Earnings Call Transcript - VMD Q1 2021

Operator, Operator

Greetings and welcome to the Viemed's First Quarter 2021 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce Chief Operating Officer, Todd Zehnder. Thank you. You may begin.

Todd Zehnder, Chief Operating Officer

All right, thank you, Daryl. 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 refer 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 our forward-looking statements. Examples of such risks and uncertainties are discussed in our disclosure documents filed with the SEC or security regulatory authorities in certain provinces of Canada. Because of these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The forward-looking statements made in this conference call are made as of today and the company undertakes no obligation to update or revise any forward-looking statements except as required by law. The first quarter financial news results and related financial statements are available on the SEC's website. Now I will turn it over to Casey to get things started.

Casey Hoyt, CEO

Okay. Thank you, Todd. Good morning, everyone, and thank you for joining our call today. As customary, I'd like to start my comments with an acknowledgment of our Viemed family and express my deepest gratitude for their passion for our mission. Our people are the foundation of every successful metric within our business and I remain humbled and blessed to be at the helm of this organization. The focus on safety, persistent messaging to our referral sources, and commitment to superior patient care has not wavered once with our team, despite working through many challenges posed by this pandemic. This morning, I'll focus my comments on how we've experienced an abrupt trend to new patient growth in the last month of the quarter which we believe is signaling we are nearing an end to the pandemic access challenges. We'll also talk about the various investments and product line sectors that are contributing to growth in our core business. Lastly, I'll refresh and update everyone on the current stability of the regulatory landscape and will offer our perspective on how it will contribute to our growth strategy. First, let me provide an update on the core business. January and February of 2021 were some of the toughest months we've experienced in Viemed in many years regarding our core business. We saw the pandemic peaking in January and February, similar to the peak in April and May of 2020. The impact of this kept patients in their homes, reluctant to leave the house to address their healthcare needs. Most physicians were spending the majority of their practice time treating COVID patients in the hospital, and most facilities continued to severely limit access to outside companies. Furthermore, we also literally had to weather the storm, that being the ice storms in the southern region of the country that left many of our patients without power, forcing them back into the hospital to receive care. Despite these major challenges, we still achieved growth in the quarter of 19% over last year's pre-pandemic and pre-ice storm first quarter. We have expanded our coverage area to 45 states and started up 15 new territories by hiring 15 new representatives through April. This execution is on pace to hire 60 new representatives throughout 2021, which is the goal that this is the baseline to driving our organic growth. We also expanded our Home Sleep Delivered, sleep apnea business into six new areas which is another new growth initiative for 2021. The HSD representatives are a separate team of reps that specifically focus on home sleep testing, PAP therapy, oxygen, and remote patient monitoring. Their call points are typically cardiologists, internists, and family physicians. Most of the early success with VIEW, our remote patient monitoring platform, has come by way of the HSD representatives. We now have approximately 400 patients in the Veru platform utilizing scales, blood pressure cuffs, glucometers, and pulse oximetry devices to monitor these physiological indicators within these patients. Physicians are actively receiving billable codes from our care team and their offices are billing for the monitoring of these patients. As a result of the RPM offering, our physician referral sources have naturally sent more sleep apnea patients our way. We are optimistic about this new trend and will continue to place more HSD representatives around the country to expand both RPM and our Home Sleep Delivered model. We are equally pleased with the other arm of our technology platform, ENGAGE, which is currently being deployed nationally to all new patients being placed on ventilation. Our metrics are showing improved RT workflows and efficiencies, as well as improved compliance with these patients we serve. As we've mentioned in the past, the ENGAGE tablet acts as a hub in the home to connect our RTs to the ventilators. We can now see alarms, leaks, and indicators that allow RTs to intervene with care sooner rather than later. ENGAGE also has a telehealth feature allowing the patient and RT to have a face-to-face interaction in a safe and efficient manner. We also added a new feature to ENGAGE in the first quarter called Clinician, which allows the physician to have a portal where they can remotely tap in and have a real-time look at the care delivered to their patients. The sales force is currently being trained on the features of ENGAGE, and we expect this to be another strong sales feature that will substantially differentiate us from the competition in 2021. Our other new conversation with physicians has been about our behavioral health offering called Viemed Clinical Services. The VCS team has hired and trained licensed clinical social workers in six new areas. Many hospital systems have a strategic focus on helping prepare patients for the end of life, with these conversations being really tough for the physicians to have. Our VCS team has proven that we serve as a nice complement for them to carry this conversation forward and give the patient and their family a next level of care. This is going to uniquely differentiate us from the competition. Our behavioral health workers have proven that they can help us retain more patients on vents, contribute to new core business, and help drive more hospital partnerships. We are actively recruiting to hire these social workers throughout our 45-state coverage area, and through this, you have another new offering that will help grow and differentiate our core business for years to come. Perhaps the best news of the quarter is that most of the growth was captured in the month of March, our busiest month since COVID-19 for new patients. The spread of the vaccine throughout the country has driven patient security and confidence to see their physicians again. This pent-up demand from patients needing to address their healthcare concerns has led to facilities opening up their doors to home care clinicians with solutions that help free up hospital beds. For the first time in a year, our core business is showing signs that we will soon be growing at our normal pre-pandemic growth rates. We are encouraged by this new trend, especially since we have so many new offerings to review with physicians and patients in the years ahead. On the acquisition front, we have been exploring multiple data rooms and learning a lot about several companies that could help springboard our patient growth. We are uncovering many synergies that relate to product mix, payer contracts, and further to patient diversification. Our strategy is to look for accretive companies that come with strong human resources to help us carry our Viemed initiative forward at a faster rate. The companies we are evaluating are medium to large sizes and are in areas where we have a geographic coverage gap. Acquisitions have not been part of our strategy in the past, but with the new regulatory stability and our M&A team in place, we will make acquisitions a meaningful part of our expansion in 2021 and beyond. The regulatory landscape has never been more stable since Mike and I founded the business back in 2006. As we have commented on in the past, non-invasive ventilation was eliminated from CMS 2021 to 2024 competitive bidding round in May of last year. Furthermore, CMS presented data that showed many products including oxygen and CPAPs were also not going to realize savings and, therefore, moved to remove all of our products from this competitive bidding round. Recognizing the advantage of needing more home care suppliers, CMS also created innovative waivers supporting access to more home care while offering legislative relief from the 2% sequestration. These moves by CMS give us confidence and reimbursement stability to 2024 and possibly beyond. Todd and I have been highly active in creating awareness about the regulatory landscape to our investors to help better explain why we think the stage is set for exponential growth. To help provide further detail on our capital market strategy, operational initiatives, and a review of the financials, I'll turn the call over to our Chief Operating Officer, Todd Zehnder. Todd?

Todd Zehnder, Chief Operating Officer

All right. Thank you, Casey. In reviewing the financial results, all figures are in US dollars and the full results have been made available on the SEC website as well as SEDAR. Our core business generated revenue of $25.5 million during the first quarter of 2021 as compared to net revenues of $22.8 million in the first quarter of 2020, which equates to a 12% increase. As previously discussed, this is a slower growth rate than our normal quarter, primarily due to the latest COVID spike in January and February. In addition to the weather issues that impacted us during the quarter. During the first quarter we generated approximately $2.9 million of equipment and service revenue from the ongoing COVID-19 pandemic. The COVID-related revenue has once again come primarily from contact tracing services and sales of PPE. When comparing total revenue, including COVID sales, our first quarter 2021 revenue was up 19% over last year's comparable quarter. Our margin percentages, both gross and EBITDA continue to fluctuate as COVID-19 related product sales during the current year skew comparability. However, we once again posted very strong margins during the quarter. Our first quarter gross and EBITDA amounts came in at $17.7 million and $5.5 million, respectively. Our diversification efforts have continued to pay off as our first quarter revenue from vents was approximately 81% of our core revenue, as compared to 84% in the first quarter of 2020. Our SG&A for the quarter totaled approximately $14.5 million as compared to $10.6 million in the first quarter of 2020. Our stock price increase of approximately 30% had an impact on our first quarter G&A due to the mark-to-market of our phantom stock, and we expect that our G&A will remain relatively flat this year. We had another successful year of hiring and are continuing to invest in new ways to achieve world-class growth. We've previously proven that our historical investments such as technology, marketing, and payer relations pay off when needed most. Our current investment in Viemed Clinical Services and the M&A team will have a positive impact in our coming years of growth. We will continue to support these world-class investments to stay ahead of ways to outperform the market from a growth standpoint. We reported an income tax benefit during the quarter as a result of the timing of reporting some permanent differences. We expect to report income taxes in the future as more fully described in our financial statements. Our balance sheet was strengthened organically during the quarter with approximately $31.1 million in cash at quarter-end, $13.3 million of accounts receivable, and an overall working capital balance of roughly $26.4 million. We have once again grown our liquidity during the current quarter and continue to position ourselves to grow both organically and inorganically. Our long-term debt is approximately $6.1 million and being serviced with operating cash flow. By focusing our company on returns, we have grown strategically and maintained a low leverage profile to remain opportunistic in the ever-changing business climate. We remain perfectly positioned for rapid growth as we expect to come out of the COVID pandemic over the next few months in existing and new regions. We have developed plans of opportunities regarding inorganic growth and have begun to build out a team to help evaluate and ultimately integrate down the road. Our mission aligns us with many other respected healthcare companies and we remain confident that we'll find something to augment our historically high organic growth rates. Moving on to the second quarter, we have provided net revenue guidance in the $26.2 million to $27.2 million range related to our core business and have also guided approximately $0.5 million to $1 million of revenue related to COVID-19. Our organic revenue is projected to grow 3% to 7% sequentially and is up 13% to 18% over the second quarter of 2020. Our new patient setups are gaining momentum and we are confident that they will only get better with each passing month. The COVID revenue is primarily related to the contact tracing work that we have continued through April, but as the pandemic has moved into another phase, those services have wound down. We're looking for ways to assist various states and healthcare systems such as vaccine tracing, but remaining excited that as this pandemic revenue is slowing, our core business is getting back to our expectations. On the investor relations front, we have once again presented at more online sell-side conferences during the last quarter, along with many non-deal roadshows. Our institutional investor interest continues to grow as the sector remains exciting amidst new public players and an environment that is right for treating patients effectively in the home. We once again are bullish on the growth opportunities for our company and our shareholders. At this time, I am going to turn the call back over to Casey to wrap things up.

Casey Hoyt, CEO

Okay. Thanks, Todd. In summary, the trends of 2021 are already exhibiting this to be a year where we see patients, referral sources, hospital systems, payer sources, and lawmakers valuing more home care. All parties are connecting with the mortality benefit, cost-effectiveness, and readmission efficiencies realized in the home care setting. Our recently published study in the Respiratory Medicine journal, which can be found on our site, supports this statement. Surrogates for healthcare costs have always been ER visits and hospital admissions. Our data exhibits that for every 5.5 patients we put on therapy, we save a life. For every five, we save an ER visit and for every 8.8, we save a hospital admission. These facts can no longer be debated and finally offer published proof about the good that we've been doing in the home. The pandemic helped our management team realize many financial opportunities which contributed to our current healthy cash position. COVID also allowed us the time to really focus on finalizing our technology investments, further developing our training and recruiting protocols, delivering our behavioral health offering, amongst other initiatives. All of these components we are creating are essential as payers and hospital systems look for partners who can provide awareness into actionable data insights. I feel strongly that the time is now to capitalize aggressively on both inorganic and organic growth opportunities for this business, and we would hope the investment community feels the same. Our patient-centric mission has always been the reason we uncover new opportunities, and we will continue to let the patient-first focus be at the forefront. I personally want to thank my team once more for their continued commitment to Viemed, and I would also like to thank our fellow shareholders for their trust in us as we work hard to be good stewards of their investments. This concludes our prepared remarks and we will now open up for Q&A.

Operator, Operator

Our first question comes from Brooks O'Neil with Lake Street Capital Markets. Please go ahead with your question.

Brooks O'Neil, Analyst

I have a couple of questions. I guess I'd like to start with, if you could provide any more specific or numerical color on the progression through Q1 and into the beginning of Q2 in terms of what your growth rates were, that would help us get a better feel for what you've seen in the marketplace.

Casey Hoyt, CEO

Yes, I think the best way to think about it, Brooks, is the number of new patients we're bringing on a monthly basis. To categorize it, we would say that the months of January and February were as low as anything we had seen since, I guess, April-May of last year where we were probably admitting maybe 60%, 65% of our pre-COVID new patients on a monthly basis. In the month of March, we were right around 90% of pre-COVID numbers. So a pretty dramatic comeback, and it looks like those trends are staying pretty consistent in April. So that's just a good sign that things are opening up around the country.

Brooks O'Neil, Analyst

Secondly, I think Casey used the words medium to large in regard to potential acquisitions. And I'm hoping you guys might kind of frame that up for us in terms that we can get our arms around in terms of whether you are thinking about a $2 million acquisition, $10 million, $50 million, $500 million, how are you thinking about it?

Casey Hoyt, CEO

Well, I will say that we're not interested in doing about 10 acquisitions that are $2 million. Brooks, while I don't have an exact number to throw on medium to large acquisitions, we are really focused on finding quality companies, less of your fixer-upper, if you will, more quality management teams that are in place that can carry our Viemed mission forward. We can introduce them into our technology platforms. We can leverage some of their payer contracts that are in place and areas that we are not currently serving. I’d rather not just talk about what that number is, because we're looking at so many different shapes, but I'd rather a larger acquisition than a smaller one; that's our preference.

Brooks O'Neil, Analyst

And then I mean just a little color, obviously, you're not announcing any transactions today but from your perspective, are you pleased with what you're seeing in the marketplace in terms of pricing for these acquisitions? Are you shocked but willing to go to where the market is? What are you seeing out there?

Todd Zehnder, Chief Operating Officer

I mean, we're not seeing enough to provide a ton of color, but I think that the environment is one in which, you know, this isn't a low single-digit multiple type world and we're going to be looking at things that are important to us. We're not just, like Casey said, going to do a bunch of little things that we can buy at 4 or 5 times, that's not what we're focused on. So I don't think we're surprised, because we watched some of our peers be very acquisitive, and we're watching what it takes to be in the game, I guess. So nothing has necessarily surprised us yet, but we're also not at a point where we have one teed up either.

Brooks O'Neil, Analyst

And then I'll just ask one more. Obviously, you didn't say anything about the VA, but it's still an area of, in my opinion, immense opportunity. Is there any progress you can comment on with the VA and maybe do you have any line of sight to when you might see some decent revenue from that source?

Casey Hoyt, CEO

The VA pilot study is still ongoing, Brooks. So there is no real major update from the last quarter so I didn't put it in my prepared remarks, but it's moving forward. It's probably going to take us 6 to 12 months to really generate some real data that they can prove out, and then from there, you have to think about the national rollout. So it's hard to think about when we're going to realize that VA revenue and that's why I'm just talking a little bit less about it; I really want to get through this pilot program and then kind of reset with these guys on what the strategy will be for incremental revenue. I agree with you one hundred percent, and we're not giving up by any means. This is a huge opportunity with the VA being the second-largest payer in the country and not servicing COPD patients on an NIV; it's a major, major opportunity. It's slow-moving and requires a lot of effort for our company. But we are taking the necessary steps to move forward with this VA pilot study.

Operator, Operator

Our next question comes from the line of Anton Hie with RBC Capital Markets.

Anton Hie, Analyst

Glad to see some improvement in the trends from month to month, and that's continuing on into April. Is there any kind of one factor that you can address that may be driving those new patient starts to improve so well? Is there one way to kind of characterize that?

Casey Hoyt, CEO

It's access—access to our physicians, access to hospitals—that's been the biggest driver of new patient growth. So much of what we do, Anton, is related to preventative measures, getting proactive maintenance with the patient, if you will. So it's educating the physician on the front end to look for these patients sooner rather than later. Don't give them to us when they're on their deathbed; let's drive quality of life by diagnosing immediately. Our data shows that they are three times more likely to die in the first 90 days after diagnosis. So that's another driver of why we need to get out there and be progressive. But it's simply access now; we can have the conversation, and we can start to make it top of mind for the physicians to move quickly. The second piece of that is really the patient and consumer confidence to get back and take care of their health; they are now willing to go into the clinic and hospital to address their concerns because they’re vaccinated. As we see the vaccine spread throughout the country, that's really driving patient confidence for them to get back in there and help themselves.

Anton Hie, Analyst

It was glad to hear you, well, okay, so the margins came in quite a bit lower than we were expecting. Is there any reason—obviously, you had some top-line headwinds— is there any reason margins can’t get back well above 20% pretty quickly as you're seeing the new patient counts come in? And then together with that, you mentioned G&A should be flat; I kind of understood it that way. Can you help to kind of rectify that? I would imagine your T&E and some of your discretionary spending may ramp back up as things normalize. Can you help rectify those two items?

Todd Zehnder, Chief Operating Officer

Yes, I think your EBITDA margins will be back to normal for the rest of the year, and that's going to immediately come back to us. I think G&A, we said it's going to be flat for the rest of the year for Q2. It very well could be down some, just like we've had last year. I think it was in 3Q when it was underneath what 2Q came in. We are going to have less phantom expense in the second quarter than we did the first, but you're right, we're going to have some other initiatives as things are ramping back up, and we've hired some people in VCS and we've built out this M&A team. So I do think that, I guess in long and short, expect margins to go back up. We're going to keep driving those up, both top line and the middle part.

Anton Hie, Analyst

And then one more quickly. It seemed like last call, we were talking more about oxygen rollout kind of nationally. Where are you seeing those? And I believe that's mostly just POCs. Where is the demand headed in that? Are you seeing any slowdown as COVID winds down or the opposite effect, or are you seeing more of those patients move over to more chronic states, where they stay on your patient census longer? And then I'll hop off.

Todd Zehnder, Chief Operating Officer

So O2 is still on a national rollout, and it will be our fastest-growing product of the year. As it relates to COVID, we have gotten some COVID business that is more short-term because your COVID patients aren’t your long-term patients, and that's fine. We are there as a resource to serve for our physicians and patients. But the national rollout since the POC was pushed around comes with the stationary units as well so it's both products. It’s going very well; we are investing more resources in our back office into our sales infrastructure. There is no reason that oxygen won't be a huge growth driver for the company for years to come.

Operator, Operator

Our next question comes from the line of Antonia Borovina with Bloom Burton.

Antonia Borovina, Analyst

My first question is related to some of the questions that were already asked, but can you give us a sense of some of the growth or can you give us a sense of what proportion of the growth in cancer patients that you're seeing in March is related to pent-up demand? Because you said some of the patients were apprehensive of going into the clinics versus new contacts with physicians and referrals coming out of that.

Casey Hoyt, CEO

I would say that a heavy portion of it is coming from pent-up demand just meaning that folks have been cooped up in their homes, waiting for the time to get back in, as well as waiting for their physician to get back to work as many of those pulmonologists were pulled into the hospital systems to work with COVID-19 patients. Now, they’re finally able to get back into their normal routine. I don't have a number for you, Antonio, but it's got a lot to do with pent-up demand, and we're seeing more and more of that as we go through April as well. So that's, yes. I don't know if that answered your question, but I feel like that is primarily driven by the patients.

Antonia Borovina, Analyst

And then the average revenue per patient was down in first quarter sequentially. So can you maybe just provide some commentary on that?

Todd Zehnder, Chief Operating Officer

I don't know of anything dramatic, especially with other ancillary products coming in at a—I would say we're down 81% of our revenue coming from vents. I'll have to look into it. I haven't seen a massive decline there. I guess there is really nothing out there on vents specifically that would drive that number down. But we can look into it and get back to you, Antonio.

Antonia Borovina, Analyst

And then just finally about the behavioral service that you talked about. I'm just wondering if you can give us a sense or what the reimbursement landscape is for that kind of service.

Casey Hoyt, CEO

The reimbursement for the actual assessment can range depending on what type of visit it is, but it's something like between $70 and $80 each visit. And so, but it's less about the incremental revenue that the behavioral health screening itself will generate. It's more about how it will really help drive our core business in terms of vent pickup prevention whenever someone appears to be done with the ventilation for the wrong reason. We can kind of come in if the RT is struggling as Viemed's special forces, if you will. To have that tough conversation about the end of life and what's next and the reasons to keep the vent. The other piece is that these hospitals are really training physicians to be less of fixtures and more of coaches. They're really good at fixing things, but they struggle whenever it’s time to have the tough conversation about end of life. Offering them a solution where we can help them with that, it’s as easy as checking a box on their order form, and they're very inclined to take advantage of those services. It's just another value add that ultimately helps drive more vent business far. That's the reason that we're so excited about.

Operator, Operator

Our next question comes from the line of Nick Corcoran with Acumen Capital.

Nick Corcoran, Analyst

The first question just has to do with the Commonwealth Primary Care ACO. Can you give an update on that and whether there are any other ACOs in the pipeline?

Todd Zehnder, Chief Operating Officer

What was the first part of your question? Nick, I missed it…

Nick Corcoran, Analyst

Commonwealth.

Todd Zehnder, Chief Operating Officer

Yes, so Commonwealth is ongoing in Phoenix. We are taking care of patients, and it's one of the things we're learning more and more as we work with their care teams. The ACO has a care team that offers a lot of insight into which patients are candidates for our therapy. Thus, our folks are becoming more integrated, if you will, within the ACO to find these lists of patients that qualify for our care. It's almost like having a warm lead; we go out there knowing the patient has a diagnosis, which means they have a need. We visit with the physician and then we're able to get the patient on therapy. It's really, really nice to have access to that data, to where you can walk around with these warm leads. But it's no different than working a co-lead, if you will, so our process is pretty darn similar. We just have a big patient pool to work within.

Casey Hoyt, CEO

The second part, yes, the answer is we are taking those learnings and having discussions with other ACOs around the country. I find that the most important thing about having Commonwealth is that we're learning ways to work together, and we are having those discussions both locally and around the country as well.

Nick Corcoran, Analyst

Then a housekeeping question from me: how many salespeople did you end 2020 with and where do you expect to end 2021?

Todd Zehnder, Chief Operating Officer

We ended 2020 with around 60 and we're trying to double that for 2021.

Operator, Operator

Thank you. There are no further questions at this time. I would like to turn the call back over to management for any closing remarks.

Todd Zehnder, Chief Operating Officer

Yes, we'd like to thank everybody for their attention today, and please follow up with me for any follow-up questions that you might have. We look forward to talking to you in the future.

Operator, Operator

This does conclude today's teleconference. We appreciate your participation, and you may disconnect your lines at this time. Have a great day.