Quipt Home Medical (QIPT) - 2023 Q3 - Quarterly Report

Part I Condensed Consolidated Interim Statements of Financial Position Quipt's total assets grew to $225.5 million, driven by acquisitions, while liabilities surged to $143.7 million due to increased debt Consolidated Balance Sheet Summary (in thousands of US Dollars) | Account | March 31, 2023 | September 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Total Current Assets | $49,492 | $41,536 | +19.2% | | Total Long-term Assets | $176,051 | $90,678 | +94.1% | | TOTAL ASSETS | $225,543 | $132,214 | +70.6% | | Total Current Liabilities | $68,170 | $41,740 | +63.3% | | Total Long-term Liabilities | $75,571 | $10,927 | +591.6% | | TOTAL LIABILITIES | $143,741 | $52,667 | +172.9% | | TOTAL SHAREHOLDERS' EQUITY | $81,802 | $79,547 | +2.8% | - The significant increase in long-term assets is mainly attributable to a rise in Goodwill (from $28.2 million to $50.7 million) and Intangible Assets (from $28.9 million to $73.0 million), reflecting the impact of recent business acquisitions[4] - The sharp rise in long-term liabilities was primarily caused by increased drawings on the senior credit facility, which grew from $3.4 million to $63.0 million to finance acquisitions[4] Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss) Revenue grew 73.2% to $58.1 million, but a net loss of $0.7 million resulted from higher expenses and no grant income Income Statement Summary (in thousands of US Dollars) | Metric | Three Months Ended Mar 31, 2023 | Three Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $58,120 | $33,553 | $98,935 | $63,077 | | Operating Income | $1,311 | $4,444 | $2,684 | $3,262 | | Net Income (Loss) | $(749) | $5,036 | $(425) | $2,905 | | Basic EPS | $(0.02) | $0.15 | $(0.01) | $0.09 | | Diluted EPS | $(0.02) | $0.14 | $(0.01) | $0.08 | - Revenue from sales of medical equipment and supplies grew more rapidly (114.2% YoY for the three months) than rentals of medical equipment (37.2% YoY)[6] - The prior year's results for the three and six months ended March 31, 2022, included a one-time income of $4.25 million from a government grant, which significantly impacts the year-over-year comparison of net income[6] Condensed Consolidated Interim Statements of Changes in Shareholders' Equity Shareholders' equity increased to $81.8 million, driven by stock issuance for acquisitions and compensation, despite a net loss Reconciliation of Shareholders' Equity (in thousands of US Dollars) | Description | Amount | | :--- | :--- | | Balance at September 30, 2022 | $79,547 | | Net loss | $(425) | | Stock issued for Great Elm acquisition | $2,060 | | Settlement of restricted stock units | $(1,338) | | Exercise of options | $81 | | Stock-based compensation | $1,877 | | Balance at March 31, 2023 | $81,802 | Condensed Consolidated Interim Statements of Cash Flows Operating cash flow rose to $14.8 million, but acquisitions led to a $77.6 million outflow, funded by $56.4 million in new debt Summary of Cash Flows (in thousands of US Dollars) | Cash Flow Activity | Six months ended March 31, 2023 | Six months ended March 31, 2022 | | :--- | :--- | :--- | | Net cash flow from operating activities | $14,816 | $11,821 | | Net cash flow used in investing activities | $(77,600) | $(19,941) | | Net cash flow from financing activities | $56,366 | $(9,021) | | Net decrease in cash | $(6,418) | $(17,141) | | Cash, beginning of period | $8,516 | $34,612 | | Cash, end of period | $2,087 | $17,394 | - The primary use of cash in investing activities was $72.7 million paid for acquisitions, a substantial increase from $16.5 million in the prior-year period[11] - Financing activities were dominated by the issuance of $70.0 million in debt under a new senior credit facility, which was used to fund acquisitions[11] Notes to the Condensed Consolidated Interim Financial Statements Note 1: Nature of Operations Quipt Home Medical Corp. provides durable medical respiratory equipment and services as a Medicare provider - The company's core business is providing a range of home medical respiratory equipment and services as a participating Medicare provider[12] Note 3: Business Acquisitions Quipt acquired Great Elm Healthcare for $74.7 million, primarily cash, significantly boosting assets - On January 3, 2023, Quipt acquired Great Elm Healthcare, LLC for a purchase price of $74,749,000, comprised of approximately $72,689,000 in cash and 431,996 Quipt common shares valued at $2,060,000[16] Provisional Fair Value of Net Assets Acquired from Great Elm (in thousands of US Dollars) | Account | Fair Value | | :--- | :--- | | Goodwill | $23,061 | | Intangible assets | $46,410 | | Property, equipment, and right of use assets | $15,199 | | Other Net Assets / (Liabilities) | $(9,821) | | Net assets acquired | $74,749 | Note 7: Goodwill and Intangible Assets Goodwill increased to $50.7 million and intangible assets to $73.0 million, primarily due to recent acquisitions Changes in Goodwill and Intangible Assets (in thousands of US Dollars) | Account | Balance Sep 30, 2022 | Additions from Acquisitions | Balance Mar 31, 2023 | | :--- | :--- | :--- | :--- | | Goodwill | $28,208 | $23,061 | $50,725 | | Net Intangible Assets | $28,887 | $46,410 | $73,042 | Note 8: Government Grant Prior year's $4.254 million PPP loan forgiveness significantly impacts current period profitability comparisons - A $4,254,000 PPP loan was forgiven on March 23, 2022, and recorded as income in the prior-year period. The absence of this one-time gain in the current period is a key factor in the decline in net income[29] Note 10: Long-term Debt New $110 million senior credit facility has $81.1 million outstanding, primarily funding the Great Elm acquisition - The company entered a new $110 million senior credit facility, consisting of an $85 million delayed draw term loan, a $5 million term loan, and a $20 million revolving credit facility[31] - As of March 31, 2023, the total outstanding balance under the new facility was $81,075,000. The cash from this facility was used to partially fund the acquisition of Great Elm[31][32] - The company paid off its SBA Loan during the quarter, resulting in a loss on extinguishment of approximately $30,000[44] Note 11: Share Capital Share capital activities involved issuing 435,000 options and 831,000 RSUs, with 526,193 shares issued for settlements Stock Option Activity (in thousands) | Description | Number of options | Weighted avg. exercise price (C$) | | :--- | :--- | :--- | | Balance Sep 30, 2022 | 3,751 | 4.24 | | Issued | 435 | 8.30 | | Exercised | (50) | 2.20 | | Expired/Forfeited | (82) | - | | Balance Mar 31, 2023 | 4,054 | 4.54 | - On February 20, 2023, 831,000 restricted stock units were granted to officers and directors, vesting over two years[53] - Stock-based compensation expense for the six months ended March 31, 2023, was $1.9 million, down from $3.3 million in the prior-year period[56] Note 13: Operating Expenses Operating expenses rose 58.9% to $47.1 million, driven by a 66.6% increase in payroll and benefits from acquisitions Operating Expenses Breakdown (in thousands of US Dollars) | Expense Category | Six months ended Mar 31, 2023 | Six months ended Mar 31, 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Payroll and employee benefits | $30,955 | $18,583 | +66.6% | | Billing | $4,201 | $2,846 | +47.6% | | All other | $11,992 | $8,241 | +45.5% | | Total operating expenses | $47,148 | $29,670 | +58.9% | Note 17: Subsequent Event April 25, 2023 public offering raised $28.9 million net proceeds, used to repay the revolving credit facility - The company raised approximately $28.9 million in net proceeds from a share offering on April 25, 2023[66] - A portion of the proceeds was used to fully repay the outstanding balance on the revolving credit facility[66]