Q3 2020 Viemed Healthcare Inc Earnings Call

Good morning, ladies and gentlemen, thank you for standing by welcome to the <unk> third quarter 2020 earnings call. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation should.

Should you require operator assistance during the conference. Please press star zero to say your own operator.

Please note this conference is being recorded.

Now I'll turn the conference over to your host Todd Zehnder, Chief operating officer for buybacks. Thank you you may begin.

Thank you David Good morning, everyone. Please note that our remarks on this conference call May include forward looking statements under the U.S. Federal Securities laws forward looking information under applicable Canadian Securities legislation, which we collectively referred to as forward looking statements such statements reflect the company's current views and intentions with.

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 our forward looking statements. Examples of such risks and uncertainties are discussed in our disclosure documents filed with the FCC 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 as of the date hereof. The company undertakes no obligation to update or revise any forward looking statements, except as required by law.

Third quarter financial statements news release, including the financial statements is available in the Fccs website.

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

Good morning, everyone. Thank you for participating on our call today.

Before we get started I'd like to commend by beds greatest asset our own.

Over 500 health care professionals, well I had the great privilege of leading day to day.

These associates continue to show bravery compassion and determination to help others. Indeed during this public health emergency.

Continue to place others ahead of themselves and I'm truly getting a better quality of life.

Patients within the communities we serve.

Thank you for your sincere commitment taught by that measure.

I'll begin with covering some of the key updates on projects that are contributing to setting another record breaking quarter.

Additionally, we will discuss how we have built up an all time high cash balance.

Current plans for reinvesting for the future.

I'll also remark about the recent regulatory outlook, which become considerably more favorable to the h. heavy industry.

Since the pandemic began our team has been resilient and figuring out ways to stay in front of our patience and referral sources are.

Our efforts are communicating to physicians and patients through our technology platforms have certainly paid off.

The third quarter demonstrates a bounce back on referrals similar to pre cobot numbers inside of our core business.

We were also able to add five new territories in the third quarter, which brings our year to date total to 27, new areas across five new states and 2020.

Today, we are conducting business in 36 states and have many good expansion prospects in the fourth quarter.

We also took the time to the third quarter to reorganize restructure our management.

We added four new clinical trainers for our salespeople.

The new structure will allow for further strong field support for all new and existing reps.

Our reps have been doing a really good job selling our ancillary product offerings, such as sleep oxygen and percussion best the ancillary business made up 18% of our revenue with strong momentum.

We are seeing faster growth with oxygen we have recently begun working with Inogen to act as their private insurance arm for leads they have trouble converting.

Our current growth rate on oxygen is a very robust 55% quarter over quarter and the early success of the energy program has its very optimistic about the possibility to continue to grow oxygen at even faster rate.

Our network development team put us in a position to have enough national payer contracts that make our strategic partnership with energen attractive for both parties.

We continue to add and build out our network development and payer relations teams to help foster and build valuable relationships within our payer network.

Another contract that came in the third quarter was a national contract with our home sleep delivered division to provide home sleep studies to be a.

We have already started receiving orders for Hs teens for multiple centers across the country. Its contract will help us grow to sleep at night and assist us with our goal of being a one stop shop for all be a respiratory home care needs.

Additionally, our inside sales force has experienced success with setting up 42 meetings and less than 60 days for reps would then various VA facilities.

With these centers being difficult to access during the pandemic. It was nice to execute on a safe strategy to stay in front of our BA network with their granite mission Oh.

Overall, our inside sales reps have experienced positive results in many departments within bottom that.

They have played an instrumental role in helping close the antigen leads for oxygen partnership Furthermore, and perhaps the most exciting results they've come up with the work that they have accomplished while limited I'm sorry, it's the work that they have accomplished while limited with access to physicians during the heart of code that.

Our inside sales reps were able to drive 217 virtual do meetings that resulted in 80 patients getting the service they need without being put in harm's way.

As the process has continued to improve this is just another example of the department that is strengthened as a result of the pandemic.

The pandemic has presented our company and industry with many positive Tailwinds, we believe that patient case managers physicians and families are increasingly choosing to embrace the efficiencies of treating more people in the home.

These trends that play a role in our core business bouncing back.

However, it is not eliminated the need or the opportunity for other pandemic related revenue opportunities.

Collectively in the third quarter, we closed over 8 million encoded related revenue.

Our offerings had been inclusive event sales pp and contact tracing contracts for states and hospitals in need.

I could not be prouder of the creativity and hard work that our management team displayed by creating a warehouse and inventories system. The pp and staffing up 200 person call center, our contact tracing work.

As our inside sales strategies of all this call center stance serve as a breeding ground for Biomed champion collars to help ultimately drive our core business and the post grant them at World.

We recognize along with CMS that we're not in the post pandemic world just yet.

As evidenced by the recent announcement by CMS to pause the 2021 competitive bidding round for most product categories. We believe the regulatory brought will continue to be favorable for growth in the in home health care industry.

Earlier this year our company was pleased to hear CMS announced that ventilators were removed from competitive bidding 2021 through 2023, we.

We now have further signs of support from CMS, which eliminates see perhaps oxygen and best from this round as well.

Relaxing. These regulations are the wonderful response to the crisis, one that will allow health care providers to help more people and a continuing and efficient manner.

This time I'd like to turn the call over to Chief operating Officer, Todd Denner to review the operations and financial results for the quarter.

Hi, Thanks, Casey in reviewing the financial results all figures are in us dollars and the full results have been made available on the FCC web site as well as seed or.

Our core business generated net revenue of 24.9 million during the third quarter of 2020 as compared to net revenues of 20.4 million in the third quarter of 2019, which equates to a 22% increase.

Additionally, revenue attributable to our core business was up approximately 8% sequentially, which is a good sign that our business is returning to growth levels achieved before the ongoing cobot pandemic.

Additionally, during the current quarter, we generated approximately 8.6 million of equipment and service revenue from the ongoing Kobe 19 pandemic.

The Kobin related revenue resulted primarily from the sales of equipment contact tracing services and sales of pp any as Casey pointed out it truly helped with various states and communities dealing successfully with the pandemic.

Our bit patient count increased slightly from the second quarter and was up about 5% over the prior year third quarter of <unk>.

As we discussed last quarter, we retrieved log complaint that's more aggressively during the current year as we were seeing the need for equipment at such a high level.

As a result of this effort our average realization per active patient has increased as we have had less write offs and bad debts on our patients that we're servicing.

While our new patient additions remain somewhat lower than historical figures. The last 60 days have shown better indication of the growth primarily due to better access and our ability to onboard new sales reps after the height of the pandemic.

Our margin percentages, both gross and EBITDA continue to fluctuate as coated related product sales during the current year skew comparability.

We once again posted very strong margins during the quarter.

Our third quarter gross and EBITDA margins came in at 19.5 million and 7.7 million respectively.

Our SGN eight for the quarter totaled approximately 13.6 million as compared to 10.2 million in the prior year's third quarter.

The rate of hiring increased during the quarter and we continue to look to add more reps in the field as well as build out our inside sales reps for multiple products.

We once again have continued hiring for our initiatives in the technology area, because the ongoing pandemic is creating new business challenges, which breeds innovation to solutions.

Our continued investments into the future growth of the company continue with our expanding pilot.

Our business analysis for the opportunity in the new area of remote patient monitoring.

We once again have a very solid balance sheet with approximately 32.4 million in cash at quarter end 11.5 million of they are and an overall working capital balance of roughly 19.6 million.

Our core business. They are during the third quarter is actually at the lowest level that it's been in about two years, which is a continuation of stats that are new workflow system is operating effectively.

Now that we have had our internal systems optimized it is driving better cash collection cycles, and lower bad debts for aging receivables.

Our long term debt as a profit approximately $7.2 million and being serviced with operating cash flow.

We have once again built liquidity and lowered our long term debt and our plans to continue to minimize the amount of leverage on our balance sheet remains intact.

What's the pandemic shows signs of endings, we will be diligently looking for ways to opportunistically capitalize on changes in the business landscape.

Moving on to the fourth quarter, we have provided net revenue guidance in the 26 to 26 7 million dollar range related to our core business and have also guided approximately 5 million to $6 million of revenue related to the Cobi 19 pandemic.

While we have not guidance you add significant of revenues related to the Kobe during the upcoming quarter as compared to prior quarters. We continue to serve as a resource to states and healthcare systems around the country and will step up to provide equipment and services as needed.

This flexibility has been demonstrated by our talented team around the country and has been a significant value creator for our shareholders. During this pandemic.

On the capital markets front, we have been actively marketing to institutional investors do non deal road shows in the new age of virtual tours. Additionally, we have several sell side virtual conference is that we have upcoming where we will present, our story to new and existing shareholders.

We are excited to keep talking about our mission of treating chronically ill patients in the home with the best clinical and technological care available.

Additionally, we filed a shelf registration during the third quarter that will offer us the flexibility in the future should we have a use of proceeds necessitating a capital raise we became eligible to file this shelf after being an FCC registrars for one year. Therefore, we filed here in September.

At this time I'd like to turn the call back over to Casey to wrap things up.

Thank you Todd.

Another major takeaways from the third quarter is that our cash is now at an all time high.

As our company looks to finished 2020 has its strongest year to date, our thoughts now turn to the investment strategies that must be made to drive future growth in.

In addition to the organic growth from our clinically proven industry, leading sales force. Our focus is shifting to what we can acquire what can we acquire that will speed up our initiatives.

With remote patient monitoring being a new revenue stream for physicians in 2020, we think there is a unique opportunity to drive our core business through offering a fair market value RPM revenue solution to our physician network.

With current strategies in place to bolt on remote patient monitoring on our technology platforms.

Jim has spent significant time researching our build versus buy versus JV technology options.

Morning, guys, Oh boy well down there.

All is well Brooks morning.

Good so I have a couple of questions just try to limit myself, a little bit here, but first I'm curious as you look across the business and the thing you're working on what do you see as the most significant.

Constraints on on growth and moving forward.

Well presently it's still access to the hospitals I mean, we're we're we're fortunate to be seeing an uptick in referrals, but we still can't get into about 50 per cent of our facilities right. Now. So that's currently I mean as you look down the road.

The the number one priority and focus is always growing the vet business Brooks and that's that's beefing up recruiting that's that's advancing our training programs and protocols in hiring more people and so it's it's no different than it has been in the past is just getting our hands on the right people and getting them.

[noise] trained to walk and talk to find that way.

Right have you seen any shortage of respiratory therapists out there to hire into the sales side of the business.

No. We're not I mean, we don't we're not having a shortage of respiratory therapist, but what it is it's it's really finding the respiratory therapist that we can train to sell and have them be successful in the field. It's you know it's a refresher I mean these are clinicians that went to school to take care of people. They didn't go to school to learn.

Sales and so we have to train them to advance their careers in touch more people through communicating and educating physicians about the by them that often.

And that's just can be a challenge from time to time to get that perfect person.

Sure makes sense how.

How do you guys think about particularly the gross margin going forward. Obviously, you know there's been some volatility is Todd said related to the van sales and equipment sales. The P. P D and I'm I'm thinking a little bit more about what impact you see the growth of the Oxford.

Jim business have been on your margins over the next 12 to 24 months.

Yeah, I mean, we've always said the vent business has the higher gross margins on a percentage basis, but all these ancillary products are just really good offerings. So wow, while it's been very volatile as you mix in the Covid numbers. This year looking forward, we would expect the personal.

H as we you know as we are creeping up on about 20% of our revenue coming from ancillary products. The gross margin percentages will likely come down some but the most important thing is that notional gross margin is gonna be growing at a faster rate. If we didn't have these ancillary products. So it's it could soften up a little.

But you know the the most important thing is that's accretive to the bottom line very accretive to the bottom line. So we are pushing to grow that business significantly.

Makes total sense to me living as one more and then I'll jump back obviously in your prepared remarks, a little bit more focused on acquisitions this quarter and you highlight the shelf offering.

I mean do you think are you trying to say to US we should expect to see an acquisition here over the next 12 months or something.

I think so Brooks, we we're we're putting the focus on on starting to do our homework on various opportunities not just other <unk>.

Medical equipment businesses in our space that are in areas that were not in with contracts that we don't have but also a strategic acquisitions that might be a good fit for our technology initiatives that are underway. So.

You know the one thing about the pandemic that was great at it helped us grow our our cash balance and where we're sitting pretty now it's time to put that cash to work and so we we're actively looking at becoming more acquisitive.

Great makes sense to keep up all the good work day, Thanks a lot.

Nice books.

Our next question is from out of town high with Army C capital markets.

Thanks, Hey, guys.

How would you characterize the the overall sort of organic growth in the corner and and specifically kind of from month to month. If you could could could kind of shed a little light on that and maybe what you saw in in October relative to to kind of where you you closed out third corner.

Yeah, I mean this quarter was back to what we've always expected, which is you know where it's more on an annualized rate of being a 30 to 40 per cent growth. It wasn't like it was all over the board. It's just been consistently better in the third quarter than it was in the second and so that's a good sign it didn't.

Just come Roaring back in September it's been a progressive.

Improvement as the pandemic has I guess, it's been a long day it it it's not like it's over we recognize that we still have challenges, but it was just a good solid growth corridor as released October you know we had the guidance out there. It was a it was once again a good quarter for I mean, a good luck for referrals and so forth.

So it's you know that's included in what what what we have put out there for the fourth quarter and it's that it's continuing that ongoing trend of better numbers Martha Vermont.

Okay, Great and then a couple that that kind of feed off of what the Brooks is a line of questioning there.

Just on the on the the hiring process, you know, especially for our teeth and I guess for inside reps, who has there been kind of any change in that in that process that you've had to adjust maybe as the as of the pandemic is kind of continued.

Continued on here and and has that affected your ability to go in any certain markets, maybe where there's already you know increase activity from from a covid standpoint.

Yeah from a covid standpoint, the biggest change was really just getting folks in and trained and up and running getting back out into the field.

Walking shoulder to shoulder with our clinical trainers that was a bit of a challenge and Q2 and trickled into Q3 as well as confidence arises just amongst Americans. During this pandemic on how to just continue to live.

So does access to facilities and and patients getting out and really treating their C. O P D more than they were before.

So that's that's exciting for us I mean, what we've done along the way as we beefed up our recruiting efforts we've changed some things around we're always trying new things in terms of recruiting working with different types of firms and.

And challenging our folks at her boots on the ground to to really work the hallways of the hospitals and facilities and educate more our teeth out there that the opportunity to work, but by mid is out and about and so we beefed up some of our recruiting efforts internally with our own people and how they they are rewarded.

For finding new recruits so where we were always making changes in that regard I mean, that's our number one priority is just to get good people into this organization because once we get them into another area. That's that's another 60 mile region that we can get business from so that's our current expansion strategy.

Okay, and then on the on the ancillary uhm.

Uhm is that do you have sort of a a a penetration rate. If you will that you Wanna you Wanna get to whether that's you know the sales mix or kind of a.

Ah sell through into existing markets, right or something like that that you're you're targeting or is that just sort of you taken it as it comes and it's nice cause it it it it ads operating leverage.

We don't have a specific target per se, but we do know that the best thing for referral sources and for patients is to offer a wide array of services and it's best for operating Leverages you say, so while we don't have a defined goal of the product mix. The way, we do look at it it's not through.

Penetration in an exact market. It's the contribution of these ancillary products to the business.

We don't hang our heads if that number doesn't grow materially and a quarter because of our <unk>. So our overall I guess strategy envision is to continue to grow that product mix I think it was 18% in the third quarter, we'd love to have that in the twenties next year, but the number one goal is to have the overall business grow.

Wing at that material level that we've always exhibited.

Okay, great. Thanks.

Thanks Man.

Our next question is from Nick Corcoran with acumen capital.

Good morning, just a couple of questions for me the nurses on the the revenue per patient quite high in the corner how much room do you see that having to curl going forward and how symbolism.

Well I think if you look at it just on a bit basis, we're pretty much where are we think will be although maybe our average realization could come up a little bit as the overall bad that may stabilize at a low level. When you look at it since we've picked up noncompliant patients and so.

Fourth we'll always have patients that admit to facilities and things like that so I don't think it'll have a material moved from here, but you clearly see the impact of what we've been doing during the current year from having Vince out on the right patient too and also having an optimized workflow has come through.

Uhm, if you, including ancillary products in the average realisation for patient, which as we as we continue to grow that business might not be the way to look at it if it becomes more material going back to answer. This question on the last one it should continue to grow because we should have more ancillary product revenue coming through it.

Great and then can you give any more color on the contact tracing contract the when the size duration or anything along those lines has changed since the last call.

Yeah. So nothing has changed we've been executing on that time, so I really kind of since the beginning of September late August early September. It's a one year contract is what the what was signed for that doesn't necessarily mean it'll be out there for the entire year, but that's what it's for and it's looking very good and as we mentioned last quarter.

And which is included in our current guidance, it's a little bit over about a million dollars per month of of course four of revenue.

So it should go through mid next summer or through next August.

Great. That's all for me thank you.

Thanks, Matt.

As a reminder, if you'd like to ask a question. Please press star one. Our next question is from first off primary income with whom Byrne.

Hi, Thanks for taking my questions. Firstly could you give a little more color on the oxygen concentrator business, including the main try worse than the revenue financially and how <unk>. These revenues with the number of when patients.

Yeah. So the oxygen business you at different stages of C. O P. D stage, one and the the bottom and and less severe and stage for being the most severe.

Age one they'd be typically become candidates for oxygen therapy to think of your less sick patients as the ones that will need an oxygen concentrator.

The way that.

It's been an oxygen business here locally in Louisiana, and we decided last August to relieve that offering nationally to our sales reps and the reason for it was because this is a a driver of the bit business and it's it's a nice compliment to it and we see that about 20% of our.

<unk> referrals come from our oxygen referrals.

So that was the the reason for us getting into it and then and then along the way we had relaxed rules on competitive bidding for O two which allowed us to sell into the metropolitan market. We got an increase reimbursement for the rural areas to provide oh too. So it's just become a new.

Nice piece of business and it's one that is growing up fast right now we had the.

Assistance that we're providing the energy call center with converting with some of our private insurance contracts. That's another channel of getting more oxygen business and then ultimately more of <unk> business. So it's just been a really good piece of ancillary business for us.

And then D. S G and a expenses are lower than last quarter trying to understand what the differences are mainly due to the differences in the fandom sharp long <unk>, what would be the normal normalized quarterly number 442 in 2021.

Well, we don't guidance SG&A going forward, but I think this quarter is a pretty fair run right. We obviously, arkansas here to hire more people, but last quarter as we as we talked about was very high because of the stock price volatility.

Uhm, So I feel like this is more of a steady state number going forward, but if not formally guided just now.

And then I'm thinking you don't kite the number of patients but.

Broadly where do you see the number of 20 patients being at the end of the C. R. And then going forward them to 2021.

Well, we we want to get back to those historical growth rate.

We don't focus just necessarily on that patient per se. It's always been a good operational statistic to talk about but we want to get back to servicing more patient you know we.

We guide revenue only but you should expect us to continue to grow vent patience as we have historically.

Got it.

Thank you that's fine.

Alright.

Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to management for closing remarks.

Alright, we want to thank everybody for their time this morning, and look forward to follow it up with anyone down the road.

Thank you. This concludes today's conference.

Just naturalize at this time.

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