Viemed Healthcare, Inc. (VMD) Earnings Call Transcript & Summary

Greetings, and welcome to the Viemed Investor Presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Glen Akselrod, spokesperson for Viemed. Thank you, sir. You may begin.

Thank you, Donna, and thank you, everyone, for joining our webcast today with Viemed. Again, the purpose of today's presentation is to introduce the company and to give you a better understanding of the business through an Investor PowerPoint review and discussion with management. That discussion will be led by Casey Hoyt, CEO; who is also joined by Todd Zehnder, COO. While we do break for Q&A at the end of this formal presentation, we do encourage Q&A. As a reminder, we're only taking questions via the web portal. And if you're listening over the telephone, please access the web link sent earlier to ask a question. As mentioned, you're going to be advancing the slides on your own today using the arrow keys on the top right-hand corner of the presentation. You can also expand the PowerPoint using the expansion feature on top right-hand corner of the PowerPoint. Should the zero keys disappear, hover your mouse over-the-top right portion of your screen. And if for whatever reason your audio is having an issue, a dial-in phone number is provided. You can submit a question using the question text box within the webinar portal at any time. I'll ask the questions on the air for everyone to hear and management will answer. I'm not going to reference anyone by name but simply read the questions asked. And if I can't get to your question online, I'll come back to you through e-mail. If for some reason you're experiencing any issues once we start, please remember you could e-mail me at [email protected], and I'll be happy to assist. I'm not going to read the forward-looking statements, but I will state that they apply and I reference them on Page 2 of this PowerPoint. With that said, once again, thank you for joining us. Remember, it is fairly informal and we do encourage Q&A to help you better understand the business and its growth path. And I will turn the call over to Casey to start his part of the presentation and discussion.

Okay. Thanks, Glen. We're going to spend some time here in the beginning of the presentation on our core business. And as most are aware and probably have questions here. The COVID crisis was definitely something that we were in the eye of the storm with. So when we get the Todd section here, we have a slide dedicated to it, and we'll explain the differences on our business model and the opportunities that we capitalized on during COVID. But let me begin by starting on Page -- Slide 3. We are the largest independent specialized provider of noninvasive ventilation in the U.S. Noninvasive ventilation, the best way to explain what that is, is to think about the patients that we serve. Our patients have very sick lungs. Their lungs function like a wet ball of newspaper, for lack of a better term. They've lost the elasticity to get bad gas, carbon dioxide, out and let good gas, oxygen, in. And so before our therapy was around, we would have to incubate these patients. Well, now we can put a noninvasive mask on them and properly get that gas exchange. The patients are with us for 17 months, and so it's very much an end-of-life patient. And what we're doing for these guys is we're keeping them comfortable in the home and preventing these costly hospital readmissions from happening. We are a highly profitable business with a 44% CAGR and revenue growth since 2010. And what we're really doing is less about the technology, and it's more about the therapists. We put respiratory therapists in the home on a 24/7 on-call basis, and they are trained to drop and go at a moment's notice and assist with the patient's needs. We have expanded our telehealth solutions along the way as the COVID crisis began, and we'll get into that a little bit later down into the presentation. We're headquartered in Lafayette, Louisiana, currently serving over 19,000 patients and dual-listed on the NASDAQ as well as the Toronto senior exchange. Page 4 is a little bit about our time line. I'm one of the original founders of the business, started the company back from 2006 with my good friend, Mike Moore, who's a respiratory therapist and our current President of Operations. We started under the name Sleep Management, specializing in DME equipment such as CPAPs and oxygen and nebulizers, which is primarily respiratory focus. In 2010, we started one of the first home sleep testing companies in the country called Home Sleep Delivered. Fast forward to 2012, probably as a result of being able to embrace a new home sleep testing company in a new -- develop a new sales pitch and embrace new innovation. Our manufacturer of the CPAP equipment, Philips, brought the noninvasive ventilator to us back in 2012, and they were looking for a company that could develop that new pitch and bring this product to the home. So we were one of the first ones in the country to really start running and scaling the business. So we did that. We ran pretty fast from 2012 to 2015, you can see we went from $4.6 million to $35 million in revenue during those 3 years. But then Patient Home Monitoring comes in and acquires us. They were a Toronto company, actually a BC company that traded on the Toronto Venture exchange. We were hired to be the CEO and the President of that entity at the end of 2017. We had uncovered that our business models were a little bit different. So we set a strategy to spin out from PHM and we effected our spinout in 2017, became Viemed as a stand-alone business, got our revenues up to $41 million. At the end of 2018, we had uplisted into the Toronto senior exchange during that time, finished with $58 million and then finished 2019 as a dual-listed company, as I mentioned, on the NASDAQ and TSX, with our annual revenues of $80.3 million. Going to Page 5. We are a specialized U.S.-based respiratory health care service company. And if you think about who we're treating it's the COPD or chronic obstructive pulmonary disease. This is the third largest killer in the U.S. behind cancer and congestive heart failure, and it's one of the only chronic diseases that is actually expanding right now and growing. So we're spending $50 billion of annual health care costs in the U.S. on COPD alone. And that, as I mentioned, is our bread and butter patient. The significant market growth opportunity are the baby boomers in the U.S. that are turning 65 every day for the next 18, 19 years. And we have 10,000 baby boomers turn 65 every day. It's representative of 26% of the U.S. population. So we have plenty of patients and a growing batch of patients to treat. The expansion of our service to underserved VA patients has been a project of ours for the last 2 years. I'll get into that here in a little bit, but the VA is the second largest payer behind Medicare, and they've yet to really embrace noninvasive ventilation as a form of therapy. So we've been working on that and have had some near-term success here recently, which I'll report on in a later slide. But at the end of the day, these are the favorable market trends that are playing into our hand. We are increasing the need for support -- that's supported by government for effective home care solutions. This COVID crisis really shine the light on how much we need to treat more patients in the home and free up these valuable hospital beds. Even before COVID, we had been a squeaky wheel, saying we don't have enough hospital beds in this country to support the patients that are headed our way. We don't have enough physicians and clinicians as well. So that all plays into our hand as well. But at the end, it also saves the patient's money because this is a service that's reimbursed by Medicare and commercial insurance, it's reasonably affordable, but that's how we are paid. Going to Page 6. It kind of -- this slide echoes a little bit of what I've already said. It's important to understand that at the age of 65, patients will qualify for Medicare. So it's an aging population that are these Medicare beneficiaries. The population is growing. We had 60 million beneficiaries on Medicare in 2018. We're going to have 69 million beneficiaries by the end of 2023 and then the country has to invest in the durable medical equipment industry. You'll hear me say DME a lot. That's what that acronym stands for. But expenditures are expected to grow in DME from 6% CAGR from $58.3 billion in 2019 to $98.4 billion in 2028. Moving on to Page 7. This is how we frame up the COPD market, which again, as I mentioned, is my bread and butter. There's an estimated 25 million people in the U.S. that have COPD. Of those guys, 2.5 million are at Stage 4, which is the most severe level of the disease state. This is when they're most prone to reaching chronic respiratory failure, which is when their lungs start to fail them. That's when they become candidates for our therapy. Once they hit chronic respiratory failure, we estimate that about half of those guys are there. They become candidates for our therapy. So 1.25 million patients are out there with Stage 4 and have chronic respiratory failure. Currently, and when I say currently, this is at the end of 2018, these numbers, so they're a little bit dated. We expect to get new numbers in October of 2019, but the most recent data to us is we have 60,000 beneficiaries on NIV service at the end of 2018. Even if we take a guess at it, we're still going to be less than 100,000 beneficiaries on service. This is representative of less than a 5% market penetration number, so we have 95% of the folks that qualify for our therapy that don't have it and they're going back in to the hospital as a revolving door of readmissions. The other piece on this slide is it's 70% of the market share is held by only 10 providers. We are the largest independent at 10%, but there's 2 big nationals that are ahead of us, Apria and Lincare. These guys each ballpark represent about 15% of the market. But as you can see, there's not many folks that are doing noninvasive ventilation care in the country and certainly, in our belief, not doing it the correct way with respiratory therapists in the home. On Page 8, a little bit about our solution. These respiratory therapists are assigned to each patient, as I mentioned, they're on call 24/7. They all are credentialed to have either CRT or a registered RT behind their name with their COPD trained educators, overseen by pulmonologists on staff and what they do is they go into the home and they work with the patients with these activity daily living reports. And to paint a picture, a good win with our patient is, heck, they may go into the mailbox or play in the garden or a really good report would be that they got out and got to see their grandkid's baseball game. But it's those types of activity daily living reports that are our success stories, that we report back to the pulmonologists and the internal medicine docs in the rural area that their patients are doing well and they're comfortable in their home. Flipping on to Page 9. I've already spoken about and finished Page 8, the majority of the plans covered by Medicare and private insurance. But let's move to Page 9, and we will see the suite of products that we offer, all somewhat respiratory related. And all of the products that we bolt on to our mix are designed for us to leverage not only our sales force but our current clinicians that are already in the home. There's another way that we can help out while we're in there. We're always interested in that product or that service line. That, number one, benefits the patient; number two, is easy for us to administer. On the top left corner, you'll see a number of different brand names of ventilators. We have a multifunction vent. We have some noninvasive vents, and all these guys have different modes where they can do different things. We can do invasive inhalation. We can do noninvasive ventilation. We can switch it to a BiPAP mode, which is more of a complex sleep apnea mode. So a lot of press in the news, a lot of messaging around just ventilator, ventilator, ventilator. But what we found in this crisis is that not many folks that were in the hospitals knew how to work all the different settings, and I'll get into it here in a little bit about. That was really our role, our education of how to work these vents for hospitals and states that muted it for the COVID crisis. To stay on point here, the percussion vest is another nice product. It treats bronchiectasis, which is the stiffening of the lungs. So your pulmonologists will uncover that need, oftentimes our respiratory therapists in the homes who uncover that need. And so that's been a nice product. Oxygen therapy treat Stage 1, 2 and 3. Typically, all of our patients will be on oxygen. And if they're not, we couple it up with the vent. Cough Assist is another product for our neuromuscular patients. Neuromuscular is another disease state that we service. Any disease that's going to deteriorate the lungs, they will eventually become candidates for this type of therapy as well. And then there's a picture of a home -- a guy taking a home sleep test. And then the PAP device. PAP stands for positive air pressure, and this your sleep apnea device. The last one is compression therapy, which we added on late last year. It's not a respiratory product, but it's the same call points that we have for home sleep, which are typically cardiologists, family practice and internal medicine. It's a real easy product to administer. It treats chronic swelling, and we've had some short -- some near-term success with disbursing that product. So moving on to Page 10. This is a little bit about our growth strategy and how we do it. The first thing we do when we're deciding to going into an area, as we look at a number of different data points. We look at hospital beds and certain areas, we look at problem facilities that have high readmission rates. We look at COPD rates. We're typically leveraging existing relationships with some sort of therapist that is well-respected and possibly worked inside of the hospital and already comes to us with relationships in place. But that -- at the end of the day, that's the #1 thing, the #1 reason why we will up and go to another area. If we find that person who is a clinician of bleeding heart really truly cares about taking care of patients and wants to take the next step in their career into sales. That really represents about 80% of the reason why we'll our up written and go. It's a unique lean deployment model. We do not invest in brick-and-mortar or costly retail stores in these states that do not require it. If a state does require it, the brick-and-mortar facility does not function to perform as a business model, but it's sales reps and respiratory therapists operating out of their vehicles, they're monitored by GPS. It allows us to be really lean and mean and to scale this business at a rapid rate. It's a very high-touch source model dealing with a tough cookie type of noncompliant patient demographic that we have become really good at treating. And then moving on to Page 11. This is an overview of our third-party studies that we've invested in. If you sit back and take a take a look at why the 95% of folks that I spoke about earlier are not getting therapy, it's because we really didn't have enough clinical studies in our space to prove the benefits of what we were doing out there in the home. So about 2.5 years ago, almost 3 years ago, we contracted with KPMG, big 4 accounting firm, to come in and they found some really interesting facts. It was the first U.S.-based cost and mortality study. And what they found was that for every 6 patients we put on therapy, we save a life. That top number right there is a 16% reduction in mortality. And in parenthesis, you see an NNT equal 6, that is the number needed to treat to save a life. That was a 6-month study. We also -- we had over 15,000 patients in it. We also found that they were 3x more likely to die in the first 90 days if they went untreated on this therapy. The savings that we uncovered were north of $20,000 per patient per year. And the way that we were doing it, we're doing it by preventing these hospitalizations. We compared it also to the bi-level device, which is a complex sleep apnea device, a form of really mistreating the patient, in our opinion. And those costs, even though a BiPAP device is a whole lot less expensive than a noninvasive ventilator on the front end, we were still doing more harm than good to the payer because we were costing them a swag of $18,000 or delta of $18,000 per patient per year. The next study that we did was the PRECISION and the Harvard Medical School study, and this one is going to be published here. And it was more clinically driven. We had a Harvard Medical School doc and PRECISION, which is a company that is known for producing these clinical outcomes. And we added on another 6 months. We said let's look at a whole year's worth of data. And so our NNT went to 8. We expected it to go up a little bit just because we were watching the patient for a longer period of time, but we were still pleased with the fact that the number needed to treat is 8. And if I could frame up what that means, a doc needs to prescribe 71 cases of Lipitor in order to save 1 life. So his NNT on Lipitor is 71. His NNT on a flu shots is 1,000. So you can go in and talk to a doc and say, "Doc, our NNT is 6 or 8." It's a major clinical needle mover, and they certainly want to learn more. We also found that we had a 38% immediate reduction in the risk of death with noninvasive vents. We had a 16% reduction in ER visits. So our number needed to treat to prevent that emergency room visit was 6. And then we had an 11% reduction in hospital readmissions, the NNT was we needed 9 patients to prevent that hospital readmission. Moving on to Page 12. This is giving you a look at our geographical coverage area. Our core is really in about 36 states right now, but we are licensed and Medicare approved in 46 states with a goal to be spread out throughout the lower 48 here in the next year, if you will. The COVID crisis really launched us into a number of different states that we weren't in. And so we're backfilling in support into those states right now. On Page 13, this is an overview of some of our technology and marketing initiatives that were underway and really have launched at an exponential rate, thanks to the crisis, but we had a vision before all this of becoming the leading health care technology company, coupled with high-touch human interaction in the home. As we saw that we had to change our protocols with the coronavirus crisis and minimize those home visits, we've ramped up our patient engagement portal, which was something that was in pilot mode, and it was a tablet in the home designed to talk to not only devices but also offer a telehealth solution where our RTs could speak directly with and treat on-the-fly directly to our patients. The goals has always been an improved quality of life and increase the length of stay that our patients spend with love ones. As I mentioned earlier, we have a 17-month length of stay. If we can interact on more of a real-time basis and get ahead of some of these exacerbations that lead them to the emergency room or hospital, we are hopeful that we can get that length of stay to 18-months, and that's how we envision paying for our investment. We've also developed a caregiver engagement portion of this program to where the baby boomers, if you will, can now check in on mom and dad that are aging and have some peace of mind that they're using their therapy correctly and not experiencing any problems. So that's part of our program. And then we have developed direct-to-consumer social media and e-commerce solutions, in particular, for our sleep apnea business, and we've also added some PPE to that along the way. My last slide here is on Page 14, and then I'll turn it over to Todd to go over the financials and update you guys on some of the COVID operational updates. But our objective over the next 24 months is we're going to continue to grow our active patient base while entering new target states throughout the geographic expansion. We are an organic growth engine. We have not made any acquisitions to achieve in this growth I talked about to overview with you. So keep that in mind. We are always trying to educate docs that are -- that this therapy is new to with the KPMG and our new Harvard Medical School and PRECISION study. So that will continue on. COVID did expedite that process for us as we saw multiple forms of ventilation being used across states and hospitals. So that education really took a ramp-up here throughout the prices. Diversify the payer base is a big one for us. And the #1 strategy is not only to get to these commercial payers, which we do service a number of them. We've got about over 500 different commercial payer plans within our system, but it's really to get to the VA, as I mentioned earlier. The VA have got over 9 million patients inside of it. We estimate it's about 300,000 to 600,000. Of our chronic respiratory failure patients inside of the VA that need vents right now. But beyond vents, what the VA really wants us to do is treat their rural patients. Trump signed a Mission Act last year, and that was all designed to get to some of these rural pockets of patients that couldn't get into the VA centers. So we're seeing the VA lean on us. They want us to go in there on the front end of the sales process, assess the home environment, possibly recommend not just the vent but maybe they just need a nebulizer or CPAP or some other type of respiratory drug that would be helpful, possibly even transportation to and from the clinics. Nevertheless, what they want us to do is go in there on the front end, make a recommendation, and on the back end of that, should they need equipment where we would be in perfect position to offer that equipment to them. We're very excited about the VA opportunity. We recently last month, during the crisis, converted the 2 largest national payers to go alongside with another national VCA agreement that we had signed earlier in the year. So we've checked the payer boxes with the VA. We've got our systems down. We have patients being uploaded, and we expect in the coming quarters for the VA to be a nice piece of incremental business to our current model. We're going to continue to expand technology, as I talked about before. And then the last bullet here is just about always keeping our head on a swivel, looking for other home-based product offerings to service additional disease states, maybe even beyond respiratory that our therapists and clinicians can administer in the home. So I'll transition it over to Todd, our COO, to handle the last financial end of the presentation.

All right. Thank you, Casey. Good morning, everyone. I'm on Slide 16 now. So as you -- as everyone knows, the COVID crisis has primarily been a respiratory disease state. And Viemed was in a position to react quickly and also capture additional market share. The first thing we did early on in the crisis was we pride ourselves on having a high-touch model. Our RTs are in the home more than any other company to our knowledge. We saw that as a risk because our COPD patients are the most vulnerable. So as a management team, we quickly made the decision to limit all nonessential home visits. We parlayed that with the VieMed Connect technology ad that Casey talked about and really came up with a really world-class solution that we kept patients engaged with their compliance of the machine. We also kept them out of harm's way. And as a result of all this, our patient attrition rate from the COVID crisis appears to be lower than we ever imagined it would be. So from the standpoint of what we did first, we're very proud that we've kept our patients in compliance and live and really being able to spend their time with their loved ones. The second thing we did is we quickly knew that we had an inventory of products. I mean we're one of the largest ventilator companies in the country, and we were monitoring the crisis that everybody was having getting vents so we started working with health organizations as well as state government organizations and begun sourcing additional products and selling out of our existing fleet and really serviced the need in what you would consider some of the hotspots around the country, states like Louisiana, New York, Illinois, Wisconsin. We've been a good source of -- a good resource to those. But like Casey mentioned earlier, not only did we sell equipment, we realized that as a network of roughly 250 RTs around the country, we have a knowledge base on these ventilators and other machines on how to use them in different modes and with different circuits and so forth. So instead of having to just answer phone calls on how to work different machines, we created a video library and posted it on YouTube for anyone to access and we're getting thousands and thousands of hits on that, which is good because that means people are getting more comfortable with using different machines, and that's just a resource that we can exponentially help people with. We also have been out there just marketing our traditional business, freeing up hospital beds when nobody had peaked yet, making sure that those COPD or especially weren't taking hospital beds and potentially becoming infected in the hospital and freeing up that for the most severe COVID patients. As a result of all this, we've seen some advancements by CMS and other private insurers to really adopt things on a more expedited basis. The telehealth rules have been opened up, and you're seeing many more physicians and patients become more comfortable. We're a very technologically advanced company and the things that are comfortable for us may not be comfortable for physicians and patients. And we're seeing those changes happen as a result of the stay-at-home orders and so forth. CMS has really been very progressive in making sure that their beneficiaries continue to receive the therapies that they need, both from physicians and providers. CMS has also pushed on the MA plans to make sure they're adopting the same rules as CMS, which has been very good because it's been keeping those 2 sets of the -- 2 groups aligned with each other. And then lastly, one that's pretty important to us, the noninvasive ventilator has been pulled from the 2021 round of competitive bidding. As anyone who has followed us know that we didn't think that vents as a life saving device should be included in competitive bidding. But once that decision was made, we are completely comfortable with it. And we felt like we could go around and take some market share as a dominant player. However, for the patient in mind, we think it's a better idea not to have vents in competitive bidding. So we were pleased to see that happen just within the last few weeks. Moving on to our traditional revenue model on Slide 17. Ventilators are covered in a bundled rate on a monthly fee. So the cost of the machine, the cost of the therapists, no matter if they go out once or 10 times, that's all in one bundled rate along with supplies and any maintenance of the machine because we own the machine in perpetuity. We just have it on a monthly rental contract. We receive roughly $950, plus or minus, a month across all of our plans when you look at averages. It's an uncapped rental contract, which means that if the patient stays with us for 2 months, we bill them for 2 months and if the patient stays with us for 18 months, we've bill them for 18 months. One of our main goals as a company for the last few years is to expand that length of stay. As Casey mentioned earlier, we averaged 17 months across the board with all of our patients, but we lose 20% in the first 3 months. And so we're very passionate about getting out there, educating people about trying to get these patients on early enough so that they can live 6, 9, 12 months, not have to go in and out of the hospital those several times that you see in the last year or 2. Moving on to Slide 18. This is our historical financials. You can see we've had a very good set of revenue growth. Casey had mentioned it earlier, we're roughly 40% over the last few years of revenue growth. And a very profitable company if you look over on the right from an EBITDA standpoint. Not many companies can grow at that rate and still do it out of internally generated cash flow. So that's what our model is right now. We've grown in the last few years without leveraging the balance sheet, and we're forecasting that we're going to be able to do that again this year. You can see we did just shy of $24 million in the first quarter. Our guidance for the second quarter is set at $42 million to $44 million. Roughly $20 million of that is related to COVID sales that we have forecasted right now. And once again, very profitable on the right and continue to expect that profitability to continue. What drives this revenue, as we've been talking about, is the vent patients. We ended the quarter just shy of 8,000 patients. We've talked about it, the core business because of clinics and hospitals being a little slower than normal. We've guided to roughly flat. We are seeing some green shoots around the country of clinics and hospitals opening back up to our reps and our therapists and so forth. So we're hopeful that things are getting back to normal over time. But with that, our therapists and our salespeople are trying new methods of communicating a lot more telephonically and so forth. So we continue into a very significant growth of our company. We're just doing it a little different right now. Moving on to Slide 19. Kind of look at the balance sheet capital markets profile. We have roughly 38 million shares outstanding and just shy of 40 million when you look at it on a fully diluted basis. We haven't issued a share since we have spun out and actually have bought back shares over time under an NCIB that was in place. As of March 31, we had $8 million of cash and just under $17 million of debt, which includes our finance leases. That we just use with one of our major providers to finance our vent purchases. As we forecasted, we think cash is going to grow and debt will come down during this quarter as a result of all these sales. Our staff continues to grow, we were roughly 465. The last couple of months, our rate of acceleration has slowed down. But now that we're starting to see things open back up, you're going to see the hiring ramp back up. And as insiders, we own roughly 13% of the stock that's outstanding right now. If you look at where we stand today, where our market cap is right around USD 300 million and a stock price that is hovering somewhere around $8. So the equity has performed well with our recent success. Moving on to Slide 20. Pretty simple corporate structure what it all comes down to. We have a BC parent that's listed on the NASDAQ and TSX, single entity underneath, it is the Delaware Corp. That's Viemed Inc., and it houses all of our subsidiaries, which are Sleep Management and Home Sleep. And we have just recently formed a company called Viemed Clinical Services, that we are looking at moving our labor pool into as we expand around the country with different opportunities of trying to monetize our labor force. We've always said the #1 asset in the company before monetizing labor was our vent base. But now that we have this network of highly specialized and trained RTs, this recent VA win, we're hoping to push more and more of our revenue stream based on our labor force. Lastly, the slide of the guys who make up the management team and our board. We have a very strong outside Board member, led by our Chairman, Randy Dobbs, Nitin Kaushal, Tim Smokoff and Bruce Greenstein. And then Dr. Frazier, myself and Casey round out the board with insiders. And you'll see Mike Moore, who Casey mentioned earlier, as our President and Co-founder, and then Trae Fitzgerald serves as our CFO. So that wraps up our planned remarks. Glen, we will turn it over to you for the Q&A session.

Perfect. Thanks a lot, guys. And we do have a lot of questions in the queue. And if you do have a question, please feel free to use the question and answer text box. Just for our audience, some of the questions are guidance related. And as this is not a quarterly call, management is not going to be updating any guidance. I can't take those questions on this call. So your first question, guys, is just some additional comments about competitive bidding. Vents were on, then they were off. When do you think the process could change again?

Well, this is a 3-year program. So it is our understanding that this round will last through until January 2024. So our expectation is the earliest that they would come back in at that time.

Perfect. Next question is you've clearly outlined some of the benefits that the company has seen from COVID. Do you see any tailwinds as a result of COVID? And how quickly do you believe that the COVID's impact could, I guess, disappear for your business?

It's been nothing but tailwinds for our company. And as we look towards the future, the adoption of telehealth is a big one for us. I mean we're already see -- we've seen 2,000 patients that got uploaded into our own telehealth platform. We've seen doctors adopt to telehealth platforms as well. The more interaction you have with the doctor and the patient or with us with the patient, just, not only does it help the patient in terms of producing positive outcomes, but it also helps the doctor get more preventative rather than reactive. And so we think that, that's going to eventually produce more referrals for our business. The other big piece, Glen, as it relates to the COVID, tailwind wise, the relationships we formed with these hospitals during this crisis, as they were reaching out to us in true crisis mode in the trenches with folks, in the prone position and really struggling were through how to work these various forms of ventilators. I might have mentioned it, but they're used to only having 1 or 2 in the hospital. Now they have 10 or 12 because they're coming in from all different sources. We were there for them educationally with our video library, we were going to -- we're circling back now and talking about how to have a more collaborative approach. And those -- that relationship building process is invaluable in my opinion.

Okay. Super. Thank you. Next question, you covered it off a little bit at the beginning, but can you just elaborate a little bit more on the spin-out from Viemed and PHM and some of the thoughts around that transaction?

Yes. I mean the PHM was going around rolling up different DME businesses, which are set up more like our competitor. Our competitor has a different business model. It's one that's successful, but at the end of the day, it's different. So they want it all. They want the wheelchair, the walker, the bed, the commode, the CPAP and vent. And they're typically waiting in the van in the parking out of the hospital and they're hoping to get that list of equipment from the case management department inside of the hospital. Our process is more clinician, direct and scrubs, walking shoulder to shoulder with the pulmonologists inside of the hospital, becoming an extension of the case management department and helping with their day-to-day workload. It's just different at the end of the day. The reason that we spun out from PHM is we had different uses of capital. The way that they grow is they really needed to go out and acquire other businesses where we were an organic growth model, and we just needed to hire personnel. And so it was an easy decision for us to create more shareholder value for us to kind of split it up and go our separate ways and it's proven to be the right decision that we made. And we have generated a lot of value for our shareholders. So we're very pleased with what we did there.

Perfect. Can you comment a little bit on what is the breakdown between Medicare and commercial patients for Viemed?

Yes. Roughly 60% of our revenue right now comes from Medicare. And 40% of everything else.

Okay. Excellent. And I guess a related question from somebody else. I'll get to that question because I just lost it on my page, so I'll have to dig it back up. Next question, with regards to the VA opportunity, are you seeing business ramping up in this market sector yet? And do you expect business to continue ramping up in this sector?

Yes. We are seeing business ramping up right now. With what we're really waiting on for to roll with the VA. The VA wants us to get out there and get into the home. So we're still kind of somewhat on pause on physically getting into the home in certain states. So it's just kind of waiting on states right now to release their regulations on allowing us to get out and about. Once we already have orders that are in the hopper for pulmonary rehab and home assessments and vents and other forms of equipment that we're just waiting to get out and deliver. So the payer thing, as I mentioned, has been fixed. We've been collecting payments from the VA. We've -- it's one of these things we've been working on for about 2.5, 3 years, and we are about to be an overnight success with it.

Perfect. I actually found that other question, and it's related to bad debt. If Medicare and private insurance covers most of the plans, can you just comment why you have a large bad debt expense as well as in prior years?

3 Yes. I mean, generally, we're dealing with a patient that's very sick a lot of times, not extremely affluent, and we grant hardship waivers in cases or the patients expire pretty often. So for us to collect payments sometimes is difficult. So the DME industry runs probably 13% to 15% is what we see as average for bad debt. And so we like to stay under that. I've always said 9% to 13% is what we shoot for. And if we can do that, I feel like we're doing pretty much in the fairway.

Okay. Perfect. Slide 7 or this is referencing Slide 7. Are there any potential treatments for people with Stage 3 or less, which may delay the progression to Stage 4?

If you think about what the VA is asking us to do, that's basically what they want. They want us to go in and assess Stage 1, 2 and 3. The treatment that we offer right now that is not -- is outside of Stage 4 is really oxygen therapy and the percussion vest as well. That could be in the early stages. But oxygen nebulizers and percussion vests are our primary products for Stage 1, 2 and 3 right now.

Next question. Are you expecting the health care environment to change on a go-forward basis? And could you provide some insight into how your business could be impacted primarily by telehealth and what role that may play in the future of Viemed's business?

Yes. I do think the health care system is going to change, and I think it's going to play into our hand. We really got a lot of patients out of harm's way inside of these facilities that didn't need to be exposed to COVID or the coronavirus. You also saw a lot of people that did not want to be treated in facilities and would rather be treated in the home. So these -- the adoption of telehealth is going to be on the rise. The adoption of just treating more patients in the home is going to be on the rise, and that's really where we come in to help.

Okay. Next question. What specifically is unique about your procedures and products and model of care compared to your biggest competitors?

It's our service model, okay? So again, back to -- you think about the competitor who wants all of the durable medical equipment that he can deliver he's got more of a delivery technician, drop it off, get the patient signature model, whereas we have a high touch, high level of service with a high-powered clinician going in there, spending 2 hours on setup, really becoming an extension of the family and the first primary point-of-care for that patient, if you will. It doesn't take a referral source loan, a physician loan, a case manager loan to figure out that if they want to do ventilation the right way, they need to call Viemed. That's one of the reasons that in most of the markets that we go into, we are usually the dominant player in ventilation.

Okay. Next question, how are you delivering DME concentrators to patients?

You're talking about, I guess, that would be the oxygen concentrators. And yes, we have our RTs making home deliveries on those. We're not drop shipping those devices, although portable oxygen concentrators could be drop shipped, and that could be effective. We maintain our high level of service. Many times, we have patients that have O2 and vents. And so we actually make the physical delivery.

Okay. Does Viemed have an acquisition strategy or plan as part of your growth strategy?

3 Yes. We -- look, we have an acquisition strategy from the standpoint that we evaluate acquisitions. We evaluate many joint ventures. We look at different types of ways to grow the company at a faster rate than we're just doing it organically. And that could span from anything to some sort of vertical integration that would include technology to another provider to get into a new area that makes sense for us to try to launch a little bit faster. However, our acquisition strategy is very much in deference to our organic growth strategy. We would love to do both, but our #1 priority is to continue the organic growth strategy. But as we've become more capitalized and look, we've got excess cash flow this year. We look at many things, and we'll see if anything makes sense, we'll evaluate it.

Okay. Are there any plans by the company to move into other markets outside of the United States?

Not currently just because, I mean, if you remember the slide that Casey referenced on Slide 7, we have less than a 10% market utilization. So there's so much blue ocean in front of us here, that this is where it makes sense for us to continue to grow just from a -- it's much cheaper to grow within the lower 48 than anywhere else. There are massive ventilator uses around the world, and there are countries that need it more than we do. But our bread and butter is here, down the road, who knows, but we have no plans right now.

Okay. Does Viemed own or lease the machines? And what is the average cost of an NIV machine? And what is the useful life span on machine?

We own the vast majority of our machines outright. We either own or have capital leases on probably 98% to 99% of our vent fleet. We do use capital leases on most of the vents that we buy. Sometimes we'll buy them with cash outright, but we have favorable leasing terms with the sister company of one of our manufacturers. So we're not afraid to use that. And that's why you'll see probably $8 million of additional "debt" on our balance sheet. So of the 9,000 vent fleet that we have, we probably own outright 8,000 of them or a little bit shy of that. From a cost standpoint, we don't necessarily talk about individual cost structure around from different ventilators just for competitive reasons.

Okay. As you scale the business, what operating leverage are you procurements -- or I guess, what is your operating leverage? Are there procurement savings on devices and any leverage with payers? Basically just discuss whatever competitive advantages you have related to leverage?

Really, the leverage would come. It's not up into the machine cost or the therapist costs or supplies. I mean our cost of goods sold are relatively flat. They may bump around a hair but the real leverage comes as we double the size of our vent patient count. And it's the G&A load that we'll be able to bring that down as a percentage. We've really set this company up over the last couple of years. On conference calls, you'll hear me talk about it, investing in the future. Prime example is the technology. There's nobody out there. As far as we know, that is servicing vent patients through an app that they've created. We would have never been able to do that in 4 weeks, had we not had a patient engagement portal that was in pilot mode that we were able to pivot across to this app. So we could expand margins at a faster rate, but we've always been a company, it's our culture to invest in the patient first and find ways to treat patients better. And if we do that, everything else will take care of itself. So kind of rounding back the most impactful way for us to expand operating leverage is just increasing the account and not having as much back office cost.

Okay. Do you feel comfortable with your current cash levels and working capital? And if it can support a robust growth opportunities ahead? Or will you consider equity?

Yes. We're very comfortable with our cash levels. We've grown the company 3 years in a row at 40-plus percent all out of organic cash flow. And this year, with what we're doing, we feel even more comfortable with that.

Okay. Regarding your RTs, you're currently at 250. Do you see this remaining at this level or growing? And can you foresee any changes to your model as a result?

No, it's definitely going to be growing. One of the things that we -- as it relates to our core business and our organic growth engine, we're back to hiring respiratory therapists. We did put it on pause, just while we couldn't travel and clinics were closed, we couldn't get people trained the right way, but we've already picked back up on training and hiring. So it's back to growing our business the way we have in the past. Another thing that we did do during the crisis that we forgot to mention was we expanded a staffing service portion of our business. We were able to staff a number of VAS in a handful of hospitals with not just RTs in some ICU nurses and some registered nurses as well. So we're going to look to expand that portion of the business and have it as an offering as well. But we're back to hiring folks just like we were pre crisis.

Okay. You may have answered part of this question, but just to make sure I don't miss it, can you speak again to the opportunity, if any, of Stage 2 or Stage 3 COPD patients?

Yes, I kind of did answer it, but I'll make sure that you guys understand it. I mean the VA is the best way to explain that, okay? They want us to go in and visit with Stage 1, 2 and 3 patients and see how they are in their disease state, how far they've progressed? And uncover needs for them in these rural pockets across the country. And so that is really a great way of thinking about how we're using our people, our respiratory therapists in a different way as an asset versus just using equipment. And now we're billing for our expertise and our assessment versus just a piece of DME equipment.

Next question. What percentage of sales are your sleep apnea business versus your COPD business?

Ventilation makes up 83% of what we're doing. Our vest business is roughly 7%. The sleep business is roughly 6%. And then O2 and other makes up the balance, which is about 2% to 3%.

Okay. Can you elaborate a little bit more on what you mean by monetizing your labor force?

Yes. I mean it's just like what Casey was talking about. If we are able to start getting paid for our labor force, meaning our RTs going in the home, whether it's making a home assessment of a patient who was drop shipped in O2 and doesn't know how to use it or a nebulizer or taking a step further. One of the things that we're talking about, that Casey mentioned, that we're starting to get the orders for, it's just -- it's a little bit backlogged with the home visit, is pulmonary rehab which is more of your longer-term program, maybe a 12-week program, where RT is going in and rehabbing the patient in the home just from a pulmonary standpoint. That's what I refer to as monetizing our labor force. It's up until now, most of the time, our labor was just part of a bundled rate. We get paid one rate for the vent and the RT comes along with it. We now have opportunities for RTs to expand what they do and us to actually get paid for that.

Okay. What is the average number of RT touch points per month?

Well, on average, we like to say that they should be handling about 45 to 65 patients a month, vent patients, that is. So it matters on how many of those patients are invasive versus noninvasive, it matters what kind of town they live in, do they live -- are they having to drive across mountain ranges and things like that. So that's a general bandwidth of where they should be. Now there's multiple touches for those patients sometimes. And then some patients are a simple phone call, if they're up and running and they're compliant. In addition to that, we have them helping the salespeople with notes and so forth. And then we also have them doing other products now like O2 invest and so forth. But we like to look at it just in general and how many patients they have, and that's sort of a sweet spot right now. Down the road, as we employ more technology, once we get PEP up and running, now that VieMed Connect is up and running, there could be some expansion to that number. We may be able to leverage more patients per RT down the road. That's part of the vision of making these technology investments not only to increased length of stay from our patients and creating more compliance because of the nature of being able to monitor patients more readily but it also may give them the ability to service more patients on a monthly basis.

Super. Next question is related to COVID again. Do you see any visibility of potential sales beyond Q2?

I would say yes, especially as the PPE market will continue. When it comes to equipment, we are -- we stand ready to help. Who knows what the next phase could be with this pandemic. We're one of the largest providers of equipment. So we are ready to do that. We just -- we don't have any guidance out there, so we're not going to try to take a guess of what it could be, but there's always that opportunity.

Okay. Next question. How has Medicare reimbursement trended over time? Have there been any large cuts or increases over the past decade?

Yes. It started reimbursing in 2012. There has been one cut. It was significant. It was on January 1, '16, which you can see in the revenue and EBITDA graph. We took a 30% to 35% rate cut. There has been no rate changes since then other than just inflationary indexing, which is 1 point or 2 a year.

Yes. I'll just add to that and say that in 2016, that was a draconian rate cut, where it just came in and announced it really abruptly to us. After that, you saw the competitive bidding program developed to where you could get more players to establish a fair market value so that CMS could make an appropriate rate cut that businesses could survive that. And so the fact that we're not in the competitive bidding program. And from 2021 to 2024, it gives us a lot of confidence that our reimbursement will be stable for that time period.

Perfect. And guys, I know we're at the top of the hour. I don't know what your schedule is like. I still have a pile of questions in the queue. So just let me know how much longer we can go and I'll keep going.

We can go another 10 minutes, Glen. I've got an 11:30 that I need to prepare for but.

Okay. Perfect. And I'll try to do my best to avoid any repetition because I do see some of that here. So next question. What are the reasons why there are so few players in your field? Potentially, what are some of the barriers to entry?

Well, you have licensure in each state that you have to get accomplished. That's #1. You have to be accredited by an accrediting body for ventilation, have a respiratory therapist in each one of these areas. At the end of the day, it really is not an easy thing to scale across state lines. So you see a lot of regional players inside of their states that -- or we consider our competitors. But other than Apria and Lincare, who are the big nationals that are set up already with their infrastructure in all 50 states. We don't have many mom-and-pops that are scaling, such as Viemed, for those barriers to entry. And any cost -- I mean the cost of the machine is -- this is not a cheap piece of equipment. Mom-and-pop could pay between $8,000 to $10,000 per vent, if they're [ 1D2 ] units. Our price is a little bit less because of volume and us being a large buyer. But that's not an easy piece of equipment to keep on the shelf, and you certainly want to keep it moving, if you do. So it's just a big investment. It's a big step for a mom-and-pop that they need to take.

Okay. Next question is about the VA. So you estimate the opportunity between 300,000 and 600,000 patients. Do you see the VA opportunity potentially overtaking your current opportunity just with Medicare and, I guess, a standard population? Just maybe elaborate a little bit more on the VA opportunity in so.

Yes. I mean we currently have 60 million beneficiaries in Medicare, as I mentioned on Slide 6, and that's expected to be 69 million beneficiaries in 2023. There's 9 million patients total inside of the VA. And the only opportunity that's unique inside of the VA is the fact that they want us to now get to Stage 1, 2 and 3 and 4. We don't have a number to specifically call out, but that could be a couple of million patients there that we need to treat just inside of the VA. So will it overtake Medicare? I don't think so, but it's hard to say.

Great. Next question. How does Viemed go about capturing referral share? How long does the process take to capture a referral in a specific area? And how easy is it to replicate the process in other markets?

Well, it depends on the reps and their relationships that they have in place. A lot of times and how well they adapt to transitioning into -- moving from a clinician into a salesperson. We have some reps that come out the gate and are successful in month 1 and others that take 6 months to really click, but both can be just as productive in the back half of the year, if that makes any sense. So a lot of that depends on the training, the field work and the rep and how fast they adopt to walking and talking the Viemed way.

Okay. Can you explain why a separate subsidiary was established to leverage your clinical labor resource, it's not clear why a subsidiary is needed.

Well, it's just we wanted to put that labor force in the event that we are able to bill for personnel down the road. We wanted to have the ability to do that. It's just complications within the billing codes. It makes no difference internally from a corporate structure. It's just giving us the potential to bill for those people into commercial or CMS down the road if rules are favorable.

Okay. Can you elaborate a little bit more about the relationships with your suppliers, who you get your vents from and what those relationships are like?

Yes. I mean we buy this primarily from a few different providers. Philips has been our largest from ventilation. We also buy from ResMed, Breas. We've been buying from Vyaire lately, amongst a few others, VOCSN -- or Ventec, who makes the VOCSN vent is another one that we use. From a PAP standpoint, it's the same players, it's your Philips and ResMed primarily and then supplies is all over to some other different guys. And then O2, I'll say that we have been selling quite a bit of the antigen units from a POC standpoint.

Okay. Why would RT join Viemed? Are there better compensation versus practicing elsewhere? I guess sort of what's your secret to attracting RTs?

Well, your typical RT gets out of school. They go -- we like them to have the hospital and ICU experience where they get a lot of good clinical knowledge but that's a very tough gig. And they're working weird hours. They work days, they work night. Some of them work at multiple facilities. And so whenever you're able to come in and offer them a little bit more freedom, operate out of the vehicle and really take their career to the next level. They can make more money with us as we have them on commission structures for service. And if they're a sales rep, there's commission structures for sales. And so they'll make more money at Viemed than they will at their standard respiratory therapy job. But the majority of these guys that -- we have a very low turnover rate. They are happy campers. They are glad to be here, and it's just a great place to work. We have a fantastic culture around Viemed that folks really enjoy and really don't want to build their careers here for lack of a better term.

Okay. Next question is, are doctors or would doctors be reluctant to prescribe home ventilation because the hospital is penalized if readmission occurs in the first 30 days?

No. So that's really why they would want to order ventilation. They need to keep these patients comfortable in the home and prevent those readmissions from happening. Another value-add that we bring to the hospital beyond just readmission prevention is we manage their length of stay. We get the folks that are -- that don't need to be in there. Out at the right and appropriate times, and we free up those beds for others that do need to be in there. And so beyond the 30-day readmission penalty, it's really about length of stay management that we're helpful with.

Okay. Super. A couple of questions left, and then we'll let you guys go. Maybe some comments on what you see going forward in terms of your shareholder base. You're currently now at 31% institutional, your thoughts around increasing that.

Yes. I mean I think it's been very clear that we've had a mission to increase our institutional base when we spun out, we were virtually 100% retail, I guess, and crossing down into the U.S. was an important step for that. Casey and I are committed to continuing to meet shareholders, either virtually through the more recent ways of Zoom meetings and daily roadshows that can happen from our offices or when things open back up, getting out there and speaking at conferences and going to meet with people. We love to tell the story. We also love to run the business. And so it's definitely a goal of ours to increase the institutional ownership. And I think naturally, as we've grown and become a little bit larger, we're able to get in front of new names. So we will -- it will naturally become more of an institutionally held name.

Okay. I'm going to combine a couple of questions into one. So what is the most -- biggest factor that would, I guess, restrict higher patient growth numbers versus historical numbers? And what would you consider the biggest risk to the company?

Well, on the first one, the most limiting factor is us finding more and more salespeople that are effective specifically in new areas, but sometimes densifying into an existing region where it could be large enough that we need multiple reps. We're not capital constrained. We're not license constrained anymore. We're licensed virtually in every state around the country. So getting good reps that can go out and preach from our studies that we've invested in and learn the Viemed way is the most -- I would say the biggest factor in us not growing at a 100% in a year. That's the single biggest factor, which is why we're always looking for good sales reps and good therapists. It's what drives our business. They're the ones who are the drivers of all this. As far as the single biggest risk, not getting doctors to understand how good of a therapy NIV is, maybe, but we have -- there's always reimbursement risk to the business, but with ventilation, with the COVID crisis, that doesn't seem like as big a factor. There's not really a whole lot of new technology being talked about. So we don't necessarily sit there and look at any single risk that's so great to our company.

Super. And last question, guys, and then some closing remarks from you. You made the decision to sell fleet management to PHM 5 years ago. How do you think about Viemed on a go-forward basis? Do you see yourself growing as an independent? Maybe some thoughts around sort of the future of the business.

Look, we have a vision of becoming the largest respiratory company in the country and have no intentions of selling this business. It's a lot of fun for us to run. We have a fantastic management team. We've got a sound mission of taking care of patients and saving lives. So our thoughts are set on growing this thing. This is Casey talking. I was one of the ones that made the decision to sell to PHM. We -- I'm enjoying what I'm doing, and we're going to continue to do this for a long period of time. And we want to bolt-on other solutions to this to where we become just larger and larger and larger. And growth is something that we're very proud of. We -- I can't remember if we said this on this call or not. But if we're not growing at 3% each month, we look back at seeing what's wrong. And so we'll continue to do that and stay focused on that and really be proud of what we've built here for many years to come.

Super. Thanks a lot, guys. I have no further questions. So if you have any further comments, go ahead and say them now. And otherwise, we'll end the call.

All right. Yes. I'll just thank everybody for listening in. Hopefully, we have some new names to the story. If so, please follow up with the guys at Bristol, both Glen and Stefan are great conduits, early questions, and then we will try to make ourselves available for follow-ups if necessary. And for all those long-term shareholders, thanks for your continued support.

Super. Thanks a lot guys. I appreciate it, and thank you to our audience. This concludes the call.

Thanks, Glen.