Transcript: 2022 First Quarter Earnings Conference Call

VieMed

First Quarter 2022 Earnings

May 4, 2022

Presenters

Casey Hoyt, CEO Todd Zehnder, COO

Q&A Participants

Brooks O'Neil - Lake Street Capital Markets Doug Cooper - Beacon Securities

Prasath Pandurangan - Bloom Burton Nick Corcoran - Acumen Capital

Operator

Greetings and welcome to the VieMed first quarter 2022 earnings call. At this time, all participants are in a listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

I would now like to turn the call over to Todd Zehnder, Chief Operating Officer. Thank you, you may begin.

Todd Zehnder

Thank you, Darryl. Good morning, everyone. Please note that our remarks in this conference call may include forward looking statements under the U.S. federal securities laws or forward looking information under applicable Canadian Securities legislation, which we collectively refer to as forward looking statements. Such statements reflect the company's current views and intentions with respect to future results or events and are subject to certain risks and uncertainties which could cause actual results or events to vary from those indicated in forward looking statements.

Examples of such risks and uncertainties are discussed in our disclosure documents filed with the SEC or the Securities Regulatory Authorities in certain provinces of Canada. Because of these risks and uncertainties, investors should not place undue reliance on forward looking statements. The forward looking statements made in this conference call are made of as of today, and the company undertakes no obligation to update or revise any forward looking statements except as required by law. The first for the first quarter financial news release, including the related financial statements are available on the SEC's website.

I'll turn it over to Casey to get things started.

Casey Hoyt

Thank you, Todd. Good morning, everyone. Thank you for joining our call today. We'd like to begin by acknowledging the dedicated team of respiratory therapists, behavioral health specialists, staffing professionals, and administrative support staff who work tirelessly to deliver the best in class care to our patients living within the communities we serve.

As of March 31, our VieMed family of employees grew to 662. Compared to the same time last year, our total headcount grew by over 25%. We continue to believe our investments and dedication to our people drive a unique company culture that ultimately helps differentiate our home delivery model from the competition. This has certainly contributed to our success in being able to acquire and develop good people amongst the battle for talent throughout the country.

As a result of this robust hiring growth, we were able to organically enter four new territories in the first quarter of 2022. Through our hands on training programs, evolving middle management, and a new recruiting platform inside of VieMed healthcare staffing, we are on our way to achieving the territory growth goals set at the beginning of the year.

In addition to the internal recruiting engine that VieMed healthcare staffing has provided, high contract demand and successful sourcing activities has resulted in an incredibly strong start to revenue generating external services. In its first full quarter as an operating division, the experienced team that we built at VHS generated over 1 million in revenues. We are very optimistic about the growth and synergies that VieMed healthcare staffing contributes to our organization.

The geographic and service offering growth during the quarter was combined with exceptionally strong growth in our historic business activities. As the impact of the Omicron variant began to weaken early in the quarter, we finally witnessed a return to normal course of business with our referral sources. The increase in face to face interactions with patients and providers is contributing to strong momentum coming out of the pandemic. A key differentiator in our service model is the level of high touch personal care that we offer alongside of our products. We are well recognized in the respiratory care space as the benchmark for quality.

Underlying our physical presence in the home is our best in class high tech engaged technology platform now complemented by our behavioral health professionals. As these differentiated services mature, we are capturing robust historical data that not only proves out our investment thesis, but it's also demonstrating to payers and providers that our care model contributes significant value in the evolving value based care arena. Our traditional product lines benefit from the momentum.

Exiting the pandemic constraints, we are incredibly excited to continue to innovate and expand our services to meet the evolving needs of patients, providers, and payers. In recent periods, our strong relationships with suppliers has been a critical success factor in times when competitors are unable to meet the needs of the patients and providers. As recalls and supply chain hurdles persist longer, VieMed has consistently obtain adequate resources to meet the demands of the market. By preemptively investing in inventory and closely monitoring the supply chain, we were able to treat our existing population of patients and expand our market share by offering care when others were unable to do so.

Unlike others in the industry, we never sat back and hope that supply chains would eventually catch up to our commitments to deliver care. We were establishing many new, strong relationships with providers and referral sources whose existing suppliers are unable to meet their patient's current and future needs. As a result, our CPAP and ancillary revenues continue to grow at an impressive rate, contributing to a meaningful diversification of our portfolio mix. We also believe that in the long term, our ability to meet these needs allows us to demonstrate the full suite of our capabilities to providers and referral sources. Additionally, as a result of the increasing growth and diversity and diverse offerings, non-vent revenues now make up 28% of our core business.

Within the regulatory environment, we continue to see positive signs. The US Department of Health and Human Services once again has renewed the public health emergency determination. Combined with the extension of moratorium relief for Medicare sequestration and 5.4% increase for 2022 to the Medicare fee schedule based on inflation, these positive reimbursement trends are mitigating the effects of increase in costs.

We're often asked about our views and expectation around the next possible round of Competitive Bidding in 2024. We've always maintained that it would be irresponsible to include life saving devices, such as noninvasive ventilators in the program. And we're also now seeing early indicators that the likelihood of a 2024 round becomes less likely as each month passes. While the decision will be left to CMS, the historical inability to achieve desired savings and current delays in the initiation of potential upcoming competitive bidding programs are strong indicators that we will have the support from CMS to further expand our products and services to the home.

Further, we continue to invest in research that demonstrates the positive patient outcomes and cost savings associated with our products and services. A third study demonstrating the benefits of NIV has recently been submitted for peer review, and we are excited to formally share the detailed results upon publication.

We also continue to be methodical in our capital deployment strategies. During the end of the quarter, we were excited about the opportunity to repurchase shares, and now have been executing on that buyback at what we see as an incredible value given the strength of our organization.

Our M&A pipeline also remains active with signs that valuations are coming down to levels that are more in line with our established thresholds for return on investment. Ultimately, our team views our risk assessment and capital strategies will allow us to be well positioned as the market evolves.

With more on out operations, financials, the buyback, and regulatory landscape, I'll now turn the top the call back over to Todd Zehnder, our Chief Operating Officer.

Todd Zehnder

All right, thank you, Casey. In reviewing the financial results all five years are in US dollars and the full results have been made available on the SEC website, as well as SEDAR. Our core business generated net revenue of $30.2 million during the first quarter of 2022 as compared to net revenues of $25.5 million in the first quarter of 2021, which equates to an 18% increase. Our sequential growth for the core business was 4%.

We have once again seen solid growth in our major product lines being vents, PAPs, and oxygen. During the first quarter, we generated approximately $2.1 million of revenue from our other sources, primarily the vaccine tracing revenue generated during the quarter with our call center. We still have an established unit in place at this time, it can scale up or down in a very short period, therefore we will continue to pursue these opportunities in the future.

Our margin percentages, both gross and EBITDA, are once again very healthy, and are primarily influenced by our core business. As our product lines continue to diversify, there might be some influence on these margin percentages, but the notional growth is the main priority for the business.

Our gross and EBITDA margins during the quarter came in at 61.2% and 22.5%, accordingly. Our first quarter gross and EBITDA amounts came in at $19.7 and $7.3 million respectively. We are once again encouraged by the rapid growth of our oxygen and sleep businesses as they continue to benefit from our ongoing national rollout of these products. Our first quarter revenue from vents was approximately 71% of our core revenue, as compared to 80% in the first quarter of 2021. Importantly, our vent revenue has grown during the same time, but the product diversification is beginning to show up more and more each quarter.

Our SG&A for the quarter totaled approximately $15.8 million as compared to $14.5 million in the first quarter of '21. We have seen some inflationary effects on SG&A, but have managed the expenses andpreserve margins. We expect to continue hiring people to serve more patients around the country and expand our organic growth model to new areas.

As previously discussed, the need for traveling clinicians continues to abate. Therefore, we have seen a decrease in the pressures on our people. We continue to seek out superior clinicians and professional folks to help support our business which has always been the key to our successful organic efforts.

For the quarter, we invested approximately $4 million on capital expenditures. The CapEx was spread out across our product fleet. As we have continued to grow all areas through a diversified supplier group. We have managed to stay in front of supply chain issues through strategic purchasing and feel comfortable that we will continue to have products to serve our growing patient base. This sometimes means that we buy in larger quantities, and in certain cases, prepay for goods, but this is giving us the ability to increase market share.

We once again funded all of our CapEx (ph) with discretionary cash flow, and we also strengthened the balance sheet during the quarter. At March 31, we had a cash balance of $29.3 million and an overall working capital of $30.1 million. Our total long term debt remains at $4.3 million, and we have begun executing on our stock buybacks. We once again have grown the company and stayed very underleveraged, which gives us the tools needed to significantly grow the company through all of our organic and inorganic efforts.

As mentioned, we began our buyback efforts on the previously disclosed board approved stock buyback. As of March 31, we had purchased 389,878 shares out of the total available of approximately 2 million shares under the plan. We were able to begin buying back on March 10, so we're off to a good start. As previously discussed, the buyback has risen in the ranks of our opportunities of capital deployment, but this does not mean that we are sacrificing business growth. We have continued to organically grow and are looking at inorganic opportunities and have been able to accomplish this while simultaneously reducing our share count.

Moving on to the OIG and CMS issue related to our NIV claims. We are continuing to work with CMS and its contractors through the appeal process to assess the medical necessity of the patients audited by OIG. As discussed on our last call, we filed with the QIC in the fourth quarter and are awaiting their final review of these claims. We anticipate receiving results back from this independent review during the next 30 days and are once again hopeful this round of review will have a more individualized clinical review.

Moving on to the second quarter, we've provided net revenue guidance in the $32.1 to $32.8 million range related to our core business, and have also guided approximately two to $300,000 of revenue