Viemed Healthcare, Inc. (NASDAQ:VMD) Q1 2024 Earnings Call Transcript May 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 First Quarter 2024 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 first quarter 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: Alright. Thank you, Todd, and good morning, everyone. Thank you for joining our call today. I’m excited to share that the first quarter of 2024 has set a solid foundation for Viemed’s trajectory this year. Operationally, we are ahead of schedule despite encountering some cash flow disruptions related to the change health care situation, which we’ll cover later on in the call. Our revenue grew by an impressive 28%, a testament to the dedication and tireless efforts of our more than 1,000 team members. At Viemed, we recognize that our employees are our most valuable asset, and investing in their development and well-being is paramount to our success. On to the quarter update. Our new sales restructuring is showing tremendous success with sales rep bid production up over 30% from Q4, putting us ahead of schedule of achieving our internal goals for the year.
The structure has proven out to help keep our managers and trainers closer to home, which is making them more effective in the field, working with new and existing reps. We have also been able to support more of their professional growth and ongoing development through offering more mentorship oversight and instruction. Moreover, we are achieving a healthy work life balance for our people, which is creating an environment for further growth within our existing infrastructure. A lot of good work was completed on our first hospital joint venture project with HomeMed at the East Alabama Medical Center, which is completed on April 1. This partnership exemplifies our belief in leveraging synergies between Viemed’s clinical expertise and business acumen with the immediate patient needs within the hospital networks.
This model will account for bringing more service and technology into the home for the patients of East Alabama, while cultivating an improved complex respiratory program inside of the medical center. Our team views this opportunity as a new way of growing our business and is laser focused on making this project success, one that we will replicate around the country. Discussions with other hospital JVs are actively underway. Furthermore, our integration of HMP acquisition is hitting its stride and driving product diversification for our business. This product diversification and talent from our HMP team have been a major driver of our success, particularly with the hospital joint venture strategy. With the help and expertise of the HMP team, we were able to offer a full suite of DME products to help support the patients in East Alabama, extending our offering to go beyond respiratory.
By joining forces, we’re not only poised to revolutionize care delivery, but also to drive tangible improvements in in hospital profitability, while significantly expanding our reach into previously untapped markets. Our merger and acquisition pipeline is gaining traction and we are starting to see more conversations and activities from prospective targets. With that being said, we remain steadfast in our commitment to organic growth as a primary driver of our business. We still view strategic acquisitions and joint ventures as complementary springboards to our organic growth strategy. This strategy allows us to focus on making prudent transactions as we do not have to rely on M&A to grow the business. We also focused a good portion of our efforts in Q1 around innovating our care delivery model.
We’ve implemented innovative technology processes that harness the power of machine learning capabilities, which are evolving our operations, particularly in streamlining time consuming back-office tasks such as reauthorization submissions. By automating these processes, we’ve not only enhanced efficiency, but also freed up valuable resources, allowing our team to redirect their efforts towards delivering high quality care to our patients. We work closely with two of our vent manufactures to connect their devices to Engage Care Manager 2.0, our proprietary clinical and operational platform. Effective care delivery in the modern health care landscape necessitates the seamless integration of exceptional service with cutting edge technology. Our technology centric approach enables us to seize data driven opportunities, capitalize on emerging trends and strengthen our ability to deliver value driven solutions for our payers and hospital partners.
As legacy manufacturers such as Philips are gradually exiting certain product categories, the industry is paving the way for the emergence of new generation of manufacturers equipped with the expertise to develop and deliver more improved technologies in enhanced connected capabilities. Furthermore, we’re poised to capitalize on incentive programs related to Phillips trade-ins and remediation on the Trilogy 100 ventilators, enabling us to significantly lower the age of our ventilator asset base in an extremely cost competitive manner. ResMed has also completed a few studies on the effects of GLP-1 drugs for sleep apnea patients. The latest data is showing that there is a 10.5% higher propensity to start PAP over those not using the GLP-1 drug.
More patients are going to see the physician about their weight problems and the data shows that while the drug does help reduce AHI 59% to 63%, the patients are still left with moderate sleep apnea, which means they will suffocate every three minutes of sleep after treatment of the drugs are administered. We also saw an announcement that the Samsung Galaxy Watch is now De Novo authorized by the FDA to detect signs of sleep apnea, which should pave the way for the Google Fitbit and Apple Watch to follow suit. The emergence of these technological advancements stands to streamline the diagnosis of sleep therapy into the mainstream population. We expect this development would be significant to grow in our sleep and resupply business. On the regulatory front, Viemed continues to navigate the evolving landscape of health care policy and reimbursement.
Despite industry efforts, the government is yet to resolve a regulatory relief package for the expiration of the 75-25 blended rate, a last remnant of the COVID related relief measures stemming from the pandemic. As a reminder, our comprehensive analysis suggests that the long-term impact on our business is expected to be minimal, thanks to a combination of factors, including our diversified product mix and strategic rural concentration. Looking ahead, we remain optimistic about the reimbursement environment and by the stability of rates indexed to inflation. The indexing mechanism serves as a natural hedge for our operations, providing a degree of predictability and financial security. Moreover, our proactive approach to monitoring regulatory developments and engaging with policymakers positions us to adapt swiftly to changes and capitalize on emerging opportunities.
With more financial and operational updates on the quarter, I will now hand the call over to our Chief Operating Officer, Todd Zehnder. Todd?
Todd Zehnder: 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’s website. Our core business generated net revenue of $50.6 million during the first quarter of 2024 as compared to net revenues of $39.6 million in the first quarter of 2023, which equates to a 28% increase. Our revenue was relatively flat sequentially, which is not uncommon when comparing 4Q to 1Q. And as we’ll discuss later, we expect rapid sequential growth throughout the year. Operationally, the first quarter was extremely strong. But as we’ve indicated in the past, it also brings seasonal challenges due to re-offs and patient switching or resetting insurance plans. When comparing 1Q 2024 to 4Q 2023, our AR reserves were approximately $2.5 million higher in the current quarter, which shows how operationally strong the quarter was and why we’re excited about the rest of this year.
As in the past, we continue to stay optimistic that we will be able to continue our high organic growth rates, as well as additional inorganic opportunities on top of the recent joint venture. Our first quarter revenue from vents was approximately 58% as compared to 65% in the first quarter of 20 23. Our gross and EBITDA margins are still strong as we are focused on both margin and diversification. We continue to be successful in managing our cost structure this year and it is showing in both gross and EBITDA contribution. Consistent with prior years, our first quarter margins are lower than other periods due to higher bad debt reserves, as well as cyclical costs that tend to be higher earlier in the year. Our gross and EBITDA margins during the quarter came in at 59% 20% respectively.
Our first quarter gross and EBITDA amounts came in at $29.8 million and $10.1 million respectively. We are once again very excited to the beginning of the year from an operational perspective and know that the fast start will translate into solid financial performance throughout the year. Our SG&A for the quarter totaled approximately $24.8 million as compared to $19.8 million in the first quarter of 2023. G&A as a percentage of revenue decreased from 50% during the first quarter of 2023 to 49% during 2024 and continues our theme of managing our G&A well. As mentioned, certain items such as payroll taxes and PTO accruals reset in the first quarter each year. Therefore, the sequential comparison from 4Q to 1Q is always a challenge. We expect our annual margins to approximate prior years as these items normalize throughout the year.
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 $5.8 million of capital expenditures spread out amongst our various respiratory products. 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. We have once again funded our CapEx out of discretionary cash flow and continue to manage the business in order to drop free cash flow onto the balance sheet. Our percentage of CapEx to EBITDA was healthy at 57%. We will continue to disclose our annual discretionary free cash flow, but the quarter fluctuations in that metric make it less relevant.
This quarter, in particular, saw a lower cash build and significant increase in our accounts receivable. As most everyone is aware, the cyber-attack on Change Healthcare during February has put some operational and financial stresses on the healthcare system. As we briefly discussed during our last call, our team began to redirect certain claims during March to alternate payment clearing houses. While we were able to move swiftly on some of our larger carriers, the process to redirect all of our payers remains ongoing. We are confident that we have moved the majority of the dollars and have seen payments pick up over the last few weeks. We are optimistic that the vast majority of the delayed cash deposits should be caught up by the end of the second quarter.
Our goal currently is to make sure the Change situation turns out only to be a delay in cash collections. And in order to do that, our team is working diligently to make sure all claims are filed and accepted through alternate options. I’m very proud of the revenue cycle team along with our workflow partner Bonafede and the diligence that we have shown in this process. Our capital allocation opportunities remain consistent with last year, and we will reiterate that our organic growth is the highest priority. Our inorganic growth, debt pay down and then equity buybacks continue to fall into the two through four slots as to priority. We are happy to have recently announced our first joint venture and also remain very proud of our pristine balance sheet.
We ended the quarter in a net cash positive position once again and have total long-term debt of $5.9 million. Our working capital at the end of the quarter was $8.4 million. All-in-all we remain excited and proud about all of our metrics and continue to look forward to upcoming quarterly results. Moving on to the second quarter. We have provided net revenue guidance in the $53.8 million to $54.8 million range related to our core business, which includes approximately $1 million related to the recent joint venture. The midpoint of our net revenue guidance is up 25% over the core revenue in the second quarter of 2023 and is showing extremely impressive sequential growth. As stated last quarter, the first quarter brings some seasonality challenges, but our operational success during the quarter has set up a path to rapid growth throughout the year.
We remain active in our discussions with investors and analysts and once again have seen our U.S. institutional ownership increase over the last couple of quarters. 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 the call back over to Casey to wrap things up.
Casey Hoyt: Thank you, Todd. As we reflect on the remarkable achievements of the first quarter of 2024, we’re filled with a profound sense of optimism and enthusiasm for our journey ahead. Throughout the call, we’ve discussed our robust financial performance, strategic initiatives and the resilience of our team in the face of challenges. Our view of the emergence of GLP-1 drugs is aligned with the data available and should be a major opportunity for us. The technological advancements of mainstream wearables hold the potential to revolutionize the diagnosis and management of home sleep studies and drive tremendous patient volume our way. Despite encountering some cash flow disruptions related to the Change Health Care situation, our unwavering commitment to operational excellence has propelled us forward, ensuring that Viemed remains well positioned for sustained growth and success.
First quarter of 2024 marked a significant milestone for Viemed with our net revenue growing by an impressive 28% compared to the same period last year. Looking ahead to the second quarter and beyond, we remain extremely optimistic about our prospects for continued growth and success in all of our core products. Our guidance for net revenue reflects our confidence in the strength of our core business and the effectiveness of our growth strategies. As we embark on this exciting journey, we are deeply grateful for the ongoing support and confidence of our investors, analysts, employees and partners. Together, we will continue to push the boundaries of innovation, drive positive change and deliver superior value to all stakeholders. Thank you once again for your continued trust and support.
We look forward to sharing our progress with you in the quarters to come. This concludes our prepared remarks. Thank you. We’ll now open up for further questions.
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