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VMD Viemed Healthcare

Filed: 3 May 21, 5:29pm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
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)
   
 
625 E. Kaliste Saloom Rd.
Lafayette, LA 70508
 
(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 classTrading Symbol(s)Name of exchange on which registered
Common Shares, no par valueVMDThe 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  x    No  ☐

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
Emerging growth company
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 April 23, 2021, there were 39,577,288 common shares of the registrant outstanding.


VIEMED HEALTHCARE, INC.
TABLE OF CONTENTS
March 31, 2021 and 2020



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)
NoteAt
March 31, 2021
At
December 31, 2020
(Unaudited)(Audited)
ASSETS
Current assets
Cash and cash equivalents$31,097 $30,981 
Accounts receivable, net of allowance for doubtful accounts of $7,999 and $9,013 at March 31, 2021 and December 31, 2020, respectively213,282 12,373 
Inventory, net of inventory reserve of $1,349 and $1,353 at March 31, 2021 and December 31, 2020, respectively22,220 2,310 
Prepaid expenses and other assets21,674 1,511 
Total current assets$48,273 $47,175 
Long-term assets
Property and equipment, net353,996 55,056 
Equity investments2953 733 
Deferred tax asset98,918 8,733 
Other long-term assets8861 863 
Total long-term assets$64,728 $65,385 
TOTAL ASSETS$113,001 $112,560 
LIABILITIES
Current liabilities
Trade payables$2,534 $2,096 
Deferred revenue3,422 3,409 
Income taxes payable340 340 
Accrued liabilities412,013 12,595 
Current portion of lease liabilities51,688 2,741 
Current portion of long-term debt51,858 1,836 
Total current liabilities$21,855 $23,017 
Long-term liabilities
Accrued liabilities71,654 1,292 
Long-term lease liabilities5748 762 
Long-term debt55,323 5,796 
Total long-term liabilities$7,725 $7,850 
TOTAL LIABILITIES$29,580 $30,867 
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Common stock - No par value: unlimited authorized; 39,577,288 and 39,185,182 issued and outstanding as of March 31, 2021 and December 31, 2020, respectively7$13,649 $9,181 
Additional paid-in capital4,224 7,320 
Accumulated other comprehensive loss(345)(451)
Retained earnings65,893 65,643 
TOTAL SHAREHOLDERS' EQUITY$83,421 $81,693 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$113,001 $112,560 
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 March 31,
Note20212020
Revenue2$28,416 $23,806 
Cost of revenue10,674 8,253 
Gross profit$17,742 $15,553 
Operating expenses
Selling, general and administrative14,509 10,577 
Research and development339 174 
Stock-based compensation71,307 1,151 
Depreciation200 205 
Loss (gain) on disposal of property and equipment76 (1,169)
     Other income(21)
Income from operations$1,332 $4,615 
Non-operating expenses
Loss (gain) from equity method investments(220)27 
Interest expense, net of interest income591 158 
Net income before taxes1,461 4,430 
Provision (benefit) for income taxes9(223)187 
Net income$1,684 $4,243 
Other comprehensive income (loss)
Change in unrealized gain/loss on derivative instruments, net of tax106 (312)
Other comprehensive income (loss)$106 $(312)
Comprehensive income$1,790 $3,931 
Net income per share
Basic10$0.04 $0.11 
Diluted10$0.04 $0.11 
Weighted average number of common shares outstanding:
Basic1039,129,407 38,030,854 
Diluted1040,663,368 39,677,983 

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 StockAdditional paid-in capitalAccumulated other comprehensive lossTotal Shareholders'
equity
SharesAmountRetained
earnings
Shareholders' equity, December 31, 201937,952,660$3,366 $6,377 $(157)$34,113 $43,699 
Stock-based compensation - options— — 891 — — 891 
Stock-based compensation - restricted stock— — 260 — — 260 
Exercise of options4,737 15 — — — 15 
Shares issued for vesting of restricted stock units529,375 3,276 (3,276)— — 
Change in accumulated other comprehensive loss, net of tax(312)(312)
Net income— — — — 4,243 4,243 
Shareholders' equity, March 31, 202038,486,772 $6,657 $4,252 $(469)$38,356 $48,796 
Common StockAdditional paid-in capitalAccumulated other comprehensive lossTotal Shareholders'
equity
SharesAmountRetained
earnings
Shareholders' equity, December 31, 202039,185,182 $9,181 $7,320 $(451)$65,643 $81,693 
Stock-based compensation - options— — 1,078 — — 1,078 
Stock-based compensation - restricted stock— — 229 — — 229 
Exercise of options16,586 65 — — — 65 
Shares issued for vesting of restricted stock units556,840 4,403 (4,403)— — 
Shares redeemed to pay income tax(181,320)— — — (1,434)(1,434)
Change in accumulated other comprehensive loss, net of tax— — — 106 — 106 
Net income— — — — 1,684 1,684 
Shareholders' equity, March 31, 202139,577,288 $13,649 $4,224 $(345)$65,893 $83,421 











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)
Three Months Ended March 31,
Note20212020
Cash flows from operating activities
Net income$1,684 $4,243 
Adjustments for:
Depreciation2,609 2,130 
Change in allowance for doubtful accounts21,819 2,846 
Change in inventory reserve(4)
Share-based compensation71,307 1,151 
(Gain) loss on equity method investments(220)27 
Loss (gain) on disposal of property and equipment76 (1,169)
Deferred income taxes (benefit)(222)
Net change in working capital
Increase in accounts receivable(2,728)(6,755)
Decrease (increase) in inventory94 (425)
Increase in prepaid expenses and other current assets(161)(2,952)
Increase in trade payables438 3,598 
Increase in deferred revenue13 79 
Decrease in accrued liabilities(77)(2,361)
Increase in income tax payable195 
Net cash provided by operating activities$4,628 $607 
Cash flows from investing activities
Purchase of property and equipment(1,797)(4,220)
Investment in equity investments(32)
Proceeds from sale of property and equipment99 2,541 
Net cash used in investing activities$(1,698)$(1,711)
Cash flows from financing activities
Proceeds from exercise of options65 15 
Principal payments on notes payable5(37)(33)
Principal payments on term note5(414)(395)
Shares redeemed to pay income tax7(1,434)
Repayments of lease liabilities(994)(3,429)
Net cash used in financing activities$(2,814)$(3,842)
Net increase (decrease) in cash and cash equivalents116 (4,946)
Cash and cash equivalents at beginning of year30,981 13,355 
Cash and cash equivalents at end of period$31,097 $8,409 
Supplemental disclosures of cash flow information
Cash paid during the period for interest$117 $165 
Cash paid during the period for income taxes, net of refunds received$$(8)
Supplemental disclosures of non-cash transactions
Property and equipment financed through finance leases$12 $3,002 
Property and equipment financed through operating leases$85 $31 

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)
March 31, 2021 and 2020

1.    Nature of Business and Operations

Viemed Healthcare, Inc. (the "Company"), through its subsidiaries, is a provider of in-home durable medical equipment ("DME") and post-acute respiratory healthcare services in the United States. The Company’s service offerings are focused on effective in-home treatment with clinical practitioners providing therapy and counseling to patients in their homes using cutting edge technology. The Company currently serves patients in 45 states in the United States. 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 625 E. Kaliste Saloom Road, Lafayette, Louisiana 70508.

The Company is an "emerging growth company," as defined in the Jumpstart Our Business Startups Act (the "JOBS Act") and a "smaller reporting company" under Rule 12b-2 of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") and, as such, has elected to comply with certain reduced U.S. public company reporting requirements.

The Company’s common shares are traded in Canada on the Toronto Stock Exchange ("TSX") under the symbol VMD.TO and in the U.S. on the Nasdaq Capital Market under the symbol VMD.

2. Summary of Significant Accounting Policies

Principles of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements are unaudited, but reflect all adjustments consisting of normal recurring accruals, which, in the opinion of management, are necessary to present fairly our Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income and Comprehensive Income, Condensed Consolidated Statements of Changes in Shareholders’ Equity and Condensed Consolidated Statements of Cash Flows for the interim periods presented. Our fiscal year ends on December 31. The Condensed Consolidated Balance Sheet as of December 31, 2020 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 and the report of our independent registered public accounting firm included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. 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.

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 and the related allowance for doubtful accounts, income tax provisions, and fair value of financial instruments. Actual results could differ from these estimates.

Accounts receivable

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.

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)
March 31, 2021 and 2020
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.

For the three months ended March 31, 2021, our evaluation takes into consideration such factors as historical bad debt experience, national and local economic trends and conditions, industry and regulatory conditions, other collection indicators and information about disaggregated receivables. The continued volatility in market conditions and evolving shifts in credit trends are difficult to predict causing variability and volatility that may have a material impact on our allowance for doubtful accounts in future periods.

The estimates and write-offs for the allowance for doubtful accounts for each reporting period were as follows:
March 31, 2021March 31, 2020
Balance, beginning of year$9,013 $7,782 
Change in allowance for doubtful accounts1,819 2,846 
Amounts written off(2,833)(432)
Balance, end of period$7,999 $10,196 

As of March 31, 2021 and 2020, no one customer represented more than 10% of outstanding accounts receivable. The Company does have receivables at March 31, 2021 from Medicare and Medicaid, representing 30% and 12%, respectively, and 42% combined, of total outstanding receivables (December 31, 2020 - 46%). As these receivables are both from government programs, there is little credit risk associated with these balances; however, these receivables are subject to billing modifications and other adjustments and estimates of the amounts of such adjustments are included in the allowance for doubtful accounts.

Revenues from Medicare and Medicaid as percentages of the Company's traditional revenue streams, excluding COVID-19 response sales and services, for the three months ended March 31, 2021 and 2020 were as follows:

Three Months Ended March 31,
20212020
Medicare revenues60 %59 %
Medicaid revenues%%
Total Medicare and Medicaid68 %67 %

Inventory

Inventory represents non-serialized respiratory supplies that consist of equipment parts, consumables, and associated product supplies and is expensed at the time of sale or use. The Company values inventory at the lower of cost or net realizable value. Obsolete and unserviceable inventories are valued at estimated net realizable value. Inventory is presented net of a reserve balance of $1,349,000 and $1,353,000 at March 31, 2021 and December 31, 2020, respectively, that relates to COVID-19 response supplies.

Property and equipment

Property and equipment is presented on the Condensed Consolidated Balance 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.

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)
March 31, 2021 and 2020
The estimated useful lives of the property and equipment are as follows:
DescriptionEstimated Useful Lives
Medical Equipment1 - 10 Years
Computer Equipment5 Years
Office Furniture & Fixtures5 - 10 Years
Leasehold ImprovementsShorter of Useful Life or Lease
Vehicles5 Years
Building15 - 39 Years
LandIndefinite Life

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

Equity investments

Equity investments on the Condensed Consolidated Balance Sheets are comprised of an investment accounted for under the equity method and an equity investment without a readily determinable fair value which is accounted for under the measurement alternative described in ASC 321-10-35-2.

The following table details the Company’s equity investments:
March 31, 2021December 31, 2020
Equity method investments$354 $134 
Other equity investments599 599 
Balance, end of period$953 $733 

Investments accounted for under the equity method are investments in unconsolidated entities over whose operating and financial policies the Company has the ability to exercise significant influence but not control. Equity method investments are initially measured at cost in the Condensed Consolidated Balance Sheets with any subsequent adjustments made to the carrying amount of the investment for the Company’s proportionate share of income or loss. The Company has recognized its share of income or loss on the gain (loss) from equity method investments within non-operating expenses in the Condensed Consolidated Statements of Income. Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the investments may exceed the fair value. No events or changes have occurred as of March 31, 2021 that would affect the carrying value of equity method investments.

Other equity investments are investments without a readily determinable fair value which do not qualify for the practical expedient in ASC 820. For these investments, the Company has elected the measurement alternative which measures the investment at cost, less any impairment. ASU 2019-04 clarifies that if an entity identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, it must measure its equity investment at fair value in accordance with ASC 820 as of the date that the observable transaction occurred. The Company was not aware of any impairment or observable price change adjustments that needed to be made as of March 31, 2021 on its investments in equity securities without a readily determinable fair value.

Comprehensive income

Comprehensive income reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Our comprehensive income represents net income adjusted for unrealized gains and losses on derivative instruments, net of tax. Accumulated other comprehensive loss is presented on the accompanying Condensed Consolidated Balance Sheets as a component of shareholders' equity.






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)
March 31, 2021 and 2020
Revenue recognition

Revenue from a customer consists of any combination of the sale and rental of 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 reimbursement rates paid 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 a 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 the 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 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 Topic 842. 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.

The revenues from each major source are summarized in the following table:
Three Months Ended March 31,
20212020
Revenue from rentals
    Ventilator rentals, non-invasive and invasive$20,351 $18,792 
    Other durable medical equipment rentals2,930 2,131 
Revenue from sales and services
    Equipment and supply sales
1,768 1,533 
    COVID-19 response sales and services2,955 1,040 
    Service revenues
412 310 
Total revenues$28,416 $23,806 

Revenue Accounting under Topic 842

The Company leases DME such as non-invasive and invasive ventilators, positive airway pressure ("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.

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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)
March 31, 2021 and 2020
Under FASB ASC Topic 842, 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. 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.

Revenue Accounting under Topic 606

The Company sells DME, replacement parts and supplies to customers and recognizes revenue based on contractual payment rates as determined by the payors at the point in time where control of the good or service is transferred through delivery to the customer. The customer and, if applicable, the payors are generally charged at the time that the product is sold. For sales of equipment previously placed in service, proceeds associated with these sales are recorded to gain (loss) on disposal of property and equipment.

The Company also provides sleep study services to customers and recognizes revenue when the sleep study results are complete, satisfying the performance obligation. In response to the COVID-19 pandemic, the Company began offering contact tracing services, which revenues are recognized in the period in which the service has been provided. The transaction price on equipment sales, sleep studies and contact tracing is the amount that the Company expects to receive in exchange for the goods and services provided. Due to the nature of the DME 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.

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.

Returns and refunds are not accepted on equipment sales, sleep study services or contact tracing 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 March 31, 2021.
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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)
March 31, 2021 and 2020
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 costs for stock options are determined at the grant date using the Black-Scholes option pricing model. Stock-based compensation costs for restricted stock units ("RSUs") 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.

For the Company’s phantom share units settled in cash, the Company computes the fair value of the phantom share units using the closing price of the Company's stock at the end of each period and records a liability based on the percentage of requisite service.

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 long-term 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.

Income taxes

The Company is subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes. The Company's income tax provisions reflect management’s interpretation of country and state tax laws. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business and may remain uncertain for several years after their occurrence. The Company recognizes assets and liabilities for taxation when it is probable that we will receive refunds from or pay taxes to the relevant tax authority. Where the final determination of tax assets and liabilities is different from the amounts that were initially recorded, such differences will impact the current and deferred income taxes provision in the period in which such a determination is made. Changes in tax law or changes in the way tax law is interpreted may also impact our effective tax rate as well as our business and operations.

Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to temporary differences between the financial statement carrying value of assets and liabilities and their respective income tax bases. Deferred income tax assets or liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be settled. The calculation of current and deferred income taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment concerning the carrying value of assets and liabilities. The current and deferred income tax assets and liabilities are also impacted by expectations about future operating results and the timing of reversal of temporary differences as well as possible audits of tax filings by regulatory agencies. Changes or differences in these estimates or assumptions may result in changes to the current and deferred tax assets and liabilities on the Condensed Consolidated Balance Sheets and a charge to or recovery of income tax expense.

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)
March 31, 2021 and 2020
Recently adopted accounting pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new guidance simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The new guidance also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending the existing guidance. The Company adopted this standard on January 1, 2020, which did not have any impact on the Company’s condensed consolidated financial statements.

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, 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, our 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 except as noted below. 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.

In November 2019, the FASB issued ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which is intended to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets. The standard replaces the current incurred loss impairment model that recognizes losses when a probable threshold is met with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. Further, the FASB issued ASU 2019-04 and ASU 2019-05 to provide additional guidance on the credit losses standard. The standard is effective for fiscal years beginning after December 15, 2022 for smaller reporting companies, including interim periods within those annual periods, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Specifically, the guidance permits an entity, when certain criteria are met, to consider amendments to contracts made to comply with reference rate reform to meet the definition of a modification under GAAP. It further allows hedge accounting to be maintained and a one-time transfer or sale of qualifying held-to-maturity securities. The expedients and exceptions provided by the amendments are permitted to be adopted any time through December 31, 2022 and do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain optional expedients elected for certain hedging relationships existing as of December 31, 2022. The Company is currently evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.

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.

The following table details the Company’s fixed assets:
March 31, 2021December 31, 2020
Medical equipment$64,136 $63,307 
Furniture and equipment2,224 2,722 
Land2,138 2,138 
Buildings5,882 5,966 
Leasehold improvements290 290 
Vehicles882 922 
Less: Accumulated depreciation(21,556)(20,289)
Property and equipment, net of accumulated depreciation and amortization$53,996 $55,056 
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)
March 31, 2021 and 2020

Depreciation in the amount of $2,409,000 and $1,925,000 is included in cost of revenue for the three months ended March 31, 2021 and 2020, respectively. Included in medical equipment above is equipment acquired under finance lease obligations whose cost and accumulated depreciation at March 31, 2021 total $4,706,000 and $793,000, respectively. At December 31, 2020, cost and accumulated depreciation on equipment acquired under finance lease obligations was $6,900,000 and $885,000, respectively.

4.     Current Liabilities

The Company’s short-term accrued liabilities are included within current liabilities and consist of the following:
March 31, 2021December 31, 2020
Accrued trade payables$1,568 $1,252 
Accrued commissions payable295 278 
Accrued bonuses payable1,414 5,190 
Accrued vacation and payroll1,590 844 
Current portion of phantom share liability6,444 4,485 
Accrued other liabilities702 546 
Total accrued liabilities$12,013 $12,595 
5.     Debt and Lease Liabilities

Senior Credit Facility

On February 20, 2018, the Company entered a Commercial Business Loan Agreement that provides for Term Loans and Lines of Credit with Hancock Whitney Bank.

Line of Credit

The Company maintains a line of credit in the amount of $10.0 million that expires May 1, 2023 under the Commercial Business Loan Agreement. Any amounts advanced on this line will be subject to an interest rate equal to the WSJ prime rate plus a margin of 0.50%, with a 3.50% interest rate floor and will be secured by substantially all of the Company's assets. There were 0 borrowings against this line of credit at March 31, 2021 or December 31, 2020.

Commercial Term Notes

On May 30, 2019, the Company entered into a term note (the “Building Term Note”) under the Commercial Business Loan Agreement in the principal amount of $4.8 million. The proceeds of the Building Term Note were used to purchase the Company's corporate headquarters. 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%.

On September 19, 2019, the Company entered into an additional loan agreement providing for a term note (the “Term Note") under the Commercial Business Loan Agreement in the principal amount of $5.0 million. The proceeds of the Term Note were utilized for general corporate purposes. Beginning October 19, 2019, the Company started making monthly principal payments of $139,000 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 incurred immaterial financing costs related to the above term notes. These deferred financing costs are amortized over the term of the loans using the effective interest method.

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)
March 31, 2021 and 2020
The Company has recognized these term notes, which have terms greater than twelve months, as follows:
March 31, 2021December 31, 2020
Notes payable$7,181 $7,632 
Less:
Current portion of notes payable(1,858)(1,836)
Net long-term notes payable$5,323 $5,796 

Under the Commercial Business Loan Agreement, the Company is subject to several restrictive covenants that, among other things, impose operating and financial restrictions on the Company. Financial covenants include a Total Debt to Adjusted EBITDA, a Loan-to-Value Ratio and a Fixed Charged Coverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains certain customary events of default, including, among other things, failure to make payments when due thereunder and failure to observe or perform certain covenants. The Company was in compliance with all covenants under the Commercial Business Term Loan Agreement in effect at March 31, 2021.

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:
March 31, 2021December 31, 2020
Lease liabilities$2,436 $3,503 
Less:
Current portion of lease liabilities(1,688)(2,741)
Net long-term lease liabilities$748 $762 

Finance lease liabilities

The Company has various finance leases for equipment with an implied interest rate at fixed rates up to 9.61%, secured by equipment, due between 2021 and 2024. The Company's weighted average interest rate was 4.69% and 2.22% for all finance lease liabilities outstanding as of March 31, 2021 and 2020, respectively. At March 31, 2021 and 2020, the weighted average lease term was approximately 0.47 years and 0.99 years, respectively. Interest expense related to these finance lease obligations for the three months ended March 31, 2021 and 2020 amounted to $19,000 and $52,000, 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 March 31, 2021, the weighted average lease term was approximately 3.19 years. Operating rental expenses were $185,000 and $184,000 for the three months ended March 31, 2021 and 2020, respectively. The related assets for operating lease liabilities have been included with property and equipment on the Condensed Consolidated Balance Sheets.

Included within these operating lease liabilities are real property leases for real estate from a related party. On August 1, 2015, the Company entered ten-year triple net lease agreements for office space with an entity that is affiliated with the Company's CEO, Casey Hoyt, and President, Michael Moore. Rental payments under these related party lease agreements are $20,000 per month, plus taxes, utilities and maintenance. Total rental payments for the use of these properties were $54,000 and $61,000 for the three months ended March 31, 2021 and 2020, respectively. The expense for these related party rents has been included within selling, general and administrative expenses.

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)
March 31, 2021 and 2020
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 and include cash on hand, deposits in banks, and money market funds. Due to their short-term nature, the carrying amounts reported in the Consolidated Balance Sheets approximate the fair value of cash and cash equivalents.

The fair value of debt is classified as Level 2 for the periods presented and approximates its carrying value.

Derivative instruments and hedging activities

The Company recognizes its interest rate swaps as either assets or liabilities in the accompanying Condensed Consolidated Balance Sheets at fair value. The valuation of these derivative instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. As of March 31, 2021, the Company holds 1 interest rate swap contract which matures on May 30, 2026, which has a notional amount of $4.6 million. This contract is designated as a cash flow hedge. In the first three months of 2021, ineffective portions of the hedge were immaterial. The fair value was $(0.3) million (determined based on Level 2 inputs) and is included in accrued liabilities, as a component of long-term liabilities as of March 31, 2021.

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 39,577,288 and 39,185,182 shares were issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.

For the three months ended March 31, 2021, the Company repurchased and canceled 181,320 common shares at a cost of $1.4 million due to tax withholding for RSUs vesting. The Company’s retained earnings were reduced by the amount paid for the shares repurchased for cancellation.

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)
March 31, 2021 and 2020
Stock-based compensation

Effective June 11, 2020 (the "Effective Date"), the Company’s shareholders approved the Company's 2020 Long Term Incentive Plan (the "Omnibus Plan"). Upon approval of the Omnibus Plan, no future awards are available to be made under the Company's previous RSU and Option Plans (collectively, the "Former Plan"), and the common shares that were not settled or awarded under the Former Plan as of the Effective Date are available for awards under the Omnibus Plan. The maximum number of common shares that are available for awards under the Omnibus Plan and under any other security-based compensation arrangements adopted by the Company, including the Former Plan, may not exceed 7,758,211 shares (equal to 20% of the issued and outstanding common shares of the Company on the Effective Date). The maximum amount of the foregoing common shares that may be awarded under the Omnibus Plan as “incentive stock options” is 2,600,000 common shares. As of March 31, 2021, the Company had outstanding options of 3,835,000 and RSUs of 185,000 associated with common shares under the Omnibus Plan.

The following table summarizes stock-based compensation for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Stock-based compensation - options$1,078 $891 
Stock-based compensation - restricted stock units229 260 
Total$1,307 $1,151 

At March 31, 2021, there was approximately $5,819,000 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 2.42 years. As of March 31, 2021, there was approximately $867,000 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 1.18 years.

Options

The following table summarizes stock option activity for the three months ended March 31, 2021:
Number of options
 (000's)
Weighted average exercise price(1)
Weighted average remaining contractual life
Aggregate intrinsic value(2)
Balance December 31, 20203,057 $4.37 7.9 years$10,362 
Issued806 8.57 
Exercised(17)3.81 
Expired / Forfeited(11)7.78 
Balance March 31, 20213,835 $5.25 8.1 years$18,677 
(1)For presentation purposes, stock options issued with a CAD exercise price have been translated to USD based on the prevailing exchange rate on the date of grant.
(2)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 ($10.12).

The aggregate intrinsic value of options outstanding was $18,677,000 and options exercisable were $12,284,000 at March 31, 2021. For the three months ended March 31, 2021, 16,586 shares of common stock were issued pursuant to the exercise of stock options.

At March 31, 2021, the Company had 1,878,000 exercisable stock options outstanding with a weighted average exercise price of $3.58 and a weighted average remaining contractual life of 7.2 years. At December 31, 2020, the Company had 971,000 exercisable stock options outstanding with a weighted average exercise price of $3.09 and a weighted average remaining contractual life of 6.9 years.
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)
March 31, 2021 and 2020
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. The assumptions used to determine the grant date fair value of the stock options granted during three months ended March 31, 2021 were as follows:
Exercise price$8.57
Risk-free interest rate0.60%
Expected volatility67.57%
Expected term5.76 years
Expected dividend yieldNaN
Fair value on date of grant$5.05

Restricted stock units

The Company also grants RSUs to directors, officers, and employees. The Company accounts for RSUs using fair value. The fair value of the RSUs has been charged to the Condensed Consolidated Statements of Income and Comprehensive Income and credited to additional paid-in capital over the vesting period, based on the stock price on the date of grant. RSUs vest generally over a one or three-year period. The Company accounts for forfeitures on RSUs under ASU 2016-09 and recognizes forfeitures in the period in which they occur.

The following table summarizes RSU activity for the three months ended March 31, 2021:
Number of RSUs (000's)
Weighted average grant price(1)
Weighted average remaining contractual life
Aggregate intrinsic value(2)
Balance December 31, 2020684 $3.04 0.22 years$5,308 
Issued63 8.57 
Vested(557)2.07 
Expired / Forfeited(5)5.04 
Balance March 31, 2021185 $7.76 1.18 years$1,875 
(1)All future equity grants will be awarded in USD, therefore, RSUs issued with a CAD grant price have been translated to USD based on the prevailing exchange rate on the date of grant for presentation purposes.
(2)The aggregate intrinsic value of time-based RSUs outstanding was based on our closing stock price on the last trading day of the period ($10.12).

During the three months ended March 31, 2021, the Company issued 63,306 RSUs with a vesting term of three years and a fair value of $8.57 per share.

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 based on the fair value of the Company's common stock on the vesting date. Phantom share units vest annually over a three-year period.

The following table summarizes phantom share unit activity for the three months ended March 31, 2021:
Number of phantom share units (000's)
Balance December 31, 2020985 
Issued
Vested
Expired / Forfeited(34)
Balance March 31, 2021951 
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)
March 31, 2021 and 2020

The cash-settled phantom share units are accounted for as liability awards and are re-measured at fair value each reporting period until they become vested with accrued liability and related expense being recognized over the requisite service period. 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:
Three Months Ended
March 31, 2021
Share price (Nasdaq closing price on March 31, 2021)$10.12 
Remaining life of phantom share units0.11 - 2.11 Years
Calculated fair value of phantom share units$7,808 

The total liability associated with phantom share units at March 31, 2021 is $7,808,000, with $6,444,000 of this amount included in current accrued liabilities and the remaining portion of $1,364,000 included in long-term accrued liabilities.

The impact associated with the fair value re-measurement of phantom share units is recorded in selling, general and administrative expenses within the unaudited Condensed Consolidated Statements of Income and Comprehensive Income. The following table summarizes expense associated with the phantom share units for the three months ended March 31, 2021 and 2020 (in thousands):
Three Months Ended March 31,
20212020
Selling, general, and administrative$2,465 $(697)

The Company paid 0 cash settlements during the three months ended March 31, 2021 and 2020, pertaining to vestings of cash-settled phantom share units.

8.     Commitments and Contingencies

Legal Proceedings

The Company accrues estimates for resolution of any legal and other contingencies when losses are probable and reasonably estimable in accordance with ASC 450, Contingencies (“ASC 450”). No less than quarterly, we review the status of each significant matter underlying a legal proceeding or claim and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any legal proceeding or claim is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made, which may prove to be incomplete or inaccurate or unanticipated events and circumstances may occur that might cause us to change those estimates and assumptions. Furthermore, the outcome of legal proceedings is inherently uncertain, and we may incur substantial defense costs and expenses defending any of these matters.

In March 2020, the Company (through its subsidiary Sleep Management LLC) submitted a purchase order (the “Purchase Order”) to Vyaire Medical, Inc. d/b/a CareFusion Respiratory Technologies (“Vyaire”) for respiratory equipment. The Company ultimately prepaid $1.4 million towards the delivery of such respiratory equipment. Vyaire was unable or unwilling to deliver the vast majority of the respiratory equipment referenced in the Purchase Order, and also refused to refund the prepayment amount (less the amounts paid for equipment actually received). On July 29, 2020, the Company (through its subsidiary Sleep Management LLC) filed a lawsuit against Vyaire in the United States District Court for the Western District of Louisiana (the “Court”). This lawsuit was dismissed on December 8, 2020 in connection with the commencement of the lawsuit filed by the Company (through its subsidiary Sleep Management) on November 5, 2020, against Vyaire in the 15th Judicial District Court for the Parish of Lafayette, Louisiana (the “State Court”) seeking damages for breach of contract and seeking a declaratory judgment that the Company is not required to pay any further funds to Vyaire. On December 28, 2020, Vyaire filed its Answer, Affirmative Defenses, and Reconventional Demand (“Reconventional Demand”) with the State Court alleging breach of contract and seeking damages of $4.7 million, purportedly for the improper cancellation of the Purchase Order. The Company filed its Answer to the Reconventional Demand on February 12, 2021 and the parties are currently engaged in discovery.

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)
March 31, 2021 and 2020

We continue to believe that we have valid legal and equitable grounds to recover our outstanding prepayment as a result of Vyaire’s failure to deliver the vast majority of the respiratory equipment referenced in the Purchase Order. We have not concluded that a loss related to the Reconventional Demand is probable, nor have we accrued a liability related to this claim. Although a loss may be reasonably possible (as defined in ASC 450), we do not have sufficient information to determine the amount or range of reasonably possible loss with respect to the Reconventional Demand given that the dispute is in the early stages of the legal process. As of March 31, 2021, outstanding funds in the amount of $0.9 million related to undelivered respiratory equipment are included within other long-term assets.

9.     Income Taxes

For the three months ended March 31, 2021, the Company recorded an income tax benefit of $0.2 million, which includes a discrete tax benefit of $0.9 million for excess tax benefits associated with stock-based compensation arrangements. Excluding the impact of the discrete tax benefit, the effective rate for the three months ended March 31, 2021 is 43.7%. Our effective tax rate is based on forecasted annual results which may fluctuate significantly through the rest of the year, in particular due to the uncertainty in our annual forecasts resulting from the unpredictable impact of the COVID-19 pandemic on our operating results.

At March 31, 2021 and 2020, 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 2016.

The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act which was signed into law on March 27, 2020 includes various income and payroll tax provisions. As of March 31, 2021, the CARES Act has not had a material impact on our condensed consolidated financial statements, however, the Company is still analyzing these provisions of the CARES Act.
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)
March 31, 2021 and 2020
10.     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. Using the treasury stock method, 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 and the vesting of RSUs 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 March 31,
20212020
Numerator - basic and diluted:
Net income attributable to shareholders$1,684 $4,243 
Denominator:
Basic weighted-average number of common shares39,129,407 38,030,854 
Diluted weighted-average number of shares40,663,368 39,677,983 
Basic earnings per share$0.04 $0.11 
Diluted earnings per share$0.04 $0.11 
Denominator calculation from basic to diluted:
Basic weighted-average number of common shares39,129,407 38,030,854 
Stock options and other dilutive securities1,533,961 1,647,129 
Diluted weighted-average number of shares40,663,368 39,677,983 

Page 21

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
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.

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") a pandemic. Based on the duration and severity of the impacts of the COVID-19 pandemic, including but not limited to any negative economic conditions arising from the pandemic, our ability to assess potential patients in hospitals and set up and treat patients in the home, and the impacts of government actions and administrative regulations on the healthcare industry and broader economy, including through existing and any future stimulus efforts, we are uncertain of the ultimate impact COVID-19 could have on our business, financial condition and results of operations. The impact of COVID-19 on our financial results are discussed in more detail below.

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”, “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.











Page 22

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
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 under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2020, 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: the general business, market and economic conditions in the regions in which the we operate; the impact of the COVID-19 pandemic and of the actions taken by governmental authorities, individuals and companies in response to the pandemic on our business, financial condition and results of operations, including on our patient base, revenues, employees, and equipment and supplies; significant capital requirements and operating risks that we may be subject to; our ability to implement business strategies and pursue business opportunities; volatility in the market price of our common shares; our novel business model; the risk that the clinical application of 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; disruptions in or attacks (including cyber-attacks) on our 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 to which we are exposed; 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 and regulatory 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 used by us; the impact of the previously disclosed restatement and correction of our previously issued financial statements; the previously disclosed identified material weakness in our internal control over financial reporting and our ability to remediate that material weakness; the initiation of legal or regulatory proceedings with respect to the restatement and corrections; the adverse effects on our business, results of operations, financial condition and stock price, as a result of the restatement and correction process; our status as an emerging growth company and a smaller reporting company; and the occurrence of natural and unnatural catastrophic events or health epidemics or concerns, such as the COVID-19 pandemic, and claims resulting from such events or concerns, 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.

We were incorporated on December 14, 2016 pursuant to the Business Corporations Act (British Columbia). As of June 30, 2020, we determined that we no longer qualify as a "foreign private issuer," as defined in Rule 3b-4 of the Exchange Act, for the purposes of the informational requirements of the Exchange Act. As a result, effective January 1, 2021, we became subject to the proxy solicitation rules under Section 14 of the Exchange Act and Regulation FD, and our officers, directors, and principal shareholders became subject to the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. We will continue to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the SEC.

We are an "emerging growth company," as defined in the JOBS Act and a "smaller reporting company" under Rule 12b-2 of the Exchange 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 DME devices), in-home sleep testing and sleep apnea treatment, oxygen therapy, and the sale of associated supplies. In December of 2020, we acquired a 5% interest in VeruStat, Inc, a newly created company focusing on remote patient monitoring (“RPM”). The investment is part of an ongoing initiative to enable our salesforce to offer a new revenue source to its physician network around the country. RPM platforms allow physicians to bill for safely monitoring patients inside of the home that are struggling with chronic diseases. The VeruStat RPM solution will be placed in the home in conjunction with Viemed’s existing patient engagement platform (“PEP”).
Page 23

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020

We derive the majority of our revenue through the rental of non-invasive and invasive ventilators which represented 79.9% of our traditional revenue, excluding COVID-19 response sales and services, and 82.5% of our traditional revenue, excluding the COVID-19 response sales and services, for the three months ended March 31, 2021 and 2020, respectively. 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 45 states. We expect to continue to employ more RTs in order to assure our high service model is accomplished in the home. As of March 31, 2021, we employed 267 licensed RTs, representing more than 51% of our company-wide employee count. By focusing overhead costs on personnel that service the patient rather than physical location costs, we anticipate that we will efficiently scale 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.

Trends Affecting our Business

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. Various policies and initiatives have been implemented to reduce the transmission of COVID-19, including travel bans and restrictions, the postponement of non-essential medical surgeries, the limiting of access to medical facilities in certain areas, the promotion of social distancing and the adoption of remote working policies. Local, state and national governments continue to emphasize the importance of essential medical personnel and we remain open to meet the needs of our communities. Employee and patient safety is our first priority, and as a result, we put preparedness plans in place for our employees, especially our clinical personnel, and modified our clinical protocols to limit unnecessary patient encounters in order to ensure the safety of our employees as well as the safety of our patients. These measures do not appear to be negatively impacting our patient attrition rate at this time, but we cannot assure you that future governmental policies and initiatives will not significantly disrupt our operations or adversely affect our ability to provide services to our patients in the future. In addition, our current ability to assess potential patients in hospitals varies by hospital and city, but overall our business of setting up new patients in the home is continuing although at lower levels than in recent periods.

While governmental and other restrictions have not had a material impact on our consolidated operating results for the three months ended March 31, 2021, it is possible that more significant disruptions could occur if the COVID-19 pandemic continues for a prolonged period of time and we cannot assure you that demand for our products and services will continue or that we will be able to maintain operations, including sufficient personnel, supply chains and distribution channels to continue to satisfy demand for our products and services.

The COVID-19 pandemic has resulted in a significant economic downturn in the United States and globally and has also led to significant disruptions and volatility in capital and financial markets. Broad economic factors resulting from the current COVID-19 pandemic, including high unemployment and underemployment levels and reduced consumer spending and confidence, could also affect our service mix, revenue mix, payor mix and patient base, as well as our ability to collect outstanding receivables. Business closures and layoffs in the geographic areas in which we operate may lead to increases in the uninsured and under insured populations and adversely affect demand for our services, as well as the ability of patients and other payors to pay for services rendered. Any increase in the amount or deterioration in the collectability of patient accounts receivable will adversely affect our financial results and require an increased level of working capital. In addition, we may experience supply chain disruptions, including delays and price increases in equipment and supplies. Staffing, equipment and supplies shortages may also impact our ability to assess potential patients in hospitals and set up and treat patients in the home.

Page 24

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
We believe we presently have sufficient liquidity to satisfy our cash needs, however, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times, such as limiting discretionary spending across the organization. The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which was signed into law on March 27, 2020, provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. The legislation provides for $100 billion in relief funds to hospitals and other healthcare providers on the front lines of the coronavirus response to support healthcare-related expenses or lost revenue attributable to COVID-19 and to ensure uninsured Americans can get testing and treatment for COVID-19. As a result, we received a payment from the Provider Relief Fund of $3.5 million in April 2020. Payments from the Provider Relief Fund are intended to compensate healthcare providers for lost revenues and incremental expenses incurred in response to the COVID-19 pandemic. The Department of Health and Human Services ("HHS") has stated that Provider Relief Fund payments are not loans and will not need to be repaid. However, as a condition to the receipt of funds, the Company and any other providers must agree to a detailed set of terms and conditions. CMS has indicated that the terms and conditions may be subject to ongoing changes and reporting. To the extent that reporting requirements and terms and conditions are modified, it may affect our ability to comply and may require the return of funds. In accordance with the terms of acceptance for the grant, we believe we have utilized these funds to prevent, prepare for, and respond to the COVID-19 pandemic.

The CARES Act also provides for a temporary suspension of the 2% payment sequestration adjustment currently applied to all Medicare fee-for-service claims. On Wednesday, April 14, 2021, the President signed H.R. 1868 into law, which further extended the suspension of Medicare sequestration until December 31, 2021.
 
We are continuing to monitor any effects or requirements that may result from the CARES Act as many of the provisions in the CARES Act are temporary and may require us to modify our operations and compliance procedures. CMS and other federal agencies have and are likely to issue rules and regulations to implement the CARES Act. The impact of these rules and regulations are unknown and may affect us. To the extent these provisions will expire as stated in the CARES Act, we will be required to unwind any changes.

The overall impact that COVID-19 will continue to have on our consolidated results of operations in future periods remains uncertain and difficult to predict and will depend on, among other factors, the duration and severity of the pandemic, as well as any negative economic conditions arising from the pandemic, our ability to assess potential patients in hospitals and set up and treat patients in the home and the impacts of government actions and administrative regulations on the healthcare industry and broader economy, including through existing and any future stimulus efforts. We will continue to evaluate the nature and extent of these potential impacts to our business, consolidated results of operations, liquidity and capital resources. If COVID-19 continues to spread or if the response to contain the COVID-19 pandemic is unsuccessful, we could experience a material adverse effect on our business, financial condition, and results of operations. For additional information, see Part II. Item 1A. “Risk Factors.”

In 2019, CMS announced the inclusion of noninvasive ventilator products on the list of products subject to the competitive bidding program for Round 2021, which covers the period of January 1, 2021 through December 31, 2023. Rental revenue from ventilator products represents a significant portion of our revenues (approximately 81% of total traditional revenue, excluding COVID-19 response sales and services, in 2020). On March 9, 2020, CMS announced that due to the COVID-19 pandemic, the United States President's exercise of the Defense Production Act, public concern regarding access to ventilators, and the non-invasive ventilators product category being new to the competitive bidding program, non-invasive ventilators were removed as a product category from Round 2021. On October 27, 2020, CMS announced that it had removed 13 of the 15 remaining product categories from Round 2021, including oxygen and PAP devices, because the payment amounts did not achieve expected savings. The next competitive bidding round is anticipated to begin on January 1, 2024. As a result of these announcements, we retain the ability to continue to furnish non-invasive ventilators and oxygen and PAP devices for all of our Medicare accredited areas, however, we are uncertain if non-invasive ventilators and oxygen and PAP devices will be included in future competitive bidding programs.

Page 25

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
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 endedMarch 31,
2021
December 31, 2020September 30, 2020June 30, 2020March 31, 2020December 31, 2019September 30, 2019June 30, 2019
Financial Information:
Revenue$28,416 $31,202 $33,447 $42,854 $23,806 $21,448 $20,368 $20,325 
Gross Profit17,742 19,178 19,453 25,927 15,553 14,243 14,050 14,639 
Gross Profit %62 %61 %58 %61 %65 %66 %69 %72 %
Net Income1,684 5,071 2,804 19,412 4,243 2,388 2,853 1,326 
Cash (As of)31,097 30,981 32,396 29,707 8,409 13,355 12,630 7,691 
Total Assets (As of)113,001 112,560 113,969 112,178 86,801 82,596 79,981 71,014 
Adjusted EBITDA(1)
5,468 9,458 7,720 16,287 7,869 5,569 4,883 4,116 
Operational Information:
Vent Patients(2)
7,733 7,892 7,788 7,705 7,965 7,759 7,421 7,130 
(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.
Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020:

The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
2021% of Total Revenue2020% of Total Revenue$
Change
%
Change
Revenue$28,416 100.0 %$23,806 100.0 %$4,610 19.4 %
Cost of revenue10,674 37.6 %8,253 34.7 %2,421 29.3 %
Gross profit17,742 62.4 %15,553 65.3 %2,189 14.1 %
Selling, general and administrative14,509 51.1 %10,577 44.4 %3,932 37.2 %
Research and development339 1.2 %174 0.7 %165 94.8 %
Stock-based compensation1,307 4.6 %1,151 4.8 %156 13.6 %
Depreciation200 0.7 %205 0.9 %(5)(2.4)%
Loss (gain) on disposal of property and equipment76 0.3 %(1,169)(4.9)%1,245 NM
Other income(21)(0.1)%— — %(21)NM
Income from operations1,332 4.7 %4,615 19.4 %(3,283)(71.1)%
Non-operating expenses
Loss (gain) from equity method investments(220)(0.8)%27 0.1 %(247)NM
Interest expense, net91 0.3 %158 0.7 %(67)(42.4)%
Net income before taxes1,461 5.1 %4,430 18.6 %(2,969)(67.0)%
Provision (benefit) for income taxes(223)(0.8)%187 0.8 %(410)NM
Net income$1,684 5.9 %$4,243 17.8 %$(2,559)(60.3)%
Page 26

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
Revenue

The following table summarizes our revenue for the three months ended March 31, 2021 and 2020:
Three Months Ended March 31,
2021% of Total Revenue2020% of Total Revenue$
Change
%
Change
Net revenue from rentals
Ventilator rentals, non-invasive and invasive$20,351 71.6 %$18,792 78.9 %$1,559 8.3 %
Other durable medical equipment rentals2,930 10.3 %2,131 9.0 %799 37.5 %
Net revenue from sales and services
Equipment and supply sales1,768 6.2 %1,533 6.4 %235 15.3 %
COVID-19 response sales and services2,955 10.4 %1,040 4.4 %1,915 184.1 %
Service revenues412 1.5 %310 1.3 %102 32.9 %
Total net revenue$28,416 100.0 %$23,806 100.0 %$4,610 19.4 %

For the three months ended March 31, 2021, revenue totaled $28.4 million, an increase of $4.6 million (or 19.4%) from the comparable period in 2020. Excluding COVID-19 response sales and services revenue, net revenue increased $2.7 million (or 11.8%) from the comparable period in 2020. The net revenue growth was primarily driven by an increase in ventilator rental revenue of $1.6 million (or 8.3%) and rental revenue from other DME of $0.8 million (or 37.5%). This growth was largely attributable to product revenue from oxygen therapy, PAPs, and percussion vests. Non-COVID-19 related equipment sales and services combined increased by $0.3 million (or 18.3%) from the comparable period in 2020, primarily as a result of increasing demand for respiratory supplies for our PAP and non-invasive vent patients.

In response to the COVID-19 pandemic, we have been working in close cooperation with state agencies and hospital systems to source urgently needed medical equipment such as ventilators, ventilator supplies, other respiratory equipment, and personal protective equipment. During the three months ended March 31, 2021, net revenue of COVID-19 response sales and services totaled $3.0 million, consisting primarily of personal protective equipment and contact tracing services. While we expect further COVID-19 response related revenue during the remainder of 2021, the quantity is expected to be lower and impact of such revenue remains uncertain and dependent on the length and intensity of the COVID-19 pandemic and the availability of such equipment, supplies, and services from other suppliers.

As we continue to expand geographically into new states and further expand our presence in our existing territories, we expect growth in our active ventilator patient base and ventilator rental revenue, as well as in our other growing respiratory offerings, though in the short term we anticipate growth to continue to occur at a slower rate than in recent periods as a result of the pandemic.

Cost of revenue and gross profit

For the three months ended March 31, 2021, cost of revenue totaled $10.7 million, an increase of $2.4 million (or 29.3%) from the comparable period in 2020. For the three months ended March 31, 2021, COVID-19 response sales and services accounted for $1.9 million (or 17.7%) of these costs, compared to $0.6 million (or 6.9%) of these costs from the comparable period in 2020. Gross profit percentage decreased from approximately 65.3% in the three months ended March 31, 2020 to approximately 62.4% in the three months ended March 31, 2021. The decreased margins were primarily the result of the above mentioned COVID-19 response sales and services which contributed a weighted average gross profit percentage of 36.2%. Excluding COVID-19 response sales and services, gross profit percentage for the three months ended March 31, 2021 and 2020 was 65.5% and 66.2%, respectively. The reduction in overall gross profit percentage is partly a reflection of our current product mix, but is also due in part to direct labor cost for RTs. While our active ventilator patient base growth was impacted by the current pandemic in the short term, we have not experienced a corresponding change in the number of RTs employed. We believe it to be in the long term interest of our patients and the business to continue to employ these essential employees. We expect our gross profit percentage for our normal operations (non-COVID-19 related) to remain relatively consistent with the current quarter through the end of 2021.

Page 27

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
Selling, general and administrative expense

For the three months ended March 31, 2021, selling, general and administrative expenses totaled $14.5 million, an increase of $3.9 million (or 37.2%) from the comparable prior period. Selling, general, and administrative expenses as a percentage of revenue increased to 51.1% for the three months ended March 31, 2021 compared to 44.4% for the three months ended March 31, 2020.

The increase in overall selling, general and administrative expense as compared to the prior period is attributable to additional employee related expenses to accommodate the overall growth of the Company. Our full time employee count increased from 469 on March 31, 2020 to 528 on March 31, 2021, an increase of 12.6%. Employee compensation expenses increased $3.9 million (or 76.7%) as a result of higher incentive-based compensation and an overall increase in our employee headcount. Also included in the employee compensation expense increases was a $3.2 million increase related to the impact of our phantom stock plan. Our phantom stock plan is measured at fair value as of the end of the reporting period and is driven primarily by the number of eligible employees and our stock price. During the three months ended March 31, 2021, our stock price increased by 30.4% compared to a decrease of 23.2% for the previous period. During the three months ended March 31, 2021, volatility of our stock price resulted in higher comparable expenses related to these awards of $2.5 million compared to a benefit of $0.7 million in the prior comparable period. As we continue to respond to the COVID-19 pandemic, grow into new markets and increase our employee count, we expect selling, general and administrative expenses will trend upward accordingly. We expect that selling, general and administrative expenses will stabilize through the end of 2021, resulting in a reduction of selling, general and administrative expenses as a percentage of revenue.

Research and development

For the three months ended March 31, 2021, research and development expense totaled $0.3 million, an increase of $0.2 million (or 94.8%) from the comparable period in 2020. As we continue to invest in research and development related projects to support our technology initiatives, we expect that associated costs will continue to increase in 2021 relative to 2020 costs.

Loss on disposal of property and equipment

For the three months ended March 31, 2021, we recorded a loss on disposal of property and equipment of $0.1 million, compared to a gain of $1.2 million during the comparable period in 2020. During the three months ended March 31, 2020, as a result of our COVID-19 response efforts, certain of our previously placed in service property and equipment was sold and substantial gains resulting from these disposals was recognized. We expect disposals of equipment to generally remain consistent with historical trends, with the exception of any gains that could be realized from any additional COVID-19 response sales, but the impact of such sales remains uncertain and dependent on the length and intensity of the COVID-19 pandemic and the availability of such equipment and supplies from other suppliers.

Stock-based compensation

For the three months ended March 31, 2021, stock-based compensation totaled $1.3 million, an increase of $0.2 million (or 13.6%) from the comparable period in 2020. This increase is attributable to the expense of additional stock-based awards during 2021. We expect that as we continue to increase our employee count and utilize stock-based awards as an aspect of employee compensation, stock-based compensation expense will increase accordingly. Stock-based compensation as a percentage of revenue has historically remained near or below 5%.

Interest expense, net

For the three months ended March 31, 2021, net interest expense totaled $0.1 million, a decrease of $0.1 million (or 42.4%) from the comparable period in 2020. We expect net interest expense to remain relatively consistent with the current quarter through the end of 2021.

Provision (benefit) for income taxes

For the three months ended March 31, 2021, the provision for income taxes was a $0.2 million benefit, compared to a $0.2 million expense during the 2020 period. The decrease in income tax expense was primarily due to a discrete tax benefit of $0.9 million for excess tax benefits associated with stock-based compensation arrangements. Excluding discrete items, our annual estimated effective tax rate for 2021 is 43.7%.



Page 28

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
Net income

For the three months ended March 31, 2021, net income was $1.7 million, a decrease of $2.6 million (or 60.3%) from the comparable period in 2020. Net income as a percentage of net revenue decreased from 17.8% for the three months ended March 31, 2020 to 5.9% for the three months ended March 31, 2021, primarily due to the increased selling, general and administrative expenses, as described above.

Non-GAAP Financial Measures

Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets. We believe that one of the most important measures for our company is Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure. We believe Adjusted EBITDA provides helpful information with respect to our operating performance as viewed by management, including a view of our business that is not dependent on the impact of our capitalization structure and items that are not part of our day-to-day operations. Management uses Adjusted EBITDA (i) to compare our operating performance on a consistent basis, (ii) to calculate incentive compensation for our employees, (iii) for planning purposes including the preparation of our internal annual operating budget, and (iv) to evaluate the performance and effectiveness of our operational strategies. Accordingly, we believe that Adjusted EBITDA provides useful information in understanding and evaluating our operating performance in the same manner as management.

In calculating Adjusted EBITDA, certain items (mostly non-cash) are excluded from net income including interest, taxes and depreciation of property and equipment. Set forth below are descriptions of the financial items that have been excluded from net income to calculate Adjusted EBITDA and the material limitations associated with using this non-GAAP financial measure as compared to net income.

Depreciation may be useful for investors to consider because it generally represents the wear and tear on the property and equipment used in our operations. However, we do not believe these charges necessarily reflect the current and ongoing cash charges related to our operating costs.

The amount of interest expense we incur or interest income we generate may be useful for investors to consider and may result in current cash inflows or outflows. However, we do not consider the amount of interest expense or interest income to be a representative component of the day-to-day operating performance of our business.

Unrealized loss on warrant conversion liability may be useful for investors to consider as it represents changes in the fair value of warrants and exchangeable shares of subsidiaries, driven predominantly by changes in our share price and exchange rates. These changes are non-cash, as is the settlement of the underlying derivative liability, which occurs upon the conversion of the derivative instrument into common shares of the Company.

Stock-based compensation may be useful for investors to consider because it is an estimate of the non-cash component of compensation received by the Company’s directors, officers, employees and consultants. However, stock-based compensation is being excluded from our operating expenses because the decisions which gave rise to these expenses were not made to increase revenue in a particular period, but were made for the Company’s long-term benefit over multiple periods. While strategic decisions, such as those to issue stock-based awards are made to further our long-term strategic objectives and do impact our earnings under GAAP, these items affect multiple periods and management is not able to change or affect these items within any period.

Income tax expense may be useful for investors to consider because it generally represents the taxes which may be payable for the period and the change in deferred income taxes and may reduce or increase the amount of funds otherwise available for use. However, we do not consider the amount of income tax expense to be a representative component of the day-to-day operating performance of our business.

Page 29

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
The following table is a reconciliation of Net income, the most directly comparable GAAP measure, to Adjusted EBITDA, on a historical basis for the periods indicated:
For the quarter endedMarch 31, 2021December 31, 2020September 30, 2020June 30, 2020March 31, 2020December 31, 2019September 30, 2019June 30, 2019
Net Income$1,684 $5,071 $2,804 $19,412 $4,243 $2,388 $2,853 $1,326 
Add back:
Depreciation2,609 2,835 2,425 2,190 $2,130 $2,003 $1,659 $1,444 
Interest expense91 100 116 135 $158 $212 $56 $20 
Unrealized (gain) loss on warrant conversion liability— — — — $— $— $(800)$268 
Stock-based compensation1,307 1,301 1,234 1,196 $1,151 $908 $1,064 $1,034 
Income tax expense (benefit)(223)151 1,141 (6,646)$187 $58 $51 $24 
Adjusted EBITDA$5,468 $9,458 $7,720 $16,287 $7,869 $5,569 $4,883 $4,116 

Use of Non-GAAP Financial Measures

Adjusted EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. It is not a measurement of our financial performance under GAAP and should not be considered as an alternative to revenue or net income, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. Adjusted EBITDA has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our operating results as reported under GAAP. Adjusted EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations; and other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

Liquidity and Capital Resources

Cash and cash equivalents at March 31, 2021 was $31.1 million, compared to $31.0 million at December 31, 2020. Based on our current plan of operations, including potential acquisitions, we believe this amount, when combined with expected cash flows from operations and amounts available under our line of credit will be sufficient to fund our growth strategy and to meet our anticipated operating expenses, capital expenditures, and debt service obligations for at least the next 12 months from the date of this filing. 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 undrawn as of March 31, 2021.

Cash Flows

The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31,
20212020
Net Cash provided by (used in):
Operating activities$4,628 $607 
Investing activities(1,698)(1,711)
Financing activities(2,814)(3,842)
Net increase (decrease) in cash and cash equivalents$116 $(4,946)
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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
Net Cash Provided by Operating Activities

Net cash provided by operating activities during the three months ended March 31, 2021 was $4.6 million, resulting from net income of $1.7 million and non-cash net income adjustments of $5.4 million and an increase in net operating liabilities of $0.4 million, which was partially offset by an increase in net operating assets of $2.8 million. The non-cash net income adjustments primarily consisted of $1.8 million in change of allowance for doubtful accounts, $2.6 million of depreciation, $0.1 million of loss on disposal of property and equipment, $1.3 million of stock-based compensation, $0.2 million gain on equity investments and $0.2 million change in deferred tax asset. The uses of cash related to changes in operating assets primarily consisted of an increase in accounts receivable of $2.7 million, an increase in prepaid expenses and other current assets of $0.2 million, partially offset by a decrease in inventory of $0.1 million. The changes in operating liabilities primarily consisted of an increase in accounts payable of $0.4 million, partially offset by a decrease in accrued liabilities of $0.1 million.

Net cash provided by operating activities during the three months ended March 31, 2020 was $0.6 million, resulting from net income of $4.2 million, non-cash net income adjustments of $5.0 million, and an increase in net operating liabilities of $1.5 million, which was partially offset by an increase in net operating assets of $10.1 million. The non-cash net income adjustments primarily consisted of $2.8 million in change of allowance for doubtful accounts, $2.1 million of depreciation and $1.2 million of stock-based compensation. The uses of cash related to changes in operating assets primarily consisted of an increase in accounts receivable of $6.8 million, which was partially offset by a decrease in inventory of $0.4 million. The changes in operating liabilities primarily consisted of a decrease in accounts payable of $3.6 million, partially offset by an increase in accrued liabilities of $2.4 million. The increase in our operating assets was primarily driven by accounts receivable related to COVID-19 response sales occurring at the end of the quarter. Additionally, prepaid expenses and other current assets increased as a result of deposits related to ventilator supplies.

Net Cash Used in Investing Activities

Net cash used in investing activities during the three months ended March 31, 2021 was $1.7 million, consisting of $1.8 million of purchases of property and equipment, partially offset by $0.1 million of sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to medical equipment rented to our patients. Combining cash purchases of property and equipment and equipment financed through finance leases, our total capital expenditures for the three months ended March 31, 2021 were $1.8 million. This represents a $5.4 million, or 75.0%, decrease year over year.

Net cash used in investing activities during the three months ended March 31, 2020 was $1.7 million, consisting of $4.2 million of purchases of property and equipment, partially offset by $2.5 million of COVID-19 response sales proceeds from the disposal of property and equipment. Purchases of property and equipment were primarily related to medical equipment rented to our patients. Combining cash purchases of property and equipment of $4.2 million and equipment financed through finance leases of $3.0 million, our total capital expenditures for the three months ended March 31, 2020 were $7.2 million.

Net Cash Used in Financing Activities

Net cash used in financing activities during the three months ended March 31, 2021 was $2.8 million, consisting of $0.4 million in principal payments on the Term Note (as defined below), $1.0 million in repayments of finance lease liabilities, and $1.4 million for shares redeemed and canceled for tax withholding in connection with RSUs vested in the period.

Net cash used in financing activities during the three months ended March 31, 2020 was $3.8 million, consisting of $0.4 million in proceeds from the new Term Note, partially offset by $3.4 million in repayments of finance lease liabilities.

Line of Credit

The Company maintains a line of credit in the amount of $10.0 million that expires May 1, 2023 under the Commercial Business Loan Agreement. Any amounts advanced on this line will be subject to an interest rate equal to the WSJ prime rate plus a margin of 0.50%, with a 3.50% interest rate floor and will be secured by substantially all of the Company's assets. There were no borrowings against this line of credit at March 31, 2021 or December 31, 2020. While we currently have no immediate plans to draw on this line of credit, the line of credit allows flexibility in funding our future operations subject to compliance with the covenants described above.

Under the Commercial Business Loan Agreement, the Company is subject to several restrictive covenants that, among other things, impose operating and financial restrictions on the Company. Financial covenants include a Total Debt to Adjusted EBITDA, a Loan-to-Value Ratio and a Fixed Charged Coverage Ratio, as defined in the Credit Agreement. The Credit Agreement also contains certain customary events of default, including, among other things, failure to make payments when due thereunder and
Page 31

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
failure to observe or perform certain covenants. The Company was in compliance with all covenants under the Commercial Business Term Loan Agreement in effect at March 31, 2021.

Commercial Term Notes

On May 30, 2019, the Company entered into an 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 $4.8 million. 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 makes monthly payments towards the outstanding balance. The Building Term Note matures on May 30, 2026 and is secured by substantially all of our assets, 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%.

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 $5.0 million. 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 our assets. The Term Note bears interest at the rate of 4.60% per annum.


Sources of funds

Our cash provided by operating activities in the three months ended March 31, 2021 was $4.6 million compared to $0.6 million in the three months ended March 31, 2020.

HHS Provider Relief Funds

The Company received $3.5 million of Provider Relief Funds from the HHS that was provided to eligible healthcare providers out of the $100 billion Public Health and Social Services Emergency Fund provided for in the CARES Act. The funds are allocated to eligible healthcare providers for expenses and lost revenue attributable to the COVID-19 pandemic. The HHS has stated that Provider Relief Fund payments are not loans and will not need to be repaid. However, as a condition to the receipt of funds, the Company and any other providers must agree to a detailed set of terms and conditions. CMS has indicated that the terms and conditions may be subject to ongoing changes and reporting. To the extent that reporting requirements and terms and conditions are modified, it may affect the Company's ability to comply and may require the return of funds. In accordance with the terms of acceptance for the grant, the Company has utilized these funds to prevent, prepare for, and respond to the COVID-19 pandemic.

As of March 31, 2021, we had cash and cash equivalents of $31.1 million.

Use of funds

Our principal uses of cash are funding our new rental assets and other capital purchases, operations, and other working capital requirements. Over the past two years, our revenue has increased significantly from year-to-year and, as a result, our cash provided by operating activities has increased over time and now is a significant source of capital to the business, which we expect to continue in the future.

We may need to raise additional funds to support our investing operations, and such funding may not be available to us on acceptable terms, or at all. If we are unable to raise additional funds when needed, our operations and ability to execute our business strategy could be adversely affected. We may seek to raise additional funds through equity, equity-linked or debt financings. If we raise additional funds through the incurrence of indebtedness, such indebtedness would have rights that are senior to holders of our equity securities and could contain covenants that restrict our operations. Any additional equity financing may be dilutive to our stockholders.

For the three months ended March 31, 2021, the Company repurchased and canceled 181,320 common shares at a cost of $1.4 million due to tax withholding for RSUs vesting. The Company’s retained earnings were reduced by the amount paid for the shares repurchased for cancellation.

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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
Leases

Leases under which we assume substantially all the risks and rewards of ownership are classified as capital leases. Upon initial recognition, the leased asset is measured at an amount equal to the lesser of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to the asset. The associated lease liability is drawn down over the life of the lease by allocating a portion of each lease payment to the liability with the remainder being recognized as finance charges. Leases that do not transfer the risks and rewards of ownership to the Company are treated as operating leases and are expensed as incurred.

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 $174,000 and $179,000 for the three months ended March 31, 2021 and 2020, respectively.

Off balance sheet arrangements

The Company has no material undisclosed off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its results of operations or financial condition.

Accounting and Disclosure Matters

Critical Accounting Principles and Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those estimates related to allowance for doubtful accounts, inventory adjustments, impaired assets, income taxes, deferred tax valuation allowances and stock-based compensation costs.

We state these accounting policies in the notes to the consolidated financial statements and at relevant sections in the Management's Discussion and Analysis of Financial Condition and Results of Operations. The estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue recognition

Revenue Accounting under Topic 842

We lease DME 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 ASC Topic 842, “Leases”, we recognize rental revenue on operating leases on a straight-line basis over the contractual lease term which varies based on the type of equipment rental. 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 we operate, 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.

Revenue Accounting under Topic 606

Page 33

VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
We sell DME, replacement parts and supplies to customers and recognize revenue based on contractual payment rates as determined by the payors at the point in time when control of the good or service is transferred through delivery to the customer. The customer and, if applicable, the payors are generally charged at the time that the product is sold.

We also provide sleep study services to customers and recognize revenue when the sleep study results are complete, satisfying the performance obligation. In response to the COVID-19 pandemic, we began offering contact tracing services, which revenues are recognized in the period in which the service has been provided. The transaction price on equipment sales, sleep studies and contact tracing is the amount that we expect to receive in exchange for the goods and services provided. Due to the nature of the DME business, gross charges are retail charges and generally do not reflect what we are 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. We do not generally contract with uninsured customers. The payment terms and conditions of customer contracts vary by customer type and the products and services offered.

We determine our estimates of contractual allowances and discounts based upon contractual agreements, our 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. We include in the transaction price only the amount that we expect 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 we operate, 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.

Returns and refunds are not accepted on equipment sales, sleep study services or contact tracing services. We do 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. We do not have any partially or unfilled performance obligations related to contracts with customers and as such, we have no contract liabilities as of March 31, 2021.

Allowance for doubtful accounts

We estimate that a certain portion of receivables from customers may not be collected and maintain an allowance for doubtful accounts. We evaluate the net realizable value of accounts receivable as of the date of Consolidated Balance Sheets. Specifically, we consider historical realization data including current and historical cash collections, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the healthcare industry and third-party reimbursement, it is possible that the estimates could change, which could have a material impact on the operations and cash flows. If circumstances related to certain customers change or actual results differ from expectations, our estimate of the recoverability of receivables could fluctuate from that provided for in our consolidated financial statements. A change in estimate could impact bad debt expense and accounts receivable. Our allowance for doubtful accounts was $8.0 million and $10.2 million as of March 31, 2021 and 2020, respectively, and based on our analysis, we believe the reserve is adequate for any exposure to credit losses.






Stock-based compensation

We account for our 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 cost for RSUs 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.

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VIEMED HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Tabular amounts expressed in thousands of US Dollars, except per share amounts)
March 31, 2021 and 2020
For the Company’s phantom share units settled in cash, the Company computes the fair value of the phantom share units using the closing price of the Company's stock at the end of each period and records a liability based on the percentage of requisite service.

Interest rate swaps

We utilize an interest rate swap contract to reduce our exposure to fluctuations in variable interest rates for future interest payments on Term Note.

For determining the fair value of our interest rate swap contract, we use significant other observable market data or assumptions (Level 2 inputs) that we believe market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. Our 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. We include 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.

We recognize any differences between the variable interest rate payments and the fixed interest rate settlements from our swap counterparty as an adjustment to interest expense over the life of the swap. If determined to be effective cash flow hedges, we record the changes in the estimated fair value of the swaps to accumulated other comprehensive income or loss on our Condensed Consolidated Balance Sheets. To the extent our interest rate swaps are determined to be ineffective, we recognize the changes in the estimated fair value of our swaps in interest and other non-operating expenses, net on our Condensed Consolidated Statements of Income.

Income taxes

We are subject to income taxes in numerous jurisdictions. Significant judgment is required in determining the provision for income taxes. Our income tax provisions reflect management’s interpretation of country and state tax laws. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business and may remain uncertain for several years after their occurrence. We recognize assets and liabilities for taxation when it is probable that we will receive refunds or pay taxes to the relevant tax authority. Where the final determination of tax assets and liabilities is different from the amounts that were initially recorded, such differences will impact the current and deferred income taxes provision in the period in which such a determination is made. Changes in tax law or changes in the way tax law is interpreted may also impact our effective tax rate as well as our business and operations.

Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to temporary differences between the financial statement carrying value of assets and liabilities and their respective income tax bases. Deferred income tax assets or liabilities are measured using enacted or substantively enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be settled. The calculation of current and deferred income taxes requires management to make estimates and assumptions and to exercise a certain amount of judgment concerning the carrying value of assets and liabilities. The current and deferred income tax assets and liabilities are also impacted by expectations about future operating results and the timing of reversal of temporary differences as well as possible audits of tax filings by regulatory agencies. Changes or differences in these estimates or assumptions may result in changes to the current and deferred tax assets and liabilities on the Condensed Consolidated Balance Sheets and a charge to or recovery of income tax expense.

Recently Issued Accounting Pronouncements

See Note 2 – Summary of Significant Account Policies of the Notes to Condensed Consolidated Financial Statements for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial positions and cash flows.

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VIEMED HEALTHCARE, INC.
March 31, 2021 and 2020
Item 3. Quantitative and Qualitative Disclosures About Market Risk

This item is not applicable to smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, the Company's management, including its Chief Executive Officer and Chief Financial Officer, completed an evaluation of the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded:

i.that the Company's disclosure controls and procedures are designed to ensure (a) that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and (b) that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure; and

ii.that the Company's disclosure controls and procedures are effective.

Notwithstanding the foregoing, there can be no assurance that the Company's disclosures controls and procedures will detect or uncover all failures of persons within the Company and its consolidated subsidiaries to disclose material information otherwise required to be set forth in the Company's periodic reports. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the three months ended March 31, 2021 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.
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VIEMED HEALTHCARE, INC.
March 31, 2021 and 2020
PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to various ongoing or threatened legal actions and proceedings, including those that arise in the ordinary course of business, which may include employment matters and breach of contract disputes. Please read Note 8—Commitments and Contingencies to our condensed consolidated financial statements for more information. Such matters are subject to many uncertainties and to outcomes that are not predictable with assurance and that may not be known for extended periods of time. In the opinion of management, the outcome of such routine ongoing litigation is not expected to have a material adverse effect on our results of operations or financial condition.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 3, 2021, which could materially affect our business, financial condition or future results. There have been no material changes in our risk factors from those disclosed in that Annual Report. 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

Not applicable.

Company Repurchases of Equity Securities

During the quarter ended March 31, 2021, shares reacquired in connection with the net settlement of RSU awards related to tax withholding have been accounted for as a constructive retirement. Any excess purchase price over par value has been charged directly to retained earnings in accordance with ASC 505-30-30-8.

Dividends

We have not declared or paid any cash or stock dividends on our common shares since our inception and do not anticipate declaring or paying any cash or stock dividends in the foreseeable future. Our subsidiaries are restricted from making distributions or dividend payments to us by the Loan Agreement, subject to certain exceptions.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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VIEMED HEALTHCARE, INC.
March 31, 2021 and 2020

Item 6. Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index below.
Exhibit NumberExhibit Title
#2.1
#2.2
#2.3
#2.4
3.1
3.2
10.1
10.2
*31.1
*31.2
**32.1
**32.2
*101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*101.SCHInline XBRL Taxonomy Extension Schema Document.
*101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
*101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
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VIEMED HEALTHCARE, INC.
March 31, 2021 and 2020
*101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
*101.DEFInline XBRL Taxonomy Extension Definition Document.
*104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Filed herewith.
** Furnished in accordance with Item 601(b)(32)(ii) of Regulation S-K.
# Schedules and similar attachments have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish supplementally a copy of any omitted schedule or similar attachment to the Securities and Exchange Commission upon request.

SIGNATURES

Pursuant to the requirements of the Securities Exchange of Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VIEMED HEALTHCARE, INC.
(Registrant)
By:/s/ Casey Hoyt
Casey Hoyt
Chief Executive Officer
By:/s/ Trae Fitzgerald
Trae Fitzgerald
Chief Financial Officer
Date: May 3, 2021

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