Greetings. Welcome to the Viemed Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instruction] Please note this conference is being recorded. And I'll now turn the conference over to host Todd Zehnder. You may begin.

Thank you. Good morning, everyone. Please note that our remarks in this conference call may include forward-looking statements under the U.S. federal securities laws or forward-looking information under applicable Canadian securities legislation, which we collectively refer to as forward-looking statements. Such statements reflect the company's current views and intentions with respect to future results or events and are subject to certain risks and uncertainties, which could cause actual results or events to vary from those indicated in the forward-looking statements. Examples of such risks and uncertainties are discussed in our disclosure documents filed with the SEC or the securities regulatory authorities in certain provinces of Canada. Because of these risks and uncertainties, investors should not place undue reliance on forward-looking statements. The forward-looking statements made in this conference call are made as of today, and the company undertakes no obligation to update or revise any forward-looking statements as required by law. The third quarter financial results news release, including the related financial statements, are available on the SEC's website. I'll now turn it over to Casey to get things started.

Okay. Thank you, Todd. Good morning, everyone, and thank you for joining our third quarter earnings call. Today, I'll be providing commentary on our positive operational results for the third quarter as well as our current view and outlook of the industry. I'd like to begin, as always, by acknowledging and thanking our dedicated team of respiratory therapists, behavioral health specialists, staffing professionals and administrative support staff who worked tirelessly to deliver the best-in-class care to our patients. We are privileged to have these employees within the communities that we serve as they pride themselves with their service mentality. As of September, our Viemed family grew to 722 employees. Underlying these numbers is substantial increase in sales hiring, offset by natural turnover in administrative functions. Our rate of hiring for sales position is at an all-time high, thanks to the support of our BHS staffing division. Through September, we have hired 52 [ph] sales reps and converted four existing employees sales reps. We're also seeing positive retention trends with our existing sales force, contributing to an overall 34% net growth in sales force compared to the beginning of the year. In the third quarter, we added eight new geographic areas, bringing our net new areas for the year up to 23%, which puts us in a position to surprise our goal of adding on 25 new areas by the end of the year. Based on the historic productivity curve of new hires in our sales force, we are optimistic about the robust organic growth potential coming through the pipeline over the next 6 to 12 months, strengthening our 2023 growth optimism. In addition to investing in growth and with the help of our maturing digital process improvement investments, we were able to reverse margin compression associated with the increased labor…

All right. Thank you, Casey. In reviewing the financial results, all figures are in U.S. dollars and the full results have been made available on the SEC website as well as SEDAR. Our core business generated net revenue of $35.8 million during the quarter - third quarter as compared to net revenues of $27.8 million in the third quarter of 2021, which equates to a 29% increase. Our sequential growth for the core business was 8%. As indicated last quarter, we are now back to seeing growth across all of our major product lines and have very little restrictions to our access around the country. Our gross and EBITDA margin percentages are once again very healthy and are now back to being just from our core business lines. As indicated last quarter, we anticipated our margins to begin to turn around towards the end of the year or next year, and we're pleased that we were able to show a slight increase in EBITDA margin sequentially. We continue to see our margin profile be influenced by our product mix and continue to be pleased by the notional growth. Our gross and EBITDA margins during the quarter came in at 61% and 20%, respectively. Our third quarter growth in EBITDA amounts came in at $21.7 million and $7 million, respectively. Our third quarter revenue from Vince [ph] was approximately 67% of our core as compared to 78% in the third quarter of 2021. We saw our active patients grow across all product lines. and now have four products that we are comfortable saying are rolled out across a significant portion of the country. We should continue to see economies of scale as we continue to grow these lines. Our SG&A for the quarter totaled approximately $17.7 million as compared to $13.3…

Thank you, Todd. I'm extremely proud of how our team executed in the third quarter. We have successfully reversed an EBITDA margin compression trend through the efforts of creating operational efficiencies through our investment into good people and good technology. We are also well positioned in this current and forward-looking economic environment. While most are experiencing a labor shortage, our investment into staffing has allowed us to not only allude this challenge but flip it into an opportunity that is generating growth for our company. The ability to provide staffing solutions to our referral sources is putting us into a wonderful position to execute on strategic hospital partnerships that go into the home. We continue to thrive in this fee-for-service world, but this has not changed our relentless pursuit nor our view of value-based arrangements being the future of reimbursement for our industry. Trends in the current regulatory landscape continue to reaffirm the value of home-based health care. The organic business model is back to growing at impressive rates, and we have the team and structure in place to expand the model further with an underserved population of patients in need. While we have not yet completed an acquisition, we see M&A as a major prong of our future growth model going forward. We recognize there are challenges in the country, but remain excited about near term and long term of our business. History has shown where others perceive headwinds by Med fees [ph] tailwinds. And -- we love to be opportunistic during challenging times, and this often leads us to being on the forefront of technology and clinical solutions for our payers, referral sources and ultimately, our patients. We want to thank all of our investors for their continued trust in our company and look forward to driving further shareholder value. This concludes our prepared remarks. I want to thank everyone for taking time to join our call today. We look forward to answering further questions.

Thank you. Good morning, guys. Terrific quarter and frankly, a terrific review of all the many things you have going on. So I appreciate that very much.

Thank, Brooks.

I have a couple of questions. So first, I heard you mentioned reimbursement, and I think the primary change relates to an inflation adjustment, but have there been any underlying sort of changes in the fundamental reimbursement structure in the areas you guys are focused on?

No. We have not heard of anything. So right now, our - we are anticipating just whatever comes out through inflationary mainly driven by the CPI.

Okay. Great. So you talked about the acquisition opportunity, which I personally believe is huge. I'm just curious if you think the most likely scenario is to kind of be opportunistic about trying to expand your core business operations? Or is it more likely you might view an acquisition in a technology area or something like that?

More likely to expand our core business. We are looking at other ways to expand our technology business as well. But I would say, Bret, a way to answer that question might be that 80% of the pipeline is really related to growing the core business and the other 20% might be more strategic with technology.

Okay. That's helpful. Appreciate that, Casey. So one area I'm curious about I actually spent quite a bit of my time on an area that I call remote patient monitoring, and I know you guys are involved in this area, but my sense is that - there's a growing number of reimbursement codes that can - the doctors can utilize to be paid to monitor patients remotely. But candidly, my sense is there isn't a doctor in America that has that capability inherently in his practice is a her. And so I sense that there's a growing opportunity for technology and service providers to support doctors and help them to collect that reimbursement. Is that something you see in the areas you focus on and/or b, is it an area that has any appeal for you guys in respiratory care.

Yes. That's how we started, Brooks, with the rollout of our RPM devices is going straight to the doctors and presenting it in a way where they could make some additional revenue streams and keep better clinical watch on their patients from a far. However, I'm seeing the trend more leading for RPM going towards directly to the payer and to the hospital systems who are now faced as it relates to the hospital systems, they're faced with a labor shortage and they're trying to fill up their beds, but they don't have the clinicians to really support that. They're looking for ways of treating more patients in the home and that's got them keeping their eye on the ball on remote devices that might be helpful in that hospital to home type of program. So bigger fish, that's the bigger fish or the bigger win, if you will, is with those payer groups and those hospital systems that want to embrace it. yes, the position who wants to make a little bit more money is certainly going to do so, but it won't drive the volumes that the hospital systems and payers to bring.

Okay. That makes total sense to me. I appreciate that commentary, Casey. So the last thing, obviously, you've been very successful with the stock buyback. It sounded to me like you're kind of getting towards the tail end of your current authorization. I'm curious if you've had any conversations with the Board given any thought to expanding the authorization or we're doing it once you get to the 2 million shares?

Yes. We haven't had any preliminary discussions on that book. We're going to - we're going to be patient and finish this one off in due time. And now that we have the M&A team, we're also mindful that keeping some dry powder ready to go deploy in some sort of acquisition is another good use of the capital. Until we get there, we haven't made any decisions, though.

Totally get it. Thanks a lot. Great quarter. Great job. Thank you very much for taking my question.

Thanks, Brooks.

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

Hi, good morning, guys. Casey, did I - I just wanted to confirm that I heard you you've hired 52 sales reps year-to-date? Is that what you said?

Yes, that's correct.

Okay. So how many...

Sales

We have paid another 4. So that's roughly 56 new sales reps. But go ahead with your question

And how many do you have in...

Okay. And how long does it take an average sales guy to ramp up to full productivity?

It varies, but we usually give them 6 months, and that's something that is all over the map. Very hard to put your face on we got folks that start really fast and then some that take the full 6 months to ramp up, but end up being in our top 10% of sales reps. So we pay very close attention to that, and we give folks a lot of training and support and got to give them the opportunity to be successful. Yes, it's hard to answer.

Okay. I guess I'm just trying to get at to when everybody's full productivity, what do you -- what does that mean for a sales guy in terms of an annualized target for revenue per annualized target for revenue for sale?

We don't really track that.

You had 100 sales guys today and you started the year at about or end of the last year around 44, I guess, right?

No, we've had turnover on included in those numbers.

Okay. Okay. I guess I'm just trying to get at when these guys -- that's a bunch of new sales guys and they ramp up, like how incremental should the revenue increase?

And so - rather you pay more attention to the net new areas, which is what I commented on this quarter the first quarters where just wanted to give you all some color on how many reps it took to get to the 23 net new areas. And that's really incremental businesses that we've added on this year, business areas that we've added all. Does that make sense?

And what..

We set a goal at the beginning of the year to get to 25, and we're sitting at 23 at the end of the third quarter. So we're going to be ahead of that goal that year-end goal.

Okay. So that 23 would represent a year-over-year increase in of what/

Of another area where we set up a sales rep that's oftentimes supported by another type of assisted sales rep that could have maybe 2 or 3 respiratory therapists underneath them. So there's a lot going on there, but it's the best way to think about how is Viemed expanding. We've gone 60 miles down the road and we have set up a new area. So rather than buying a business, we have incrementally added on to our organic engine by setting up that new area. Does that make sense?

I'll get that. I'm just wondering like as a percentage of increase the 23 net new areas represent 20% year-over-year growth in areas or...

It's 34%. growth.

Number 34%. Okay. And on your wish list when I look forward 12 months from now, how many net new areas would you want to add this time next year? Or how many are capable of adding given the resources you have, and I'm assuming the M&A will also augment that growth in the new areas testing?

We haven't set that number yet. But I mean, you can figure as -- we always like to be growing around that 30% number or setting our goals in that area, if you will, when we're working with our team for the organic piece of the business. So just figure it another 30-something percent jump.

Okay. Todd, just on the - can you just remind us on the phantom shares, the impact on G&A this quarter was 450 gram [ph] That's real dollars just remind me of how that works and it's reflective of the increase in the stock price?

Yes. So that's a - it is a real expense, but it's settled in cash once a year, Doug. So that's just a mark-to-market of those plans, which, as we've signaled to the market is definitely going down over time. because it is settled in cash, whereas the restricted units that we use that go through the stock-based compensation or settled in stock, you actually have a more market in.

Okay. And my final one, I noticed that that data percentage revenue dropped, I think it was 4.1% in the quarter. down from 8% given last quarter. So pretty low. Any comments on that?

Yes. I think we've gotten a little more sophisticated on the reserving earlier in the year where it may be a little bit more difficult to collect. And we were a little higher in the first and second quarter than we want to be. I would just say that -- we want to keep that number in the 6% to 8% range on an annualized basis over time and are hoping to open in pit down. But it's as collections have gotten stronger and everything is just getting more systematic. I would hope to drive that down every year.

Okay. And I think that's –m or just on the CPI adjustment. Is that my understanding it'd be around 5%. Is that sort of in the ballpark of what you're thinking?

If we look at historical data, with the CMS typically use is the June CPI, which came in at 9.1% and then there's a productivity adjustment made. So if we are able to use historical averages, it would be in the upper but we won't know that number probably until late November, early December.

And that will take effect Jan 1?

That's correct.

Okay. And what do you think the commercial payers are do? That's what Medicare will increase with the commercial payers increase as well or would just be on the Medicare side of the business.

That really just comes down to individual negotiations/discussions, -- some of our contracts are tied to Medicare rates. So those would just get it passed through immediately. But on the ones where you have fixed fee schedules, it just takes our network development team getting back on the phone and hoping for some sort of inflationary release.

Okay. That's great. Thanks, guys. Great quarter.

Thank you.

[Operator Instructions] Our next question comes from the line of Prasath Pandurangan with Bloomberg. Please proceed with your question.

Hi, good morning. Thanks for taking my questions. First, on the SG&A expenses, which is about $17.7 million this quarter, how are the split between kind of 6 component, which is the operating leverage and the variable component which kind of goes up and down with the top line?

I would say the majority of our SG&A is somewhat fixed. When I say majority, probably at least 3 quarters. The biggest component of that is the wages for everybody that's not touching patients -- so roughly 500 or so employees. But commissions, things like fuel, things like bonus programs and so forth, those are variable. That probably makes up 20% to 25%.

Okay. Okay. That's useful. And do you expect this split to be like stable going forward?

I would. Yeah. Those numbers have stayed relatively -- we would hope that we can drive down SG&A as a percentage of revenue over time as we create more operating leverage. But I would expect the components between fixed and variable to stay somewhat consistent.

Okay. Got it. Got it. And then on the M&A strategy, given the significant changes in the broader economy and financial markets, are there any changes to your kind of the areas that you target and the companies and the multiples you'd be willing to pay for these companies?

Yes. I mean some of these companies have been in our pipeline for 2 years and are coming back around to us with a reset of multiples in the market, if you will. So that's a positive for our guys who are out there having the conversations right now. And I just think the other part to that is the components of any financing. Now you have to consider a higher leverage rate and so forth. So I think that will inherently bring down multiples just because the cost of capital is going up as well.

Okay. Okay. Yes, that makes sense. And then just to confirm, the CPI adjustment, your baseline expectation is in the 8% range for next year?

That's our expectation, Prasad. We're obviously going to wait for CMS to come out with the number. But if we use historical context, then that should be where they come in.

Great. All right. That's useful. Thank you very much.

Thanks.

And our next question comes from the line of Nick Corcoran with Acumen Capital. Please proceed with your question.

Good morning and congrats on the record quarter.

Thanks.

Most of my questions have already been asked. I guess my first - or my only question is, you added 23 areas in kind of year-to-date. How long does it take for an area to fully mature?

Again, it's kind of going back to Doug's question. It really revolves around the risk development. So some of - all areas are different. It depends on how season the rep is, what their historical sales experience and contacts have been and so those typically will start up a little bit faster than the one just starting without contacts, but we've had both end up in the top 10% of successful reps and areas. So it's all over the map. It's hard to answer.

And if we think of you maybe like 75 areas, I guess there's a range of organic growth just depending on the maturity of the areas that a fair assumption?

Yes, on an area-by-area basis?

Yes, exactly.

Yes, absolutely. So you - if you have a relatively newer area that, let's just say they became established in the first quarter of this year and started having an impact. Their organic growth rates are going to be much higher than, say, some -- an area that's been around for 7 or 8 years, just because that the more established area has attrition of just the 17-month length of stay, you're losing patients from a gross new patient adds. Those are some of the most important areas, which is your larger areas. But if you're just looking at it on a percentage basis, relatively immature successful areas are going to drive the most percentage bank.

Okay. Thanks.

Thanks.

And we have reached the end of the question-and-answer session. I'll now turn the call back over to Casey Hoyt for closing remarks. Okay. Thanks for everyone joining our call today. We appreciate it. We're getting back to business. Happy going.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.