Viemed Healthcare, Inc. (NASDAQ:VMD) Q4 2023 Earnings Call Transcript

Viemed Healthcare, Inc. (NASDAQ:VMD) Q4 2023 Earnings Call Transcript March 7, 2024

Viemed Healthcare, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to the Viemed Fourth Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Zehnder, Chief Operating Officer. Thank you. You may begin.

Todd Zehnder: All right. 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 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 today and the company undertakes no obligation to update or revise any forward-looking statements, except as required by law. The fourth quarter and year-end financial results 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.

Casey Hoyt: Okay. Thank you, Todd, and good morning, everyone. Welcome to our fourth quarter 2023 earnings call. I’m thrilled to share the exciting developments and achievements that highlight our quarter and overall year. First and foremost, I want to thank our Viemed family made up of over 1,000 healthcare professionals treating patients in all 50 states. Our people signify the collective strength, passion and expertise required to improve life. Each member of our team plays a pivotal role in our ability to enhance the lives of our patients and produce positive outcomes for physicians and payers alike. Our growing workforce fueled by our best-in-class HR department and staffing division enables us to extend our reach to a broader community.

The commitment to our employees is reflected in the investment we make in their development, well-being and job satisfaction. This fosters a positive work culture that separates us from our competition and is most certainly the cornerstone for our success. Moving on to the quarter. Perhaps some of the most significant work we accomplished in the fourth quarter was our efforts surrounding the restructuring of our sales force, recognizing the need for more localized training and management infrastructure, we reorganized the country to create a more regional and localized approach to help with training and work-life balance for our people. Our new structure, which launched in early 2024, and paved the way for multiple territory sales manager and National Sales directorship promotions.

This expansion and fortification of our team is driven by the vision of accommodating the growth trajectory of our organization. By leveraging the strength of our top-performing sales personnel, we are not only strengthening the leadership of our sales force, but also fostering a culture of excellence and continuous development. These leaders and trainers play a crucial role in shaping the capabilities of our team, ensuring that every team member is equipped with the knowledge, skills and motivation necessary to excel in their roles. After the restructuring, we finished the year with 106 sales territories with the current bandwidth to expand as needed to another 30. Our people are effectively empowered and even better equipped with the clinical experience and coaching to reach more patients than ever before.

At the heart of Viemed Healthcare’s operational efficiency as our proprietary clinical management technology, the Engage Care Manager. This innovative technology has revolutionized the delivery of respiratory care empowering our respiratory therapists to maximize their patient reach and significantly contribute to heighten patient satisfaction. Our technology captures sophisticated data demonstrating improved clinical outcomes and substantial cost savings becoming a linchpin in securing contracts and pilot programs. The ongoing VA pilot is a noteworthy initiative, showcasing the positive impact of our technology on shaping the future of respiratory care for veterans across the country. Behind the scenes, we continue to uncover more technological solutions that are helping to streamline our workflow processes.

Engage Care Manager has been adding more machine learning types of features that had the potential to really drive faster access to care for our patients and help by that improved reauthorization tasks. Furthermore, we are seeing a rapid adoption to the use of e-prescribing from our referral sources that help with our authorization and conversion rates. These technological tools are not only creating operational excellence for us, but are also improving efficiencies for our referral sources. All of our departments at Viemed are hyper-focused and empowered to utilize technological advancements that can contribute to our strong human touch offering in the home. Further contributing to this technological success are the advancements with the majority of our suppliers who have embraced connectivity to their devices, which in turn delivers data to our Engage Care Manager platform.

Particularly those who have emerged as new entrants into the market post the Philips recall. These direct and collaborative supplier partnerships are helping to control costs and improve quality. A key to our competitive edge lies in our software being seamlessly integrated across multiple companies. Ultimately, this integration strengthens our relationships with these manufacturers and enhances operational efficiencies and while streamlining processes. On the regulatory front, our reimbursement environment remains strong despite the expiration of the 75-25 blended rates. When combined with the CPI adjustments, we anticipate experiencing no net deterioration of average reimbursement rates. Importantly, should the 75-25 rate be extended through the legislation, we are poised to experience some potential upside.

The final rule for Medicare Advantage plans and other positive changes open the door for further growth of our services due to the payer expansion. With these positive regulatory shifts, we anticipate a noteworthy improvement in the behavior and compliance of Medicare Advantage payers. The increased transparency and accountability introduced by the final rule signal a transformative era fostering an environment where payers are incentivized to align with Viemed Healthcare’s commitment to delivering high-quality respiratory care. These regulatory changes act as a powerful catalyst not only for our financial stability, but also for our ability to extend our services to a broader spectrum of patients. As we gain clarity on the limited impact of GLP-1 drugs on the home medical equipment industry, specifically regarding CPAP usage, the available evidence suggests that initial concerns were significantly overstated.

The industry has shown resilience with no current negative impact on the Viemed sleep business. Our sleep business is growing faster than previous years with new patient rentals starting – with new patient rental starts indicating promising future resupply revenue growth, a real-world study conducted by ResMed revealed a modest increase in the adherence when CPAP users also take GLP-1 drugs, aligning with the industry observations. The industry remains proactive, addressing potential long-term pressure from GLP-1s by focusing on increasing awareness, reducing operational costs through automation and enhancing patient adherence and retention efforts. In 2023, our commitment to enhance the lives of patients and reaching a broader demographic became evident through a series of strategic initiatives.

We meticulously expanded our geographical reach, broaden our product offerings and diversified our payer mix, aligning our trajectory with the evolving needs of the healthcare landscape. An undeniable highlight of our strategic endeavors was the targeted acquisition of HMP, which was immediately accretive to net income and EPS, highlighting the effectiveness of our M&A strategy and integration capabilities. Subsequent to the acquisition date, we have also achieved a significant cost savings, resulting in improved profitability of the acquired operations. Primarily because of the sleep diversification that we accumulated through the acquisition, our total rental patient count is up 85% over the prior year, and our resupply patient count is up 205%.

While we actively pursue strategic acquisitions, our core strength and foundation for growth remains our robust organic engine. We continue to emphasize that for Viemed acquisitions are not a necessity but rather a thoughtful and complementary strategy to accelerate our success. With that being said, we continue to be actively engaged in multiple processes, analyzing strategic initiatives and partnerships that capitalize on our competitive advantage as a high-touch, high-tech clinical provider of home medical services. Our team does fully expect to incrementally grow inorganically through strategic JV partnerships and acquisitions in 2024. With more financial and operational updates on the quarter, I’ll now hand the call over to Chief Operating Officer, Todd Zehnder.

Todd?

Todd Zehnder: All right. Thanks, 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 $50.7 million during the fourth quarter of 2023 as compared to net revenues of $37.5 million in the fourth quarter of 2022, which equates to a 35% increase. Our sequential growth for the core business was 3%, which is a good sign that the integration of the HMP acquisition, along with our organic growth continued in line with our historical norms. Our revenue for the year ended December 31, 2023, came in at $183 million, which is a 32% increase over 2022. We continue to stay optimistic that we will be able to continue our high organic growth rates as well as continue our evaluation of inorganic opportunities.

Our fourth quarter revenue from vents was approximately 58% of our revenue as compared to 66% in the fourth quarter of 2022. Our gross and EBITDA margins are still strong and improving as we are focused on both margin and diversification. We have been very successful in managing our cost structure this year, and it is showing in both gross and EBITDA contribution. As is typical, we want to point out the rapid notional growth of our margins but are also proud of the increase in the percentages over the last six months. Our gross and EBITDA margins during the quarter came in at 63.3% and 25.3%, respectively. Our fourth quarter gross and EBITDA amounts came in at $32.1 million and $12.8 million, respectively. Both gross and EBITDA margin and margin percentages grew sequentially and continues our theme of profitable growth, both organically and inorganically.

Our full year EBITDA for 2023 was $43.1 million, which is a new company record and we are really starting to see the advantages of building scale. While we don’t always comment on net income, I think it’s important to point out that this is our seventh consecutive year of positive net income marking profitable growth every year since our public formation. Additionally, we are at a point in our company lifecycle and revenue composition that free cash flow is really ramping up. During the quarter, we generated $5.4 million of free cash flow, and we generated over $19 million for the year. I will address capital allocation priorities later in the call. Our SG&A for the quarter totaled approximately $23.9 million as compared to $17.2 million in the fourth quarter of 2022.

For the full year, our G&A totaled $87.9 million as compared to $68.2 million during 2022, the latter of which did not include any HMP contribution. G&A as a percentage of revenue decreased from 49% during 2022 to 48% during 2023, which is another good sign that we are managing our G&A well along with effectively integrating the first acquisition. We will continue to invest in our patient and employee experiences and once again, expect to grow revenues at a faster rate than expenses. For the quarter, we invested approximately $7.9 million on capital expenditures. And once again, the highest amounts have been spent on vents and oxygen equipment. We continue to allocate capital across a diverse supplier network and once again have had no problems with procuring the equipment necessary to service our growing patient base.

As previously mentioned, we funded all of our CapEx with discretionary cash flow during the quarter and our core business is generating significant free cash flow after CapEx. We are very proud of the pristine balance sheet we maintained where we ended the quarter with a cash balance of $13 million. Additionally, we ended the quarter with an overall working capital at $6 million. We’ve paid down all the $2 million on our revolver facility and have lowered our long-term debt at December 31 to approximately $6 million. We will opportunistically pay down or use the revolver portion of our credit facility depending on the needs of cash resulting from additional organic growth or future inorganic opportunities. The end of the year gives a great time to step back and analyze the performance of a business.

We are very proud of the organic growth that we exhibited and are extremely pleased that we augmented that with a very complementary and significant acquisition. Additionally, we have remained profitable, further diversified our business, and continue to generate very solid liquidity. We continue to grow the amount of revenue that is transactional and are confident in our ability to generate free cash flow, giving us flexibility as we continue to monitor our capital allocation. On that front, our capital allocation opportunities are similar to last quarter, and we will reiterate that our organic growth is the highest priority. Like last quarter, we used free cash flow to pay down on our revolver, and we’ll continue to do so unless we transact on another inorganic opportunity.

Lastly, we will actively monitor our share price and other factors to determine if another share buyback would make sense to be implemented. Moving on to the first quarter, we have provided net revenue guidance in the $49.7 million to $51 million range related to our core business. The midpoint of our net revenue guidance is up 27% over the core revenue in the first quarter of 2023. The first quarter brings the seasonality of patients changing insurance carriers, more significant reauthorizations and deductible resets, but we are very pleased with how the first quarter new patient setups are trending across all of our product lines. We remain active in our discussions with existing and potentially new investors and our recent voluntary delisting from the TSX has consolidated our daily trading volumes on to the NASDAQ.

We have seen our U.S. institutional ownership increase over the last couple of months. We continue to participate in institutional investor conferences and plan on attending two more during March and April. We remain excited about telling our story of growth and see the current market as an opportunity to attract new investors. At this time, I’m going to turn it back over to Casey to wrap things up.

Casey Hoyt: Okay. Thank you, Todd. After looking back on Viemed’s journey, I was reflecting on some of the financial milestones our company has achieved. Since our initial public listing, we have grown adjusted EBITDA to nearly equal the total revenue for this spin out year in 2017. Along the way, we have achieved this incredible growth while doing so as a profitable company in every single year. Viemed’s financial success and consistent track record is a testament to the resilience strategic acumen and unwavering commitment of our entire team. The aging population continues to be a significant factor in our industry dynamics. Simultaneously, technological advancements and increased awareness for shaping the adoption of our specialized home medical services.

We believe the home medical equipment markets hold promising opportunities for continuous expansion, and we stand ready to leverage our expertise in navigating this landscape. The fourth quarter of 2023 stands as a testament to Viemed Healthcare’s unwavering dedication to excellence in growth. Our growth is propelled by strong relationships with suppliers, seamlessly integrated proprietary technology and a commitment to innovation. The Engage Care Manager, our innovative clinical management technology exemplifies our dedication to operational excellence, providing transformative benefits for our respiratory therapists and enhancing patient care. The expansion in the new geographies, diversification of product and payer mix and targeted acquisition initiatives underscore our commitment to reaching more patients.

In closing, Viemed Healthcare enters the future with confidence, guided by a resilient team, a strong financial foundation and a commitment to delivering exceptional respiratory care. The positive regulatory environment supports our growth initiatives, allowing us to strategically strengthen our sales force and make investments that position Viemed for sustained success. As we build towards the future, the strategic addition of leaders and trainers, coupled with our commitment to exploring innovative partnerships reflects our patients- reflects our dedication to not just keep pace with the industry but to set new standards of excellence. As we look ahead, the path is clear for Viemed. We will continue to expand our footprint and refine our offerings.

The combination of these activities, coupled with our ability to track our success translates into an unparalleled ability to drive value for payers. We thank all of our shareholders who have placed their trust in Viemed and look forward to telling our story to more shareholders as our company continues to expand across the country. This concludes our prepared remarks. Thank you, and we’ll now open up for further questions.

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Q&A Session

Operator: [Operator Instructions] And our first question comes from Brooks O’Neil with Lake Street Capital Markets. Please state your question.

Brooks O’Neil: Thank you very much. Good morning, guys. I thought perhaps I had jumped on the wrong conference call when I heard Casey talking about all that high-tech stuff, but it’s pretty impressive.

Casey Hoyt: Yes, very excited on our technology advancements. But what’s your question, Brooks?

Brooks O’Neil: All right. So my first question, I’m just- I hate to betray my ignorance here, but give us just a little background on the 75-25 blended Medicare rate? How much impact do you think that might have add in 2023? And from what you’re seeing in terms of the outlook for 2024. It sounds like might go at.

Todd Zehnder: Yes, Brooks, this is Todd. I’ll take that one. During the- there were several concessions obviously made by CMS during that time. And one of them was to give some rate relief to former competitive bid products. So when we’re talking about it, it specifically relates to- in our stance, it relates to the sleep and oxygen business. And long story short, they had given rate relief by making it a little bit less weighted towards the competitive bid area rates and more to the rural rates. So with the expiration of that and it really comes down to the only way it’s going to get brought back is through a congressional bill, I guess, on the budget that would give us the relief. It has now gone back to former rates. I don’t have a 2023 number, but what we can tell you is it’s roughly about a $3 million impact on an annual basis to our company for 2024.

You can think about it at $750,000 plus or minus for the first quarter that we are not factoring in. I mean we have lowered our guidance, assuming that is not going to happen. So it’s not super material but something that we would much rather have these higher rates because it’s a value-added service for these people in those smaller cities around the country.

Brooks O’Neil: Sure. That’s extremely helpful. I really appreciate that color. Let me just ask you this. It sounds like things just broadly are going well. I know that in over the last several years, maybe RT availability has been a bit of a headwind. How are you feeling about that situation today?

Casey Hoyt: We’re not seeing any holdbacks on finding our RTs right now. The staffing division is pretty much clicking on all cylinders from finding our folks. I think what I’m talking a lot about in the script about the restructuring of the sales force and what’s interesting is that we’re have support more clinical support behind our head sales folks that are really developing into veteran productive areas. And so just the landscape of the type of personnel, the type of RT that we’re looking for has evolved a little bit. It’s more of your support role. But we still look for our sales roles as well, but not having any issues trying to finding our respiratory therapist at this Tom, to answer your question.

Brooks O’Neil: All right. That’s great. Let me just add a little technical question about my model. I noticed that the tax rate this quarter was a little bit higher than I have been modeling. Is that a rate somewhere in the very low 30% range that you think is likely to play out in 2024?

Todd Zehnder: I think it will probably go back down some, Brooks. I think this had to do with some permanent differences, and I’ll probably reserve the right for you to talk to Trae later on. But I think it has something to do with some permanent differences that we had to take the expense forward during the fourth quarter really related to future periods.

Brooks O’Neil: Okay. Well, that’s very helpful. I think that does it for me. I’m excited to hear about all the progress and the opportunity and the incredible results you delivered last year. So I know ’24 is going to be another great year.

Todd Zehnder: Thanks Brooks.

Operator: Our next question comes from Doug Cooper with Beacon Securities. Please state your question.

Doug Cooper: Good morning, guys. Congrats on another nice quarter. I just want to talk about organic growth. By my calculations, I guess, excluding the impact of HMP organic growth year-over-year in quarter four was about 16%. Is that in the ballpark?