million at December 31, 2019, to $75.20 million at September 30, 2020, primarily driven by net income and stock-based compensation[15] - The number of common shares outstanding increased from 37,952,660 at December 31, 2019, to 39,145,182 at September 30, 2020, mainly due to the exercise of options and shares issued for vesting of restricted stock units[15] Condensed Consolidated Statements of Cash Flows This section details the company's cash flows from operating, investing, and financing activities for 9M ended September 30, 2020 and 2019 | (in thousands of U.S. Dollars) | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :----------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $29,319 | $11,687 |\ | Net cash used in investing activities | $(3,047) | $(10,232) |\ | Net cash (used in) provided by financing activities | $(7,231) | $762 |\ | Net increase in cash and cash equivalents | $19,041 | $2,217 |\ | Cash and cash equivalents at beginning of year | $13,355 | $10,413 |\ | Cash and cash equivalents at end of period | $32,396 | $12,630 | - Net cash provided by operating activities significantly increased to $29.32 million for the nine months ended September 30, 2020, from $11.69 million in the prior year, driven by higher net income and non-cash adjustments[18] - Net cash used in investing activities decreased to $3.05 million in 2020 from $10.23 million in 2019, primarily due to lower property and equipment purchases and higher proceeds from asset disposals[18] - Net cash used in financing activities was $7.23 million in 2020, a shift from $0.76 million provided in 2019, mainly due to higher repayments of lease liabilities and lower net proceeds from debt[18] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the financial statements, covering accounting policies and specific line items 1. Nature of Business and Operations This section describes Viemed Healthcare, Inc.'s core business, operational scope, and regulatory classifications - Viemed Healthcare, Inc. provides in-home durable medical equipment (DME) and post-acute respiratory healthcare services in 36 U.S. states[19] - Effective January 1, 2021, the Company will no longer qualify as a 'foreign private issuer' and will be subject to U.S. proxy solicitation rules and Section 16 reporting requirements[20] - The Company is an 'emerging growth company' and has elected to comply with certain reduced U.S. public company reporting requirements[21] 2. Summary of Significant Accounting Policies This section outlines key accounting principles and estimates used in financial statements, including revenue, receivables, and COVID-19 impact - The financial statements are prepared in accordance with GAAP for interim information and SEC rules, reflecting management's estimates for revenue recognition, accounts receivable, income taxes, and financial instrument fair value[22][24] - The COVID-19 pandemic introduces uncertainty, potentially impacting estimates for future periods, particularly regarding business, financial condition, and results of operations[25][27] Allowance for Doubtful Accounts (in thousands of U.S. Dollars) | | September 30, 2020 | September 30, 2019 | | :-------------------------- | :----------------- | :----------------- | | Balance, beginning of year | $7,782 | $4,266 | | Change in allowance | $7,031 | $6,937 | | Amounts written off | $(6,025) | $(3,539) | | Balance, end of period | $8,788 | $7,664 | - Medicare and Medicaid represent a significant portion of outstanding receivables (65% combined at Sep 30, 2020) and traditional revenue streams (66% for Q3 2020, 69% for 9M 2020)[31][32] Revenue by Source (in thousands of U.S. Dollars) | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Ventilator rentals | $19,962 | $17,213 | $58,672 | $50,990 |\ | Other DME rentals | $2,649 | $1,449 | $7,184 | $3,464 |\ | Equipment and supply sales | $1,890 | $1,349 | $3,962 | $3,202 |\ | COVID-19 response sales and services | $8,553 | — | $29,306 | — |\ | Service revenues | $393 | $357 | $983 | $1,152 |\ | Total Revenues | $33,447 | $20,368 | $100,107 | $58,808 | 3. Property and Equipment This section details the company's fixed assets, including medical equipment, land, buildings, and accumulated depreciation Fixed Assets (in thousands of U.S. Dollars) | | September 30, 2020 | December 31, 2019 | | :------------------------------------------------- | :----------------- | :---------------- | | Medical equipment | $62,490 | $56,202 | | Furniture and equipment | $2,606 | $2,350 | | Land | $2,138 | $2,138 | | Buildings | $6,132 | $6,351 | | Leasehold improvements | $290 | $301 | | Vehicles | $922 | $1,110 | | Less: Accumulated depreciation | $(18,261) | $(13,680) | | Property and equipment, net | $56,317 | $54,772 | - Net property and equipment increased by $1.55 million (2.8%) from $54.77 million at December 31, 2019, to $56.32 million at September 30, 2020[65] - Depreciation included in cost of revenue was $2.22 million for Q3 2020 (vs $1.47 million in Q3 2019) and $6.13 million for 9M 2020 (vs $3.94 million in 9M 2019)[67] 4. Current Liabilities This section details the company's short-term financial obligations, including trade payables, accrued expenses, and current lease liabilities Short-term Accrued Liabilities (in thousands of U.S. Dollars) | | September 30, 2020 | December 31, 2019 | | :-------------------------- | :----------------- | :---------------- | | Accrued trade payables | $1,682 | $1,023 | | Accrued commissions payable | $321 | $371 | | Accrued bonuses payable | $4,483 | $2,292 | | Accrued vacation and payroll | $1,577 | $1,502 | | Current portion of phantom share liability | $4,427 | $3,129 | | Accrued other liabilities | $303 | $651 | | Total accrued liabilities | $12,793 | $8,968 | - Total accrued liabilities increased by $3.83 million (42.7%) from $8.97 million at December 31, 2019, to $12.79 million at September 30, 2020, primarily due to higher accrued bonuses and phantom share liability[68] 5. Debt and lease liabilities This section outlines the company's debt obligations, lease liabilities, and compliance with financial covenants - The Company maintains a $10.0 million line of credit, undrawn as of September 30, 2020, expiring May 1, 2023[70] - The Building Term Note (principal $4.845 million, fixed interest rate 4.68%) matures May 30, 2026, and the Term Note (principal $5.0 million, interest rate 4.60%) matures September 19, 2022[71][72] Debt and Lease Liabilities (in thousands of U.S. Dollars) | | September 30, 2020 | December 31, 2019 | | :-------------------------- | :----------------- | :---------------- | | Notes payable | $8,076 | $9,379 | | Current portion of notes payable | $(1,815) | $(1,750) | | Net long-term notes payable | $6,261 | $7,629 | | Lease liabilities | $5,159 | $10,132 | | Current portion of lease liabilities | $(4,207) | $(7,093) | | Net long-term lease liabilities | $952 | $3,039 | - The Company was in compliance with all financial covenants (Total Debt to Adjusted EBITDA, Fixed Charge Coverage Ratio, Loan-to-Value Ratio) at September 30, 2020[74] 6. Fair value measurement This section explains the categorization of financial instrument fair value measurements into Level 1, Level 2, and Level 3 inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[80][84] - Cash and cash equivalents use Level 1 inputs, while debt and interest rate swap contracts use Level 2 inputs[81][82][86] - All unexercised warrants, previously valued using Level 3 inputs, expired during 2019, resulting in no warrants outstanding as of September 30, 2020[83][84] 7. Shareholders' Equity This section details changes in shareholders' equity, including common shares, stock-based compensation, and equity plans - As of September 30, 2020, there were 39,145,182 common shares issued and outstanding[89] - The Company's 2020 Long Term Incentive Plan (Omnibus Plan) was approved on June 11, 2020, replacing the Former Plan, with a maximum of 7,758,000 common shares available for awards[92] Stock-based Compensation Expense (in thousands of U.S. Dollars) | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Stock-based compensation - options | $945 | $745 | $2,769 | $2,028 |\ | Stock-based compensation - restricted stock units | $289 | $319 | $812 | $950 |\ | Total | $1,234 | $1,064 | $3,581 | $2,978 | - Unrecognized pre-tax stock option expense was $3.67 million (weighted-average period of 2.16 years) and restricted stock units expense was $0.94 million (weighted-average period of 0.47 years) as of September 30, 2020[93] - The total liability for cash-settled phantom share units was $5.16 million at September 30, 2020, with $4.43 million classified as current[103] 8. Commitments and Contingencies This section discusses potential future obligations and legal matters, including a lawsuit regarding respiratory equipment - The Company accrues estimates for legal contingencies when losses are probable and reasonably estimable[105] - A lawsuit was filed against Vyaire Medical, Inc. for failure to deliver respiratory equipment, seeking a refund of a $1.4 million deposit[106] - Vyaire counterclaimed for $4.7 million for alleged breach of contract[107] - The Company has not accrued a liability for Vyaire's counterclaim as a loss is not considered probable, and the amount of reasonably possible loss is not determinable at this early stage[109] 9. Other Income This section details the recognition of funds received from the CARES Act Provider Relief Fund as other income - The Company received $3.5 million from the CARES Act Provider Relief Fund in April 2020, recognized as other income[110] - These funds are not loans and do not need to be repaid, but are subject to terms and conditions that may change, potentially requiring funds to be returned[111] 10. Income Taxes This section explains the company's effective tax rate, deferred tax asset recognition, and CARES Act impact - The Company's estimated effective tax benefit rate for 2020 is (19.20%), including discrete permanent differences and a discrete benefit from deferred tax asset recognition[114] - An adjustment to the deferred tax asset valuation allowance reduced the provision for income taxes by $7.8 million at June 30, 2020, as realization of the deferred tax asset became more likely than not[115] - The CARES Act has not had a material impact on financial statements as of September 30, 2020, but the Company is still analyzing its provisions[113] 11. Earnings Per Share This section presents basic and diluted earnings per share calculations for Q3 and 9M ended September 30, 2020 and 2019 Earnings Per Share (EPS) Data | | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to shareholders | $2,804 | $2,853 | $26,459 | $6,137 |\ | Basic weighted-average common shares | 39,107,640 | 37,812,921 | 38,603,267 | 37,775,775 |\ | Diluted weighted-average shares | 41,155,668 | 40,051,422 | 40,377,608 | 39,768,877 |\ | Basic earnings per share | $0.07 | $0.08 | $0.69 | $0.17 |\ | Diluted earnings per share | $0.07 | $0.07 | $0.66 | $0.15 | - Diluted EPS for the nine months ended September 30, 2020, increased significantly to $0.66 from $0.15 in the prior year period[118] 12. Subsequent Events This section discloses significant events after the reporting period, specifically a capital lease agreement conversion - Subsequent to September 30, 2020, $2.5 million of accounts payable was converted to a short-term lease payable through a capital lease agreement[119] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Viemed Healthcare, Inc.'s financial condition and operational results for Q3 and 9M 2020 and 2019, highlighting COVID-19 impacts and key drivers Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ - The report contains forward-looking statements regarding future events and performance, which involve estimates, assumptions, and uncertainties that could cause actual results to differ materially[123][126] - These statements are based on management's reasonable assumptions and perceptions of trends and conditions but are not guarantees of future accuracy[126] General Matters This section addresses the company's transition from a foreign private issuer to a U.S. domestic issuer and its emerging growth company status - Viemed Healthcare, Inc. ceased to qualify as a 'foreign private issuer' as of June 30, 2020, and will become subject to U.S. domestic issuer rules (e.g., proxy solicitation, Regulation FD, Section 16) effective January 1, 2021[130] - The Company is an 'emerging growth company' and utilizes reduced U.S. public company reporting requirements[131] Overview This section provides a general description of Viemed's business, its focus on post-acute respiratory care, and organic growth strategy - Viemed provides home medical equipment, services, and supplies, specializing in post-acute respiratory care in the U.S., aiming for organic growth and market leadership[132] - The majority of revenue (80.2% of traditional revenue in Q3 2020) is derived from non-invasive and invasive ventilator rentals, supported by licensed Respiratory Therapists (RTs)[133] - The Company employs approximately 258 licensed RTs (over 52% of total employees) and focuses on a cost-efficient organic growth model by expanding in existing and new regions without extensive physical location costs[134] Trends Affecting Our Business This section discusses the impact of COVID-19 and regulatory changes, including the CARES Act and competitive bidding program, on operations - The COVID-19 pandemic has led to modified clinical protocols and lower new patient setups in hospitals, but has not negatively impacted patient attrition rates[136] - The CARES Act provided $3.5 million in Provider Relief Funds to the Company in April 2020, intended to compensate for lost revenues and incremental COVID-19 expenses[140] - CMS removed non-invasive ventilators, oxygen, and PAP devices from the Round 2021 competitive bidding program due to the pandemic, allowing the Company to continue furnishing these products in all Medicare accredited areas[144] Results of Operations This section analyzes the company's financial performance, including revenue, gross profit, and net income, for the reported periods Comparison of the Three Months Ended September 30, 2020 and 2019 This section compares the company's financial performance for Q3 ended September 30, 2020, against the same period in 2019 Key Financials (Three Months Ended September 30, in thousands of U.S. Dollars) | | 2020 | % of Total Revenue (2020) | 2019 | % of Total Revenue (2019) | $ Change | % Change | | :------------------------------------ | :--- | :------------------------ | :--- | :------------------------ | :------- | :------- | | Revenue | $33,447 | 100.0 % | $20,368 | 100.0 % | $13,079 | 64.2 % | | Cost of revenue | $13,994 | 41.8 % | $6,318 | 31.0 % | $7,676 | 121.5 % | | Gross profit | $19,453 | 58.2 % | $14,050 | 69.0 % | $5,403 | 38.5 % | | Selling, general and administrative | $13,550 | 40.5 % | $10,231 | 50.2 % | $3,319 | 32.4 % | | Income from operations | $4,040 | 12.1 % | $2,186 | 10.7 % | $1,854 | 84.8 % | | Net income | $2,804 | 8.4 % | $2,853 | 14.0 % | $(49) | (1.7)% | - Revenue increased by 64.2% YoY, primarily driven by $8.6 million in COVID-19 response sales and services[149] - Gross profit percentage decreased from 69.0% to 58.2% due to lower margins on COVID-19 response sales (34.8% gross profit percentage) and consistent respiratory therapist labor costs despite slower ventilator patient growth[152] - Selling, general and administrative expenses increased by 32.4% YoY, but decreased as a percentage of revenue from 50.2% to 40.5%, partly offset by a $0.6 million reduction in phantom stock plan expense due to stock price decline[154][155] Comparison of the Nine Months Ended September 30, 2020 and 2019 This section compares the company's financial performance for 9M ended September 30, 2020, against the same period in 2019 Key Financials (Nine Months Ended September 30, in thousands of U.S. Dollars) | | 2020 | % of Total Revenue (2020) | 2019 | % of Total Revenue (2019) | $ Change | % Change | | :------------------------------------ | :--- | :------------------------ | :--- | :------------------------ | :------- | :------- | | Revenue | $100,107 | 100.0 % | $58,808 | 100.0 % | $41,299 | 70.2 % | | Cost of revenue | $39,174 | 39.1 % | $17,045 | 29.0 % | $22,129 | 129.8 % | | Gross profit | $60,933 | 60.9 % | $41,763 | 71.0 % | $19,170 | 45.9 % | | Selling, general and administrative | $40,555 | 40.5 % | $31,207 | 53.1 % | $9,348 | 30.0 % | | Income from operations | $21,514 | 21.5 % | $6,166 | 10.5 % | $15,348 | 248.9 % | | Net income | $26,459 | 26.4 % | $6,137 | 10.4 % | $20,322 | 331.1 % | - Revenue increased by 70.2% YoY, primarily driven by $29.3 million in COVID-19 response sales and services[162] - Gross profit percentage decreased from 71.0% to 60.9% due to the high volume of COVID-19 response sales and services, which typically have lower margins[165] - Net income increased by 331.1% YoY, significantly boosted by a $5.3 million income tax benefit (vs $0.2 million expense in 2019) due to the release of a valuation allowance and recognition of a deferred tax asset[160][173] - A $2.4 million gain on disposal of property and equipment was recorded, compared to a $0.3 million loss in the prior year, due to sales of previously placed equipment for COVID-19 response[169] Non-GAAP Financial Measures This section defines and reconciles Adjusted EBITDA, a key non-GAAP financial measure for performance tracking and planning - Adjusted EBITDA is a key non-GAAP financial measure used by management to track operating performance, compare consistently, calculate incentive compensation, and for planning[174] - Adjusted EBITDA excludes non-cash items like depreciation, unrealized gains/losses on warrant conversion liability, stock-based compensation, and non-operating items like interest and income tax expense/benefit[175][176] Adjusted EBITDA Reconciliation (in thousands of U.S. Dollars) | For the quarter ended | Sep 30, 2020 | Jun 30, 2020 | Mar 31, 2020 | Dec 31, 2019 | Sep 30, 2019 | Jun 30, 2019 | Mar 31, 2019 | Dec 31, 2018 | | :-------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Net Income | $2,804 | $19,412 | $4,243 | $2,388 | $2,853 | $1,326 | $1,958 | $2,968 |\ | Add back: | | | | | | | | |\ | Depreciation | $2,425 | $2,190 | $2,130 | $2,003 | $1,659 | $1,444 | $1,295 | $1,177 |\ | Interest expense | $116 | $135 | $158 | $212 | $56 | $20 | $26 | $30 |\ | Unrealized (gain) loss on warrant conversion liability | — | — | — | — | $(800) | $268 | $169 | $(210) |\ | Stock-based compensation | $1,234 | $1,196 | $1,151 | $908 | $1,064 | $1,034 | $880 | $804 |\ | Income tax expense (benefit) | $1,141 | $(6,646) | $187 | $58 | $51 | $24 | $138 | $127 |\ | Adjusted EBITDA | $7,720 | $16,287 | $7,869 | $5,569 | $4,883 | $4,116 | $4,466 | $4,896 | Liquidity and Capital Resources This section assesses the company's ability to meet financial obligations, detailing cash flows, capital expenditures, and available credit - Cash and cash equivalents increased to $32.4 million at September 30, 2020, from $13.4 million at December 31, 2019[179] - The Company believes current liquidity, expected cash flows from operations, and an undrawn $10.0 million line of credit are sufficient to fund operations for at least the next 12 months[179][187] Cash Flows Summary (Nine Months Ended September 30, in thousands of U.S. Dollars) | | 2020 | 2019 | | :------------------------------------ | :--- | :--- | | Net Cash provided by operating activities | $29,319 | $11,687 | | Net Cash used in investing activities | $(3,047) | $(10,232) | | Net Cash (used in) provided by financing activities | $(7,231) | $762 | | Net increase in cash and cash equivalents | $19,041 | $2,217 | - Operating cash flow for 9M 2020 was $29.3 million, including $3.5 million from Provider Relief Funds, and was primarily used for new rental assets and other capital purchases[181][194] - Total capital expenditures for 9M 2020 were $11.2 million, a 55.7% decrease YoY, combining cash purchases ($8.2 million) and finance leases ($3.0 million)[183] Accounting and Disclosure Matters This section highlights critical accounting policies and estimates, including revenue recognition, doubtful accounts, and fair value hedging - Critical accounting policies involve significant judgments and estimates, including revenue recognition, allowance for doubtful accounts, income taxes, and stock-based compensation[199][201] - Revenue from DME rentals (operating leases) is recognized straight-line over the one-month contractual lease term, while sales and services revenue is recognized when control is transferred[202][203][205] - The allowance for doubtful accounts was $8.8 million at September 30, 2020, deemed adequate based on historical data and current business conditions[211] - The Company uses an interest rate swap to hedge variable interest rate exposure on its Term Note, with changes in fair value recorded in Accumulated other comprehensive income or loss if effective[213][215] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states no quantitative and qualitative disclosures about market risk are applicable to the Company for the reported period - The Company has no applicable quantitative and qualitative disclosures about market risk for the period[221] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures, confirming effectiveness and no material changes in internal control - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2020, ensuring timely and accurate reporting of material information[222][224] - There have been no material changes in the Company's internal control over financial reporting during the three months ended September 30, 2020[223] PART II - OTHER INFORMATION This section provides additional information not covered in financial statements, including legal proceedings, risk factors, and equity sales Item 1. Legal Proceedings This section refers to Note 8 for legal proceedings, stating routine litigation is not expected to materially affect financial condition or operations - Routine ongoing litigation, including employment and breach of contract disputes, is not expected to materially adversely affect the Company's financial condition or results of operations[226] Item 1A. Risk Factors This section updates risk factors, focusing on COVID-19 impacts, competitive bidding changes, and the transition to a U.S. domestic issuer - The COVID-19 pandemic poses significant risks, including potential disruptions to patient assessment and treatment, economic downturn effects on patient base and receivables, and supply chain issues[228][229] - While COVID-19 response sales increased revenues in 9M 2020, the overall impact remains uncertain and could materially affect business, financial condition, and results of operations[230][231] - CMS removed non-invasive ventilators, oxygen, and PAP devices from the Round 2021 competitive bidding program, mitigating a significant risk, but future inclusion in competitive bidding remains uncertain[236] - The Company's transition from a foreign private issuer to a U.S. domestic issuer effective January 1, 2021, will result in increased regulatory and compliance costs and new reporting requirements[237] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered equity sales or share repurchases during Q3 2020 and no dividends declared or paid - No unregistered sales of equity securities occurred during the quarter ended September 30, 2020[239] - The Company did not repurchase any equity securities during the quarter ended September 30, 2020[240] - The Company has not declared or paid any cash or stock dividends since its inception and does not anticipate doing so in the foreseeable future[241] Item 3. Defaults Upon Senior Securities This section indicates no defaults upon senior securities during the reported period - There were no defaults upon senior securities[242] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to the Company[243] Item 5. Other Information No other information is reported in this section - No other information is reported in this section[244] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including agreements, corporate documents, certifications, and XBRL - The report includes various exhibits such as Share Purchase Agreements, Asset Purchase Agreements, Arrangement Agreements, corporate articles, warrant indentures, and certifications (CEO, CFO)[248] - XBRL (eXtensible Business Reporting Language) documents, including instance, schema, calculation, label, and presentation linkbase documents, are filed as part of the exhibits[248][250]