Q4 2022 Viemed Healthcare Inc Earnings Call

Greetings and welcome to violates fourth quarter, a 2022 year end 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.

As a reminder, this conference is being recorded it is now my pleasure to introduce your host Todd Zehnder, Chief Financial Officer. Thank you you may begin.

Alright. Thank you Doug. Please note that our remarks on 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.

Statements reflect the company's views and intentions with respect to future results or events and are subject to certain risks and uncertainties, which could cause actual results or events to vary from those indicated in forward looking statements. Examples of such risks and uncertainties are discussed in our disclosure documents filed with the SEC or the security regulatory authorities in certain.

Provinces of Canada.

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 except as required by law.

Year end 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.

Thank you Todd.

Everyone and thank you for joining our fourth quarter and year end earnings call today, I'll be providing commentary on our continued strong operational results as well as our current view and outlook for the industry.

I'd like to begin as always by acknowledging and thanking our dedicated team of respiratory therapist behavioral health specialists staffing professionals and administrative support staff, who work tirelessly to deliver the best in class care to the patients we are privileged to serve.

At year end, our VI Mad family grew to 743 employees.

We are currently experiencing tremendous positive momentum as we enter 2023, our recent successful appeal of a light findings without a significant win for not only by mad, but for our industry and more importantly, the patients who desperately need this access to care.

The overall reversal of all audited charts and that's what it really allows our company to set the record straight that biomet has always been a company that provides the right therapy at the right time for patients we have a renewed sense of urgency and confidence in communicating these positive results with our payer network to help further validate.

Value based capabilities.

Furthermore, our view of the regulatory environment continues to be as stable as we have seen it since our inception.

Trends in reimbursement rates, a positive including the announcement in December Jan Madsen speed schedule, reflecting CPI related reimbursement rate increases between six four and nine 1%.

Also we believe a competitive bidding round for January one 'twenty 'twenty four is extremely unlikely due to the timing of the preliminary planning activities necessary to implement the program.

These positive trends and reimbursement rate should contribute to margin expansion, we see our innovative and industry maturing as data continues to support the complex respiratory business with.

Which makes us incredibly optimistic about the future of our business.

Our supply chain remains strong with many additional manufacturers and excellent products coming onto the scene in 2022.

At <unk>, our service is primary with devices and equipment being secondary we have always been device agnostic. So having more manufacturers creates a competitive and healthy environment, one that drives further equipment options and improved quality technology and pricing in our space.

Perhaps most importantly in the fourth quarter with many of our new sales reps maturing in their roles. We saw our revenue growth our core business approaching the bus pre pandemic levels.

Our current operating environment should continue to promote strong growth through 2023 and beyond as the headwinds from the pandemic continued to subside.

We were again able to get our patients in a more customary by met fashion, which means sooner.

As the most recent published study proves we can be more impactful by reducing hospitalizations and mortality rates and improve overall cost savings by implementing earlier utilization of noninvasive ventilation therapy.

Our Chief Medical Officer, Dr. Frazier has been actively sharing the results of the most recently published study and large with large eyes and it says a pulmonologist and industry experts across the country.

Our sales force and our network development teams have also been active in distributing the fresh data to our referral sources of payers amongst the network. This is driving new awareness of our value.

We're also incredibly well positioned to execute on opportunities to supplement our organic growth with strategic acquisitions.

During the fourth quarter, we repaid all debt on the balance sheet refinanced and significantly upsized the commitments on our credit facilities and are now in position to access funds immediately for the execution of transactions.

Negotiations indicate that valuations of target companies continue to fall. We have reached an inflection point in our identification of a strategic acquisition that can provide a strict thresholds for return on investment.

With the recent addition of two key experienced M&A executives, we have a strong pipeline of target companies, which we fully expect to drive transactions during 2023.

Our management team has been working diligently planning and developing integration processes necessary to efficiently integrate new companies.

In addition to cash on hand, we have up to 90 million of unused capacity from our new credit facilities available to fund accretive acquisitions.

We are targeting and screening acquisitions, which leverage <unk> competitive advantage and expand our geographic footprint and our strong pitch for our biomed culture.

These targets are typically high quality home medical equipment providers that have a strong reputation with payers and referral sources.

We also target companies that can significantly benefit from the scale and efficiency of our maturing operations as well as our high tech processes, including real time patient activity E prescribing and E ordering platforms.

Our technological progression and growth in 2022, certainly facilitated a more frictionless patient and provider experience one that complemented our strategic fourth quarter investment intermodal health.

Our care management platform that Leverages <unk> high tech connected care to improve health outcomes and fans to lower overall health care costs.

Due to development of engage our proprietary connected health software I organization has adopted a connected health care model, coupled with automated process was.

We are incredibly excited to partner with Murdo health, which aggregates tech enabled and data centric health care companies like VI Mad expediting, our evolution towards large value based arrangements.

Along with our continued progression, but the watch it to be a pilot. We are confident that we can reach new populations of patients through our data enabled evidence supporting payer relationships our relationship with existing payers are strong and we're working hard to further expand our network through active contracted belt.

Included in our head count growth was a 38% increase in sales representatives during the year.

Our sales head count growth was net of turnout, making it the highest in our company's history. The substantial expansion of our sales force continues to be supported by our specialized health care recruiting division by bad health care staffing.

VHS, it's improving the quality and quantity of our internal hires through sophisticated recruiting tools and the use of proprietary labor and demand data and analysis.

As a result, our data informed organic growth strategically and tactically targeting areas in which payers and patient needs are highest at labor is available.

With increasing stability in the supply of specialized labor we were excited about the recruiting engine and new business line that we built.

Well I met health care staffing is also contributing to the strong growth and diversification of non event revenues along with the growth of our sleep and oxygen product lives.

Monthly rent on the excuse me monthly rental revenues from ventilators represented 68% of overall revenues in 2022 compared to 77% in 2021.

Both of our complex respiratory products and services remains incredibly strong and we were very pleased with the rapid expansion of our portfolio. The other respiratory products and services, allowing us to serve patients across broader disease state and become a trusted partner and extension care extension of care for preferred Pulmonologists and positions.

Our focus remains on technologies get enabled all medical products with a high level of quality service through diversification of our services within that space, we were able to create strong relationships with our complex respiratory and sleep patients earlier in their disease States.

Addition to cross selling and synergies between products and services in the portfolio the diversity of products contributes to longer term recurring resupply revenues, which we see expanding at a faster rate throughout 2023.

With more of our financial results capital activities and regulatory updates I will now turn the call over to our Chief operating officer, Todd Zehnder. Thanks.

Thanks, 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 $37 $5 million during the fourth quarter of 2022 as compared to net revenues of 29 million in the fourth quarter of 2021, which equates to a 29% increase our sequential growth in the core business was 5% Andrew.

Annual revenues related to the core business increased approximately 25%.

Which is a great indicator that our growth rates are back to levels that we saw before the pandemic. We are optimistic that we will be able to continue our high organic growth rates into the future as we continue getting our therapies to more patients around the country.

Our gross and EBITDA margin percentages remain very healthy and are once again, just from our core business lines not impacted by Covid business.

During our midyear update we expressed our goal of turning the margins around later during 2022, and we've made great progress on our margin profile.

We continue to see our margin percentages 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 25% respectively.

Our fourth quarter gross and EBITDA amounts came in at $22 nine and $9 3 million respectively.

Our fourth quarter revenue from Vince was approximately 66% of our core revenue as compared to 76% in the fourth quarter of 2021.

Our annual EBITDA came in at $30 million, which was a 22% margin.

As we continue to build scale across all of our product lines. We should continue to see economies of scale, even in the light of our extremely aggressive growth targets.

Our SG&A for the quarter totaled approximately $17 2 million as compared to $14 2 million in the fourth quarter of 2021 and is down approximately 500000 from the third quarter of 2022.

We have been aggressively managing our variable expenses as we continue to navigate the inflationary period.

We convey to the market here in our mid year call that we would focus on expenses in the current quarter decrease is a testament to that work with.

With all that said, we continue to invest in growth in the in any measure that can help with the clinical outcomes of our patients.

For the quarter, we invested approximately $4 6 million on capital expenditures.

The Capex continues to be spent across all of our major product lines. As we have continued to grow all products and manage this through a diversified supplier network.

We continue to see ample opportunity to procure inventory and have not had to turn any business away as a result of supply chain issues.

We once again funded all of our Capex to discretionary cash flow during a quarter, where organic patient growth is as high as we had seen in a couple of years.

We continue to have a pristine balance sheet. We're at December 31, we had a cash balance of $17 million and an overall working capital of $18 2 million.

We ended the year debt free in conjunction with our closing of our new credit facility.

Along those lines, we were happy to announce the new credit facility put in place that is led by regions and also has Whitney and fifth third as participants the.

The $60 million facility is structured to give us tremendous flexibility to use the term loan feature for acquisitions and a general revolver for any needs that arise.

Additionally, there was a $30 million accordion feature that is easily accessible in the event that our M&A efforts exceed the original facility.

Throughout 2022, we opportunistically reduced our share count through our stock buyback.

During the fourth quarter, we bought back 120543 shares and for the year. We purchased approximately one 8 million shares we have not been actively buying during the last few months as we have decided to leave some cash on the balance sheet for opportunistic acquisition targets.

So recapping the year from a balance sheet perspective, we are completely debt free have a cash balance of $17 million and bought back approximately 5% of our stock.

We can we expect to continue to grow and generate additional free cash flow from our organic business.

Moving to the ongoing <unk> and CMS issue related to our U N. I V claims we were extremely pleased to successfully resolve the last eight claims that were opened through our process with the ALJ.

The $1 1 million was received in January and the amount was held as a current asset on our year end balance sheet.

We continue to advocate for more formulary guidelines for an IV, but the access to care for our patients is what is most rewarding.

Moving along to the first quarter, we have provided net revenue guidance and the $38 million to $39 million range related to our core business the.

The midpoint of our core revenue guidance is up 27% over the first quarter of 2022.

Lastly, along the lines of our activity in the markets. We have once again visited with many new and existing shareholders over the last few months to describe our mission and our value prop.

Our conference call being on a Friday is unusual but we held the call today to accommodate a trip to New York next week.

The pandemic set our timeline back the next Monday, we will be ringing the opening bell on NASDAQ and we'll spend some time visiting with investors. It's.

It's hard to believe that it's been three and a half years since our listing on NASDAQ.

Again appreciate our shareholder support of our mission and look forward to continuing to build upon the great company that we have.

At this time I'll turn it back over to Casey to wrap things up.

Okay. Thank you Todd.

The opening Bell ringing ceremony comes at an incredibly exciting time for <unk> as we take the national stage on Monday to be honored by NASDAQ. We are proud of all we have achieved and even more excited about the strength of the business and opportunities on the horizon.

We've proven to be incredibly resilient in recent years and confronting the adversity related to the Covid pandemic, the bice recalls and you're like Gee report, we didn't just weather the storms, but instead return each into incredible opportunities to solve big problems and doing so profitably.

Looking forward the strength and stability of our core business is well positioned.

And that's encouraging regulatory and operating environment.

We were early adopters with respect to investing in and implementing digital care models and efficient automated workflows.

With a strong infrastructure in place we can focus our efforts on further developing our relationship with payers physicians and patients.

As of year end, we are now treating patients in all 50 states, but too many patients eligible for our services continue to go untreated everyday.

The data and published medical research underscored the critical need for the services we provide.

We remain at the forefront of care delivery and we'll continue to work closely with payers and prescribing physicians to ensure that the right patients have access to the right care.

You're at <unk>, our team will continue to do what we do best drive a culture of innovation resolve big challenges and there are a ton of people along the way.

We want to thank all of our investors for their continued trust in our company and look forward to driving further shareholder value as we rang the NASDAQ Bell Monday morning, not only to provide that but for each of you.

This concludes our prepared remarks, we will now take further questions. Thank you.

Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be.

Necessary to pick up your handset before pressing the star key.

Our first question comes from the line of Charlie monitoring with Lake Street Capital markets. Please proceed with your question.

Hi, guys. Thanks for taking my questions. Just two quick ones for me here are there any significant headwinds that are eliminating your opportunities for growth now. It seems like you guys are generally are full steam ahead here. So we just want to make sure that we have a handle on any factors that might be a drag in 2023.

No not really Charlie we feel like the wind is that our sales right now for sure. We've got a good recipe for finding sales reps and good sales reps, we got really good training programs and protocols that are <unk>.

Have evolved to a point, where you know I guess sales reps are starting up at a faster rate.

So we have a lot that are still in the hopper from last year that needs to be trained up in the field. If you will.

The.

The only challenge I can see is that we need to just continue to find good people and whether that be in sales training for sales trainers managers and sales reps. That's just always the grind for us and that's an ever evolving tactic of growing the organic business model for Biomed regulatory you mean, you're hearing me talk about it we're pretty.

Bullish on it and stay stable as it's ever been.

And our other business lines frankly are clicking on all cylinders to staffing rolling CPAP.

She pops or rollout of oxygen is doing great and these are all booked and and and we've been at it for a while now which is we're reaping the benefit of them, becoming feeders to our vet business you know as we get our stage one two and three guys in the oxygen world. They they eventually evolve into a stage for a patient where there are.

Our needing event, which is our higher margin business. So.

Yeah Man, it's it's it's really full steam ahead for us where we're very excited about 2023, and then just Oh jee stuff in the rearview mirror. That's another reason for us to just get in front of payers and trying to clear our name there.

Spike.

<unk> never really accepting that Rajiv findings it always the fitting them that we would win all 100% of them.

It's a it's still something that was a black cloud with some payers throughout the country. So we have a major opportunity to go in there and have another conversation really talk not just about getting back to the network with some but how do we become more relevant into value based discussion. So we're we're super pumped about that initiative as well.

Well, that's great to hear and thanks for the clarity with that and then just one other quick question for me as you think beyond the core noninvasive vent opportunity, which other markets do you believe offer via met the most opportunity now.

Well staffing right now is really we've been shining and the Gulf States, we started on our close to home with it.

The opportunities that are popping up throughout the country for us to get in there and provide.

<unk> solutions in a way that staff is being offered right now.

Our our executive who runs that company has over 25 years of staffing experience under his belt. So he thinks of things very creatively and.

And we're able to pitch it isn't just a different way. So we see that we see parts continuing to grow just because that's throughout every single market.

I thought you were gonna see pop relative we're gonna see O to growth and we'll see we'll see that growth as well I mean, there is acquisition targets that we're looking at and geographic regions that were not so strong in I mean, you know, where we admittedly are kind of weak and the west end and so we're analyzing targets over there and then in the in the northeast we could use it happened.

<unk> target as well, but.

You know those guys are already in our pipeline and we're working through them will be obsolete. So we're excited maybe to grow in those geographic gaps in a different way.

Great well, thanks for answering my questions and I'll hop back in the queue.

Our next question comes from the line of Doug Cooper with Beacon Securities. Please proceed with your question.

Hey, good morning, guys and congratulations on a great quarter I'm talking.

First of all.

Sequentially. The EBITDA margin of 500 basis points is that strictly I guess because of the increased.

The increased revenue sequentially in G&A was flat and the flow through is that strong.

That's the primary reason yeah, Doug I mean, we obviously did a lot of good work on G&A. Some of that will continue to translate into our most of that will continue to translate into good cost management in 2023, the fourth quarter from a realization and a bad debt standpoint is always going to be better it's the least amount.

A impact for patients changing insurance is and all the things that caused challenges really in the first quarter that we ended up fighting headwinds on which is why our revenue guidance may look muted to some people on a sequential basis, but if you look year over year were up 27%. So the growth rates are still intact I want to be clear about that but all of that.

Bond gives you a really good margin profile for the fourth quarter.

Great.

C P R.

Medicare's you'd be an adjustment.

Started January one.

Where is it in your March 3rd can.

Can you give us any indication of a comeback.

You see that impacting you.

Yeah, I think right now the way that we're starting to see it shake out and you know it's early because we only have really one month closed out, but we're probably seeing somewhere between on a net net basis somewhere around 4% to 5% across all of our revenue you got to remember it only hits the Medicare in any contracts that are tied to Medicare and then the rate any.

Kris is anywhere like for events invest is eight 7% pretty much. There's none of that is competitive bed in its country wide for oxygen and path a little bit more skewed throughout depending on what area. It comes from and then it obviously doesn't apply to the revenue that isn't contracted to that or say, our staffing revenues I think.

I think right now, where we're comfortable saying somewhere between 4% to 5% of gross revenue is seeing the uptick.

In the first quarter.

And anything Thats aside from say Q1 was the bad debt provisions, maybe a little higher so forth what do you see that flowing through to the bottom line for <unk>.

Margin expansion, all other things being equal.

Yes, I mean, obviously, we have to continue to do our cost management like we've been doing and that will as we continue to hire there will be some G&A that comes along with it but we would expect to see the revenue growth come with that as well. So long answer to yes, I do see I do see that flowing its way through the bottom line.

Okay and can you just just.

In terms of the operations can you give us an idea did you.

I'm from geographic expansion this quarter and maybe you can just talk about new territories and just a general update on how the VA is progressing.

Yeah, I mean, we were.

Still finding new territories throughout and it is less about which state. We're in does its more about this call. It 60 miles down the road.

And coverage gaps that we have so nothing has really changed from the way that were growing organically with finding new sales were up in placement and new territories.

Occasionally we find pockets, where we'll double down a little bit faster I got San Antonio is a market where are we.

We haven't been too.

Two dominant but we found some really good reps that's a good coverage coming coming over there here. That's as an example, what was the other part.

Oh the V I V a S. Yes.

Yeah.

Yeah. The VA is ongoing pilot I mean, it's it's underway and it's a we're actually going to take it to another area as well. So that's that's gonna be exciting the the major win really with the VA right now Matt.

Material win I should say Doug is through staffing yeah. We've we've really been landing a number of different staffing contracts inside of the VA is as we have the network we've been having the conversation with the complex respiratory business somewhere just establish contacts that have other needs and so yeah. You know we're apartments possess.

Is that just kind of be that solutions provider to them, but.

The pilots are going and the fact that we're getting to presented into another territory is exciting for us because that means there's another pulmonology group at Salo, who were doing them in South Carolina and says we want to do it for our area.

I'm, sorry, Greg Thanks, Susie and just the last one for me.

You renewed your you.

Our issuer bid start getting hit a bit. This morning is this something you would see as opportunistic with the stock derm temperature sensitive.

I mean, we'll obviously monitor that Doug I mean, while I was clear on the prepared remarks that we hadn't been active right now because our M&A team is pretty robust right now as far as potential leads and so forth, but we will the buyback I guess remains in place right now so we will be.

Opportunistic and update the market accordingly.

Great. Thanks, guys and congratulations again on the floor.

Thanks, guys.

Our next question comes from the line of precise Pendragon with Bloom Burton. Please proceed with your question.

Good morning, Congrats on the quarter first just to confirm half the benefits from the new CMS rates being fully captured in the <unk> guidance.

If not how.

How much further growth in pricing do you see in the upcoming quarters.

Yes, they are in the first quarter guidance and as I mentioned, you know I mean, we have some we had been rather conservative with our bad debt assumptions, we typically reserve at a higher rate in the first quarter than others. If you'll go back and look and see last year, so with insurance changes and reauthorization and all.

The thing that hit us in the first quarter. We are we take a conservative view of that but yes. They have been embedded in our numbers.

Got it.

And then following up on the non ventilator side of the business. How do you see the product mix evolving throughout this year and also could you comment on its size relative to the rent when side of it.

Yeah, I think that we will continue to see the oxygen sleep and staffing business lines grew at a faster rate than the ventilators.

Just because there's so much smaller.

But I don't see the product mix moving as drastically as it did year over year, just because vent growth is back at a higher rate than it has been over the last call. It 24 to 36 months. So we moved it 10%. This year I think the numbers were 76% in 'twenty, one and 66% and 23.

Excuse me 22, so 10% at this point I don't see it moving that much.

But the the smaller business units will grow very likely at a faster rate. This year, just because they're still.

Relatively new to our National rollout you know there are probably anywhere between two and three years international rollout. So we're still benefiting from the the infancy of those programs around the country.

But I guess the key for Sop is all business units are growing all of them are growing pretty dramatically. So it's kind of fun to watch to see who's going to outpace the other one right now.

Yeah that sounds good and then on the finally on the SG&A side.

But just looking at it from a continuing operations basis does this quarter Xinyuan umbrella is that took a normalized number that we can.

See how staying flat.

And the next few quarters or are you looking at further cuts to it.

You know I think that it's we're always going to have slight guidance increases when it comes to cost just because we're out there organically growing the business.

Putting new sales reps in new areas and it's unrealistic to think that we're going to keep growing without some G&A expansion with that said I think we were pretty clear mid year that we had seen a massive increase last year between our hiring efforts and the inflationary impact.

And you know those appear to be stable now at least on the inflationary side, where we're managing our head count pretty good. We are we're looking for new areas, new sales reps and so forth.

No.

It's a I would call our G&A run typically stable, but you should always think that it's gonna grow some to support the 20% to 30% organic growth in the revenue and gross margin line, but we're going to forecast.

Got it got it thanks for taking my questions.

Sure thing for staff.

There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.

Okay. Thanks to everyone for joining the call. We appreciate all the thoughtful questions and we are very excited to be up there in New York on Monday morning, So everyone Lookout forces ring that bell.

Enjoy your weekend.

Yeah.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

Alright.