Q3 2022 Viemed Healthcare Inc Earnings Call
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Greetings and welcome to the <unk> third quarter 2022 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. This conference is being recorded and I'll now turn the conference over to your host Todd Zehnder you may begin.
Thank you and 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 referred to as forward looking statements such statements reflect the company's current views and intentions with risk.
Back 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 the 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.
Canada.
Because of these risks and uncertainties investors should not place undue reliance on forward looking statements are forward looking statements made in this conference call are made as of today and the company undertakes no obligation to update or revise any forward looking statements as required by law.
Third quarter financial results news release, including the related financial statements are available on the SEC's website I'll now I'll turn it over to Casey to get things started.
Okay. Thank you Todd good morning, everyone and thank you for joining our third quarter earnings call.
Today, I'll be providing commentary on our positive operational results third quarter as well as our current view and outlook of the industry.
I'd like to begin as always by acknowledging and thanking our dedicated team of respiratory therapists behavioral health specialists.
Wrapping professionals and administrative support staff, who work tirelessly to deliver the best in class care to our patients. We are privileged to have these employees within the community that we serve as they pride themselves with their service mentality.
As of September .
I met family grew to 722 employees.
Underlying these numbers is a substantial increase in sales hiring offset by natural turnover and administrative functions.
Our rate of hiring for sales position is at an all time high thanks to the support of our VHS staffing Division.
September we have hired two sales reps and converted for existing employee sales reps.
We're also seeing positive retention trends with our existing sales force contributing to an overall, 34% net growth and sales force compared to the beginning of the year.
In the third quarter, we added eight new geographic areas, bringing our net new areas for the year up to 'twenty, three which puts us in position to support our goal of adding on 25, new areas by the end of the year.
Based on the historic productivity curve of new hires in our sales force. We are optimistic about the robust organic growth potential coming through the pipeline over the next six to 12 months strengthening our 2023 growth optimism.
In addition to investing in growth and with the help of our maturing digital process improvement investments, we were able to reverse margin compression associated with the increased labor and inflation costs.
Our competitive advantage and organizational value comes from our ability to leverage the best available technology combined with the best people.
Like our proprietary digital health platform engage has enabled us to monetize patients in greater volumes reduce overhead and continue to treat patients in a way so that their needs can be met efficiently and effectively.
With over half of our patients now on the engage connected health platform, we were able to leverage data and the division of labor that comes with our scale.
E prescribing and E ordering platforms that we offer are also being rapidly adopted by providers patients and payers further contributing to our efficiencies east.
These platforms reduce on paperwork and time, creating a more timely and frictionless patient and provider experience.
We've also recently completed a refresh about website with an emphasis on the digital patient experience.
Our new digital ordering page, an educational resource centre complete with patient tutorial videos is now available on the web.
In addition to the innovative business approach to the use of technology. We're also innovating our approach to clinical services.
Through our behavioral health division by Med clinical services, we were able to provide targeted clinical responses to patients requiring specialized mental and environmental care for our referral sources.
The combination of our engage technology, coupled with human touch supported by behavioral health is generating improved compliance, which is leading to improved level levels of care driving patient longevity.
Our high touch high Tech approach also continues to open doors and make <unk>, an attractive partner to large institutional providers like the VA and regional hospital networks.
We are in various stages of partnership development with a number of large health care institutions, including a recent engagement with the VA during the third quarter.
We have been awarded a solicitation contract to place our people and the homeless veterans in need of pulmonary disease management, social services and behavioral health.
The VA has asked us to track the patient results using our engage platform and shared the results on clinical outcomes and patient satisfaction.
I'm very excited about this opportunity to work with the VA on this project, which has the potential to dramatically improve the lives of veterans living with COPD on a widespread national level.
Value base and at risk administrators for seeking specialty care solutions and Biomed health Tech offerings are solving the problems that major networks are facing within large COPD population.
During the third quarter, a study authored by our Chief Medical Officer was published in respiratory Medicine, a peer reviewed medical journal.
The study is being regarded as groundbreaking in the industry for the first of its kind findings related to the overall health care cost savings.
Using the largest dataset to date. This study also reaffirmed that the sooner Crs patients initiated noninvasive ventilation treatment the greater the mortality and hospital readmission improvements.
In addition to the academic presentations of findings by Dr. Frazier, our sales reps have been actively discussing the study.
Our referral network of prescribing physicians.
Concurrently our payer development team has been vigorously engage with commercial payers amongst our network to ensure that the right patients are getting the right care in a timely effective and cost efficient manner.
Despite signs that the overall economy may weaken in upcoming periods.
Our operating environment is actually stabilizing and showing signs of significant improvement.
As a result, as a respiratory focused health care company, we face a unique and significant challenges during and after the pandemic.
Labor and supply chain constraints led to increased costs and charges across the industry.
Labor markets are stabilizing and a number of new manufacturers have entered the supply chain and delivering equipment at lower cost than ever before.
The <unk> review is closer to complete resolution with nearly all of the original findings overturn or access to physicians and referral sources are now restored with clinics seeking innovative ways to free up beds by sending patients home with our equipment and services.
Reimbursement rates for Medicare and most commercial plans are expected to rise during 2023 as a result of established inflation adjustments.
When considering the positive trends in patient growth reimbursement rate increases and supply chain improvement. We are very excited about the future potential for our organizational growth and the creation of shareholder value in the year ahead.
During the quarter, we spent a significant amount of time.
Working through our processes to onboard potential acquired companies with our executive leaders and departments.
Our new M&A team is extremely active and supportive of our disciplined approach with our current pipeline of targets with that said, we are excited and expect to supplement our growth with acquisitions in the coming quarters.
We also continued to execute on our share repurchase program, while lot of traction attractive valuation levels.
Our organic growth in non-GAAP product and service lines continues to add opportunity and diversification of our business.
Sleep business are setting records for new patient setups, which was pushed.
First our more profitable resupply revenue stream into greater numbers.
Our oxygen business is also growing at a rapid pace, which allows us to fully support the patient's care journey across all stages of their progressive respiratory disease.
In addition to supporting <unk> internal staffing needs, our staffing division is exceeding revenue and profitability expectations for the external staffing services that provide for hospital and government agencies.
Although we are growing ventilator patient count at our highest the highest rate since before the pandemic.
Our non ventilator revenue growth continues to perform better than expected.
The result is that we are successfully adding diversity to our portfolio mix ending the quarter with a 33% with 33% of our revenue derived from non debt resources.
In addition to the strong revenue growth of our existing service lines.
We are continuously developing new service services and programs to address the needs of an evolving health care market and the growth of Botnets.
With more on our operations financials, the buyback and the regulatory landscape I'll now turn the call over to our Chief operating Officer Todd Zehnder.
Alright, Thank you Casey and reviewing the financial results all figures are in U S dollars and the full results had been made available on the SEC's website as well as SEDAR.
Our core business generated net revenue of $35 $8 million during the quarter third quarter as compared to net revenues of $27 8 million in the third quarter of 2021, which equates to a 29% increase our.
Our sequential growth for the core business was 8%.
As indicated last quarter, we are now back to seeing growth across all of our major product lines and had very little restrictions to our access around the country.
Our gross and EBITDA margin percentages are once again very healthy and are now back to being just from our core business lines.
As indicated last quarter, we anticipated our margins to begin to turn around towards the end of the year or next year.
We're pleased that we were able to show a slight increase in EBITDA margin sequentially.
We continue to see our margin profile will be influenced by our product mix and continue to be pleased by the notional growth.
Our gross and EBITDA margins during the quarter came in at 61 and 20% respectively.
Our third quarter growth in EBITA amounts came in at 21, seven and $7 million respectively.
Our third quarter revenue from Vince was approximately 67% of our core as compared to 78% in the third quarter of 2021.
We saw our active patients grow across all product lines and now have four products that we are comfortable say are rolled out across a significant portion of the country.
We should continue to see economies of scale as we continue to grow these lives.
Our SG&A for the quarter totaled approximately $17 7 million as compared to $13 3 million in the third quarter of 2021 and its flat with the prior quarter.
As indicated last quarter, we have ramped up hiring to serve our growing patient count around the country.
Expand our organic growth model in new areas we.
We did frontload many of our significant hiring initiatives as evidenced by a flat G&A quarter, but we continue to pursue talent to help with our ongoing growth initiatives.
On our last quarter comments, we have manage the inflationary inflationary effects that we're seeing in our business.
But doing so in the spirit of not sacrificing patient growth for bottom line growth.
For the quarter, we invested approximately $6 3 million on capital expenditures.
Our capex continues to be spent across all of our major product lines. As we have continued to grow our products and manage this through a diversified supplier network.
We have managed through the Philips recall, we're happy that we have maintained adequate supplies to service our growing patient base.
We will continue to diligently monitor supply chain issues in the future in order to maintain adequate inventory levels.
We once again funded all of our Capex with discretionary cash flow during a quarter, where organic patient growth is as high as we've seen in a couple of years.
We continue to have a pristine balance sheet, where at September 30th we had a cash balance of $21 5 million and an overall working capital of $22 3 million.
Our total long term debt stands at $4 2 million.
We have continued to opportunistically capitalize on our previously announced stock buyback.
During the third quarter, we bought back 320.
323053 shares.
Total expenditures of approximately $1 9 million.
As of September 30th we had purchased approximately 167 million shares out of the total available approximately 2 million shares under the plan.
We're pleased that we've been able to execute on our organic growth strategy as well as our stock buyback all while remaining an extremely low leverage company <unk>.
Historically organic growth in the buyback took precedent from a capital allocation standpoint now.
Now that our M&A team is building out our pipeline of opportunities. We are confident that we have a third leg of the stool to add shareholder value.
We believe there will be ample opportunities to capture inorganic growth in the coming years.
Moving on to the ongoing <unk> and CNS issue related to our Niv claims we were down to eight patients that have been deemed ineligible for several factors and the company is having a hearing at the LG ALJ. This week.
We are hopeful that this will be the last phase of the appeal and we anticipate having a successful outcome during this process.
The company paid the $1 1 million that is still being debated.
It was recorded as a prepaid asset.
We are hopeful to have the outcome of the ALJ hearing before year end.
Moving onto the fourth quarter, we have provided net revenue guidance and the $37 one to $38 $1 million range related to our core business.
Our core revenue is guided up 30% to 31% over the fourth quarter of 2021.
At this time I'd like to turn the call back to Casey to wrap it up.
Thank you Todd.
I'm extremely proud of how our team executed in third quarter, we have successfully reversed an EBITDA margin compression trend through the efforts of creating operational efficiencies efficiencies through our investment into good people and good technology.
We are also well positioned in this current and forward looking economic environment.
While most are experiencing a labor shortage or investment into staffing has allowed us to not only allude. This challenge, but flip it into an opportunity that is generating growth for our company.
The ability to provide staffing solutions to our referral sources is putting us into a wonderful position to execute on strategic hospital partnerships that go into the home.
We continue to thrive and its fee for service World, but this has not changed our relentless pursuit, nor our view of value based arrangements being the future of reimbursement for our industry.
Trends in the current regulatory landscape continue to reaffirm the value of home based health care.
The organic business model is back to growing at impressive rates and we have the team and structure in place to expand the model further with an underserved populations.
The relation of patients in need.
While we have not yet completed an acquisition, we see M&A as a major problem with our future growth model going forward. We recognize there are challenges in the country, but remain excited about near term and long term of our business history has shown what other others perceive headwinds biomed fees tailwind.
I'll have to be opportunistic during challenging times and this often leads us to being on the forefront of technology and clinical solutions for our payers referral sources and ultimately our patients.
We want to thank all of our investors for their continued trust in our company and look forward to driving further shareholder value.
This concludes our prepared remarks I want to thank everyone for taking time to join our call today and look forward to answering part of your questions.
And at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line and in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up in your hands.
It before Christmas turkeys.
One moment, please while we poll for questions.
Our first question comes from the line of Brooks O'neil with Lake Street Capital markets. Please proceed with your question.
Thank you good morning, guys terrific quarter.
And frankly, they're terrific review of all of the main many things you have going on so I appreciate that very much.
Thank you very much.
Yes, I have a couple of questions. So first I heard you mentioned reimbursement and I think the primary change relates to an inflation adjustment, but have there been any underlying.
Changes in the fundamental reimbursement structure in the areas you guys are focused on.
No we have not heard of anything so right now are we.
We are anticipating just whatever comes out through inflationary mainly driven by the CPI.
Yep, Okay, great. So you talk about the acquisition opportunity, which I personally believe is huge I'm just curious if you.
You think the most likely scenario is to kind of be opportunistic about trying to expand.
Your core business operations or is it more likely you might view an acquisition.
Technology area or something like that.
More likely to expand our core business, we are looking at other ways to expand our technology business as well.
But I would say Brooks our way to answer that question might be that 80% of the pipeline is really related to growing our core business and the other 20% might be more strategic with technology.
Okay. That's helpful. Appreciate that Casey so.
One area I'm curious about is.
Actually spent quite a bit of my time on an area that I call remote patient monitoring and I know you guys are involved in this area, but my sense is that there.
There is a growing number of reimbursement codes that can that doctors can utilize.
To be paid to monitor patients remotely.
Candidly my sense is there isn't a doctor in America that has that capability inherently in his practice his or her.
So I sense that there is a growing opportunity for technology and service.
Providers to support doctors.
And help them to collect that reimbursement is that something you see in the areas you focused on in <unk> b.
Is it an area that has any appeal for you guys is in respiratory care.
Yeah, that's how we started brooks with the rollout of our RPM devices is going straight to the doctors and presenting it in a way where they can make some additional revenue streams and keep better a better clinical watch on their patients from afar. However.
I'm seeing that trend more leaning for RPM going towards directly to the Payor and to the hospital systems, who are now faced that and as it relates to the hospital system.
Faced with a labor shortage.
And they are trying to fill up their their beds, but they don't have a clinician to to really support that.
They're looking for ways of treating more patients at the home and that that's got them keeping their eye on the ball on remote.
Devices that might be helpful in that hospital to home type of program. So.
Bigger fish, that's the bigger fish are the bigger win if you will is with those payer groups and those hospital systems that want to embrace it yes, the physician who wants to make a little bit more money is it's certainly going to do so but it won't drive the volumes at the hospital systems and payers to break.
Okay that makes total sense to me I appreciate that commentary Casey. So the last thing obviously, you've been very successful with the stock buyback.
It sounded to me like Youre kind of getting towards the tail end of your current authorization I'm curious if you've had any conversations with the board given any thought to expanding your authorization or doing it once you get to the 2 million shares.
Yeah, we haven't had any preliminary discussions on that Brooks we're gonna.
We're going to be patient and finished this one off in due time and now that we have the M&A team. We're also mindful that keeping some dry powder ready to go deploy in some sort of acquisition.
<unk> is another good use of the capital so until we get there we haven't made any decisions there.
Totally get it thanks, a lot great quarter, great job you guys. Thank you very much for taking my questions.
Thanks Brooks.
Our next question comes from the line of Doug Cooper with Beacon Securities. Please proceed with your question.
Hey, good morning, guys.
Did I just wanted to confirm that I heard you hired 52 sales reps year to date is that what you said.
Yes, that's correct.
Okay. So.
How many can be obviously.
The total ore.
Alright.
We have added another four so let's wrap up with six new sales reps to go ahead with your question.
And how many do you have in children.
Ooh 19.
Almost a 100 right just shy of a 100.
Okay.
And how long does it take it to an average sales guys to ramp up to full productivity.
It varies that we usually give them six months and thats something that is all over the map very hard to put your finger on is that folks that start really fast and then some that take the full six months to ramp up but ended up being in our top 10% of sales reps. So we pay very close attention to that.
And we give folks a lot of training and support wrote to give them the opportunity to be successful.
Yes, so a hard question to answer.
Okay.
I'm just trying to get at when everybody's.
Full productivity.
What have you.
What does that mean for us it was going in terms of an annualized target for revenue per sales person.
Annualized target for sale.
We don't really check that.
If you add 100 sales guys.
If you add 100 sales guys today and you started you started the year at about.
We ended the last year around 44, I guess right.
No we've had turnover on included in those numbers.
Gotcha Okay.
I guess I'm, just trying to get to.
When these guys.
A bunch of new sales guys when they ramp up like how incremental.
Should the revenue yes.
So.
Yeah, I'd, rather you pay more attention to the net new areas, which is what I'm commenting on this one of the first quarter as well.
Just wanted to give you all some color on how many reps it took to get to the 23 net new areas and that's really it I just want three.
Incremental businesses that we've added on this year business areas that was that at all.
Okay that makes sense.
Yeah.
We set a goal at the beginning of the year to get to 25, and we're sitting at 23 at the end of the third quarter. So we're gonna be ahead of that.
Gold at year end goal.
Okay. So that 23 would represent a year over year increase of.
For example.
I have another area, where we set up a sales rep. That's oftentimes supported by another type of assistance sales rep that could have maybe two or three respiratory therapists underneath them. So there's a lot going on there, but it's the best way to think about how it biomed expanding we've drawn 60 miles down the road.
And we have set up a new area, so rather than buying a business with incrementally added on to our organic engine by setting up that new area because that makes sense.
Yeah, no I get that.
I'm just wondering like.
As a percentage increased to 23 net new areas represent some 20% year over year growth in areas or.
Wow.
34%, it's a 34% growth number 34% okay.
And.
On your wish list when I look forward 12 months from now how many net new areas would you want to add.
This time next year.
Or how many are capable of adding given the resources you have and I'm, assuming you see the M&A.
We will also augment that.
Growth into new areas.
We haven't set that number yet, but I mean, you can figure as we always like to be growing around that 30%.
Number are setting our goals in that.
Area. If you will when were working with our team.
The organic piece of the business. So just figure out another 30 something percent jump.
Okay.
Tom just on the can you just remind us on the Phantom shares the impact on G&A. This quarter was 450 Grand.
Is that that's real dollars.
Remind me how that works and and it's reflected in the increase in stock price.
So that's a mark.
It's a it is a real expense, but it settled in cash once a year. So that's just a mark to market of those plans, which you know as we've signaled to the market has definitely gone down over time.
But because it is settled in cash, whereas the restricted units that we use that go through the stock based compensation are settled in stock you actually have a more than the market.
Right.
Okay, and then my final one I noticed it.
Bad debt as a percentage of revenue dropped I think it was four 1%.
In the quarter.
Down from 8% given last quarter, so pretty low any comments on that.
Yeah, I think we've gotten a little more sophisticated on the reserving earlier in the year, where it may be a little bit more difficult to collect and we were a little higher in the first and second quarter than we want to be I would just say that we want to keep that number in the 6% to 8% range on an annualized basis over time.
And our hope and then hoping to drive it down but it's.
As collections have gotten stronger and.
Everything is just getting more systematic.
And would hope to drive that down.
Every year.
Okay.
And I think that's just on the CPI adjustment is that might be something we'd be around 5%.
Sort of in the ballpark of what you're thinking.
If we look at historical data with a with the CMS. Typically uses is the June CPI, which came in at nine 1% and then there's a productivity adjustment made so if we are able to use historical averages would be in the upper 8%.
But.
We won't know that number probably until late November early December .
And that will take.
In fact, Jim one.
That's correct.
Okay, and what do you think the commercial payers are doing that's what Medicare will increase with the commercial payers increase as well or just.
Just be on the medical centre business.
That really just comes down to individual negotiations last discussion some of our contracts are tied to Medicare rate. So those would just get a pass through immediately but on the ones, where you have fixed fee schedules. It just takes our network development team getting back on the phone and hoping for some sort of inflationary relief.
Okay.
Okay. That's great thanks, guys great quarter.
Hi, Doug Thanks, Thank you.
And as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the question and answer queue. Our next question comes from the line of.
And you're angry.
Please proceed with your question.
Hi, good morning, Thanks for taking my questions.
First on the SG&A expenses, which is about a $17 7 million. This quarter. How is the split between kind of six confident which is the operating leverage and the variable component, which kind of goes up and down with the topline.
I would say the majority of our SG&A is somewhat fixed when I say majority probably at least three quarters. The biggest component of that is the wages for everybody thats not touching patients so roughly 500 or so employees, but commission.
<unk> things like fuel things like bonus programs and so forth those are variable.
Makes up 20% to 25%.
Okay. Okay, that's useful and do you expect this split to be like stable going forward.
I would yeah that those numbers have stayed relatively flat we would hope that we can drive down SG&A as a percentage of revenue over time.
As we create more operating leverage but.
I would expect the components between fixed and variable to stay somewhat consistent.
Okay got it got it.
And then on the M&A strategy, given the significant changes in the broader economy and financial markets are there any changes you are kind of the.
<unk>.
That you target and the companies and the multiples you'll be willing to pay for these companies.
Yes, I mean, some of these companies have been in our pipeline.
Two years and are coming back around to us with a reset of.
Multiples in the market if you will.
So that's a positive or are guys, who are out there having conversations right now and I just think the other parts of that is the component of any financing now you have to consider a higher leverage rate and so forth. So I think that will inherently bring down multiples just yeah, just because the cost of capital is going up as well.
Oh, okay, Okay, yeah that makes sense.
And then just to confirm.
These CPA adjustment your baseline expectation is in the 8% range.
<unk>.
That's our expectation.
We're obviously going to wait for CMS to come out with the number.
But if we use historical context, then that should be where they come in.
Great Great Alright, that's useful thank you very much.
Thanks.
And our next question comes from the line of Nick Corcoran with Acumen capital. Please proceed with your question.
Good morning, and congrats on the record quarter.
Thanks, Nick.
Most of my questions have already been asked so I guess my first.
My only question is are you added 23 areas.
Kind of year to date, how long does it take for an area to fully mature.
Again, it's kind of gone back to Doug's question. It really revolves around the reps development. So.
Some of them all areas are definitely an agenda on the house and the Rep is what our historical sales experience and contacts.
Ben and so those typically will start up a little bit faster than the one you just start them without contacts.
But we've had both ended up in the top 10% of successful reps in areas.
It's all over the map.
Hard to answer.
And if we think of your your maybe like 75 areas.
I guess theres a range of organic growth just depending on the maturity of the areas that a fair assumption.
Yes on an area by area basis.
Yes, exactly that would yeah, oh, absolutely. So if Europe . If you have a relatively newer area that let's just say they became established in the first quarter of this year and started having an impact there organic growth rates are going to be much higher than say some an area that's been around for seven or eight years, just because that the.
More established area has attrition.
Just the 17 month length of stay you're losing patients.
From a gross new patient adds those are some of the most important areas, which is your larger areas, but if you're just looking at it on a percentage basis relative relatively immature successful areas are going to drive the most.
<unk> Bank.
Yeah.
Okay.
That's all for me.
Alright. Thanks.
And we have reached the end of the question answer session I'll now turn the call back over to Casey Hogan for closing remarks.
Okay. Thanks to everyone joining our call today, we appreciate it we're getting back to business have a good one.
And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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