0001729149-19-000016.txt : 20191105 0001729149-19-000016.hdr.sgml : 20191105 20191105092223 ACCESSION NUMBER: 0001729149-19-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 75 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191105 DATE AS OF CHANGE: 20191105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIEMED HEALTHCARE, INC. CENTRAL INDEX KEY: 0001729149 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 000000000 STATE OF INCORPORATION: A1 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38973 FILM NUMBER: 191191948 BUSINESS ADDRESS: STREET 1: 202 N. LUKE STREET CITY: LAFAYETTE STATE: LA ZIP: 70506 BUSINESS PHONE: 337.504.3802 MAIL ADDRESS: STREET 1: 202 N. LUKE STREET CITY: LAFAYETTE STATE: LA ZIP: 70506 10-Q 1 q32019usgaap10-qdoc.htm 10-Q Document


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____

Commission file number: 001-38973
Viemed Healthcare, Inc.
(Exact name of registrant as specified in its charter)
British Columbia, Canada
 
N/A
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
 
 
 
 
202 N. Luke St.
Lafayette, LA 70506
 
(Address of principal executive offices, including zip code)
 
 
 
 
(337) 504-3802
 
(Registrant’s telephone number, including area code)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Common Shares, no par value
VMD
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐    No  x

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
 
Accelerated filer ☐
 
Non-Accelerated filer ☐
 
Smaller reporting company x
Emerging growth company x
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  x

As of October 31, 2019, there were 37,952,660 common shares of the registrant outstanding.





VIEMED HEALTHCARE, INC.
TABLE OF CONTENTS
September 30, 2019 and 2018

 
 
Page
 
 
 
 
 
 
 
 
 
 
 






PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
VIEMED HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of U.S. Dollars, except outstanding shares)
 
Note
 
At
September 30, 2019
 
At
December 31, 2018
 
 
 
(Unaudited)
 
(Audited)
ASSETS
 
 
 
 
 
Current assets
 
 
 
 
 
Cash and cash equivalents
 
 
$
12,630

 
$
10,413

Accounts receivable, net of allowance for doubtful accounts of $7,664 and $4,266 at September 30, 2019 and December 31, 2018, respectively
2
 
11,729

 
8,839

Inventory, net
2
 
1,266

 
2,887

Prepaid expenses and other assets
 
 
2,078

 
824

Total current assets
 
 
$
27,703

 
$
22,963

Long-term assets
 
 
 
 
 
Property and equipment
3
 
52,161

 
30,562

Other assets
 
 
17

 

Total long-term assets
 
 
$
52,178

 
$
30,562

TOTAL ASSETS
 
 
$
79,881

 
$
53,525

 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
Current liabilities
 
 
 
 
 
Trade payables
 
 
$
4,072

 
$
5,884

Income taxes payable
 
 
28

 
152

Accrued liabilities
4
 
8,600

 
7,551

Current portion of lease liabilities
5
 
8,767

 
3,031

Current portion of long-term debt
5
 
1,728

 

Warrant conversion liability
6
 

 
363

Total current liabilities
 
 
$
23,195

 
$
16,981

Long-term liabilities
 
 
 
 
 
Accrued liabilities
7
 
2,213

 
1,117

Long-term lease liabilities
5
 
2,813

 
394

Long-term debt
5
 
8,076

 

Total long-term liabilities
 
 
$
13,102

 
$
1,511

TOTAL LIABILITIES
 
 
$
36,297

 
$
18,492

 
 
 
 
 
 
Commitments and Contingencies (Note 8)
 
 

 

 
 
 
 
 
 
SHAREHOLDERS' EQUITY
 
 
 
 
 
Common stock - No par value: unlimited authorized; 37,952,660 and 37,500,815 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
7
 
3,366

 
71

Additional paid-in capital
 
 
5,470

 
5,390

Accumulated other comprehensive loss
 
 
(236
)
 

Retained earnings
 
 
34,984

 
29,572

TOTAL SHAREHOLDERS' EQUITY
 
 
$
43,584

 
$
35,033

 
 
 
 
 
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
$
79,881

 
$
53,525


See accompanying notes to the condensed consolidated financial statements
 
 
 
Page
3




VIEMED HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Expressed in thousands of U.S. Dollars, except share and per share amounts)
(Unaudited)

 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Note
 
2019
 
2018
 
2019
 
2018
Revenue
2
 
$
23,525

 
$
17,163

 
$
66,515

 
$
46,782

 
 
 
 
 
 
 


 


Cost of revenue
 
 
6,318

 
4,101

 
17,045

 
11,845

 
 
 
 
 
 
 
 
 
 
Gross profit
 
 
$
17,207

 
$
13,062

 
$
49,470

 
$
34,937

 
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
 
 
Selling, general and administrative
 
 
13,281

 
9,490

 
38,117

 
24,698

Research and development
 
 
208
 

 
645
 

Stock-based compensation
7
 
1,064

 
672

 
2,978

 
1,898

Depreciation
 
 
193

 
128

 
460

 
458

Loss on disposal of property and equipment
 
 
167

 
23

 
308

 
111

     Other expense
 
 
27

 
33

 
76

 
41

Income from operations
 
 
$
2,267

 
$
2,716

 
$
6,886

 
$
7,731

 
 
 
 
 
 
 
 
 
 
Non-operating expenses
 
 
 
 
 
 
 
 
 
Unrealized (gain) loss on warrant conversion liability
6
 
(800)
 
220
 
(363
)
 
414

Interest expense, net of interest income
5
 
56

 
37

 
102

 
151

 
 
 
 
 
 
 
 
 
 
Net income before taxes
 
 
3,011

 
2,459

 
7,147

 
7,166

Provision for income taxes
9
 
51

 
35

 
213

 
35

 
 
 
 
 
 
 
 
 
 
Net income
 
 
$
2,960

 
$
2,424

 
$
6,934

 
$
7,131

 
 
 
 
 
 
 
 
 
 
Other Comprehensive Income
 
 
 
 
 
 
 
 
 
Change in unrealized loss on derivative instruments, net of tax
 
 
(88
)
 

 
(236
)
 

Other Comprehensive Loss
 
 
$
(88
)
 
$

 
$
(236
)
 
$

 
 
 
 
 
 
 
 
 
 
Comprehensive Income
 
 
$
2,872

 
$
2,424

 
$
6,698

 
$
7,131

 
 
 
 
 
 
 
 
 
 
Net income per share
 
 
 
 
 
 
 
 
 
Basic
11
 
$
0.08

 
$
0.06

 
$
0.18

 
$
0.19

Diluted
11
 
$
0.07

 
$
0.06

 
$
0.17

 
$
0.18

 
 
 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
11
 
37,812,921

 
37,911,054

 
37,775,775

 
37,910,109

Diluted
11
 
40,051,422

 
39,945,189

 
39,768,877

 
39,526,742



See accompanying notes to the condensed consolidated financial statements
 
 
 
Page
4




VIEMED HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in thousands of U.S. Dollars, except share and per share amounts)
(Unaudited)


 
 
Common Stock
 
Additional paid-in capital
 
Accumulated other comprehensive loss
 
 
 
Total Shareholders'
equity
 
 
Shares
 
Amount
 
 
 
Retained
earnings
 
Shareholders' equity, December 31, 2017
 
37,909,628
 
$
67

 
$
2,688

 
$

 
$
20,989

 
$
23,744

Stock-based compensation - options
 
 
 
 
 
145

 
 
 
 
 
145

Stock-based compensation - restricted stock
 
 
 
 
 
416

 
 
 
 
 
416

Net Income
 
 
 
 
 
 
 
 
 
2,341

 
2,341

Shareholders' equity, March 31, 2018
 
37,909,628

 
$
67

 
$
3,249

 
$

 
$
23,330

 
$
26,646

Stock-based compensation - options
 
 
 
 
 
229

 
 
 
 
 
229

Share-based compensation - restricted stock
 
 
 
 
 
436

 
 
 
 
 
436

Net Income
 
 
 
 
 
 
 
 
 
2,366

 
2,366

Shareholders' equity, June 30, 2018
 
37,909,628

 
$
67

 
$
3,914

 
$

 
$
25,696

 
$
29,677

Stock-based compensation - options
 
 
 
 
 
205

 
 
 
 
 
205

Stock-based compensation - restricted stock
 
 
 
 
 
467

 
 
 
 
 
467

Exercise of warrants
 
1,620

 
3

 
 
 
 
 
 
 
3

Net Income
 
 
 
 
 
 
 
 
 
2,424

 
2,424

Shareholders' equity, September 30, 2018
 
37,911,248

 
$
70

 
$
4,586

 
$

 
$
28,120

 
$
32,776

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional paid-in capital
 
Accumulated other comprehensive loss
 
 
 
Total Shareholders'
equity
 
 
Shares
 
Amount
 
 
 
Retained
earnings
 
Shareholders' equity, December 31, 2018
 
37,500,815

 
$
71

 
$
5,390

 
$

 
$
29,572

 
$
35,033

Stock-based compensation - options
 
 
 
 
 
578

 
 
 
 
 
578

Stock-based compensation - restricted stock
 
 
 
 
 
302

 
 
 
 
 
302

Exercise of options
 
2,418
 
4

 
 
 
 
 
 
 
4

Shares issued for vesting of restricted stock units
 
539,965
 
2,202

 
(2,202
)
 
 
 
 
 

Shares repurchased and canceled under the Normal Course Issuer Bid
 
(365,100)

 

 
 
 
 
 
(1,522
)
 
(1,522
)
Net Income
 
 
 
 
 
 
 
 
 
2,154

 
2,154

Shareholders' equity, March 31, 2019
 
37,678,098


$
2,277


$
4,068


$


$
30,204


$
36,549

Stock-based compensation - options
 
 
 
 
 
705

 
 
 
 
 
705

Stock-based compensation - restricted stock
 
 
 
 
 
329

 
 
 
 
 
329

Exercise of warrants
 
8,280

 
16

 
 
 
 
 
 
 
16

Exercise of options
 
4,725

 
18

 
 
 
 
 
 
 
18

Shares issued for vesting of restricted stock units
 
6,432

 
39

 
(39
)
 
 
 
 
 

Change in unrealized loss on derivative instruments
 
 
 
 
 
 
 
(148
)
 
 
 
(148
)
Net Income
 
 
 
 
 
 
 
 
 
1,820

 
1,820

Shareholders' equity, June 30, 2019
 
37,697,535

 
$
2,350

 
$
5,063

 
$
(148
)
 
$
32,024

 
$
39,289

Stock-based compensation - options
 
 
 
 
 
745

 
 
 
 
 
745

Stock-based compensation - restricted stock
 
 
 
 
 
319

 
 
 
 
 
319

Exercise of warrants
 
124,890

 
245

 
 
 
 
 
 
 
245

Exercise of options
 
35,025

 
114

 
 
 
 
 
 
 
114

Shares issued for vesting of restricted stock units
 
95,210

 
657

 
(657
)
 
 
 
 
 

Change in unrealized loss on derivative instruments
 
 
 
 
 
 
 
(88
)
 
 
 
(88
)
Net Income
 
 
 
 
 
 
 
 
 
2,960

 
2,960

Shareholders' equity, September 30, 2019
 
37,952,660


$
3,366


$
5,470


$
(236
)

$
34,984


$
43,584


See accompanying notes to the condensed consolidated financial statements
 
 
 
Page
5




VIEMED HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of U.S. Dollars)
(Unaudited)


 
 
 
Nine Months Ended September 30,
 
Note
 
2019
 
2018
Cash flows from operating activities
 
 
 
 
 
Net income
 
 
$
6,934

 
$
7,131

Adjustments for:
 
 
 
 
 
Depreciation

 
4,398

 
2,606

Bad debt expense
2
 
6,937

 
4,389

Share-based compensation
7
 
2,978

 
1,898

Unrealized (gain) loss on warrant conversion liability
6
 
(363
)
 
414

Loss on disposal of property and equipment
 
 
308

 
111

Net change in working capital
 
 
 
 
 
Increase in accounts receivable
 
 
(9,827
)
 
(3,001
)
Decrease (Increase) in inventory
 
 
1,621

 
(744
)
(Decrease) increase in trade payables
 
 
(1,813
)
 
297

Increase in accrued liabilities
 
 
1,909

 
1,596

Decrease in income tax payable
 
 
(124
)
 
(68
)
Increase in prepaid expenses and other current assets
 
 
(1,271
)
 
(467
)
Net cash provided by operating activities
 
 
$
11,687

 
$
14,162

 
 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 
Purchase of property and equipment
 
 
(10,582
)
 
(3,573
)
Proceeds from sale of property and equipment
 
 
350

 
484

Net cash used in investing activities
 
 
$
(10,232
)
 
$
(3,089
)
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
Proceeds from exercise of options
 
 
136

 

Proceeds from exercise of warrants
 
 
261

 
3

Proceeds from commercial long-term note for building
5
 
4,837

 

Principal payments on notes payable
 
 
(34
)
 

Proceeds from term note
5
 
5,000

 

Shares repurchased and canceled under the Normal Course Issuer Bid
7
 
(1,522
)
 

Repayments of lease liabilities
 
 
(7,916
)
 
(6,000
)
Net cash provided by (used in) financing activities
 
 
$
762

 
$
(5,997
)
 
 
 
 
 
 
Net increase in cash and cash equivalents
 
 
2,217

 
5,076

Cash and cash equivalents at beginning of year
 
 
10,413

 
5,098

Cash and cash equivalents at end of period
 
 
$
12,630

 
$
10,174

 
 
 
 
 
 
Supplemental disclosures of cash flow information
 
 
 
 
 
Cash paid during the period for interest
 
 
$
91

 
$
156

Cash paid during the period for income taxes, net of refunds received
 
 
$
338

 
$
104

Supplemental disclosures of non-cash transactions
 
 
 
 
 
Property and equipment financed through capital leases and long-term debt
 
 
$
14,735

 
$
6,186

Property and equipment financed through leases upon adoption of FASB ASC 842
 
 
$
2,052

 
$

Change in unrealized losses on derivative instruments, net of tax
 
 
$
(236
)
 
$


See accompanying notes to the condensed consolidated financial statements
 
 
 
Page
6


VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018



1.    Nature of Business and Operations

On December 21, 2017, Viemed Healthcare, Inc. (the "Company") consumated Asset and Share Purchase Agreements as well as an Arrangement Agreement ("the Arrangement") with Protech Home Medical Corp. ("PHM") (formerly Patient Home Monitoring Corp.) and was spun-out as a separate public company that owns a 100% interest in Home Sleep Delivered, L.L.C. ("HSD") and Sleep Management, L.L.C. dba Viemed ("Viemed") through the U.S. holding company Viemed Inc. Effective as of the spin-out date, the consolidated financial statements include all of the above referenced entities. The spin-out transaction was treated as a common control transaction and all assets and liabilities of the spun out business were transferred at the prior carrying values.

The Company, through its subsidiaries, provides in-home durable medical equipment ("DME") and health care solutions to patients in over 31 states in the United States. Viemed offers customers requiring respiratory services and related equipment an appropriate selection of home medical products including non-invasive ventilators, positive airway pressure (“PAP”) machines and oxygen units, as well as the services of experienced respiratory therapists. HSD provides in-home sleep apnea testing, allowing a patient to determine the existence of sleep apnea at home at a fraction of the cost of the traditional sleep lab environment. The Company was incorporated under the Business Corporations Act (British Columbia) on December 14, 2016. The Company's registered and records office is located at Suite 2800, Park Place, 666 Burrard Street, Vancouver, British Columbia V6C 2Z7 and its corporate office is located at 202 N. Luke Street, Lafayette, Louisiana 70506.

The Company qualifies as a "foreign private issuer," as defined in Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), for the purposes of the informational requirements of the Exchange Act. Although, as a foreign private issuer, the Company would not be required to do so, the Company will file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the Securities and Exchange Commission (the "SEC"), instead of filing the reporting forms available to foreign private issuers.

The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"), and as such, has elected to comply with certain reduced U.S. public company reporting requirements.

The Company’s shares are traded in Canada on the Toronto Stock Exchange under the symbol VMD.TO, and as of August 9, 2019, in the U.S. on the Nasdaq Capital Market under the symbol VMD.

2. Summary of Significant Accounting Policies

Principles of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our consolidated balance sheets, consolidated statements of income and comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the periods and as of the dates presented. We have reclassified $3.2 million of rental equipment purchased but not provided to patients as property and equipment as of September 30, 2019. As of December 31, 2018, this rental equipment purchased but not provided to patients was $1.8 million and classified as inventory. Our fiscal year ends on December 31. The condensed consolidated balance sheet as of December 31, 2018 was derived from audited consolidated financial statements but does not include all disclosures required by GAAP. These condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto. The nature of our business is such that the results of any interim period may not be indicative of the results to be expected for the entire year.

Reporting currency

All values are in U.S. dollars ($ or "USD") unless specifically indicated otherwise. Canadian dollars are indicated as CAD$.
        
Functional currency

Management has exercised judgment in selecting the functional currency of each of the entities that it combines based on the primary economic environment in which the entity operates and in reference to the various indicators including the currency that primarily influences or determines the selling prices of goods and services and the cost of those services, including labor, material and other costs and the currency whose competitive forces and regulations mainly determine selling prices. The Company's functional currency

 
 
Page
7



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


was determined to be the U.S. dollar, which was determined using management’s assumption that the primary economic environment which it will derive its revenue and expenses incurred to generate those revenues is the United States.

Basis of consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated.

Use of estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases these estimates and assumptions upon historical experience, existing and known circumstances, authoritative accounting pronouncements and other factors that management believes to be reasonable. Significant areas requiring the use of management estimates relate to revenue recognition, accounts receivable, income tax provisions, and fair value of financial instruments. Actual results could differ from these estimates.

Accounts receivable

Net accounts receivable aging for each reporting period is as follows:
 
 
Current
 
30-60
 
60-90
 
Over 90
 
Total Accounts Receivable, net of Allowance
September 30, 2019
 
$
5,227

 
$
1,968

 
$
1,355

 
$
3,179

 
$
11,729

December 31, 2018
 
$
4,857

 
$
1,124

 
$
668

 
$
2,190

 
$
8,839


Accounts receivable are regularly reviewed for collectability and an allowance is recorded to cover the estimated bad debts and billing modifications. The accounts receivable are presented on the Condensed Consolidated Balance Sheets net of the allowance for doubtful accounts. It is possible that the estimates of the allowance for doubtful accounts could change, which could have a material impact on our operations and cash flows.

The Company writes off receivables when the likelihood for collection is remote, and when the Company believes collection efforts have been fully exhausted and it does not intend to devote additional resources in attempting to collect. The write-offs are charged against the allowance for doubtful accounts.

The estimates and write-offs for the allowance for doubtful accounts for each reporting period were as follows:
 
 
September 30, 2019
 
September 30, 2018
Balance, beginning of year
 
$
4,266

 
$
3,060

Provision for bad debts
 
6,937

 
4,389

Amounts written off
 
(3,539
)
 
(3,913
)
Balance, end of period
 
$
7,664

 
$
3,536


As of September 30, 2019 and 2018, no one customer represented more than 10% of outstanding accounts receivable. The Company does have receivables at September 30, 2019 from Medicare and Medicaid, representing 42% and 10%, respectively, and 52% combined, of total outstanding receivables (December 31, 2018 - 60%). As these receivables are both from government programs, there is very little credit risk associated with these balances.

Revenues from Medicare and Medicaid accounted for 63% and 69%, of the total revenues for the three months ended September 30, 2019 and 2018, respectively, and 66% and 70% for the nine months ended September 30, 2019 and 2018, respectively.


 
 
Page
8



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


Property and equipment

Property and equipment is presented on the consolidated balances sheets at historic cost less accumulated depreciation. Major renewals and improvements that extend the useful life of assets are capitalized to the respective property accounts, while maintenance and repairs, which do not extend the useful life of the respective assets, are expensed as incurred. Management has estimated the useful lives of equipment leased to customers. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Property and equipment are amortized on a straight-line basis over their estimated useful lives.

The estimated useful lives of the property and equipment are as follows:
Description
 
Estimated Useful Lives
Medical Equipment
 
2 - 10 Years
Computer Equipment
 
5 Years
Office Furniture & Fixtures
 
5 - 10 Years
Leasehold Improvements
 
Shorter of Useful Life or Lease
Vehicles
 
5 Years
Building
 
15 - 39 Years
Land
 
Indefinite Life

Depreciation of medical equipment commences at the date of service, which represents the date that the asset has been deployed to a patient’s address and is put in use and continues through the useful life of the asset. Property and equipment and other non-current assets with definite useful lives are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Revenue recognition

Revenue from a customer consists of any combination of the sale and rental of durable medical equipment (“DME”) and/or patient medical services. Revenues are billed to and collections received from Medicare, Medicaid, third-party insurers, co-insurance and patient-pay. Revenue is recognized net of contractual adjustments and bad debt based on contractual arrangements with third-party payors, an evaluation of expected collections resulting from the analysis of current and past due accounts, past collection experience in relation to amounts billed and other relevant information. Contractual adjustments result from the differences between the rates charged for services and reimbursements by government-sponsored healthcare programs and insurance companies for such services.

The Company's contracts with customers often include multiple products and services, and the Company evaluates these arrangements to determine the unit of accounting for revenue recognition purposes based on whether the product or service is distinct from other products or services in the arrangement and should be accounted for as separate performance obligation. A product or service is distinct if the customer can benefit from it on its own or together with other readily available resources and the Company's ability to transfer the goods or services is separately identifiable from other promises in the contractual arrangement with the customer (e.g. patient). Revenue is then allocated to each separately identifiable good or service based on standalone price of the items underlying the performance obligations. Most of the Company’s products fall in the Medicare Fee-for-Service (“FFS”) program which is a payment model where services are unbundled and paid for separately. These services are paid based on a Medicare determined price that is publicly available on the website for the Centers for Medicare & Medicaid Services (“CMS”). For commercial payors, DME companies must negotiate in-network pricing separately, though in general, the Company’s payors tend to benchmark their contract rates and coverage policies closely to those of Medicare.

The Company considers performance obligations for sales and rentals to be met when the customer receives the equipment, and revenue for rentals is recognized over time, over the respective rental period. For revenue associated with DME rentals, the Company recognizes revenue in accordance with FASB ASC 842, “Leases,” (Topic 842). For any DME sales and services, the Company recognizes revenue under FASB ASU 2014-09, “Revenue from Contracts with Customers,” (Topic 606) and related amendments.

The Company recognizes equipment rental revenue over the non-cancelable lease term, which is one month, less estimated adjustments, in accordance with ASC 842—Leases. The Company has separate contracts with each patient that are not subject to a master lease agreement with any third-party payor. The Company would first consider the lease classification issue (sales-type lease or operating lease) and then appropriately recognize or defer rental revenue over the lease term.

 
 
Page
9



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018



The revenues from each major source are summarized in the following table:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Revenue from rentals under Topic 842
 
 
 
 
 
 
 
 
    Ventilator rentals, non-invasive and invasive
 
$
19,820

 
$
15,219

 
$
57,563

 
$
41,896

    Other durable medical equipment rentals
 
1,742

 
703

 
4,085

 
1,687

Revenue from sales and services under Topic 606
 
 
 
 
 
 
 
 
    Equipment sales
 
1,552

 
969

 
3,584

 
2,470

    Service revenues
 
411

 
272

 
1,283

 
729

Total Revenues
 
$
23,525

 
$
17,163

 
$
66,515

 
$
46,782


Revenue Accounting under Topic 842

The Company leases durable medical equipment such as non-invasive and invasive ventilators, PAP machines, percussion vests, oxygen concentrator units and other small respiratory equipment to customers for a fixed monthly amount on a month-to-month basis. The customer generally has the right to cancel the lease at any time during the rental period. The Company considers these rentals to be operating leases.

Under FASB Accounting Standards Codification Topic 842, “Leases”, the Company recognizes rental revenue on operating leases on a straight-line basis over the contractual lease term which varies based on the type of equipment rental, but generally ranges from 10 to 36 months. The lease term begins on the date products are delivered to patients, and revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payors, including Medicare, private commercial payors, and Medicaid. Certain customer co-payments are included in revenue when considered probable of payment, which is generally when paid.

Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. There were no material changes in estimates recorded in the three or nine months ended September 30, 2019, relating to prior periods.

Revenue Accounting under Topic 606

The Company sells durable medical equipment, replacement parts and supplies to customers and recognizes revenue at the point in time where control of the good or service is transferred through delivery to the customer. Each piece of equipment, part, or supply is distinct, separately priced, and represents a single performance obligation. The revenue is allocated amongst the performance obligations based upon the relative standalone selling price method, however, items are typically all delivered or supplied together. The customer and, if applicable, the payors are generally charged at the time that the product is sold.

The Company also provides sleep study services to customers and recognizes revenue when the results of the sleep study are complete as that is when the performance obligation is met. The transaction price on both equipment sales and sleep studies is the amount that the Company expects to receive in exchange for the goods and services provided. Due to the nature of the durable medical equipment business, gross charges are retail charges and generally do not reflect what the Company is ultimately paid. As such, the transaction price is constrained for the difference between the gross charge and what is estimated to be collected from payors and from patients. The transaction price therefore is predominantly based on contractual payment rates as determined by the payors. The Company does not generally contract with uninsured customers. The payment terms and conditions of customer contracts vary by customer type and the products and services offered.

 
 
Page
10



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018



The Company determines its estimates of contractual allowances and discounts based upon contractual agreements, its policies and historical experience. While the rates are fixed for the product or service with the customer and the payors, such amounts typically include co-payments, co-insurance and deductibles, which vary in amounts, and are due from the patient. The Company includes in the transaction price only the amount that the Company expects to be entitled, which is substantially all of the payor billings at contractual rates. The transaction price is initially constrained by the amount of customer co-payments, which are included in the transaction price when considered probable of payment and included in revenue if the product or service has already been provided to the customer.

Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenue and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third-party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application or claim denial. There were no material changes in estimates recorded in the three or nine months ended September 30, 2019, relating to prior periods.

Returns and refunds are not accepted on either equipment sales or sleep study services. The Company does not offer warranties to customers in excess of the manufacturer’s warranty. Any taxes due upon sale of the products or services are not recognized as revenue. The Company does not have any partially or unfilled performance obligations related to contracts with customers and as such, the Company has no contract liabilities as of September 30, 2019.

Stock-based compensation

The Company accounts for its stock-based compensation in accordance with ASC 718—Compensation—Stock Compensation, which establishes accounting for share-based awards exchanged for employee services and requires companies to expense the estimated fair value of these awards over the requisite employee service period. Stock–based compensation cost for stock options are determined at the grant date using the Black-Scholes option pricing model. Stock-based compensation costs for restricted stock units are determined at the grant date based on the closing stock price. The expense of such stock-based compensation awards is recognized using the graded vesting attribution method over the vesting period and the offsetting credit is recorded as an increase in additional paid-in capital. Forfeitures are recorded as incurred. Any excess tax benefit or deficiency is recognized as a component of income taxes and within operating cash flows upon vesting of the share-based award.

Interest Rate Swaps

The Company utilizes an interest rate swap contract to reduce exposure to fluctuations in variable interest rates for future interest payments on the Term Note (as defined below). 

For determining the fair value of the interest rate swap contract, the Company uses significant other observable market data or assumptions (Level 2 inputs) that market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. These fair value estimates reflect an income approach based on the terms of the interest rate swap contract and inputs corroborated by observable market data including interest rate curves. The Company includes unrealized gains in Other Assets, as a component of Long-term Assets, and unrealized losses in Accrued Liabilities, as a component of Long-term Liabilities on the Condensed Consolidated Balance Sheets.

The Company recognizes any differences between the variable interest rate payments and the fixed interest rate settlements from its swap counterparty as an adjustment to interest expense over the life of the swap. If determined to be an effective cash flow hedge, the Company will record the changes in the estimated fair value of the swaps to Accumulated other comprehensive income or loss on the Condensed Consolidated Balance Sheets. To the extent that interest rate swaps are determined to be ineffective, the Company would recognize the changes in the estimated fair value of swaps in Interest and other non-operating expenses, net in its Condensed Consolidated Statements of Income.

Net Income per Share Attributable to Common Stockholders

The Company uses the two-class method to compute net income per common share attributable to common stockholders because the Company issued securities, other than common stock, that contractually entitled the holders to participate in the dividends and earnings prior to the initial listing after the Arrangement. The two-class method requires earnings for the period to be allocated between common stock and participating securities based upon their respective rights to receive distributed and undistributed earnings.


 
 
Page
11



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


Under the two-class method, for periods with net income, basic net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Net income attributable to common stockholders is computed by subtracting from net income the portion of the current period's earnings that the participating securities would have been entitled to receive pursuant to their dividend rights had all of the period’s earnings been distributed. No such adjustment to earnings is made during periods with a net loss, as the holders of the participating securities have no obligation to fund losses.

See Note 11 for earnings per share computations.

Recently adopted accounting pronouncements

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments,” to provide clarity on how certain cash receipt and cash payment transactions are presented and classified within the statement of cash flows. The ASU is effective for annual periods beginning December 31, 2018, and its adoption did not impact these condensed consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-07 “Improvements to Non-employee Share-Based Payment Accounting,” which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees. The ASU is effective for interim periods as of January 1, 2019, and its adoption did not have any material impact on our consolidated financial statements.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842) (“ASC 842”), which supersedes the existing guidance for lease accounting, “Leases” (Topic 840) (“ASC 840”). ASC 842 requires lessees to recognize a lease liability and a right of use asset for all leases that extend beyond one year. This standard was adopted using the modified retrospective transition approach at the adoption date of January 1, 2019. This approach does not require the restatement of previous periods. The Company completed a qualitative and quantitative assessment of its leases from both a lessee and lessor perspective. As part of this process, the Company elected to utilize certain practical expedients that provided transition relief. Accordingly, the Company did not reassess expired or existing contracts, lease classifications or related initial direct costs as part of the assessment process for either lessee or lessor leases. The adoption of this standard, from a lessee perspective, resulted in the recording of Right of Use (“ROU”) operating lease assets as a component of property and equipment, net and liabilities as a component of current and non-current liabilities of approximately $1.5 million on the Condensed Consolidated Balance Sheet as of January 1, 2019, with no impact to retained earnings. In addition, the Company elected as an accounting policy, not to record leases with an initial term of less than 12 months. (See Note 5 – “Debt and lease liabilities” for additional information and required disclosures.)

In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging", which changes both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results, in order to better align an entity’s risk management activities and financial reporting for hedging relationships. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The Company adopted this standard on June 1, 2019 and adoption of this standard did not have a material impact on the Company’s consolidated financial statement presentation or results.

Recently issued accounting pronouncements

The Company is an “emerging growth company” as defined by the JOBS Act. The JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, (the “Securities Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can selectively delay the adoption of all accounting standards until those standards would otherwise apply to private companies. The Company has elected to utilize this exemption and, as a result, these condensed consolidated financial statements may not be comparable to the financial statements of issuers that are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies. To date, however, the Company has not delayed the adoption of any accounting standards. Section 107 of the JOBS Act provides that the Company can elect to opt out of the extended transition period at any time, which election is irrevocable.





 
 
Page
12



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses,” to require the measurement of expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts. The ASU will be effective for interim and annual periods beginning January 1, 2020 for issuers and annual periods beginning January 1, 2021 for non-issuers. The Company does not anticipate any material impact as a result of the adoption of this ASU on the consolidated financial statements in future periods.

3.     Property and Equipment

The Company’s fixed assets consist of its medical equipment held for rental, furniture and equipment, real property and related improvements, and vehicles and other various small equipment. In May 2019, the Company purchased a 77,000 square foot commercial building located in Lafayette, Louisiana to utilize as its new corporate headquarters. The Building Term Note used to finance this purchase is further discussed in Note 5.

The following table details the Company’s fixed assets:
 
 
September 30, 2019
 
December 31, 2018
Medical equipment
 
$
52,395

 
$
35,541

Furniture and equipment
 
2,270

 
1,174
Land
 
2,138

 
367
Buildings
 
5,800

 
264

Leasehold improvements
 
301

 
256
Vehicles
 
1,500

 
1,782
Less: Accumulated depreciation
 
(12,243
)
 
(8,822
)
Property and equipment, net of accumulated depreciation
 
$
52,161

 
$
30,562


Depreciation in the amount of $1,465,000 and $844,000 is included in cost of revenue for the three months ended September 30, 2019 and 2018, respectively, and $3,937,000 and $2,148,000 for the nine months ended September 30, 2019 and 2018, respectively. Included in medical equipment above is equipment acquired under finance lease obligations whose cost and accumulated depreciation at September 30, 2019 total $16,502,000 and $1,413,000, respectively. At December 31, 2018, cost and accumulated depreciation on equipment acquired under capital lease obligations was $7,943,000 and $1,100,000, respectively.

4.
Current Liabilities

The Company’s short-term accrued liabilities are included within current liabilities and consist of the following:
 
 
September 30, 2019
 
December 31, 2018
Accrued trade payables
 
$
1,712

 
$
960

Accrued commissions payable
 
297
 
315
Accrued bonuses payable
 
1,820
 
3,788
Accrued vacation and payroll
 
813
 
1,012
Current portion of phantom share liability
 
2,886
 
1,476
Accrued other liabilities
 
1,072
 

Total accrued liabilities
 
$
8,600

 
$
7,551


5.     Debt and lease liabilities

Senior Credit Facility

On February 20, 2018, the Company entered into a two year commercial business loan agreement with Hancock Whitney Bank. Any amounts advanced will be secured by substantially all assets and carry an interest rate of one month ICE libor plus 3.00%, with a 4.00% interest rate floor. Advances of the line of credit initially were subject to a borrowing base as determined in accordance with the loan agreement, which was based on the value of the Company's accounts receivable balance.


 
 
Page
13



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


On March 19, 2019, the Company entered into an amendment to the loan agreement increasing the available line of credit from $5.0 million to $10.0 million and extending the expiration date to March 19, 2021. In addition, the borrowing base restriction was removed from the loan agreement.

On September 19, 2019, in conjunction with the Term Note described below, the Company entered into a third amendment to the loan agreement, which, among other things, replaced the financial covenants in the loan agreement with the following:
Financial Covenant
 
Required Ratio
 
Ratio
Total Debt to Adjusted EBITDA (Quarterly)
 
not more than 1.50:1.00
 
1.11
Fixed Charge Coverage Ratio (Quarterly)
 
not less than 1.35:1.00
 
3.31
Loan-to-Value Ratio (Quarterly)
 
not more than 0.85
 
0.73

The Company was in compliance with all covenants in effect at September 30, 2019. There were no borrowings against this line of credit at September 30, 2019 and December 31, 2018.

Commercial Term Notes

On May 30, 2019, the Company entered into a second amendment to the loan agreement providing for a term note (the “Building Term Note”) in favor of Hancock Whitney Bank in the principal amount of $4,845,000. The proceeds of the Building Term Note were used to purchase a building to utilize as a new corporate headquarters for the Company. Beginning July 1, 2019, the Company began making monthly payments towards the outstanding balance. The Building Term Note matures on May 30, 2026 and is secured by substantially all of the assets of the borrower, including the real property acquired with the proceeds of the Building Term Note. The Building Term Note bears interest at a variable rate equal to the one month ICE libor index plus a margin of 2.45% per annum. The Company is required to maintain a loan to value ratio of 85% with respect to the appraised value of the real property. In connection with the Building Term Note, the Company entered into an interest rate swap transaction (the "Interest Rate Swap Transaction") with Hancock Whitney Bank effectively fixing the interest rate for the Building Term Note at 4.68%.

The Company incurred immaterial financing costs related to the real property acquired with the proceeds of the Building Term Note. These deferred financing costs will be amortized over the term of the loan.

On September 19, 2019, the Company entered into a third amendment to the loan agreement providing for a term note (the “Term Note") in favor of Hancock Whitney Bank in the principal amount of $5,000,000. The proceeds of the Term Note will be used for general corporate purposes. Beginning October 19, 2019, the Company makes monthly payments towards the outstanding balance. The Term Note matures on September 19, 2022 and is secured by substantially all of the assets of the borrower. The Term Note bears interest at the rate of 4.60% per annum.

The Company has recognized these term notes, which have terms greater than twelve months, as follows:
 
 
September 30, 2019
 
December 31, 2018
Notes payable
 
$
9,804

 
$

Less:
 


 


Current portion of notes payable
 
(1,728
)
 

Net long-term notes payable
 
$
8,076

 
$


The table below represents the future minimum principal and interest obligations for the term notes as of September 30, 2019:
 
 
Principal Payments
 
Interest Payments(1)
Less than one year (current portion)
 
$
1,728

 
$
422

Between one and two years
 
1,815

 
340

Between two and five years
 
2,241

 
654

Five years or more
 
4,020

 
321

Total
 
$
9,804

 
$
1,737

(1) Interest payments under the term notes have effective interest rates of 4.68% and 4.60% per annum.

 
 
Page
14



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018



Leases

The Company has recognized finance lease liabilities for medical equipment and operating leases for land and buildings that have terms greater than twelve months, as follows:
 
 
September 30, 2019
 
December 31, 2018
Lease liabilities
 
$
11,580

 
$
3,425

Less:
 
 
 
 
Current portion of lease liabilities
 
(8,767
)
 
(3,031
)
Net long-term lease liabilities
 
$
2,813

 
$
394


Finance lease liabilities

The Company has various finance leases for equipment with an implied interest rate at fixed rates up to 11.36%, secured by equipment, due between 2019 and 2023. The Company's weighted average interest rate was 1.83% and 1.41% for all finance lease liabilities outstanding as of September 30, 2019 and 2018, respectively. At September 30, 2019, the weighted average lease term was approximately 1.01 years.

Minimum payments and interest for finance lease obligations required over the next five years as of September 30, 2019, are as follows:
 
 
Principal Payments
 
Interest Payments
Less than one year (current portion)
 
$
8,456

 
$
146

Between one and two years
 
1,760

 
43

Between two and five years
 
27

 
1

Total
 
$
10,243

 
$
190


Interest expense related to these finance lease obligations for the three and nine months ended September 30, 2019 amounted to $56,000 and $102,000, respectively. Interest expense related to these finance lease obligations for the three and nine months ended September 30, 2018 amounted to $37,000 and $151,000, respectively.

Operating lease liabilities

The Company has recognized operating lease liabilities that relate primarily to the lease of land and buildings. These leases contain renewal options that we have not included as part of the Company's assessment of the lease term as it is not reasonably certain that we will exercise these options. These lease liabilities are recorded at present value based on a discount rate of 5.50%, which was based on the Company's incremental borrowing rate at the time of assessment. At September 30, 2019, the weighted average lease term was approximately 5.08 years.

Minimum payments and interest for operating lease liabilities required over the next five years as of September 30, 2019, are as follows:
 
 
Principal Payments
 
Interest Payments
Less than one year (current portion)
 
$
311

 
$
65

Between one and two years
 
224

 
51

Between two and five years
 
661

 
81

Five years or more
 
141

 
3

Total
 
$
1,337

 
$
200


 
 
Page
15



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


Operating rental expenses were $100,000 and $278,000 for the three and nine months ended September 30, 2019, respectively, and $102,000 and $298,000 for the three and nine months ended September 30, 2018, respectively.

Included within these operating lease liabilities are real property leases for real estate from a related party. Rental payments under these related party lease agreements are $18,000 per month, plus taxes, utilities and maintenance. Total rental payments for the use of these properties were $61,000 and $182,000 for the three and nine months ended September 30, 2019, respectively, and $60,000 and $175,000 for the three and nine months ended September 30, 2018, respectively. The expense for these related party rents has been included within general and administrative expenses.

6.
Fair value measurement

Under ASC Topic 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). ASC Topic 820 establishes a hierarchy for inputs to valuation techniques used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that reflect assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. There are three levels to the hierarchy based on the reliability of inputs, as follows:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets and liabilities in markets that are not active.

Level 3 - Unobservable inputs for the asset or liability. The degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

The Company’s cash and cash equivalents are measured using Level 1 inputs.

Warrants

Pursuant to the Arrangement with PHM effective December 21, 2017, PHM common share purchase warrant holders each received one tenth (1/10) of one warrant to purchase one common share of the Company. The warrants conversion feature is denominated in Canadian dollars which is different from the functional currency of the Company, which is U.S. dollars. The conversion feature is treated as a derivative financial liability and the fair value movement during the period is recognized in the Consolidated Statement of Income and Comprehensive Income. The change in the value of warrants has been recorded as an unrealized (gain) loss on derivative financial liability in the Condensed Consolidated Statements of Income and Comprehensive Income. All unexercised warrants expired during the period ended September 30, 2019.

The warrant derivative financial liability was valued using Level 3 inputs from the fair value hierarchy.

There were no warrants issued during the three and nine month periods ended September 30, 2019. There were 133,000 warrants exercised and 44,000 warrants that expired during the nine months ended September 30, 2019. A summary of the change in fair value of warrant conversion liability is as follows for the period ended September 30, 2019:
Warrant Conversion Liability
 
 
Balance December 31, 2018
 
$
363

Warrants issued
 

Unrealized gain on warrant conversion liability
 
(363)
Balance September 30, 2019
 
$








 
 
Page
16



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018



Derivative instruments and hedging activities

We currently have one interest rate swap contract in place, which became effective on May 31, 2019 and has been designated as a cash flow hedge. This swap contract matures on May 30, 2026. This swap contract converts the variable interest rate to a fixed interest rate on borrowings under the Building Term Note. As of September 30, 2019, the notional amount of the interest rate swap was $4.8 million and will be amortized over the term of the swap. The fair value was $0.2 million (determined based on Level 2 inputs) and is included in Accrued liabilities, as a component of Long-term liabilities as of September 30, 2019.

In the first nine months of 2019, losses recognized as a result of ineffectiveness were immaterial.

7.
Shareholders' Equity

Authorized share capital

The Company’s authorized share capital consists of an unlimited number of common shares.

Issued and outstanding share capital

The Company has only one class of stock outstanding, common shares. The authorized stock consists of an unlimited number of common shares with no stated par value, of which 37,952,660 and 37,500,815 shares were issued and outstanding as of September 30, 2019 and December 31, 2018, respectively.

For the nine months ended September 30, 2019, the Company re-purchased and canceled 365,100 common shares at a cost of $1,522,000 pursuant to the Normal Course Issuer Bid (the "NCIB") that went into effect on November 29, 2018. Total shares repurchased under the NCIB were 775,803 as of September 30, 2019. The Company’s retained earnings was reduced by the amount paid for the shares repurchased for cancellation.

Warrants

All outstanding warrants expired unexercised on August 27, 2019. The following table summarizes warrant activity for the period ended September 30, 2019:
 
 
Number of warrants (000's)
 
Weighted average exercise price (CAD$)
Balance December 31, 2018
 
177

 
$
2.60

Issued
 

 

Exercised
 
(133
)
 
2.60

Expired
 
(44
)
 
2.60

Balance September 30, 2019
 

 
$


No warrants were issued, 133,000 warrants were exercised and 44,000 warrants expired during the nine months ended September 30, 2019.

Stock-based compensation

At the Company's annual and special meeting of shareholders held on July 17, 2018, shareholders of the Company passed a resolution approving the RSU and Option Plans (collectively, the “Plan”). The purpose of the Plan is to provide incentive to employees, directors, officers, management companies, and consultants who provide services to the Company or any of its subsidiaries. The Plan is a “fixed” stock plan, whereby the maximum number of the Company's shares reserved for issuance, combined with any equity securities granted under all other compensation arrangements adopted by the Company, may not exceed 7,582,000 shares (equal to 20% of the issued and outstanding shares of the Company as of the date of the Arrangement). As of September 30, 2019, the Company had outstanding issuances of options of 2,731,000 and restricted stock units of 1,161,000 under the Plan.





 
 
Page
17



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


The following table summarizes stock-based compensation for the three and nine months ended September 30, 2019 and 2018 (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Stock-based compensation - options
 
$
745
 
 
$
205
 
 
$
2,028
 
 
$
579
 
Stock-based compensation - restricted stock
 
319
 
 
467
 
 
950
 
 
1,319
 
Total
 
$
1,064
 
 
$
672
 
 
$
2,978
 
 
$
1,898
 

At September 30, 2019, there was approximately $2,751,000 of total unrecognized pre-tax stock option expense under our equity compensation plans, which is expected to be recognized over a weighted-average period of 2.25 years. As of September 30, 2019, there was approximately $991,000 of total unrecognized pre-tax compensation expense related to outstanding time-based restricted stock units that is expected to be recognized over a weighted-average period of 0.80 years.

Options

The following table summarizes stock option activity for the nine months ended September 30, 2019:
 
 
Number of options
 (000's)
 
Weighted average exercise price (CAD$)
 
Weighted average remaining contractual life
 
Aggregate Intrinsic Value(1)
Balance December 31, 2018
 
1,545

 
$
3.39

 
5.8 years
 
$
1,605

Issued
 
1,236

 
5.66

 
 
 
 
Exercised
 
(42
)
 
4.30

 
 
 
 
Expired / Forfeited
 
(8
)
 
3.26

 
 
 
 
Balance September 30, 2019
 
2,731

 
$
4.30

 
7.0 years
 
$
6,825

Includes NIL shares netted for tax.
 
 
 
 
 
 
 
 
(1) The aggregate intrinsic value of options outstanding represents the difference between the exercise price of the option and the closing stock price of our common stock on the last trading day of the period.

For the nine months ended September 30, 2019, 42,168 shares of common stock were issued pursuant to the exercise of stock options.

At September 30, 2019, the Company had 1,041,000 exercisable stock options outstanding with a weighted average exercise price of CAD $3.83 and a weighted average remaining contractual life of 3.7 years. At December 31, 2018, the Company had 851,000 exercisable stock options outstanding with a weighted average exercise price of CAD $4.30 and a weighted average remaining contractual life of 3.2 years.

The fair value of the stock options has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and credited to additional paid-in capital over the proper vesting period, using the Black-Scholes option pricing model calculated using the following assumptions for issuances during the nine months ended September 30, 2019:
Exercise price ($CAD)
 
$5.49 - $9.26 ($CAD)
Risk-free interest rate
 
1.59 - 1.96%
Expected volatility
 
73 - 81%
Expected life of options
 
10 Years
Expected dividend yield
 
Nil
Fair value on date of grant ($USD)
 
$3.40 - $5.45 ($USD)


 
 
Page
18



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


Restricted stock units

The Company has a restricted stock unit plan, which it uses for grants to directors, officers, and employees. Restricted stock units vest generally over a one or three-year period.

The following table summarizes restricted stock unit activity for the nine months ended September 30, 2019:
 
 
Number of Restricted Stock Units (000's)
 
Weighted average grant price (CAD$)
 
Weighted average remaining contractual life
 
Aggregate Intrinsic Value(1)
Balance December 31, 2018
 
1,715

 
$
2.41

 
1.01 years
 
$
6,575

Issued
 
120

 
6.90

 
 
 
 
Vested
 
(641
)
 
2.68

 
 
 
 
Expired / Forfeited
 
(33
)
 
2.25

 
 
 
 
Balance September 30, 2019
 
1,161

 
$
2.73

 
0.80 years
 
$
8,010

(1) The aggregate intrinsic value of time-based restricted stock units outstanding was based on our closing stock price on the last trading day of the period.

During the three months ended September 30, 2019, the Company issued 60,000 restricted stock units.

Phantom share units

The Company has a phantom share unit plan, which it uses for grants to directors, officers, and employees. Phantom share units granted under the plan are non-assignable and are settled in cash at vesting. Phantom share units vest annually over a three-year period.

The following table summarizes phantom share unit activity for the nine months ended September 30, 2019:
 
 
Number of Phantom Share Units (000's)
Balance December 31, 2018
 
1,692

Issued
 
351

Vested
 
(550
)
Expired / Forfeited
 
(110
)
Balance September 30, 2019
 
1,383


The change in fair value of the phantom share units has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and recorded as a liability included in accrued liabilities and long-term accrued liabilities, using a valuation method with the following inputs:
 
September 30, 2019
Share price
$ 9.14 (CAD$)
Remaining life of phantom share units
0.61 - 2.61 Years

Calculated fair value of phantom share units
$
4,862,000


The total liability associated with phantom share units at September 30, 2019 is $4,862,000, with $1,976,000 of this balance included in long-term accrued liabilities and the remaining portion of $2,886,000 in current accrued liabilities. Accrued liability and related expense is determined at each reporting period based on the stock price at period end.


 
 
Page
19



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


8.
Commitments and Contingencies

Retirement Plan

The Company maintains a 401(k) retirement plan for employees to which eligible employees can contribute a percentage of their pre-tax compensation. Matching employer contributions to the 401(k) plan totaled $120,000 and $96,000 for the three months ended September 30, 2019 and 2018, respectively, and $455,000 and $321,000 for the nine months ended September 30, 2019 and 2018, respectively.

9.
Income Taxes

At September 30, 2019 and 2018, the Company had no amounts recorded for uncertain tax positions and does not expect any material changes in uncertain tax benefits during the next 12 months. The Company recognizes interest and penalties related to income tax matters in income tax expense.
 
The Company is subject to U.S. federal income tax as well as income tax in various states. The Company is generally not subject to examination by taxing authorities for years prior to 2015. Our annual estimated effective tax rate for 2019 is 1.53%, consistent with the effective tax rate for the year ended December 31, 2018. The primary component of the annual effective tax rate relates to the Company's current state income taxes, as the Company continues to generate taxable losses for U.S. federal income tax purposes.

10.     Financial Risk Factors

Risk management

In the normal course of business, the Company is exposed to a number of risks that can affect its operating performance. ASC 820—Fair Value Measurements and Disclosures creates a single definition of fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and states that a fair value measurement is to estimate the price at which an orderly transaction to sell an asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. Assets and liabilities adjusted to fair value in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value.

Credit Risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Financial instruments that potentially subject the Company to credit risk are primarily cash and accounts receivable. Each subsidiary places its cash with one major financial institution. At times, the cash in the financial institution is temporarily in excess of the amount insured by the Federal Deposit Insurance Corporation. Substantially all accounts receivable are due under fee-for-service contracts from third party payors, such as insurance companies and government-sponsored healthcare programs, directly from patients or for rebates due from manufacturers. Receivables generally are collected within industry norms for third-party payors and from manufacturers. The Company continuously monitors collections from its clients and maintains an allowance for bad debts based upon lifetime expected credit losses.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s approach in managing liquidity is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due by continuously monitoring actual and budgeted cash flows, and monitoring financial market conditions for signs of weakness.


 
 
Page
20



VIEMED HEALTHCARE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts expressed in thousands of U.S. Dollars, except per share amounts)
(Unaudited)
September 30, 2019 and 2018


As of September 30, 2019, the Company faced no material liquidity risk and is able to meet all of its current financial obligations as they become due and payable. The Company had $23,195,000 and $16,981,000 of current liabilities that are due within one year as of September 30, 2019 and December 31, 2018, respectively. The Company had $27,703,000 and $22,963,000 of current assets as of September 30, 2019 and December 31, 2018, respectively in addition to positive cash flow from operations. The Company utilizes short term leases with a major supplier that could be extended over a longer term if there was a need for additional liquidity. Additionally, the Company maintains a $10.0 million line of credit with Hancock Whitney Bank which was fully available as of September 30, 2019, subject to compliance with certain covenants.

Interest rate risk

Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Interest rate risk is limited to potential decreases on the interest rate offered on cash and cash equivalents held with registered US financial institutions. The Company considers this risk to be immaterial. The interest on finance leases and the Term Note are not subject to cash flow interest rate risk as these instruments bear interest at fixed rates. In connection with the Building Term Note, the Company entered into an Interest Rate Swap Transaction with Hancock Whitney Bank for a fixed rate of 4.68%, thereby transforming the variable interest rate exposure into a fixed rate obligation.

11.     Earnings Per Share

Income per common share is calculated using earnings for the year divided by the weighted average number of shares outstanding during the year. Diluted income per share amounts are calculated giving effect to the potential dilution that would occur if securities or other contracts to issue common shares were exercised or converted to common shares by assuming the proceeds received from the exercise of stock options, restricted stock units, and warrants are used to purchase common shares at the prevailing market rate.

The following reflects the earnings and share data used in the basic and diluted earnings per share computations:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Numerator - basic and diluted:
 
 
 
 
 
 
 
 
Net income attributable to shareholders
 
$
2,960

 
$
2,424

 
$
6,934

 
$
7,131

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Basic weighted-average number of common shares
 
37,812,921

 
37,911,054

 
37,775,775

 
37,910,109

Diluted weighted-average number of shares
 
40,051,422

 
39,945,189

 
39,768,877

 
39,526,742

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.08

 
$
0.06

 
$
0.18

 
$
0.19

Diluted earnings per share
 
$
0.07

 
$
0.06

 
$
0.17

 
$
0.18

 
 
 
 
 
 
 
 
 
Denominator calculation from basic to diluted:
 
 
 
 
 
 
 
 
Basic weighted-average number of common shares
 
37,812,921

 
37,911,054

 
37,775,775

 
37,910,109

Stock options and other dilutive securities
 
2,238,501

 
2,034,135

 
1,993,102

 
1,616,633

Diluted weighted-average number of shares
 
40,051,422

 
39,945,189

 
39,768,877

 
39,526,742


12.
Subsequent Events

Conversion of Accounts Payable into Short-term Capital Lease

Subsequent to September 30, 2019, the Company entered into a capital lease agreement with a third party and, as a result, $1,219,000 of accounts payable was converted to a two year lease.

 
 
Page
21



VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
September 30, 2019 and 2018

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with, and is qualified entirely by, our condensed consolidated financial statements (including Notes to the Condensed Consolidated Financial Statements) and the other consolidated financial information under Item 1 of this Quarterly Report on Form 10-Q. Some of the information in this discussion and analysis includes forward-looking statements that involve risk and uncertainties. Actual results and timing of events could differ from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Forward-Looking Statements

Certain statements and information in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 or "forward-looking information" as such term is defined in applicable Canadian securities legislation (collectively, "forward-looking statements"). Any statements other than statements of historical information, including those that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. These forward-looking statements are made as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise, except as required by applicable law.
 
Forward-looking statements relate to future events or future performance and reflect the expectations or beliefs of management regarding future events, and include, but are not limited to, statements with respect to: operating results; profitability; financial condition and resources; anticipated needs for working capital; liquidity; capital resources; capital expenditures; milestones; licensing milestones; information with respect to future growth and growth strategies; anticipated trends in our industry; our future financing plans; timelines; currency fluctuations; government regulation; unanticipated expenses; commercial disputes or claims; limitations on insurance coverage; and availability of cash flow to fund capital requirements.
 
Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “potential”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “believes”, “projects”, or the negatives thereof or variations of such words and phrases or statements that certain actions, events or results “will”, “should”, “may”, “could”, “would”, “might” or “will be taken”, “occur” or “be achieved” or the negative of these terms or comparable terminology.
 
Forward-looking statements are based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable. We cannot assure you, however, that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, including those identified under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q and the other documents we file with the SEC, including our Form 10 filed with the SEC on August 1, 2019, and with the securities regulatory authorities in certain provinces of Canada, which contribute to the possibility that the predicted outcomes may not occur or may be delayed. The risks, uncertainties and other factors, many of which are beyond our control, that could influence actual results include, but are not limited to: possibly significant capital requirements and operating risks; the ability to implement business strategies and pursue business opportunities; volatility in the market price of the shares in the capital; our novel business model; the risk that clinical application or treatments that demonstrate positive results in a study may not be positively replicated or that such test results may not be predictive of actual treatment results or may not result in the adoption of such treatments by providers; the state of the capital markets; the availability of funds and resources to pursue operations; decline of reimbursement rates; dependence on few payors; possible new drug discoveries; dependence on key suppliers; granting of permits and licenses in a highly regulated business; competition; low profit market segments; risks relating to the deterioration of global economic conditions; disruptions in or attacks (including cyber-attacks) on information technology, internet, network access or other voice or data communications systems or services; the evolution of various types of fraud or other criminal behavior; the failure of third parties to comply with their obligations; difficulty integrating newly acquired businesses; the impact of new and changes to, or application of, current laws and regulations; the overall difficult litigation environment; increased competition; changes in foreign currency rates; increased funding costs and market volatility due to market illiquidity and competition for funding; critical accounting estimates and changes to accounting standards, policies, and methods; our status as an emerging growth company and a foreign private issuer; and the occurrence of natural and unnatural catastrophic events

 
 
Page
22



VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
September 30, 2019 and 2018

and claims resulting from such events, as well as other general economic, market and business conditions; and other factors beyond our control.

General Matters

In this Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms the "Company," "we," "us" and "our" refer to Viemed Healthcare, Inc. and its wholly-owned subsidiaries, Viemed Inc., Home Sleep Delivered, L.L.C. ("HSD"), and Sleep Management, L.L.C. dba Viemed ("Viemed").

We were incorporated on December 14, 2016 pursuant to the Business Corporations Act (British Columbia), and qualify as a "foreign private issuer," as defined in Rule 12b-2 of the Exchange Act, for the purposes of the informational requirements of the Exchange Act. Although, as a foreign private issuer, we would not be required to do so, we will file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC, instead of filing the reporting forms available to foreign private issuers.

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"), and as such, we have elected to comply with certain reduced U.S. public company reporting requirements.

Unless otherwise noted herein, all references to "$" or "USD" are to the currency of the United States and references to "CAD$" or "Canadian dollars" are to the currency of Canada.

Overview

We provide an array of home medical equipment, services and supplies, specializing in post-acute respiratory care services in the United States. Our primary objective is to focus on the organic growth of the business and thereby solidify our position as one of the United States’ largest providers of in home therapy for patients suffering from respiratory diseases. Our respiratory care programs are designed specifically for payors to have the ability to treat patients in the home for less total cost and with a superior quality of care. Our services include respiratory disease management (through the rental of various durable medical equipment devices), in-home sleep testing and sleep apnea treatment, oxygen therapy, and the sale of associated supplies.

We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 84.3% and 86.5% of our revenue for the three and nine months ended September 30, 2019. We combine the benefits of home ventilation support with licensed Respiratory Therapists ("RTs") to drive improved patient outcomes and reduce costly hospital readmissions.

We expect to use an organic growth model whereby expansion is accomplished through existing service areas as well as in new regions through a cost efficient launch that reduces location expenses. Our licensed RTs currently serve patients in 31 states. We expect to continue to employ more RTs in order to assure our high service model is accomplished in the home. As of September 30, 2019, we employed more than 230 licensed RTs, representing more than 56% of our company-wide employee count. By focusing overhead costs to personnel that service the patient rather than physical location costs, we anticipate efficiently scaling our business in regions that are currently not being effectively serviced.

The continued trend of servicing patients in the home rather than in hospitals is aligned with our business objective and we anticipate that this trend will continue to offer growth opportunities for us. We expect to continue to be a solution to the rising health costs in the United States by offering more cost effective, home based solutions while increasing the quality of life for patients fighting serious respiratory diseases.
















 
 
Page
23



VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
September 30, 2019 and 2018

The below table highlights summary financial and operational metrics for the last eight quarters:
(Tabular amounts expressed in thousands of U.S. Dollars, except vent patients)
For the quarter ended
September 30,
2019
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
December 31, 2017
Financial Information:
 
 
 
 
 
 
 
Revenue
$
23,525

$
22,547

$
20,443

$
18,489

$
17,163

$
15,508

$
14,111

$
13,548

Gross Profit
$
17,207

$
16,861

$
15,402

$
13,645

$
13,062

$
11,323

$
10,552

$
10,186

Gross Profit %
73
%
75
%
75
%
74
%
76
%
73
%
75
%
75
%
Net Income (Loss)
$
2,960

$
1,820

$
2,154

$
3,046

$
2,424

$
2,366

$
2,341

$
(26
)
Adjusted EBITDA(1)
$
4,990

$
4,610

$
4,662

$
4,974

$
4,360

$
4,114

$
3,762

$ 1,877(3)
Cash (As of)
$
12,630

$
7,691

$
7,410

$
10,413

$
10,174

$
8,551

$
4,634

$
5,098

Total Assets (As of)
$
79,881

$
70,886

$
58,583

$
53,525

$
49,147

$
44,168

$
40,566

$
37,691

Operational Information:
 
 
 
 
 
 
 
Vent Patients(2)
7,421

7,130

6,393

5,905

5,444

5,078

4,685

4,385

(1) Refer to "Non-GAAP Financial Measures" section below for definition of Adjusted EBITDA.
(2) Vent Patients represents the number of active ventilator patients on recurring billing service at the end of each calendar quarter.
(3) Fourth quarter 2017 Adjusted EBITDA was negatively impacted by our annual performance incentive compensation program which was recorded in full during the quarter due to the effective date of the Arrangement. During the year ended December 31, 2018 and subsequent periods, our accrual for these types of costs was recorded throughout the year. Adjusted EBITDA for the fourth quarter 2017 would have been $4,308,000 had this compensation been accrued throughout the year.

Results of Operations

Comparison of the Three Months Ended September 30, 2019 and 2018:

The following table summarizes our results of operations for the three months ended September 30, 2019 and 2018:
 
Three Months Ended September 30,
 
2019
 
% of Total Revenue
 
2018
 
% of Total Revenue
 
$
Change
 
%
Change
Revenue
$
23,525

 
100.0
 %
 
$
17,163

 
100.0
%
 
$
6,362

 
37.1
 %
Cost of revenue
6,318

 
26.9
 %
 
4,101

 
23.9
%
 
2,217

 
54.1
 %
Gross profit
17,207

 
73.1
 %
 
13,062

 
76.1
%
 
4,145

 
31.7
 %
Selling, general and administrative
13,281

 
56.5
 %
 
9,490

 
55.3
%
 
3,791

 
39.9
 %
Research and development
208

 
0.9
 %
 

 
%
 
208