Q1 2023 Viemed Healthcare Inc Earnings Call
Hello, and welcome to the <unk> first quarter 2023 earnings call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
Pleasure to turn the call over to your host Todd Zehnder, Chief Operating Officer. Please go ahead Sir.
Thank you Kevin.
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 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.
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 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. The first quarter financial results news release, including the related financial state.
<unk> are available on the SEC's website, and now I'll turn it over to Casey to get things started.
Alright. Thank you Todd good morning, everyone and thank you for joining our first quarter 2023 earnings call.
They were extremely excited to report on how our core business is really clicking on all cylinders and certainly driving these record setting first quarter results.
We will also review our most recent pending acquisition of home medical products H M D.
Lastly, I'll spend some time, providing our current view an outlet for the industry.
First I'd like to take a moment to acknowledge and thank our dedicated team of respiratory therapist behavioral health specialist staffing professionals and administrative support staff, who worked continuously deliver the best in class care to the patients we are privileged to serve.
Our outstanding quarter as a direct result of their hard work.
At the end of the first quarter, our Biomed family grew to 770 employees and we are incredibly incredibly excited to soon welcome. The H M. P team into our family, which is expected to increase our head count.
180 employees.
The first quarter of 'twenty to 'twenty three with an exceptionally strong example of our organic growth success.
Our revenue results exceeded the top end of our guided range and confirm that despite being a larger company. We clearly have the ability to maintain our impressive pre pandemic year over year growth rates the.
The strategy of having biomet health care staffing and find the right people to expand our organic business has proven to be successful VHS has contributed to our ability to optimize our hiring efforts, while our back office refines, our training and culture.
Our training will help drive continued organic growth throughout the year and we're probably most excited to share with our new employees on board an amazing beat during the second quarter.
With open access to our referral sources restored post pandemic, we only see positive forces ahead to support future growth.
Furthermore, our respiratory equipment supply chain is stronger than ever before with many new manufacturers competing for business.
The increase competition is driving down cost of our purchases of equipment and ensuring that we will have adequate supply to meet the needs of our patients.
We expect to leverage our volume purchases in the near term upon closing the H M P transaction.
Yeah.
The purchase of ancient P will watch our acquisition growth initiatives with a stellar organization that is an extraordinary reputation with patients payers and physicians.
Above all the team at H M. P shares our same culture and driving passion for treating each other with respect while delivering innovative patient focused care.
Upon close of the transaction the acquisition will provide immediate geographic product and payer diversification to the combined organization.
H M. P is a major provider in Tennessee, Northern Alabama, and Northern Mississippi and currently serves over 44000 active patients in.
In 2022 H M. P had annual revenues of approximately 28 million and the expected purchase price of the transaction is approximately 31 million subject to customary closing adjustments.
While the transaction is expected to be immediately accretive we are most excited about the opportunity to share our mature complex respiratory model with a strong team at H M. P.
Their organization already has an impressive foothold in the sleep business and strong relationships with Pulmonologists and local physicians. We are certain that we can complement their existing revenues by integrating our complex regulatory model.
In the past, we have invested heavily in our scalable training proprietary technologies and sound clinical protocols.
Our biggest constraint to growth has always been our ability to recruit talented individuals that can go out and put our model at the practice.
Based on our long standing relationships with the H M. P. Team. We are confident that we have identified 180 incredibly talented individuals that will have access to our well developed resources and capabilities. We expect substantial revenue synergies as a result of the competition.
We plan to carefully integrate the organizations over the coming months as we also continue to recruit and train our robust pipeline of organically forces sourced hires.
We expect our acquisition growth to be strategically measure.
We have developed comprehensive integration plans based on our recently hired M&A executives deep experience with the acquisitions.
Our strategy is not to simply roll up companies and cut costs, we never want to impair our impede our strong organic growth. We are careful to execute transactions with organizations that we believe will continue to grow at impressive rates and are confident that well that well executed acquisitions can create an accelerator to our organic growth model.
Regulators and legislators also continue to work in collaboration with the home medical equipment industry find practical solutions that ensure providers can deliver care to patients.
For example, reimbursement relief legislation was recently introduced in the Senate that would extend the 70 525 blended Medicare reimbursement rate for suppliers and non rural noncompetitive bidding areas throughout the end of 2024.
These common sense steps provide increased stability and predictability in the reimbursement environment in contrast previous initiatives such competitive bidding.
Historically any competitive bidding activities are initiated by C. N. That's approximately 18 months prior to implementation of contracts and pricing.
Although CMS has not announced plans related to future competitive bidding round the timeline for around 2020 for competitive bidding process has effectively lapse and around 2025 is becoming increasingly unlikely I see in my CMS has provided no signal at a return to the program will provide any savings.
We remain confident that all current indicators promote a strong reimbursement environment for the coming years as a result, our business is well insulated from recession and long term inflation pressures.
As the reimbursement environment evolves through Medicare advantage trends in value based arrangements, we are optimistic that our high quality cost effective service offerings and continue to thrive.
As health plan administrators become more sophisticated in their use of data and technology, we are well positioned as a leading provider of high tech and high touch care in the home.
We proactively invest in technology and protocols that create a seamless administrative process capture data improved benefit for patients physicians and payors.
In order to solve more problems for our customers as we scale, we are expanding our ventilation adjacent offerings and diversifying our product and service mix.
Not only does our growing portfolio provide a robust continuum of care solution for pulmonologists in patients, but our ability to partner with patients sooner and their progressive disease state allows us to treat their underlying conditions at the right time.
Adoption of innovation and technologies, such as portable oxygen concentrator and remote setups of tap devices have enabled us to expand these portfolios quickly and in a cost effective manner.
He's been a later at Jay adjacent offerings have the ability to increase the length of our patient relationships.
For example, a COPD patient that is provided with oxygen solutions by buying that may ultimately become a ventilator patients as their disease progresses. Similarly, when a young CPAP patients with sleep apnea is properly cared for and kept comfortable and compliant.
They remain a resupply patients requiring fresh mask tubing filters for decades.
Most importantly, our peer reviewed published medical research continues to demonstrate that clinical and financial benefits of noninvasive ventilation in the home our greatest when therapy begins immediately following the diagnosis.
When we can get to the patients sooner, we ensure that the patients live longer and are kept comfortable.
We are also seeing strong growth of our clinical placement and recruitment services offered through Biomet health care staffing.
In addition to continuously improving the quality and volume of internal hires if.
Well I might health care staffing as a solution for our external customers and strengthens our relationships with those partners, including the V. A.
V H S and our S E O S. B partners solve that had been placing many clinicians throughout the V as across the country.
With more on our financial results capital activity and regulatory updates I'll now turn the call over to our Chief operating Officer Todd then.
Alright, Thanks, again, Casey and review of the financial results. All figures are in U S dollars and full results had been made available on the SEC's website as well as SEDAR.
Core business generated net revenue of $39 6 million during the first quarter of 2023 as compared to net revenues of $30 2 million in the first quarter of 'twenty, 'twenty, two which equates to a 31% increase.
Our sequential growth for the core business was 6%, which is especially exciting as the first quarter presents seasonal challenges with insurance changes for many beneficiaries.
We remain optimistic that we will be able to continue our high organic growth rates as we are still seeing open access around the country.
Our gross and EBITDA margin percentages continues to be strong as we are focused on both margin and diversification.
We have followed on our second half of 2022 mantra of diversification, but also being laser focused on the bottom line.
We continue to see our margin percentage 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 21% respectively.
Our first quarter gross and EBITDA amounts came in at 24 million and $8 3 million respectively.
Our first quarter revenue from Vince was approximately 65% of our core revenue as compared to 71% in the first quarter of 2022.
Our SG&A for the quarter totaled approximately $19 8 million as compared to $15 8 million in the first quarter of 2022.
We are continuing the efforts of managing cost around across the board, but as we've always said, we're investing in the growth of our business and the patient experience.
We expect to continue to grow revenues at a faster pace than expenses, which should yield ongoing margin expansion.
For the quarter, we invested approximately $4 7 million on capital expenditures.
Capex continues to be spent across all of our major product lines and once again has been done through a diversified supplier network.
As was the case last year, our vent and oxygen products had the most capex spent during the current period.
We continue to see an ample opportunity to procure inventory and have not had to turn away any business as a result of supply chain issues.
We once again funded all of our Capex with discretionary cash flow during a quarter of extreme growth and we were also able to expand our liquidity.
We're very proud of the pristine balance sheet, where we actually grew our cash balance by $6 6 million at March 31 to $23 5 million.
Additionally, we ended the quarter with an overall working capital of $23 3 million.
We remain debt free at quarter end with a fully undrawn credit facility.
Our capital allocation strategy has shifted over the last six months, we still have our first priority on capex to service new patients or organic growth through new patient service has and will likely always be our first priority.
Last year, we focused our secondary capital allocation efforts on buying stock and paying off the limited debt that we had.
This year, we will prioritize the M&A growth is our second use of capital.
As Casey mentioned, we are moving forward with the first deal and expect to close that in the second quarter.
The acquisition of H M. P will be funded through some cash and draws on our credit facility.
We will determine the exact mix as we approach the closing date and the final amounts that will get funded.
Moving onto the second quarter, we have provided net revenue guidance in the 42 to $41 $2 million range related to our core business the.
The midpoint of our revenue guidance is up 23% over the core revenue in the second quarter of 2022.
We remain active in our discussions with existing and potentially new investors. We recently participated in another in person conference and we're continuing to see interest from new shareholders.
We're excited to tell our story, but.
But we're even more excited to continue to build out our footprint to new patients through our organic and now inorganic growth strategies.
At this time I'll turn it back over to Casey to wrap things up.
Okay. Thanks Todd.
In summary, we witnessed and executed on a ton of positive momentum driven.
Driven by our proven organic business model during the first quarter.
Our country is experiencing trends with more health insurers moving to Medicare advantage plans and turning to save money for Medicare to operating cost savings efficient health care to an aging population.
We are seeing these commercial insurers accumulate facility based health systems and companies across America.
This trend seems to be inspiring hospital systems to compete with these payers are developing their own health plans, we are keeping a watchful eye on how Medicare plans to regulate the quality of care for patients who are on these plans.
Regardless the competitive payer environment is pointing towards adopting more cost efficient care, whether you are a hospital with your own an MA plan or a large national payer.
The focus around the country will be treating the right patients inside of the facilities and the right ones and the home.
Our collaborations with these health systems, and payers are well underway and by met is leading the effort and human interaction coupled with compatible technology the.
<unk> throughout the industry give us the confidence to expand at a faster rate than we ever had before.
With an underserved population of respiratory patients still in need a recipe of proven organic growth and our new inorganic growth strategy underway, we couldnt be more related for what the future holds a botnet.
We want to thank all of our investors who have joined US on this ride and we look to welcome new investors as we take the company into a new era of growth in 2023 and beyond.
This concludes our prepared remarks, we will now open up for further questions.
Thank you and I've been conducting a question and answer session if you'd like to be placed in the question queue. Please press star one at this time once again Thats star one to be placed in the question queue. You May press star two if you'd like to remove yourself from the Q1 moment, please will be pull for questions.
Our first question is coming from Brooks O'neil from Lake Street Capital. Your line is now live.
Good morning, guys. Congratulations on another terrific quarter and all of the progress you're making I have a couple of questions. The first one.
I saw the thing that I think might've been generated by something somebody calls artificial intelligence.
Suggested you guys missed estimates this quarter and I'm just curious because you clearly beat my estimate is there anybody out there who had estimates that were higher that you missed.
No not that we've seen.
We Oh really.
Really what we have to focus on as we look at we look at revenue right. That's the only thing that we really got a.
We came in I guess 600000 above the top end of our 38, 38, Oh excuse me $38 million to $39 million guidance range. So so theres your mis Brooks, we missed hi, Debra.
That's a good mass except if you shoot ducks.
I know you're able to good product, so I'm not worried about it.
Let me ask you this.
Todd mentioned I think that mix.
And I think he said, 65% this quarter versus 71% in the past does that shifting mix concern you at all do you think it causes.
Any margin pressure in particular.
No it's not concerning but the second part of the question is something that we obviously remain laser focused on the ventilation piece of the business does carry a better margin and I'd say, that's why we're extremely proud of the fact that we've kept our gross margin.
Static over the last eight quarters effectively while we have diversified our business. So it may not show in individual quarters, but the.
The operational efficiencies that we're making up and up and down throughout the company are real I think I've said in the past we don't expect to.
<unk> changed the the vent contribution as much as we have historically because Vince are back to growing and so that's what's not concern. He goes all product lines are growing effectively right now we're still benefiting from the fact that the national rollout of panel two is still relatively.
Young in the staffing business is still relatively young so although much smaller piece of our business. They do grow at a faster rate.
But no everything from the diversification and where the margins are coming in is a meeting or exceeding our expectations as we've laid out as a management team and board. So we are extremely excited about the results.
Great. That's extremely helpful. So let me just ask one more I understand that one acquisition does not a trend make I like what I see from a H N P and it seems like a great model, but would you comment at all about how are you.
Thinking about the profile of potential future acquisitions, and whether we should think there'll be jumpy as sort of the classic buy med acquisition target.
Yeah. That's a good question H M. P is definitely classified it as what we are looking for in terms of going after a good company with a good management team in it in a different geography that we're not in and they check the box with a few payers that we don't have as well. So it was really just a.
Perfect fit for us in terms of our of what we got for our first one it doesn't mean that every single transaction you see us do in the future will be will look exactly like H M T.
I've always explain to you know typically D. C. It seems maybe a smaller one of some sort it might be us just going out and trying to to expand our payer coverage and so on and so forth. So.
That could happen, but right now I mean, we're looking for for other H M P's and there's there's plenty of them out there in the pipeline.
We're really focused on getting this one integrated the right way and making sure all of our processes are are dialed in and once we once we had that well will start moving onto the next one similar to the H b.
Cool I totally get that so let me I.
Right.
Just ask one more so Egypt P. As you've said it has a stronger concentration of the sleep business. Maybe this is a good opportunity for you to just talk a little bit about the dynamics in sleep why you find that opportunity attractive and.
Kind of how you see the sleep business developing going forward.
Yeah. So the H M. P business I think they are at what 45 per cent sleep and.
13% ventilation.
That excites us Brooks, you're you're your same call points for sleep typically are pulmonologists or even a family practice stop can treat respiratory diseases that will lead to a ventilator patient in need.
So we we really liked the call points and the hospital systems that they're already in with their growing sleep business, we know sleep very well.
And yeah, we can we can certainly help each other with refining our processes to just better better one another and sleep, but more importantly, where we see the major revenue synergy opportunity is for us to get in there and help teach them our organic growth model with ventilation.
It's a little bit different of a sales process for a typical D&A.
We liked the navigate inside of hospitals, and so on and so forth. So I see a lot of good people in their sales force a lot of and they're hungry to receive this education and training that where we're going to bring to them and we're excited to start just couldn't buy on and learn from one another.
And I'll follow up on that real quick Brooks and it kind of parlays into what Casey was talking about in his prepared remarks about 50% of their sleep revenue was coming from the resupply piece of the business and that's something that we're starting to get from as well, we're probably we're not there yet because our our sleep business from a national Rollouts, a little younger but that's.
The real the real game is to get these patients that are compliant that stay on and just order resupply for every three or six months whatever it might be so we're excited about that we have a similar systems that we're gonna be emerging in that use the same call center and so forth and the same software. So we see a lot of efficiencies there Ann.
Maybe we'll learn some things from what they're doing on the resupply business as well.
Great that sounds fantastic. Thanks for the color and keep up all the great work.
Thanks Brooks.
Take the next question is coming from Michael Freeman from Raymond James Your line is now live.
Hey, Casey and John Thanks, very much for taking our questions and congratulations on the quarter.
Like following on on a brief discussion here.
Just wondering about the integration timeline for agent P. I you know it looks like it looks like you are looking at it.
Work very closely with the sales team what she saw and see a lot of promise and I'm wondering how you would describe that integration process should this deal close and.
It's it's estimated timeline.
And then.
And then.
Moving forward from that what.
What we should expect for acquisition cadence moving forward.
Well, what I'd say is the immigration has already begun even though were expected to close this thing I guess at the beginning of June after we had the deal signed and announced and so forth. We immediately began integration efforts and some of those some of those integration efforts could start now somehow to start on day, one and some may take a couple of key.
And it really depends on whether it's a therapy, whether its human resources, whether it's sales whether it's how we train them. So it's it's across it's across a my guess probably through the end of the year before we have it fully integrated but that's our goal is to have this fully integrated during the current.
Yes.
And we find that to be very important with the way. We're gonna do these because this is.
This acquisition like Casey said is sort of a playbook for future and that we really want the revenue synergies to carry the excitement and we want you know we want to continue to make sure that that's the theme of what we're going to acquire going forward as it relates to the cadence, it's really going to be dependent on what we see how much we like it.
We're not you know we.
We were pretty upfront with the street, we didn't have to do a deal on any timeline. We grew 31%. This quarter organically. We're set to grow you know based on guidance mid Twenty's again this quarter before acquisition. So we're not pressured to do deals, but we're out there searching pretty aggressively our M&A team is working hard to get this one.
Done in integrated but also building the pipeline. So we don't want to set an expectation that we're going to do a certain number a year or a certain number of quarter. We're just going to wait for the right one to come along and once we do we'll.
We act on it pretty quickly.
Yep.
We can appreciate that I, just just to be clear.
Would you like to have this this acquisition fully integrated before doing your next acquisition.
Or are you agnostic independent mcnaughton.
Yeah, I think we're agnostic to that but we don't want to do is sacrifice the integration of the first one because we're working on the second one will be a we will be mindful of both of those at the same time.
Okay, Alright, that's very helpful and now Uh huh.
Just one more for me.
Like to talk about them.
Payer mix and in penetrating different different payers one I'm interested in is the is the VA and another is a Medicare advantage, specifically I Wonder if you could talk about your plans to penetrate those two areas.
Yeah, I mean, I'm seeing a major opportunity with the increasing adoption of it made plans. There's a lot of work to do but they may have plans to get them fixed I think Medicare is going through a process right now of learning about what the payers have been up to and trying to.
That's the regulations to align.
Their roles with Medicare's rules, which should be a good thing for our business, but nevertheless, that's a major opportunity because it's really reducing the cost of health care and how do you reduce the cost of health care well you you treat folks for less and that typically leads to treat them in the home.
Keeping patients out of the E. R that do not need to be there and that's why our behavioral health component of our business is becoming so much more important to our value prop as well lots of folks. That's led the E. Ours today are struggling with behavioral health issues and don't really need to be in there and so the more that we can do that.
In the home or through telehealth with the use of technology I think you'll see a lot of rapid adoption for those types of programs and those are the things that the hospitals want to partner with us on right now.
As it relates to be a second largest payer in the country.
Where we've been after it down for the last four or five years, Michael and and we've got some pilot programs in place for our complex respiratory model that are still in the emphases stages. Unfortunately, but the Beijing success that we've had with them is that they've reached out to us for a lot of their staffing needs and and we've been.
<unk> a track record of success for fulfilling the clinical labor that they've been in need of.
And the more you have that experience with them the more they lean on you and so whereas we're reaping those benefits with the growth of VHS and saw that as I mentioned in the script.
Yeah.
Okay. Great. This is a tremendously helpful. Congratulations on a really great quarter and look forward to next time.
I can tell you its Michael.
As a reminder, that star one to be placed to do question queue. Our next question is coming from Doug Cooper from Beacon Securities. Your line is not a lot.
Hey, good morning, guys.
Because of this.
On the SG&A.
Mine.
In Q4, G&A was actually down versus Q3.
My Inbox sequentially now.
It's driven by.
Great.
I think it was 743.
And do you mean Q4.
Just remind us how many of those would be salespeople.
Uh huh.
Versus Q4.
And how do you typically.
Would it take Brazil, do we need to be productive.
Yeah.
And this quarter was.
And when do you expect them to be accretive.
Yeah, I think I got all that Doug its a little muffled, but in general probably about half of the staffing additions that we had during the quarter our sales related right now.
And I'll, let hoi kind of chime in on the cadence of when they are.
Become more productive and so forth, but the other thing is if you look at the first quarter over fourth quarter. When you come through a beginning of the year, especially a year, where we had as many new patients come on as we did commissions and bonuses and things like that where higher plus you're refreshing a bunch of things.
That cap out payroll taxes, 401, K contributions, so theres inherently going to be a little bit more pressure on the first quarter. Then there is the fourth quarter when things like that have already run their course.
Once again the piece of.
The commission based compensation was high this quarter, just because our sales team had a phenomenal quarter, especially or our last month of the quarter being March it was a record across all products. So that's probably the biggest part of the G&A driver, but once again as to your key question sales.
That's made up about half of the net adds yeah, and I would say to your question about how long does it take them to get started.
Isn't it.
Maybe two or three years ago, we were giving them up six months today, we gave them a lot about like six to nine months, because we've seen some late bloomers.
There were patient with them, we're offering them the right training and support but you know last year we were.
Commenting on the new areas I think we added 25, new net new areas just to give you. An example, we've hired 28 new hires to date year to date. This year. However, we've already lapped 17 from the previous year go not only I'd say, let him go where they usually.
Convert into a respiratory therapist offer support and we replace them at area with someone who might have better success in so.
That's the the tug and pull on on how we regulate salesforce, but where we're constantly trying to optimize and that's why I was commenting on optimization of the sales force and really you know getting the folks that aren't going to cut it out of there and training the new ones in.
So that's the that's the game that we constantly play that's what we're really good at and it's the ultimate driver of our success here and it will be for 2023, as well Hey, Doug I'm going to add one piece of information just if youre looking at it on a <unk> basis, because I think that that always makes a lot of <unk>.
And it's just it takes seasonality things out obviously, the first quarter always has a higher challenge with collections in insurance changes and all those things. If you look at it over last year, while the print might not look like we had margin expansion there was roughly $2 million of benefit last year between either the provider relief fund.
And or the Covid revenue. So we're on track we don't have it as a formal guided number but were out there, saying that we want to expand our EBITDA margins by somewhere between 102 hundred basis points. This year, while growing revenue whatever we grow it and we can say that on the core we did that during <unk> 23.
<unk> 22.
And Doug it's important to come back.
We're really having a lot of success finding our sales reps right now it's at the recruiting efforts, it's not about finding people, it's more about getting them up and running in the right way. So that's that's what we're focused on here.
And just to be just a couple of things.
Mr Hughes.
Right.
Ah patients.
The convention.
The New commission associated with that.
Uh huh.
Uh huh.
Once again, you kind of break it up a little bit but I think the question is you just pay it you only pay it in the first month of our that's our structure.
I'm sorry.
There's some background noise.
Hum.
Got you.
It's the same 99, 5% of net sales.
To match them.
Of course of the year.
Okay.
That should yes that definitely should and that's and if you look at it last year. The fourth quarter had the lowest which is also in line with us having posted the highest margins during the fourth quarter of last year.
And finally, just on the the Phantom shares.
Hmm.
I just didn't happen in Q.
Yeah.
Yeah.
Yeah, So we had.
Right around.
900000 in the fourth quarter it was actually $1 one during the first quarter of 'twenty three.
Mhm.
Okay great.
Congratulations.
Thank you man.
Thank you we reached end of our question and answer session I'd like to turn the floor back over for any further or closing comments.
Yeah, we want to thank everybody for listening in and calling in and follow up with US. If you have any other further questions have a good day.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.