VIEMED HEALTHCARE, INC. Q1 FY2025 earnings call

• CEO thanked employees and noted the company overcame cyclical challenges in Q1 and is ahead of Q1 expectations, tightening the outlook upward for the year. - Vent business is a strong performer, with vent patients up for 16 straight quarters and new patient starts up 9% sequentially. - Sleep business saw 7% sequential increase in patients and 46% year-over-year growth, with new patient setups up 40% year-over-year. - Staffing business continues to grow, reaching 10% of net revenues. - Addressed regulatory announcements, noting CMS proposed NCD on noninvasive positive pressure ventilation and Arkansas enacting legislation prohibiting step therapy. - Announced acquisition of Lehan's Medical Equipment, a strategic transaction with opportunities to expand in women's health, respiratory care, and sleep business. - COO discussed revenue growth, gross margin evolution due to growth of sleep and staffing businesses, adjusted EBITDA growth, CapEx details including vent exchange program and expected normalization, and balance sheet strength

Organic revenue increased 14.5% and total revenue increased 16.9% in Q1. The core vent business accounted for 54% of revenue, with vent revenue down 3% sequentially and up 10% year-over-year, total vent patients up for the 16th straight quarter, and new patient starts up 9% sequentially. The sleep business increased to 16% of revenues, with a 7% sequential increase in sleep therapy patients and 46% year-over-year growth, and new patient setups up 40% year-over-year. The staffing business increased to 10% of net revenues, continuing to grow sequentially and year-over-year. The oxygen business accounted for 10%. Gross margin was 56.3% for the quarter. Adjusted EBITDA grew 26% for the quarter to $12.8 million, with an adjusted EBITDA margin of 21.6%

• Raised the bottom end of net revenue from $254 million to $255 million and kept the top end at $265 million, implying 16% growth over 2024 at the midpoint. - Raised the bottom end of the adjusted EBITDA range from $54 million to $55 million with the top end at $58 million. - Projected sequential revenue growth in Q2 through Q4 to be in the range of 5% to 9%. - Anticipated CapEx to normalize by the end of Q2. - Intends to update forecast to include Lehan's Medical Equipment's revenue and EBITDA contribution once the acquisition closes likely in Q3

• Regulatory environment uncertainties, including potential cuts to Medicaid and Medicare and evolving rules. - Potential impact of tariffs, although not expecting material impact in 2025 as supplier contracts are largely locked in

Q: Good morning, guys. Congratulations on the strong start to the year. I guess I'd start asking a bit about the strong hiring in the sales reorganization. It sounds like that's going really well. And I had some recollection that there were some staffing challenges in the past, but it sounds like maybe the environment is more conducive to your ability to grow the business and grow the company by internal hiring. Can you just comment on that?

A: Yes. I mean the staffing challenges we experienced in the past were intentional last year, Brooks. While we're going through the restructuring, we kind of put a pause on aggressive recruiting while we dialed in all of our new sales managers that were in place, got them trained and out in the field up and running in their new territories, got all territories restructured. That's all past us now. So, we're back to aggressively hiring and recruiting and finding sales reps. And so, I wouldn't call it a challenge. We always had the ability to find these people. It's just making sure that once we got them, they were properly prepared to enter the field and set up for success. That's happening, lots of positive trends organically around the country, with those new folks getting up to speed at faster rates. Our managers are developing as good leaders and mentors. And we couldn't be more pleased with what we accomplished last year, and we're going to reap the benefits here in 2025 of really doubling down on that growth.

Q: Are you seeing anything different from a competitive perspective in the marketplace right now?

A: No, not necessarily. It's not like we wake up every day trying to go beat out our competitors. I mean sometimes that naturally happens whenever we enter into new markets just because our complex respiratory offering is so unique compared to the field. But what we're competing against or what we're losing sleep over is just the underserved population. It continues to grow, and it continues to swell despite us having all this research and growth and so on and so forth. So, it's good problems from that perspective, but it's less about beating out the competitor, it's just more about getting to the people who need us right now. And that's us and all of our competitors combined with that challenge right now.

Q: So let's just talk a little bit, I know the acquisition is still pending, but when you mentioned the huge opportunity you have in the core respiratory business, talk a little bit about expanding into women's health, in particular, and how that business dovetails with your current business or not, how you're thinking about that in terms of realistically a different patient population or at least a somewhat different patient population, perhaps different payer group, different doctor referral sources. How are you thinking about that? And how do you see it fitting in with your existing operations?

A: Yes. It's a pretty simple business, Brooks. It's similar to – you can compare it to the resupply business. I mean you're talking about a maternal breast pump where that is accompanied with a resupply segment of products of its own. And so, it becomes more about – and it's a private insurance game versus a Medicare game. So, you have a little bit of a diversification by payer, even though Medicare is a great payer for us. You're leveraging – or we are going to leverage all of our contracts, private contracts around the country that Lehan can expand to. And that was the genesis of why they were so excited about the transaction on the maternal side. And then 40% of their business is respiratory. And so, we were really excited about teaching them how to do complex respiratory in a unique manner, helping them grow their sleep business in a different way, moving from the more traditional sleep lab referral source business to a home sleep referral model. That's something that we teach very well. We were able to do that with HMP, our previous transaction, and have been reaping some benefits from that. So, it's a similar business in terms of size to HMP with 90 employees, $26 million transaction. I believe HMP was about $31 million. They had roughly about 140 employees. But we see the same playbook that with the respiratory business that we did and have been accomplishing with HMP. And then the maternal seems to be a really simple, not complicated, easy to double-down through our contract type of business line. So, we're very excited about the expansion opportunity there.

Q: With the potential wind-down of the refurbishment of your equipment portfolio and the strong cash flows that are going to come, do you anticipate ramping up the pace of acquisitions? Or are you going to continue to take that on a measured basis?

A: I would say that we're always looking to ramp that up, but we are also very patient, Brooks. It's not like capital has slowed us down. I mean we have a pristine balance sheet. As I said in my prepared remarks, we've got plenty of capabilities. We're net debt zero and generating upwards of high 50s in EBITDA this year. So, we're not really capital constrained from the acquisition standpoint, but we're also very diligent, and that's why we're very excited about the Lehan's deal.

Q: Hey, guys. Thanks. Good morning. On Lehan's, I know it's a mix of respiratory and women's health. I think you said that the majority is breast pumps. Is there any other equipment or product types we should be thinking about there? And it sounds like this is sort of a longer-term family-owned business. I guess, was there anything else in particular that drew you to this particular asset?

A: Yes, I'll take it. Yes, they have six locations, full-line DME, similar to HMP. If you recall, we were able to leverage the full-line DME to help us get in with the East Alabama joint venture opportunity. That also expands our outreach for different payer contracts as well. So, we're not turning our nose up to full-line DME. But yes, I would say they've got the rehab, they have the back braces, the wound care and so on and so forth that any other DME around the country will have. So, we'll leverage that along the way as well.

Q: Just for sort of your business and maybe DME in general, is there anything else you've gleaned over the last few months here in terms of visibility? Or is it just still a little bit too early to know what this administration means?

A: It's kind of early, but I mean, we're in the process that we comment on the NCD. I'm not entirely sure if this administration launched that or not, but they've been positive from the standpoint of being receptive to hearing our position along with the rest of the industry and others on the pros, the cons and so forth of the NCD. Look, we're all for the changes that are being made to run – make processes more efficient, make departments more efficient. There's been a lot of speculation about Medicaid and so forth. We haven't heard anything, although we're always paying attention to that, and there could be changes. And outside of that, it's just really status quo. So, I wouldn't say anything large that is impacting 2025, but some things that could be positive for our business going forward.

Q: gentlemen can you share like what the growth profile or the historical growth profile has been for Lehan?

A: It's been double digits, and we are expecting that to continue anywhere in the teens. They're coming off a smaller base, so there's been years where it's higher than that. I think last year was mid-double digits. We are hopeful that, that continues in that local area. But what we're really excited about is what Casey said, can we go and push that growth rate higher around the country in some Viemed strong areas to increase that.

Q: can you also comment, you said or referenced kind of a Chicago beachhead. Can you talk about what the potential is to grow? I guess, if they're primarily servicing Chicago, is there more to go in the Chicago area, more in the Midwest?

A: Yes. I mean, like I'll give you an example. I mean they have six locations. They have four sales reps. In a coverage area that Lehan is responsible for, we would probably have at Viemed, I don't know, maybe 10 to 12. So, there's a lot of room for growth to improve sales. We'll leverage some of their referral sources, their champion physicians and get some better education into their hands and teach their folks how we walk and talk. And so yes, I think it's a big opportunity to just kind of double-down on their local market around them from a respiratory standpoint, and then it's even probably a greater opportunity for us to leverage the maternal on our network throughout the country.

Q: It looks like it has a margin, an EBITDA margin profile that's higher than Viemed. Can you just comment on what it is about that business that allows the higher margins?

A: Yes, Lehan's, 70% of their total business when we think about their, not just their product mix, but sort of the revenue streams between rental and sale, they are much more transactional. 70% of their business is via sales, whether it be resupply from maternal or on the sleep side. And so really, their EBITDA margins reflect more of that less back office, using more technology on this transactional side that doesn't come with a higher margin of SG&A. And so, you are correct in seeing that they have pretty good operational leverage in that business and carry a little bit higher EBITDA margins than we carry here consolidated.

Q: You guys haven't talked for a while about the VA opportunity. Can you just give an update on where that is at, how things are going there?

A: The VA opportunity, I'm just going to go ahead and say it, is dead. We've had so many different folks coming and going through different administrations. It's been a broken system, a crying shame. At some point, we're going to – they're going to have to come around back to us because we've had this thing at the one-yard line for multiple years, and it just hasn't come to fruition. So yes, I just – we've moved on from that. And if they circle back with us, looking to take care of their veterans the right way, we'll be ready to do so. But at this point in time, we don't have a pursuit inside of the VA