Viemed Healthcare, Inc.
Q4 2020 Earnings Call Transcript

Published: 3 Mar 2021

[Operator:]

Greetings, and welcome to the Viemed Fourth Quarter and Year-End 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Todd Zehnder, Chief Operating Officer of Viemed. Thank you, Mr. Zehnder. You may begin.

[Todd Zehnder:]

Great. Thank you, Devon. 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.

[Casey Hoyt:]

Okay. Thanks, Todd. Welcome, everyone. We appreciate you joining our call this morning. I am once again thrilled to have the opportunity to be reporting on yet another record-breaking quarter for Viemed. I'm looking forward to share the details that contributed to our positive results. But before I do, let me first recognize our Viemed employees, whom we treat like family. The resiliency of our people at every level throughout the company has been nothing short of incredible in 2020. In a pandemic year where we saw limited access to referral sources with most competitors struggling, we were able to grow our core business by 21%. Our folks have been willing to adapt to many changes this year and have done so with grace, respect and continued passion for delivering the best patient care throughout the communities we serve. I remain honored and privileged to be leading these people, and can say with great certainty that they are the reason we continue to achieve these exceptional financial results. Thank you so much for your perseverance and dedication in our company. Today, we'll talk a lot about the activity in the fourth quarter, surrounding the investments and changes we made during the pandemic that we expect will enhance the core business in 2021. Our report on our technology rollouts speak to how they have begun to provide value and land new business, as well as update everyone on our behavioral health offering through our new division, Viemed Clinical Services. So, in addition to updating everyone on our organic business, we will update our audience on many of our initiatives, including the technology, behavioral health and a brand new published study in respiratory medicine, and the new contract we executed with Commonwealth ACO.

[Todd Zehnder:]

All right. Thanks, Casey. In reviewing the financial results, all figures are in U.S. dollars, and the full results have been made available on the SEC website as well as SEDAR. Our core business generated net revenue of $26.1 million during the fourth quarter of 2020, as compared to net revenues of $21.4 million in the fourth quarter of 2019, which equates to a 22% increase. Additionally, revenue attributable to our core business was up approximately 5% sequentially, which is another good growth rate as we continue navigating the ongoing COVID-19 pandemic. During the current quarter, we generated approximately $5.1 million of equipment and service revenue from the ongoing pandemic. The COVID-related revenue resulted primarily from contact tracing services and sales of PP&E. On an annual basis, our core revenue grew approximately 21%, which is lower than our historical organic growth rate, but still a number that we are quite proud of with all the disruption caused from COVID. When factoring in the COVID sales, our revenue grew 64% over 2019.

[Casey Hoyt:]

Thanks, Todd. While challenging to navigate the pandemic has really provided Viemed an opportunity to showcase our clinical capabilities, while doubling down on investments that will drive the core business. As strong as the home healthcare industry was before COVID, now we believe we will have even more families, payers, physicians and case managers, choosing the safety and comfort of treatment in the home, over more costly and higher risk facility settings. The COVID environment in December through February of 2021 seems to be comparable to the March through May environment of 2020. We have been strategically positioning our company to excel in this new normal and fully expect to not only outperform, but to get back to pre-COVID growth rates 2021. To do so, we recognize that not only do we have to adjust with new offerings that help complement and drive our organic business, but we must also capitalize on acquisition growth opportunities as well. With a healthy balance sheet and a long standing recipe for operational efficiency, we strongly believe that many synergies can be realized by being inquisitive. In closing, I'd like to thank my management team once more. As we sit here today, and look back on another record year, it's amazing to see how many twists and turns we've made throughout the year. Our company looks way different today than it did before the pandemic. We've never been more postured for growth, since I've been running this organization. We were as energized and enthusiastic as we've ever been. And it wouldn't be this way without surrounding each other with the best working healthcare professionals in the country. I thank everyone on the call for their interest and investment into our mission, and look forward to answering further questions. This concludes our prepared remarks, we'll now open up for Q&A.

[Operator:]

Thank you. We will now conduct a question-and-answer session. Our first question comes from the line of Brooks O'Neil with Lake Street Capital Markets. Please proceed with your question.

[Brooks O'Neil:]

Good morning, guys. I want to remind you that more or bigger is not necessarily better.

[Todd Zehnder:]

Thanks, Brooks.

[Brooks O'Neil:]

All right. I just thought I'd better make sure you understand our point of view on this thing. Anyway, so obviously your comments there, Todd, towards the end of the prepared remarks related to perhaps a little slower growth of the vent business. Have you begun to see any light at the end of that tunnel? Or do you think it remains to be seen whether falling COVID cases and accelerated vaccine administration is going to return the business to a more normal environment?

[Todd Zehnder:]

Yes. We've definitely seen green shoots, if you want to call them that Brooks. And we've seen them a few times during the pandemic. We've had these fall offs, and then we come back and it feels like, there, it's about back to normal. And then we get hit with another surge or something. But yes, this is just a -- I think this is just a continuation of the peaks and valleys that we've seen over the last almost 12-months now. And it's just we're up against a quarter where there was no real COVID to speak of being the first quarter of last year. So our growth rates just aren't as high. We fully believe and I think we said it, while it's not -- we don't guide long-term, we fully believe our platform is positioned to get back to our historical growth rates. And those are all -- we are always striving for 30% to 40% organic growth. When that day comes? We're not exactly sure. We're trying a lot of different ways to get there sooner than later. But I guess long answer to say, yes, there are pockets where green shoots are there, and people are getting vaccinated at a high level. Our employees are getting vaccinated at a high level. Physicians, hospitals are getting vaccinated at a high level. So clinics will reopen and they'll reopen, we believe sometime in the first-half of this year.

[Brooks O'Neil:]

Yes. Okay, that's good. When you guys think about the business, I have a sense that organic growth in the core business is still the highest priority. But would you say strategic partnerships and acquisition opportunities in the short-term might take precedence? Or do you just kind of continue to view the business in the long-term context, and think these will all play a role in your growth going forward?

[Todd Zehnder:]

Yes. I mean, the latter, it's all going to play a role in driving organic growth. But strategic partnerships and initiatives with health systems and ACOs are very much a part of our growth model for 2021. I mean, Brooks, you know, we've been talking about doing deals with ACOs for about a year and a half, two years now. It's now at the point where we have some successful ACOs that are actually generating savings. They're understanding the value of post-acute care, and how it prevents readmissions. COVID is shining a light too on how we need to treat more of these folks in the home and keep them safe. And so that's all planned in our hand, because we were such a provider that was very resourceful and useful to them throughout the pandemic. It's opened a lot of doors for us to have some more C-level and strategic discussions that are transparent. And we don't have to have everything figured out. We've figured it out together. Because there's not many folks out there that are doing these value-based types of contracts, or even contracts with ACOs or post-acute home health companies, such as us. So, to sum it all up, it's very much a part of our focus, and we expect it to drive the organic growth part of the business as well.

[Brooks O'Neil:]

Cool. So last question. And I confess I zoned out for a second, when you're talking about the VA. But have you begun to get traction at the VA? Or is that still a work in process in your opinion?

[Todd Zehnder:]

I was that dynamic whenever I was presenting the VA. Thank you, Brooks.

[Brooks O'Neil:]

Sorry.

[Todd Zehnder:]

The VA, we have a pilot program that we've been really in the beginning phases up for the past six months that is now starting to take off. And it's a program that's funded by the VA for us to enter patients into our system and treat them on non-invasive ventilation for COPD patients, very similar to the way that we performed all three of our studies. The goal was to generate the same results that we've already proven in these three studies. So we're working with a cared innovation team at the VA, which is a little bit unique. It's not like we're working with one VA system. It's above all the VA systems. And that part is exciting for us. They have initiatives beyond just non-invasive ventilation to treat COPD patients. They want to take advantage of more in-home programs, or hospital to the home type of programs, specifically designed to treat some of their rural pockets that -- of veterans that can't get into the facilities. And so all of that eventually will play into our hand. But right now we're focusing on this pilot on just cost savings. And that is really just setting it up to be designed just like the KPMG study or the Precision or the Harvard Medical School study as well.

[Brooks O'Neil:]

Cool. And what's the timing on that? When do you...

[Todd Zehnder:]

They are saying that we will start in April, but Brooks, we're dealing with the VA. So you can't call me to time, whenever we're talking about the VA.

[Brooks O'Neil:]

Alright, I appreciate it. Keep up all the good stuff, guys.

[Todd Zehnder:]

Yep. Thanks, Brooks.

[Operator:]

Thank you. Our next question comes from the line of Anton Hie with RBC Capital Markets. Please proceed with your question.

[Anton Hie:]

Good morning, guys. And I appreciate all the color you provided on clearly a lot of stuff going on there. I wonder if we could just focus for a minute on, I guess back to Brooks' question, sort of the opportunity to accelerate out of the I guess you said kind of 12%-ish normalized kind of core growth in the first quarter. Do you see that kind of working its way back up to the 20% plus that you got in fiscal '20 in the core? Or do you think we can get back to the 30% by year-end? Is there anything structurally, that sort of prevents that from happening, whether that's just a lower starting point with baseline of new patients?

[Todd Zehnder:]

Anton, I'll take it. Obviously, we're coming into the year with a little bit slower rate, but look, we fought through 2020 and grew 21% in what we hope will be the toughest year. So, while it's not formal guidance, we sure expect to grow higher than we did in 2020 from an organic standpoint. And the way that we're rolling out new initiatives, new product offering, our hiring that we've already gotten year-to-date, the training programs that we've implemented, there's no reason for us to wake up every day not expecting to grow 30% or 40% organically. And it kind of goes back to Brooks' last question. We are an organic growth company. We're going to continue to push the envelope and hold ourselves accountable for growing this thing organically, at a much faster rate than other people in the industry.

[Anton Hie:]

That's great. And you kind of touched on it there with the hiring. I guess, already a good start on the year. A lot of the companies we follow are having some trouble with some clinical staffing. Obviously, a very different model that you guys run. But are you running against any difficulties in finding talented staff that you can train up and get in the field?

[Todd Zehnder:]

Short answer is, no. I mean, the challenge that we have is always trying to train clinicians how to sell, that can be challenging just to find a good quality sales rep that's going to stick and be productive in the event that they're not, we usually pull them back into service. But another way to think about the opportunity to come work for Viemed through the lens of the respiratory therapist is, this is an opportunity, the next advancement, the next step in their career. They've been working in the hospital doing double shifts or maybe even working for a Mom-and-pop , whenever you put them in a vehicle of their own and they have a lot more flexibility, and they still maintain the connection with their patients to drive clinical value, that is the next advancement in their career to make it a little bit more money than they were in the hospital, and so on and so forth. So they're usually happy campers for us to reach out to them and recruit them. The challenge is probably more on the sales side is just converting them into salespeople and that can take time. And usually, about month three or so we’ll know if they're going to work out or not.

[Anton Hie:]

Okay. And one more and I’ll jump back. You mentioned diversification away from events a little bit from 85% to 81%, just wondering if they're sort of a an eventual target for that mix? And if that is informed by the comments you made on the possibly expanded kind of M&A targets, given your low leverage? Thanks.

[Casey Hoyt:]

Yes. We've never really set a goal from the standpoint of percentage, because we've always thought we want to grow all of our products at an extremely rapid rate. And knowing that vents grow so fast, generally for our company, it's hard to set up an existing target. But knowing also that we've rolled out oxygen countrywide last year, we're rolling out PAPs in more of a national rollout, it's probably natural for that number to gravitate down. Where does it ultimately normalize? We're not exactly sure, but I could see it ticking down another 5% this year, if oxygen impact on a national level has as much success, just because it's just so much green pasture out there for those products. But once again, it's not like we're putting a line in the sand saying we got to get here because that's important. We just want to service as many patients with as many products as possible.

[Anton Hie:]

And just, you're kind of pushing that through the existing sales channels and contacts that you have, right?

[Casey Hoyt:]

Yes, that's correct. Most of our most product diversification is happening with existing sales people. Now, we are looking at adding some more products specific sales people throughout the organization, if we find a hot market. But think about it is just leveraging the existing platform to start things off.

[Anton Hie:]

That's great. Thanks, guys.

[Casey Hoyt:]

Thanks, Anton.

[Operator:]

Thank you. Our next question comes from the line of Nick Corcoran with Acumen. Please proceed with your question.

[Nick Corcoran:]

Good morning, and thanks for taking my questions. The first one I just wanted to ask you with revenue per patient. I think you're going to a little bit on the just diversifying away from vents, do you see that revenue per patient growing over time?

[Casey Hoyt:]

Well, we've always just disclosed our vent patients. So when you're looking at revenue per patient just on the vent, yes, it's going to -- as we continue to diversify, that number will inherently get larger.

[Nick Corcoran:]

Great. And then switching gears to the COVID revenues and the contact tracing -- contract that you have. Do you have any indication how long they'll continue on for?

[Casey Hoyt:]

Right now, calls are continuing at a very high rate. We had a yearlong contract, but I think I was pretty transparent last year that it doesn't mean that it will last for a year. We're going to continue to serve as just resource for the state as long as cases are coming in. Obviously, at some point, vaccinations are going to start catching up with new cases and that'll end. But, for right now, we still have a very full staff have people taking a bunch of calls every day, but it's hard for me to predict anything outside of the current quarter.

[Nick Corcoran:]

Great. That's all for me. Thanks for taking my questions.

[Casey Hoyt:]

Yep.

[Operator:]

Thank you. Our next question comes from the line of Doug Cooper with Beacon Securities. Please proceed with your question.

[Doug Cooper:]

Good morning, guys. And congrats on another great year. Casey, can we just -- to start up can you just remind me how many states you are operating in?

[Casey Hoyt:]

Roughly 38-ish.

[Doug Cooper:]

Is there any -- on the -- you want to expand that this year? Is there any sort of big ones on the list that we should be looking at?

[Casey Hoyt:]

Yes. I mean, we're definitely going to be expanding that this year. We hope that we grab some states that we're not in through an acquisition of some sort in 2021. We're actively looking at geographic areas where we have pockets that were not in, like contracts that we don't have. And so, we're doing a lot of homework on some of the quality providers that are in those spaces. At that point in time, you could see us grab six or seven states at one time, possibly. But again, as you know, Doug, I mean we talked about this. And the reason it doesn't just roll off the tip of my tongue is because we have lots of growth opportunities inside of our coverage area as well. That's why we just start falling with new areas with a new reps. But yes, the geographic pockets that we're not in could come through a land grab by acquisition.

[Doug Cooper:]

Okay. Just on the getting back to the patient, and the vent patients in particular. You guys have had a bunch of efficacy data sort of out there. Is there any reason to believe that the doctors now who are prescribing the therapy aren't even more comfortable now than they were, say 12-months ago, so that when it opens up, you really will have that sort of catch up trade, and accelerate through that even maybe at a faster rate than historically?

[Casey Hoyt:]

For sure, definitely. They are very much more up to speed and educated on ventilation, the different modes, the different abilities of the machines. And the problem is, is that every pulmonologist right now is actually working inside of the hospital. They're just not in their clinics, they are still in roll-up your sleeves mode and treat the masses of patients of COVID patients that are headed their way. So, once they settle back in into normal treatment mode, and once folks are comfortable going see their pulmonologist at their clinic, like they were pre-COVID, we expect that our organic growth rates will get back to where they were, between 30% and 40%.

[Doug Cooper:]

I guess my last question is sort of just a broad question. In the last 12-months, we've had some pretty big healthcare companies go public. Obviously, AdaptHealth catapulted its way into the top maybe two national provider. Apria went public a month or so ago. Do you feel that they're -- what do you think their strategy is in terms of the area that you're in? And do you expect to see any more competition, maybe specifically on the bed side? I'll leave it there. Thanks.

[Casey Hoyt:]

I don't think the launch into the public markets will change that, Doug. And I think, those companies will continue to have an active role in all of the sectors. Both of those are much larger than us in other areas, and don't focus on the chronically ill patient in the home, like we do. It's a different model, which we respect their models tremendously. We just have a different one. So, I don't think that anything -- them coming into the capital markets will change our strategy. I could be wrong, but we're excited to have more peers in the space that is definitely driven by side interest into our name, which we benefit from, and we respect them clinically. And just don't think it's going to change just because they now have a ticker symbol.

[Doug Cooper:]

And maybe just one final one. The cash balance continues to grow. If you don't do any acquisitions would you ever consider share buybacks?

[Casey Hoyt:]

I guess, the short answer is, yes. We've done them in the past. Right now, -- we've always been very clear that the best investment opportunity for us is to continue to buy equipment and get new patients. Right now, we've put a clear number two as being acquisitive. And then I would say the third would be, just like we did last time, potentially buyback stock at some point. Right now, we don't have an NCIB in place, and we don't have an active one working. But in the event that we wanted to, we've proven that we could execute on that, like we did a couple years ago.

[Doug Cooper:]

Great. Thanks. That's it for me.

[Casey Hoyt:]

All right, Doug. Thanks.

[Operator:]

Thank you. Our next question comes from the line of Antonia Borovina with Bloom Burton. Please proceed with your question.

[Antonia Borovina:]

Hi. Thanks for taking my questions. I just have some housekeeping ones. So firstly, on your SG&A, there was a sequential decline this quarter, even though you mentioned that you hired some additional sales reps. So I'm just wondering where the cost savings came from? And also, if you think your SG&A will stable in the relative near-term?

[Casey Hoyt:]

Probably the biggest things there were a little less cost related to some of the unusual items that are related to COVID. Things like commissions, or just legal fees, costs incurred with when navigating a bunch of the unusual items. The other thing would probably be the volatility in the stock price that has an impact on the mark-to-market of our Vanum shares. Those two would make up the lion's share, I would say of the volatility. And I would say that for the first quarter, we would probably think it's going to be relatively flat. And we're going to continue to grow people. We're very clear that we're trying to grow a bunch of salespeople, which means we're going to be rolling therapists and other initiatives that we've been talking about. So you should expect some increase over time, but I don't see it as a massive increase in 2021.

[Antonia Borovina:]

Okay. And then on the margins, there's also an improvement there. So just wondering if that's primarily due to the shift, I guess, away from COVID sales, or if it's other products and exchanges, which are improving your margins over time?

[Todd Zehnder:]

It's is probably the former, when you're looking at the overall, when you have less of the total revenue coming in from COVID like sales, that's going to improve our gross margins. And generally, what we've said is the core business runs at a higher gross margin then when COVID involved. But COVID was very good from our EBITDA margin standpoint, it almost dropped straight to the bottom-line, when you got to gross. So that's probably the main driver of it. As we've said, as we continue to diversify the product base, the percentage margin might have a little bit of weakness on it. We may take down a point or two over a year or so. But the notional amount and what that does for our business, having multiple products on patience and having the platform of one salesperson, one RT, and all the infrastructure we have back at home office is a very accretive thing for us, and it's the right thing to do for patients and referral sources.

[Antonia Borovina:]

And then finally, can you maybe just remind us whether you have seasonality in your business, with regards to the number of vented patients and also revenue per patient?

[Todd Zehnder:]

We've never really talked too much about seasonality. Although, generally speaking, new patient referrals are stronger during cold months, and not as strong during the warm months. But with that said, our patient attrition due to patients expiring generally is higher during the cold months and not as high during the warm months. So we've never had too much of an issue with that. During the current time, like I've said, current referrals are a little slower with like Casey said practices being shut down, pulmonologist being leaned on to serve as really triage doctors in ERs. And then specifically at the beginning of the year, we face a lot of reauthorizations from insurance companies. And that many times takes a patient having to go see their doctor face to face. So patients don't want to go to clinics and sometimes clinics aren't open. So we're navigating through that. The last piece is the cold really got it. It was really cold down here for about a few weeks and that did impact us and the State of Texas and Louisiana, as without power people had to go back into facilities to a certain extent. So, you add all that up, there was some seasonality this year, but it's not something that we normally have to contend with in a major way.

[Antonia Borovina:]

Okay. That's all for me. Thanks.

[Todd Zehnder:]

Thank you.

[Operator:]

Our next question is a follow-up question from the line of Anton Hei with RBC Capital Markets. Please proceed with your question.

[Anton Hie:]

Hey. You kind of answered it already. I want to get a follow-up just to try to get some visibility on the effect of the kind of mid-February winter storms. I guess, the main issue really is access to patients and being able to get that normal kind of start of the billing cycle. Am I right on that?

[Casey Hoyt:]

Yes, it was really probably the major thing from the mid-February thing is that when patients lose power, that vent doesn't last forever. It only has a certain battery time. So if they -- many of our very, very sick patients had to go into facilities and depending on when their billing cycle is, that might cause us to lose that month. So that's part of it. The other is, like I said, just having access to physicians and having patients actually get to their physicians for reauthorization face to face notes. It fun ADAS to a certain extent, but we're working through. It's just part of the normal day to day operations. And we should be coming out of it here pretty soon.

[Anton Hie:]

That's great. And one other one that you touched on in a previous answer, that spot my curiosity on some of the -- all these great growth initiatives that you have going on, thoughtful M&A, new strategic partnerships. Just talk a little bit if you could either Todd or Casey, but I guess the scalability of the organization there from HQ.

[Casey Hoyt:]

Yes. I mean, if we take a step back and think about how we always have gotten business up to this point, it's just been 1z, 2z knocking on doors, patient by patient that comes to the hospital or comes from the physician clinic. Now we have an opportunity with 10,000 patients that may use ACO, the Commonwealth contract as an example. They've got over 10,000 patients in that network. And so what they want us to do is go in there, find, identify the candidates for our care, and then get them on our non-invasive vents, prevent the readmissions. And let's analyze how many -- how much cost savings are at stake to where we can take it to the next level and do a risk value-based shared agreement. We're going to see more and more of this. But it's the first opportunity that we've had where we're getting warm leads and patients in a higher volume. And so, you knock down one of these and you produce some results, then it's really easy to tell that story to the next one. And we've already started doing that. Anton, it's just we hope to be talking about more of these strategic partnerships here in 2021, as we knock them down.

[Anton Hie:]

But you feel like you have the organizational structure to support going into these with some size?

[Casey Hoyt:]

Absolutely. And I'll just comment to that, our technology platform is a big selling point to these guys as well. I mean, they not only want to see the human interaction in the home, but they want to see the technology benefits that and efficiencies that you create. And being able to talk to their EHRs and report back on the real-time outcomes is such a huge part of this and piece of this. As well as offering their physicians and their network a way of effectively managing through remote physiological monitoring, which is our View platform, that's another incremental revenue stream for them, and it drives good clinical value. Just last month, we had one doctor that I think said that he prevented four strokes from analyzing some of the remote physiological monitoring on his patients database. So we're seeing those type of good clinical results. Once we get that, we're off to the races.

[Anton Hie:]

That's great. Thanks a lot, guys.

[Operator:]

This does conclude today's question-and-answer session. I'd like to turn the floor back over to management for closing comments.

[Casey Hoyt:]

Yes. Thanks, Devon, for the help today. And thanks to all of you who are listening and asking questions. We will be available for follow-ups, either through Bristol or ourselves and look forward to catching up next quarter.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.