Viemed Healthcare Inc (VMD) 2021 Q4 法說會逐字稿

Greetings, and welcome to the Viemed Fourth Quarter and Year End 2021 Earnings Call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the conference over to our host, Todd Zehnder, Chief Operating Officer. Thank you. You may begin.

Right. Thank you, Diego. Please note that our remarks in this conference call may include forward-looking statements under the U.S. federal securities laws or forward-looking information under applicable Canadian securities legislation, which we collectively 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 forward-looking statements. Examples of such risks and uncertainties are discussed in our disclosure documents filed with the SEC or the securities regulatory authorities in certain provinces of Canada. Because of these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The forward-looking statements made in this conference call are made as of the date hereof, and the company undertakes no obligation to update or revise any forward-looking statements, except as required by law.

The annual financial result news release, including the related financial statements, are available on the SEC's website.

Now I'll turn it over to Casey to get things started.

Thank you, Todd. Good morning, everyone, and thank you for joining our call today. We are extremely excited to share the fourth quarter results, and discuss the drivers and trends that contributed to the record-breaking quarter.

Underlying the success is the dedicated team of respiratory therapists, behavioral health specialists, staffing professionals and administrative support staff who worked tirelessly to deliver the best-in-class care for our patients. By year-end, our Viemed family of employees grew by nearly 23% over the prior year. Our people are our greatest asset, and our success is always based on this foundation. We thank our team for their continued commitment and contributions to another exceptional year.

Moving on to some of the themes from the fourth quarter. We witnessed positive traction from our investments into our industry-leading service model during periods of COVID decline. Increased access to referral sources allowed us to demonstrate the evidence-based benefits of our high-touch, high-tech delivery model of home respiratory care. As a result, our growth trends during these periods indicate an incredible opportunity for post-COVID expansion. We are also seeing stabilization of several COVID related risk and uncertainties that have faced our industry over the course of this pandemic.

In response to supply chain constraints and shortages, alternative manufacturers have introduced a number of new products during the second half of 2021, which we believe, in many cases, are improvements over some of our previously available offerings. Our strong relationships with these supply chain partners not only allowed us to secure orders when many others in the industry were facing or experiencing shortfalls, but also created a foundation for securing resources to support our future expansion. At this time, we are not expecting supply chain constraints to be limitations on modeled growth.

As it relates to our specialized labor force, COVID-related obstacles appeared to diminish during the fourth quarter. We are now observing reduced pressures from the high paying short term opportunities that competed for our clinical staff during the year. As a result, clinical staffing levels remain healthy at year-end, and we are optimistically looking forward.

While we fell short of our hiring goal of 60 new sales reps at year-end, finishing at 49, it is important to note that we incrementally added 5 new areas in 2021, which contributed to our growth. Our goal for 2022 will be to be laser-focused on netting 20 new areas as opposed to setting a hiring goal. With our improved training programs developed last year, evolved middle management and a new recruiting platform inside of Viemed Healthcare Staffing, we are confident that we can achieve this 400% growth rate into new areas. We've proven that by aggressively growing our sales force. We continue to diversify the product mix in our portfolio of healthcare offerings.

In 2021, oxygen and sleep lines grew faster than any other line within the business, and we expect these trends to continue. In September, a national coverage determination was finalized by Medicare for oxygen, which will expand home oxygen coverage, and is now expected to reduce some of the administrative burden in the delivery of care.

Overall, many of the regulatory changes announced during the fourth quarter, provide a strong outlook for the industry. In addition to the margin stability created by the cancellation of the 2021 competitive bidding program by CMS, in December CMS finalized the CPI adjustments to the D&B reimbursement rates, resulting in an approximate 5% increase for 2022. Also in December, legislation was signed into law, which further extends the 2% Medicare sequestration. We believe that these positive trends and reimbursements will result in the critical role that we play in the delivery of healthcare inside the home. We actively support and commend our industry associations, which have been extremely active and a major driver of the positive regulatory changes for the industry.

As a result of our growth, we have generated significant cash flows, which enabled us to be strategic and deliberate with our capital planning and management. Volatility in the public and the private markets have created both opportunities and risks. We continue to perform careful and systematic evaluations of the prospects within our M&A pipeline. Ultimately, we aim for the deployment of our excess capital to be focused on long-term value and not for short term or near sided opportunities. In recent periods, our most significant opportunities to create strategic long-term value, came from internally generated investments.

We previously announced the formation of Viemed Healthcare Staffing, which is now fully operational and generating staffing resources for our own internal needs, as well as revenue-producing external projects. Additionally, our joint venture with Solvet Services is producing impressive returns. As a reminder, Solvet provides healthcare support for state and federal governments, including the VA and in 2021 resulted in $1.2 million of incremental income for Viemed.

We also believe that investments in our care delivery model are creating revenue synergies with our traditional revenue streams. For example, Viemed Clinical Services, our behavioral health division, with the help of Engage, our remote patient monitoring and telehealth platform, is contributing to a measured increase in NIV patient compliance, resulting in longer lengths of service, and measurable improvements in clinical outcomes. We also expect our stand-alone behavioral health revenues to grow over time, as the demand for these services continues to rise.

As we begin to see a trend towards returning to our historical growth rate in traditional product lines, we are incredibly excited to continue to innovate and expand our services to meet the evolving needs of patients.

With more on our operations, financials and the regulatory landscape, I'll now turn the call back over to Chief Operating Officer, Todd Zehnder.

All right. Thank you, Casey. In reviewing the financial results, all figures are in U.S. dollars, and the full results have been made available on the SEC website as well as SEDAR.

Our core business generated net revenue of $29 million during the fourth quarter of 2021 as compared to net revenues of $26.1 million in the fourth quarter of 2020, which equates to an 11% increase. Our sequential growth for our core business was 4%. We've once again seen solid growth in our major product lines being vents, PAPs and oxygen.

During the fourth quarter, we generated approximately $3 million of revenue from our other sources, primarily the vaccine and contact tracing revenue generated during the quarter with our established call center. We continue to serve as a resource for vaccine tracing, and will do so as long as our resources are needed. We have an established unit in place at this time, and we can scale up or down in a very short period. Therefore, we will continue to pursue opportunities in the future.

For 2021, our core business ended up at a record high of $108.5 million, a 12% increase over prior year, and our total revenue came in at $117 million. Our margin percentages, both gross and EBITDA, are once again very healthy, and are primarily influenced by our core business. As our product lines continue to diversify, there might be some influence on these margin percentages, but the notional growth is the main priority for the business. Our gross and EBITDA margins during the quarter came in at 62% and 30% accordingly.

Our fourth quarter gross and EBITDA amounts came in at $19.7 million and $9.5 million respectively. For the year, we generated $29.3 million in EBITDA, which funded our CapEx and bolstered our liquidity. The oxygen and PAP businesses continue to benefit from our national rollout and the ongoing PAP recall, and we are encouraged to see all of our major product lines continue to show organic growth.

Our fourth quarter revenue from vents was approximately 76% of our core as compared to 81% in the fourth quarter of 2020. Our SG&A for the quarter totaled approximately $14.2 million as compared to $12.3 million in the fourth quarter of 2020. Annual SG&A costs for 2021 and 2020 came in at $54.9 million and $52.8 million respectively. This is the last comparison to 2020 which had significant cost and volatility related to the COVID-19 pandemic.

We expect to continue hiring people to serve more patients around the country, and expand our organic growth model to new areas. The labor market has continued to be challenging, but it appears that the need for traveling clinical folks has somewhat abated as the recent variants have not had the draw to epicenters like prior variants. We continue to seek out superior clinicians and professional folks to help support our business.

For the year, we invested approximately $20 million on capital expenditures. The CapEx was spread across our vent fleet, our stationary concentrators and POCs, as well as our significant purchases of PAPs to support our sleep growth. The POC market is the only one of our major product lines that have seen some recent disruptions, but we continue to work through that with our major suppliers. We also purchased 2 other buildings that serve as our primary shipping hub and main location for our call center operations. As previously mentioned, we funded all of our CapEx with discretionary cash flow, and also strengthened the balance sheet during the year.

As we sit at year-end, we had a cash balance of $28.4 million, and an overall working capital of $29.5 million. Our total long-term debt is down to $4.3 million, which leaves us with an approximate 0.15x debt-to-EBITDA ratio.

We have once again grown the company and stayed very underleveraged, which gives us the tools needed to significantly grow the company through our organic efforts and inorganic efforts.

Moving on to the ongoing OIG and CMS issue related to our NIV claims. We are continuing to work with CMS and its contractors through the appeal process, to assess the medical necessity of the patients audited by OIG. We filed with the qualified independent contractor known as QIC, in the fourth quarter, and are awaiting their review of these claims. We are hopeful that this round will have more of an individual clinical review rather than adopting the OIG position.

As a reminder, due to the 4-year look-back window, the total exposure of this issue is approximately $9 million, but we do not believe this money is owed. Of the 39 patients that had issue, 15 of them have been detail reviewed by CMS and prior audits, and all of them passed complex medical review. The company has not accrued any liability related to this ongoing matter as it continues to believe these patients qualify for the CMS rules, and it eventually will be overturned to the appeals process, which includes reconsideration and ALJ, and will take some time to ultimately work through a final resolution.

During our ongoing discussions regarding this issue, we decided to attempt for the first time ever, to establish formulary rules related to NIV. Based on the most recent science that has been reviewed, we believe the proposed rules that we have given to CMS, will be seriously considered, and if adopted, could help increase patient access to NIV. We have just recently submitted our NCD reconsideration and look forward to working with CMS during this process.

Moving on to the first quarter. We have provided net revenue guidance in the $29.2 million to $30.2 million range, related to our core business, and have also guided approximately $1.4 million to $1.8 million of revenue related to the COVID-19 pandemic. Our organic revenue has guided up 15% to 18% over the first quarter of 2021. The first quarter of each year always has a high number of billing pools due to insurance reauthorizations and many patients changing insurance, but we are working through those in due course. The COVID revenue is related to the vaccine tracing work that we have continued to fulfill.

Also this morning, we announced that the Board has approved a stock buyback up to 5% of our outstanding shares, which totals approximately 1.984 million shares. As we have discussed in the past, we look at capital deployment across several different vehicles. With the pullback of our stock, the buyback has risen in the ranks of our opportunities. We still have the capital and the plans to grow aggressively with our organic plans, and are still looking at inorganic opportunities. However, our current valuation is at a level where we see significant shareholder value in the buyback. We will update the market as to our purchases, in our quarterly filings.

We have once again been visiting with current and prospective investors through industry conferences and non-deal road shows with our existing analysts and banking relationships. As always, we appreciate the ongoing support from both the buy and sell side during the year.

At this time, I'm going to turn it back over to Casey to wrap things up.

Thank you, Todd. There are a few points I'd like to reinforce in my closing remarks. First, the significance of our investments into behavioral health and staffing, tend to play a major role in our offerings for 2022. Aside from the current demand and track record of success with both of these service lines, our team views these divisions as clinical needle movers for our patients.

The improved access to clinicians at our staffing division has provided to our company and our referral sources, puts us into a position of strength, as we look to partner with larger health systems. On the behavioral health front, we are seeing how our patients are returning to their doctors as changed individuals with a more positive outlook on life, one filled with less anxiety, as they learn to live and cope with their disease in a healthy environment, resulting in less stress for their closest family members. These 2 onto services will help us broaden our scope of care for patients in the home.

Secondly, the challenge of disputing the OIG report may seem like our largest headwind on its face, but we consider it to be our greatest opportunity once we reach resolution. Our published data shows that, for every 6 patients we save an ER visit. For every 8.8, we save a hospitalization, and for every 5.5, we save a life. We know that a patient is 3x more likely to die in the first 90 days if they did not receive our care immediately after diagnosis.

Unfortunately, for the patients, we also know that we have a less than 5% market penetration number for the folks who qualify for our care in this country. Unclear guidelines are confusing government agencies on how to properly treat these patients, and ultimately are limiting access to care for the 95% of patients who need home ventilation. We need to get this right from a policy standpoint, and I am confident we will through the development of formulary rules through the national coverage determination.

And lastly, I'd like to reiterate that, we remain driven and committed to always doing what is right for the patient. We will continue to be laser-focused on solutions that will drive positive outcomes and savings, which will put us into position to be a premier provider in an ever-evolving value-based world. While today we are enabled by fee-for-service reimbursement offerings, we'll be in a very strong position and realize further value for Viemed in a value-based world.

For now, we will continue to evolve as leaders in disease management, clinical retention, recruiting, and patient satisfaction as these are the main contributors to our organic growth engine.

Thank you to all of our shareholders for your continued trust and investment into our mission. This will conclude our prepared remarks. We'll now open up for further questions.

(Operator Instructions) Our first question comes from Brooks O'Neil with Lake Street Capital Markets.

Congratulations on the finish for a great year in a tough environment. So I have a couple of quick questions. First, you gave us quite a lot of detail, but would you say that you're facing shortages of respiratory therapists out there? And was the shortfall in the sales hiring related to that? Do you think you can overcome it as we get into 2022?

Yes. I think the end of the year, December really locked us up pretty good on finishing the year strong. I guess, with the holidays, it was just kind of like a dry month for hiring, unfortunately, Brooks. What we're seeing in the first quarter is a return back to our normal growth through our hiring goals, if you will. And it's really -- I want to start talking about this in terms of netting new areas in 2022 and focus less on our sales hires, because what's happened last year, Brooks, is, we've evolved on how we hire these salespeople. There's different levels of sales folks. We have hunters, we have farmers, we have home sleep reps, we have behavioral health reps and so on and so forth.

So it's going to get very convoluted and confusing for you guys to track. We're just going to start talking about the net new areas that we have incrementally added, as we go forward. And that will be something that you guys can kind of wrap your brains around rather than tracking all these new hires.

Great. And I assume there's plenty of new areas that you can target as you go forward, to continue the strong organic growth you've demonstrated historically.

Yes, there are. I mean if you think about what we added last year, 5 new areas doesn't sound like a lot, but we added a lot of farmer type of sales reps into areas that we were already in. We're projecting that we're going to be in 20 new areas in 2022. So that's -- as I mentioned, it's a 400% growth rate, and we feel like we can bite that off just with the trends that we're seeing in Q1, which we'll report on later.

Great. Fantastic. So I was talking to a friend of mine over the weekend who is involved with a ventilator company. And he told me that ventilator sales are pretty soft right now. Is that what you're seeing? And do you view that as an opportunity? Or is that just sort of the ebb and flow of the business that goes out there?

It's not what we're seeing. We're seeing a return back to our previous historical growth rates, as COVID releases access or frees up access to our referral sources. I do consider that an opportunity if we have others out there that think that the ventilator market is soft right now. The only hiccup is we're still waiting on Philips to make a decision on the recall of the back of the Trilogy 100. That hasn't affected us. We've taken other measures to have inventory in place. But once that does occur, that will free up a lot -- some of our inventory that's on the shelf.

Great. And then the last question I had -- Historically, I used to think of you as a 25%, 30%, maybe even 35% organic grower. Do you think, as we move -- I mean, assuming we're moving past Omicron and COVID and assuming we're beginning to see normalization in labor markets and supply chain, is that a number -- a range you think you can get back to?

We always have wanted to be that number, and we've been facing a lot of headwinds, most of which you just now said. And so, assuming all those things go away, our intention would be to get back to that. We're a lot bigger company than we were before the pandemic. So just the law of bigger numbers becomes more difficult. But before the pandemic, we never really had an inorganic arm either. So, from an organic only, that would be a great goal. It's not our guidance. But I think between inorganic and organic efforts, we should definitely be able to get back to that, as things continue to normalize.

(Operator Instructions) Our next question comes from Prasath Pandurangan with Bloom Burton.

Congrats on the quarter. Firstly, as the business continues to evolve, what are some of the other operational metrics apart from the number of vent patients -- and you mentioned net new areas -- that would be indicators of sustained revenue growth? And do you plan to disclose them on a quarterly basis?

We will likely disclose how many new areas we are in, Prasath. It maybe not an audited number, so it might just be conversational. The other things that are starting to -- I mean, none of them have gotten to a point of a material nature to disclose. But when we talk about our other revenue sources, just the net number of oxygen patients, so the net number of CPAP patients on rental, or CPAP patients that are in the resupply program. Those are all important to us, but none of them have risen to a level of disclosure at this point.

I think the other thing that you will see that has a potential of becoming significant quickly is the ramp-up of Viemed Healthcare Staffing. And that will be -- as that continues to evolve and grow, hopefully, that will be a disclosure that we're making. We're just not at the point where the other revenue sources have become material enough to put those operational items in.

Got it. That's useful. And then second, looking at the cash portion of the SG&A number, is this a good one to assume on a normalized basis for 2022?

I think so. There is some volatility in there as far as our quarterly numbers -- but I think it has begun to normalize some. I mean, obviously, we're going to continue to grow our head count as we continue to grow our patient count, and you've seen that happen throughout the year. It's been a pretty consistent growth number. So just looking at it in total, I would expect it to go up some, but I would also expect at some time that our revenue growth will once again outpace our G&A growth as we're used to pre-pandemic.

Our next question comes from Doug Cooper with Beacon Securities.

Congratulations on a nice quarter. Just a question, Todd, on the EBITDA. If you strip out the COVID revenue, what was the EBITDA from your core business, from a margin or dollar perspective like?

Well, there were 2 things this quarter. If you take out the COVID piece, but you also have to take out -- I mean, it's part of our core business, but we receive provider relief funds, like a lot of people who work in the rural areas, and you'll see that in our other income amount. And that came in at a little bit shy of $1.5 million. So, I think if you exclude all of that, and obviously exclude the COVID revenue when you're doing that, we would have been kind of in the low 20s percent. I don't have an exact number in front of me, Doug. But the core business has consistently been running in the low 20s.

Okay. And just on the OIG issue. I think you stated on the call in the filing, $9 million would be the maximum penalty. Is there any -- let's just say it's resolved and even if you have to pay some money, is that like done? Like all patients now are compliant? There shouldn't be an issue going forward? Like this should be finalized and done with once it's settled one way or the other?

Well, I guess the answer to that is, we would say yes, because we don't think any of our patients currently that are on service are improper. But we also didn't think that any of the 39 at issue were improper either. So, I say the answer somewhat bullishly, but also that, I think, their position is very incorrect, which is why we've been so vocal on our opposition to it.

But with that said, I think the most important thing is, we have now been engaged with CMS. We continue to do more research on the effects of NIV, and we're hopeful to publish another study here within the next couple of months, that will show some new benefits and some cost information that's pretty intriguing. If we're able to come out of this with, whatever we resolve with the OIG issue, when we come out with an NCD, that will be the single biggest, I guess, win for not only Viemed, but the patients who benefit, and the entire industry for that matter.

Yes. It's remarkable, I look at -- this sector used to trade basically 8x to 12x EBITDA kind of thing, and as of yesterday's it's close -- you're trading 3.5x --

Correct.

Owens & Minor took out Apria, I think it was around 7% or 7.5%, which I would have thought would be at the sort of bottom of the range. What do you attribute to -- I mean you guys aren't the only ones who are trading 3.5x, obviously, at opt Health and some of the other ones have had issues as well. What do you attribute -- the complete collapse in the valuation of the sector?

Doug, there's more people out in the markets that are better at valuations than we are. We focus on treating patients and growing our business profitably, and that's what we're doing. We disagree with where the multiples are. I don't really know exactly why this sector has come down. But when we see the pullback, it's why we authorized the buyback, because it's an unrealistic multiple in our opinion. The business is growing organically at a significant rate once again. And we do it profitably, and we do it by building liquidity. So there was no better use of our proceeds right now than to start buying it back.

I would assume that healthcare coming out of COVID has changed. People are looking at it. Everything is different on the backside of the pandemic. But as to why our sector has a lower multiple versus where it was pre, I don't have a good enough answer for you on that.

Is inflation, is that -- what would -- the impact of inflation continues to be prolonged and elevated. What's the impact of that on your business?

Well, it's twofold. One is that the cost of our services -- our -- cost of our products will go up, obviously, with supply chain issues and so forth, and we've seen some of that, although not drastic. The labor cost, like everybody is seeing, has gone up some. But the nice thing is that the Medicare rules have a CPI adjustment. So we look at inflation on a trailing basis, but all this inflation that we're seeing this year, likely pushes a nice rate increase for at least the Medicare piece of our business in 2023. Casey alluded to it in our comments. I think the exact number was 5.1% or 5.4% related to this year. And as we all know, the inflation was starting to happen, but nothing like we've seen right now. So, it will push both revenues and expenses up, but I think the net impact should be okay.

Okay. That's great. And just one final one for me. Just sort of circling back on valuations. When you talk -- when you're looking at inorganic growth opportunities, what is the valuation expectations of the private codes, I guess, or what you're looking at? Are they still -- I'm just wondering, obviously, you're at 3.5x. Are the private guys still looking for 5x or 6x?

Well, they're looking for higher than where we're trading, and it's hard for us to step out with where our stock is. So that's why we instituted the buyback. So, where we've seen lately is above -- even where we were trading 60 days ago, which was probably 4x or 5x is what people are expecting. Now, like you said, there was a very large transaction last year that has the benefit of scale that came in at $7 million. So that -- we're not sure where the top is, but we're not going to go chase those multiples with our equity trading where it is right now.

Our next question comes from [Ed Soba] with [Spartan].

Good quarter. I'm glad to see you announced the share buyback with the balance sheet that's really stronger, and the share price which is super disappointing. Just on the share buyback, could you talk about how aggressive you plan on being -- A lot of companies announced share buybacks, but a year later, you look at it, and they bought like a couple of thousand shares. It's not really significant. So, I mean, I think from a balance sheet point of view, your shares are super undervalued. So I'd love your thoughts on that.

Yes. So, Ed, thanks for the comments. We agree. It is undervalued. We are regulated by a restriction on how many shares we can buy. We are executing this, at least the beginning of this buyback, on the NASDAQ. So we're regulated by a daily amount, which is up to 25% of the prior 4 weeks trading average. So as we sit here today, the number is plus or minus around 30,000 shares. So that's the maximum that we can buy.

Obviously, we can't talk about the exact prices that we're buying at. We will disclose that. But if you look at our -- we've only had this happen one other time, and I guess I would just refer you to that. We were pretty aggressive and we were pretty successful on buying them back in a very quick manner. So we don't want to say the cadence that what we're buying, but we see this as a very attractive price to buy. And if it's there for a period of time, you should expect to see us get some shares put back.

Okay. And just for a point of reference, the previous share buyback that you instituted, how many shares did you end up buying after a year?

I want to say that it was about 600,000 in the first quarter that we had it and then maybe a couple of hundred thousand. We probably got about half of it put away from the original. I don't have those numbers exactly. But I just remember, at that point, the stock really started taking off, and we just -- we ceased buying at that point. But I want to say probably about half -- 50% of the allocation was bought back.

Fantastic. Yes. I mean it's one of those things that -- yes, if the shares go back to $10, it's one of those things that keep -- and you see it all around, especially with this bear market. Let's be honest, it's a bear market, right? Well, a lot of shares are just suffering from lack of liquidity. So if the company has a healthy balance sheet, they can buy -- they can provide a support. And I think that gets other shareholders -- gives them a little more confidence too when they see the company in their buying with real money.

Sure.

Thank you. There are no further questions at this time. I'll turn it back to management for closing remarks.

All right. We want to thank everybody for listening in. As always, follow-up, and we look forward to talking to you guys in the future.

Thank you. This concludes today's conference. All parties may disconnect. Have a good day.