Q4 2021 Viemed Healthcare Inc Earnings Call
Greetings and welcome to the Biomed fourth quarter and year end 2021 earnings call. At this time all participants are in a listen only mode. A 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. Please note that this conference is being recorded I will now turn the conference over to our host Todd Zehnder, Chief operating officer. Thank you you may begin.
Alright. Thank you Diego. 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 referred to as forward looking statements such statements reflect the company's current views and intentions with respect to future results or.
Beds 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.
We're looking statements made in this conference call are made as of the date hereof and the company undertakes no obligation to update or revise any forward looking statements except as required by law.
The annual financial results news release, including the related financial statements are available on the SEC's website now I will turn it over to Casey to get things started.
Thank you Todd.
Good morning, everyone and thank you for joining our call today, we're extremely excited to share the fourth quarter results and discuss the drivers and trends that contributed to the record breaking quarter.
Underlying this success is the dedicated team of respiratory therapist, behavioral health specialist staffing professionals and administrative support staff, who work tirelessly to deliver the best in class care for our patients.
By year end or by Med family of employees grew by nearly 23% over the prior year.
Our people are our greatest asset and our success is always based on this foundation, we thank our team for their continued commitment and contributions to another exceptional year.
Moving onto some of the themes from the fourth quarter, we witnessed positive traction from our investments entire industry, leading service model during periods of Covid decline.
Increased access to referral sources allowed us to demonstrate the evidence based benefits of our high touch high Tech delivery model of home respiratory care.
As a result, our growth trends during these periods indicate an incredible opportunity for post COVID-19 expansion.
We are also seeing stabilization of several COVID-19 related risk and uncertainties that have faced our industry over the course of this pandemic.
In response to supply chain.
Constraints and shortages.
Turnover manufacturers have introduced a number of new products during the second half 2021, which we believe in many cases are improvements over some of our previously available offerings.
Our strong relationships with these supply chain partners not only allowed us to secure orders when many others in the industry. We're facing are experiencing shortfalls, but also created a foundation for securing resources to support our future expansion.
At this time, we are not expecting supply chain constraints to be limitations on modeled growth.
As it relates to our specialized labor force COVID-19 related obstacles appear to diminish during the fourth quarter. We are now observing reduced pressures from the high pain short term opportunities that competed for our clinical staff during the year.
As a result critical staffing levels remain healthy at year end and we are optimistically looking forward.
While we fell short of our hiring goal of 60, new sales reps at year in finishing at 49. It is important to note that we incrementally added five new areas in 2021, which contributed to our growth. Our goal for 2022 will be laser focus on netting 20, new areas as opposed to setting our hiring goal without.
Improved training programs developed last year about middle management, and a new recruiting platform inside of I met health care staffing. We are confident that we can achieve that 400% growth rate into new areas.
We've proven that by aggressively growing our sales force to continue to diversify the product mix in our portfolio of the health care offerings.
In 2021 oxygen and sleep lines grew faster than any other line within the business and we expect these trends to continue.
In September a national coverage determination was finalized by Medicare for oxygen, which will expand home oxygen coverage and is now expected to reduce some of the administrative burden and the delivery of care.
Overall, many of the regulatory changes announced during the fourth quarter provide a strong outlook for the industry.
In addition to the margin stability created by the cancellation of the 2021 competitive bidding program by CMS in December CMS finalized the CPI adjustments to the dnb reimbursement rates, resulting in an approximate 5% increase for 2022.
Also in December legislation was signed into law, which further extends the 2% Medicare sequestration.
We believe that these positive trends and reimbursement as a result of the critical role that we play in the delivery of health care inside the home.
We actively support and commend our industry associations, which had been extremely active and a major driver of the positive regulatory changes for the industry.
As a result of our growth we have generated significant cash flows which enabled us to be strategic and deliberate with our capital planning and management.
Volatility in the public and the private markets have created both opportunities and risks.
We continue to perform careful and systematic evaluations of the prospects within our M&A pipeline.
Ultimately, we aim for the deployment of our excess capital to be focused on long term value and not for short term or near sided opportunities.
In recent periods, our most significant opportunities to create strategic long term value came from internally generated investments.
We previously announced the formation of Biomed health care staffing, which is now fully operational and generating staffing resources for our own internal needs as well as revenue producing external projects.
Additionally, our joint venture with solve that services is producing impressive returns as a reminder, solve that provide self care support for state and federal governments, including the VA and in 2021 resulted in $1 2 million of incremental income providing it.
We also believe that investments in our care delivery model are creating revenue synergies with our traditional revenue streams for.
For example, biomass clinical services, our behavioral health division with the help of engage a remote patient monitoring and telehealth platform is contributing to a measured increase in niv patient compliance, resulting in longer lengths of service and measurable improvements in clinical outcomes.
We also expect our stand alone behavioral health revenues to grow over time as the demand for these services continues to rise.
As we begin to see a trend towards returning to our historical growth rate and traditional product lines were incredibly excited to continue to innovate and expand our services to meet the evolving needs of patients with more on our operations financials and the regulatory landscape I will now turn the call back over to Chief operating Officer, Todd Debonis Alright, Thank you Casey and reviewing.
The financial results all figures are in U S dollars and the full results have been made available on the SEC website as well as SEDAR.
Our core business generated net revenue of $29 million during the fourth quarter of 2021 as compared to net revenues of $26 1 million in the fourth quarter of 2020, which equates to an 11% increase our sequential growth for our core business was 4%.
We've once again seen solid growth in our major product lines being Vince paths and oxygen.
During the fourth quarter, we generated approximately $3 million of revenue from our other sources, primarily the vaccine and contact tracing revenue generated during the quarter with our established call Center.
We continue to serve as a resource for vaccines racing and will do so as long as our resources are needed.
We have an established unit in place at this time, and we can scale up or down in a very short period. Therefore, we will continue to pursue opportunities in the future.
For 2021, our core business ended up at a record high of $108 5 million, a 12% increase over prior year and our total revenue came in at $117 million.
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 62 and 30% Accordingly.
Our fourth quarter gross and EBITDA amounts came in at $19, seven and $9 5 million respectively.
For the year, we generated $29 3 million in EBITDA, which funded our capex and bolstered our liquidity.
The oxygen and Pat businesses continue to benefit from our national rollout and the ongoing patent recall and.
We are encouraged to see all of our major product lines continue to show organic growth.
Our fourth quarter revenue from Vince was approximately 76% of our core as compared to 81% in the fourth quarter of 2020.
Our SG&A for the quarter totaled approximately $14 2 million as compared to $12 3 million in the fourth quarter of 2020.
Annual SG&A on a cost for 2021 and 2020 came in at $54 nine and $52 8 million respectively.
This is the last comparison to 2020, which had significant costs and volatility related to the COVID-19 pandemic.
We expect to continue hiring people to serve more patients around the country and expand our organic growth model to new areas.
The labor market has continued to be challenging, but it appears that the need for traveling clinical folks has somewhat abated as the recent variance have not had have not had the draw to empty centers like prior areas. We continue to seek out superior clinicians and professional folks to help support our business.
For the year, we invested approximately $20 million on capital expenditures, the capex was spread across our fleet, our stationary concentrators and POC as well as our significant purchases of paths to support our fleet growth.
The POC market is the only one of our major product lines that has seen some recent disruptions, but we continue to work through that with our major suppliers.
We also purchased two other buildings that serve as our primary shipping hub and main location for our call Center operations.
As previously mentioned, we funded all of our Capex with discretionary cash flow and also strengthen the balance sheet during the year.
As we sit at yearend, we had a cash balance of $28 4 million and an overall working capital of $29 5 million.
Our total long term debt is down to $4 3 million, which leaves us with an approximate 1.15 debt to EBITDA ratio.
We have once again grown the company has stayed very under leveraged which gives us the tools needed to significantly grow the company through our organic efforts and inorganic efforts.
Moving on to the ongoing <unk> and CMS issue related to Orient IV 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 <unk>.
We filed with the qualified independent contractor or known as quick in the fourth quarter and are awaiting their review of these claims.
We are hopeful that this round will have more of an individual clinical review rather than adopting the <unk> position.
As a reminder, due to the four year look back window. The total exposure of this issue was approximately $9 million, but we do not believe this money is out.
Of the 39 patients of that issue 15 of them had been detailed reviewed by CMS in prior audits and all of them passed complex Medical review.
The company is not accrued any liability related to this ongoing matter as it continues to believe these patients qualified for the CMS rules and it eventually will be overturned through the appeals process, which includes reconsideration and a L. J.
I'll take some time to ultimately work to a final resolution.
During our ongoing discussions regarding this issue we decided to attempt for the first time ever to establish formulary rules related to niv.
Based on the most recent science that has been reviewed we believe the proposed rules that we have given to CMS will be seriously considered and if adopted could help increase patient access to an IV.
We have just recently submitted our NCD reconsideration and look forward to working with CMS. During this process.
Moving on to the first quarter.
We have provided net revenue guidance in the $29 $2 million to $32 million range related to our core business and have also guided approximately $1 4 million to $1 8 million of revenue related to the COVID-19 pandemic.
Our organic revenue is guided up 15% to 18% over the first quarter of 2021.
The first quarter of each year always has a high number of billing holds due to insurance reauthorization and many patients changing insurance, but we're working through those in due course, the COVID-19 revenue is related to the vaccine tracing work that we have continued to fulfill.
Also this morning, we announced that the board has approved a stock buyback up to 5% of our outstanding shares which totaled approximately $1 98 4 million shares.
As we have discussed in the past, we look at capital deployment across several different vehicles.
With the pullback of our stock buyback has risen in the ranks of our opportunities we still have the capital and the plans to grow aggressively with our organic plans and are still looking at inorganic opportunities.
However, our current valuation is at a level, where we see significant shareholder value in the buyback.
We will update the market as to our purchases and our quarterly filings.
We have once again been visiting with current and prospective investors through industry conferences and non deal road shows with our existing analysts and banking relationships.
As always we appreciate the ongoing support from both the buy and sell side during the year.
At this time I'm going to turn it back over to Casey to wrap things up.
Thank you Todd.
There are a few points I'd like to reinforce in my closing remarks first the significance of our investments into behavioral health and staffing standard play a major role in our offerings for 2022.
Aside from the current demand and track record of success with both of these service lines. Our teams use these divisions as clinical needle movers for our patients.
The improved access to clinicians that our staffing division has provided to our company and our referral sources puts us into a position of strength as we look to partner with larger health systems.
On the behavioral health front, we're seeing how our patients are returning to their doctors as changed individuals' with a more positive outlook on life, one filled with less anxiety as they learn to live and cope with their disease in a healthy environment, resulting in less stress for their closest family members.
These two onto services will help us broaden our scope of care for patients in the home.
Secondly, the challenge of disputing the OID report may seem like our largest headwind on its face, but we consider it to be our greatest opportunity once we reach resolution.
Published data shows that for every six patients with safe and ER visit for every eight eight and you save a hospitalization and for every five and a half we stay about life.
We know that a patient is three times more likely to die in the first 90 days if they did not receive our care immediately after diagnosis.
Unfortunately for the patients. We also know that we have a less than 5% market penetration number for the folks who qualify for our care in this country.
Unclear guidelines are confusing government agencies on how to properly treat these patients and ultimately are limiting access to care for the 95% of patients who need home ventilation.
We need to get this right from a policy standpoint, and I am confident we will do the development of formulary rules through the national coverage determination.
And lastly, I'd like to reiterate that we remain driven and committed to always doing what is right for the patient. We will continue to be laser focused on solutions that will drive positive outcomes and savings, which will put us into position to be a premier provider in an ever evolving value based world. While today, we are enabled by fee for service reimbursement offerings.
We'll be in a very strong position and realize further value provide met in a value based world.
For now we will continue to evolve as leaders in disease management clinical retention recruiting and patient satisfaction. As these are the main contributors to our organic growth engine.
Thank you to all of our shareholders for your continued trust and investment into our mission. This will conclude our prepared remarks, we'll now open up for further questions.
Thank you.
And at this time, we'll be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
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Our first question comes from.
Brooks O'neil with Lake Street capital markets. Please state your question.
Thank you good morning, guys. Congratulations on the finish for a great year in a tough environment.
Thank you Brooks Thanks Brooks.
So I have a couple of quick questions first.
You gave us quite a lot of detail, but would you say that you're facing shortages of respiratory therapists out there and.
It was the shortfall in the sales hiring related to that you think you can overcome that as we get into 2022.
Yes, I think that's.
At the end of the year the December really locked us up pretty good on finishing the year strong I guess with the holidays and it was just kind of like a dry month for hiring Unfortunately broke.
What we're seeing in the first quarter is a return back to our normal growth through our hiring goals. If you will and it's really I want to start talking about this in terms of netting new areas in 2022 and focus less on our our sales hires because what's happened last year Brooks as we've.
Evolved on how we hire these salespeople there's different levels of sales folks we have hunters, we have farmers, we have home sleep reps we have.
Behavioral health reps and so on and so forth. So it's but it's going to get very convoluted and confusing for you guys to track, we're just going to start talking about the net new areas that we have incrementally added as we go forward and that'll be something that you guys can kind of wrap your brains around rather than tracking all these new.
Hires.
Corey and I assume there's plenty of new areas that you could target as you go forward.
To continue the.
Strong organic growth you've demonstrated historically.
Yes, there are I mean, if you think about what we added last year five new areas. It doesn't sound like a lot, but we added a lot of lot of farmer type of sales reps into areas that we were already in we're projecting that we're gonna be in 'twenty new areas. In 2022. So that's why as I mentioned, it's a 400% growth rate and we feel like we can bite that off just with the trends that we're seeing.
In Q1, which will report on later.
Great Fantastic. So I was talking to a friend of mine over the weekend, who is involved with the ventilator company and he told me that dinner later sales are pretty soft right now.
Is that what Youre seeing and do you view that as an opportunity or is that just sort of.
They ebb and flow of the business.
It was out there.
It's not what we're seeing we're seeing a return back to our previous historical growth rates as Covid releases access our freeze up access to our referral sources.
I do consider that an opportunity if we have the others out there that think that the ventilator market is soft right now.
The only hiccup as we're still waiting on Philips to make a decision on the recall of the back of the trilogy 100 that hasn't affected us and we've taken other measures to to have inventory in place, but once that does occur that will free up a lot some of our inventory that's on the shelf.
Great and then the last question I had.
And historically I used to think of view is.
25, 30, maybe even 35% organic grower do you think as we move.
Assuming we're moving past.
Kron in Covid and assuming were.
Beginning to see normalization in labor markets and supply chain view.
Is that a number a range do you think you can get back to.
Well, we always have wanted to be that number and we face of you know we've been facing a lot of headwinds most of what you just now said and so assuming all those things go away our intention would be to get back to that.
We're a lot bigger company than we were before the pandemic. So just the law of bigger numbers becomes more difficult, but before the pandemic.
We never really had an inorganic arm either so for more organic only that would be that would be a great goal. It is not our guidance, but I think between inorganic and organic efforts, we should definitely be able to get back to that as things continue to normalize.
Great Congratulations keep up all the great work guys.
Thanks Brook, Thanks Brooks.
Thank you and another mine or to ask a question press star one on your telephone keypad to remove your question you can press starts to on your telephone keypad.
Our next question comes from Prasad <unk> with Bloom Burton. Please state your question.
Hi, Good morning, Thanks for taking my question and congrats on the quarter.
Firstly.
The business continues to evolve what are some of the other operational metrics apart from the number of patients and you mentioned net new areas that would be indicators of sustained revenue growth and do you plan to disclose them on a quarterly basis.
We will likely disclose how many new areas we are in Prasad.
It's maybe not unaudited number so it might just be conversational. The other things that are starting to become I mean, none of them have gotten to a point.
A material nature to disclose but when we talk about our other revenue sources, just the net number of oxygen patients. So the net number of CPAP patients on rental or CPAP patients that are in the resupply program. Those are all important to us, but none of them have risen to a level of disclosure.
At this point I think the other thing that you will see that has a potential of becoming significant quickly is the ramp up of biomed health care staffing and that will be.
That continues to evolve and grow hopefully that will be a disclosure that we're making.
Where we're just not at the point, where the other revenue sources have become material enough to put those operational items in.
Got it that's useful and then second looking at the cash portion of the SG&A number is this a good one.
So assume on a normalized basis for 2022.
I think so.
There is some volatility in there as far as <unk>.
Our our quarterly numbers, but I think it has begun to normalize some I mean, obviously, we're going to continue to grow our head count as we continue to grow our patient count.
And you've seen that happen throughout the year, it's been a pretty consistent.
Growth number so just looking at it in total I would expect it to go up some but I would I would also expect at some time that our revenue growth will once again outpaced our G&A growth as we're used to.
Pre pandemic.
Got it thank you.
Alright, Thanks Prasad.
Our next question comes from Doug Cooper with Beacon Securities. Please state your question.
Hi, good morning, guys and congratulations on a nice quarter.
Just a question Todd on the on the EBITDA, if you strip out the Covid revenue what was the EBITDA from your core business from a margin dollar perspective.
Well there were two things this quarter, if you take out the.
Covid piece, but you also have to take out I mean, it's part of our core business, but we received provider relief funds like a lot of people who work in the rural areas and you'll see that in our other income amount and that came in at a little bit shy of $1 5 million.
I think if you.
If you exclude all of that and obviously exclude the COVID-19 revenue when you're doing that we would have been kind of in the low 20% I don't have an exact number in front of me, Doug, but the core business has consistently been running in the low twenties.
Okay.
Okay.
On the <unk> issue I.
I think you've stated.
On the call and in the final $9 million would be the maximum penalty.
Is there any let's just say, it's resolved and even if you have to pay you. Some money is that like a done like all.
Patients now we're complying there shouldn't be an issue going forward this should be finalized and done with once it's settled.
One way or the other.
Well I guess the answer to that is we we would say, yes, because we don't think any of our patients currently that are on service or improper, but we also didn't think that any of the 39 at issue were improper either so I say the answer.
Somewhat bullishly, but also then I think their position as very incorrect, which is why we've been so vocal on our opposition to it.
But with that said I think the most important thing is we have now been engaged with CMS, we continue to do more.
Research on the effects of an I V and we're hopeful to publish.
Another study here within the next couple of months that will.
Show, some new benefits and some cost information thats pretty intriguing if we're able to come out of this with whatever we resolved with the <unk> issue, but we come out with an NCD that will be the single biggest I guess win for not only by med, but the patients who benefit in the entire industry.
For that matter.
Yeah.
It's remarkable I look at the sector used to trade basically eight to 12 times EBITDA kind of thing.
As of Yesterdays close you were trading three and a half.
<unk> is a minor O&M Owens <unk> minor took out.
I think it was around seven or seven and a half, which I would've thought would be the sort of bottom of the range what do you attribute to.
And you guys aren't the only ones who were trading at three five times, obviously adopt health and some of the other ones have had issues as well what do you attribute.
The complete.
The collapse in the valuation of the sector.
Well there is there is more people out in the markets that are better at valuations than we are we focus on treating patients and growing our business profitably and that's what we're doing we disagree with where the multiples are we I don't really know exactly why the sector has come down but when we see the.
Pullback, it's why we authorized the buyback because yeah.
It's an unrealistic multiple in our opinion the business is growing organically.
At a significant rate once again, and we do it profitably and we do it.
By building liquidity. So there was no better use of our proceeds right. Now then to start buying it back I would assume that health care coming out of Covid has changed people are looking at it is everything is different on the back side of the pandemic.
But as to why our sector has a lower multiple versus where it was pre I don't have a good enough answer for you on that.
There is inflation is up.
What would the impact of inflation continues to be prolonged and elevated what's the impact of that in your business.
Well, it's twofold, one is that the cost of our service at our cost of our products will go up obviously with supply chain issues and so forth and we've seen some of that although not drastic the labor costs like everybody is seeing has gone up some but the nice thing is that the Medicare rules have a.
CPI adjustment so we look at inflation on a trailing basis, but all of this inflation that we're seeing this year likely pushes a nice rate increase for at least the Medicare piece of our business in 2023, Casey alluded to it on our comments I think the exact number was five 1% or $5 four related to this year.
And as we all know the the inflation was starting to happen, but nothing like we've seen right now so it will push both revenues and expenses up but I think the net impact should be okay.
Okay.
That's great and just one final one for me just sort of circling back on valuations when youre targeting when you're looking at inorganic growth opportunities. What is the valuation expectations of the private goes I guess youre looking at or are they still.
And I'm just wondering obviously you had three and a half from the private guys are still looking for five or six.
While they are looking for higher than where we're trading and it's hard for us to step out with where our stock is so that's why we instituted the buyback so where we have seen lately is above even where we were trading 60 days ago, which was probably four or five times is what people are expecting now like you said there was a very large transaction last year.
Sure.
That has the benefit of scale that came in at seven so that we're not sure where the top is but we're not going to chase those multiples with our equity trading where it is right now.
Okay. Thanks, very much guys congratulations.
Thanks, Doug.
Our next question comes from Ed Saba with Smart and please state your question.
Good morning, good quarter.
I'm glad to see you announced the share buyback with the.
With the you know the balance sheet, that's really stronger than in the share price, which is super disappointing.
Just on the share buyback could you talk about how aggressive you plan on being.
You know a lot of companies announce share buybacks, but.
You know.
Year later, you look at it and they they bought like.
A couple of thousand shares it's not really significant so.
I I mean, I think from a balance sheet point of view your shares are super undervalued. So I.
I'd Love your thoughts on that thanks.
Yes, so ed thanks for the comments we agree it is undervalued we are regulated by a restriction on how many shares we can buy we are executing this at least the beginning of this buyback on the NASDAQ. So we're regulated by.
A daily amount, which is up to 25% of the prior four weeks trading average so as we sit here today, the number is plus or minus around 30000 shares. So that's the maximum that we can buy.
Obviously, we can't talk about the exact prices that were buying at we will disclose that but if you look at our history. We've only had this happened one other time and I guess I would just refer you to that we were pretty aggressive when we were pretty successful on buying them back.
And a very quick manner.
So.
We don't want to we don't want to say the cadence of what we're buying but we see this as a very attractive price to buy and if it's there for a period of time, you should expect to see us get some shares bought back.
Okay, and then just for point of reference to previous <unk>.
Share buybacks are instituted how many how many shares agenda fine.
After a year.
I want to say that it was about 600000 in the first quarter that we had it and then maybe a couple of hundred thousand we've probably got about half of it but away from the original I don't have those numbers exactly but I just remember at that point.
<unk> really started taking off and we just we ceased buying at that point, but I want to say probably about half 50% of the allocation was bought back Oh.
Fantastic Yeah, I mean, it's one of those things that yes, if the shares go.
Back to $10 you know, it's it's one of those things to keep.
And then you see it all around especially with this bear market you know, let's be honest, it's a bear market right.
Well a lot of shares or just suffering from lack of liquidity. So if a company has a healthy balance sheet you know they can buy they can provide a support and.
And I think that gets other shareholders gives them a little more.
You know confidence to when they see the company and they're buying with real money.
Sure sure well, thanks very much.
Alright, thank you.
Thank you there are no further questions at this time I'll turn it back to management for closing remarks.
Alright, and we want to thank everybody for listening in as always follow up and we look forward to talking to you guys in the future.
Thank you. This concludes today's conference all parties may disconnect have a good day.