Good day, everyone and welcome to the Viemed Second Quarter 2019 Earnings Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Todd Zehnder, Chief Operating Officer. Please go ahead.

All right, thank you, Betty. Good morning, everyone. Please note that remarks in this conference call regarding our expectations, future plans and intentions may constitute forward-looking statements as such term is defined in U.S. Federal Securities Laws of forward information as such term is defined in applicable Canadian securities legislation, which we collectively referred to, in this conference call, as forward-looking statements. All statements other than statements of historical facts may be forward-looking statements. Such statements reflect the company's current views and intentions, with respect to future events and current information available to the company and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements that may be expressed or implied by such forward-looking information to vary from those described herein should one or more of the risks or uncertainties materialize. Examples of such risk factors are discussed or referred to in the Company's disclosure documents filed with the U.S. Securities and Exchange Commission and are available on the SEC's website at www.sec.gov, or filed with the security regulatory authorities in certain provinces of Canada and that are available at www.sedar.com. Should any factor affect the company in an unexpected manner or should assumptions underlying the forward-looking statement prove incorrect, the actual results or events may differ materially from the results or events predicted. Any such forward-looking statements are expressly qualified in its entirety by this cautionary statement. Moreover, the company does not assume responsibility for the accuracy or completeness of such forward-looking information statements. The forward-looking information included in this conference call are made as of the date hereof, and the company undertakes no obligation to publicly update or revise any forward-looking information other than as required by applicable law. The second quarter financial news and results, including the related financial statements, are available on the SEC's website. Now I will turn it over to Casey to get things started.

All right, thanks Todd. Good morning, everyone and thank you for joining our call today. Before I begin with an update on the second quarter, I want to take a moment to thank our Viemed team members for their commitment target. We've all experienced a lot of evolvement over the past 30 years and our group of dedicated health care professionals have done a fabulous job, maintaining our clinical excellence and unique culture in the midst of a fast-paced growth environment. The foundation for our success comes from their dedication to the patients and the families that we serve across are now 29 states. I'll begin my comments for the quarter on the fabulous work that our compliance department has been doing executing on our geographical expansion. We finished the quarter licensed to do business in 44 states. Medicare approved in 38 states and conducting business in 29 states. We're now doing business in Florida, which was a bear of a regulatory process and a fine example of the quality execution coming out of the compliance department. We've set our goal to be in the lower 48 over the course of the next year or so. Our sales managers and recruiters have been actively recruiting throughout our existing coverage area in our newly licensed states. We hired another 10 reps in the second quarter, bringing our year-to-date total to 24 reps. We've also started a new customer service representative, or inside sales program, to help cultivate more business from our established areas. The new CSRs are being trained to help analyze industry and competitive data to regularly support our seasoned sales reps. They're expected to create more prospecting time for our sales people as some of their daily tasks will include scheduling appointments and in services, processing daily paperwork, reviewing…

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 SEC website as well as SEDAR. We generated a revenue of $22.5 million during the second quarter of 2019 as compared to revenues of $15.5 million in the second quarter of 2018, which equates to a 45% increase. Our revenues came in right at the midpoint of our previously guided range for second quarter revenues. We, once again, saw a rapid growth of our new vet patients, and we exited the quarter with 7,130 active vet patients, which is up 12% sequentially. Additionally, our gross margin percentage was slightly higher, increasing to 75% from 73% in the prior year's second quarter. Adjusted EBITDA totaled $4.6 million for the quarter, which is a 20% margin. We, once again, had slightly lower adjusted EBITDA margin than the last few quarters as a result of variable compensation tied to our stock as well as our continued investment in to future growth plans, such as the U.S. listing, our technology investments as well as our marketing investments. Additionally, we have invested into our work force to support our expanding programs, including new employees for the VA, our pediatric division as well as our new infrastructure to support our oxygen business and the newly rolled out compression therapy. Our annual adjusted EBITDA percentage should remain relatively flat with prior years as we continue to organically grow our top line and are able to absorb some of the infrastructure investments that we have made during the first half of the year. We, once again, redeployed the adjusted EBITDA during the current quarter as our medical CapEx totaled $5.2 million for the second quarter of 2019, primarily driven by new vet purchases…

Thanks, Todd. Running this business with these fine people was an absolute blast. Viemed has many incremental growth opportunities on the horizon with very limited headroom. We're supporting an industry being flooded with patient volumes, driven by an aging population inside of the U.S. We believe Viemed solution for CMS and all payors of life to treat patients more efficiently and effectively in the home. Our government relations department continues to constructive conversations with the government, and it's viewed as a thought leader in our space. We are beginning to see signs of the system shifting through more value-based reimbursement models, which plays to our value proposition. Our investment today into technology, pediatrics, the VAs, oxygen, compression therapy, direct-to-consumer sleep solution have all been made and are expected to present continued upside opportunity for the future. In closing, I’d like to thank our shareholders for their continued support and trust of our very important mission to generate positive financial results all in the name of improving quality of life. This concludes our prepared remarks. We’ll now open the floor up for questions.

Thank you. [Operator Instructions] And we’ll take our first question today from Sarah James with Piper Jaffray. Please go ahead.

Thank you and congrats on the quarter. I wanted to talk a little bit about the expansion plans. I know you guys have been working on Florida for a while so that’s very exciting. Can you talk about what the next wave might look like? What states you might – you’re targeting for the next year or two? I know it’s not just about getting a new states, but it’s also going deeper into existing states. So can you help frame up expansion in those terms, whether it’s counties or just adding RTs? Just give us a little flavor of how you are planning to get more density in existing states? Thanks.

Sure. So you hit the nail in the head. When it’s – it really is less about space when you think about organic expansion. And it’s more about finding good people, 60 miles down the road inside of our coverage area. When you think of a geographical expansion, the reason that’s important to us this year, and as it was less important really last year, is we’re preparing ourselves to have our coverage area ready for the competitive bidding zones that will hit us in 2021. So that’s the rush from our compliance department right there, that’s why we’re licensed to be visiting 44 states and getting our Medicare approval swiftly to be ready for that. Now, the things that we’re focused on to really helped drive growth, it’s – to drive vet growth we can probably achieve a 20% just through the offering of the oxygen business. So competitive bidding also freed up – Viemed is not going to hit us till 2021. It also allowed us to get out there and start offering the oxygen business and to kind of play around and see if we’re going to receive that bump. We’ve already experienced some positive results in our five new beta areas, and really just a few weeks ago we released it to the entire country. So we’re – still a little early to tell what that bump’s going to be, but we’re hoping that it’s going to be similar to the five beta areas, which is about 20% for them. So the game for us there is really just hiring and finding more finding more RTs and RNs with these clinicians, feature them how to walk and talk the Viemed way, growing 60 miles down the road and trying to get to those 95% of folks who are qualified out there for our therapy that can’t get to us.

That’s very helpful. And to follow up with that, you talked about having one half SG&A headwinds because you are investing in this group. But it also sounds like that’s really going to be part of the story for at least the near-term geographic expansion and end-market expansion investing in the staff and technology. So can you help us frame up, what part of the one half investments might not repeat, might fall off versus the ones that are going to be part of the business model near term? And then, I don’t know if you guys talk about SG&A leverage and any type of framework of fixed versus variable cost or for a certain amount of revenue growth there is a certain amount of SG&A leverage. But anything that you can give us to help quantify what that change in the business model might look like as Viemed grows, would be helpful.

Yes, Sarah, I’ll take that one. The easy part that we can say that had more of a one-time impact that will not be repeating is the lifting cost to get on the NASDAQ, at least a portion of them and some of the technology investments that we’ve made because it’s very – at the point of the processes that we’re in, we incurred a higher cost in the first half of the year than we will going forward. With that said, there will be lingering costs related to both of those as well as our marketing as well as the new product rollout. The most important thing is that while we’ve incurred these costs, and begun to incur these costs, the revenue leverage really hasn’t hit from any of that. And the NASDAQ won’t bring us anymore revenue, but everything else will technology, marketing, O2, VA, pediatrics, all these things, we’ve made the cost investment and really haven’t starting seeing any significant revenue impact. We know that we’re going to grow into that. We’re seeing the beginning parts of that. So while we’re not embarrassed about having a 20% EBITDA margin by any means, we have clearly made a strategic decision not to sit around and just be a one-week, two-week vet company. We are on our way to being the premier healthcare technology business in this country, in our opinion. On the fixed versus variable, it’s tough to say exactly on a quarter-to-quarter basis because it really is driven by new patient growth that has the variable impact because our commission structure is variable. And then the other piece of variable is our Phantom Plan. We’ve been pretty clear, up to this point, being only a Canadian listed company. We didn’t want to have 375 employees having to trade the Canadian stocks. So we aired towards the Phantom, which has mark-to-market components. So those are the two largest pieces of the variable piece of it. The exact percentage of our SG&A, I really don’t have a good number, I’d be guessing at it, right now. We can follow up later on to see if we could do some work on it. But the lion’s share of our G&A would be a fixed component. And the most important thing is, we do have operating leverage coming to us. We have 100% made a decision to reinvest aggressively for our G&A items. And we and the board and management team fully support it because the diversification of the products and the diversification of the payors is the most important things for the sustainability of this business going forward.

That’s great and congrats on the listing. Thank you.

We’ll take the next question from Brooks O'Neil with Lake Street Capital Markets.

Good morning, guys. Let me just be the first to say, welcome to America. So, obviously, we are excited about all the investments you’re making in the new areas. I was hoping you could just give us some feel, I’m not asking for specifics, but some feel for sort of the economics around, for example, the oxygen business, the compression business, the pediatrics business, in terms of the margins profile, it was really what I’m trying to understand.

Okay, yes. I’ll address it in that order. The oxygen business, I mean you’ve probably seen, it doesn’t have to say margin profile that our are other products do. I mean, it probably is a little item and over the lifecycle, it’s probably a 20% type margin business plus or minus. As Casey mentioned, the number one reason we’re offering O2 around the country right now is to support our vent business. As you know, almost 100% or probably 100% of our vent patients are on oxygen. So to be able to offer the full gamut of products around the country, especially during this time frame where competitive bidding is off the table, it was important to us. And so this was our ability to go ahead and test that by saying hey guys, you can offer O2 along with our vents. We clearly want the O2 business to be a support system for the vent business, it’s what we do, we’re – vent businesses are our bread and butter. And so that’s the main reason we’re in it. The compression therapy business is more of a sale type item. It’s not a rental business. We’re seeing gross margin there, there’s a few different types of pumps. We’re seeing gross margins in the 70% range, and once again, it’s a one-time purchase. I think Casey touched on it in his prepared remarks, it’s just a great product line to complement all the referral sources that we call often, the cardiologist. And we have these nurses who are really good at selling these, and we have our therapist around the country that can also. So as we’ve discussed in the past, we’re not looking to offer every product in the world, we get pitched a lot of the things. We want…

That’s great. I really appreciate all the color. Let me ask you one or two more quick ones. So we’ve always believed the VA was a huge opportunity and you’re clearly making inroads there. Can you just give us a little color about sort of how you see this opportunity unfolding, as you look forward? I know – I’m not asking for a prediction, I’m just asking for your general sense for how you think you can penetrate the VA?

Yes. I mean, we were excited to announce the pilot study. Anytime you have – anyone willing to do a study and, frankly, the VA is going to be paying for this study, whereas in the past, we have had to pay for the PRECISION and the KPMG study. That’s a positive thing, we’ll be funded by those guys, it’s is a great way of getting patients along the way while also providing more data for the industry to have and hold and ultimately, have the VA adopt it as the standard of care. The way that I see it, and that’s more of a long-term thing. I mean, it might take us a couple of years to really execute the final study with the VA. They move a little bit slower than the rest of the country. But that being said, it doesn’t really stop us from doing our thing, Brooks. We’ve got our sales people trained to – they’re treating all the VA hospitals right now, just like it’s any other facility. So we go in there, we know how to walk and talk, we’re certified, we got all the certifications that we need to be able to need to build the products. It is a little bit more of a process than our normal sales process just because we have to navigate through many departments inside of the VA system, but those onsie, twosie types of sales are very important to us to get these many facilities around the country to adopt the standard of care to our – ultimately, they will write a contract to request for – it is in contract, where it’s an area that we can service a number of different facilities across two, three, four state quarters depending on how the business is broking up. So that’s a – and we can experience that before all the – before the study is even finished. So that’s the way I see it unfolding right now.

Makes a lot of sense. Let me ask you just one more. So I’m excited about the new building and getting everybody under one roof, and expanding in various areas you are. The $4.7 million of debt, is it essentially a mortgage? Or is it something different? Just help me understand sort of how you think about that?

It’s effectively a mortgage. I mean, it’s structured as a term loan that has a low amortization schedule with a balloon at the end. We could have used more cash but we’re funding so many other things that we’re going into right now, that we decided only to build a 77,000 square-foot building is – that’s about as good as that you can have. So it’s a pretty – I think it has a three-years balloon – I mean, it’s a five-years balloon. So we will have a nominal mortgage payment until then, and then we can pay it all off at that point or we can decide what we want to do with it. And now we have a conference room to host, if you come to visit us.

[Operator Instructions] And we’ll take our next question from Doug Cooper from Beacon Securities.

Hey, good morning guys. Just as we start off on the income statement and financials. Todd, looks like bad debt of division revenue dropped to 7.7% in the quarter from 10.4% in the first quarter. Is this sort of the lower than what you would have anticipated? Or how should we think about that?

Yes, it was a little bit lower than historical numbers. And we have invested quite a bit of money into our billing and collections team. I mean, that’s another back-office cost that we don’t necessarily talk about all the time. Bad debt is just like growth, ebbs and flows, and we have a pretty standard procedure. So I’d still say that we’re going to be a 9% to 13% bad debt company, just – and we’re going to always strive to be lower than that, but we just seem to find ourselves in that range on a – at least on an annualized basis.

You said that – in your prepared remarks, if I can find it somewhere in my notes, adjusted EBITDA in the back half of the year higher than the first two quarters. Is that starting in Q3? And when we think about that comment, first quarter was 23.7%, this quarter 20.5%, so for the first six months 22%. So when you talk about higher in Q3 and Q4, higher than the 23.7%. Is that how we should be thinking about that?

Yes. I think that – I mean, look, there’s a lot of variability within all of the investments and the stock price that are driving it, but we think that going back to more prior year margins in the back half of the year seems more reasonable. Obviously, the stock almost doubled in the first half. So we had a big impact on that. If the stock doubles, again, in the back half may be margins are compressed, so – but I figure it’d be a good problem, but last year...

The last year, it was – 26% leverage in the back half.

Yes. We hung in that mid-to-high 20s last year. That’s our goal. We want to get back up to that, but it’s not just the stock, I want to be very clear about that. We – may be within answer to Sarah’s question, we sacrificed a little bit of margin because we have so aggressively invested into these future growth initiatives. I see that normalizing and as we continue to grow revenue organically, 2% to 3% a month like we always say we want to do, those investments aren’t going to keep up with the revenue growth, therefore, we still have margin expansion in the back half.

And I would say that the volatility, just launching new products right now, the position that we’re in, kind of keeps us conservative. It’s hard to tell how fast O2 is going to grow or lymphedema is going to come out of the gate but it will be a conservative expansion.

Yes. So just as a point of reference, you mentioned employee cost, so I was – what was like the difference in employee cost, say, between Q1 and Q2 or year-over-year? Just as a point of reference. The headcount.

We ended the quarter – I believe we ended the quarter at 375 and we started right around 300. So we hire about 30% of our workforce in the first six months of this year.

375 at end of June, and 300 at the end of December, is that what it was?

Yes. I don’t remember the exact number in December, but it was 375 at the end of June. And then if you look back to last June, where our quarter-over-quarter comparables are, my guess is we’re probably in the 250 to 275 range.

Okay. Moving on just on the PRECISION study. I’d say, I think, important, I think, Casey, from my perspective, you hit it on the head. And you’re educating the physicians who are ultimately driving your patient growth. What’s the major difference, say, between the KPMG study and the PRECISION study. The audience that you will see at the Chest, I guess, conference, how does that compare to the exposure you’re getting through the KPMG study?

It’s – the best way to frame it up, Doug, is that – very similar results. We’ve seen some preliminary data through the KPMG findings, however, doctors, when you’re out there educating physicians, they dig deeper than just what numbers show from a poor accounting firm. They dig into other diagnosis code that are driving cost beyond chronic respiratory failure and COPD, beyond ALS and what else do these patients struggle with that might be driving cost. And did you look at those diagnosis. So Dr. Frazier is very versed in what we need to do and has always been pushing for a clinical PRECISION study. I mean this has been about a year ongoing that we’ve been in this process. So, it’s one of the – it’s the study that we need that will be publishable in the clinical community. And when you have a publishable, life saver type of study, that’s when you can get on stage with the – and go the ACCP show like he’s doing and go to the Thoracic Society and the COPD Foundation and it really start beating on your chest a whole lot louder and prouder as a clinician versus just an accounting, if you will, with KPMG. And the difference is, you have our Chief Medical Officer standing on stage in front of a collective group of his peers talking about a study. It just has a lot of clout versus any of the huge audience versus our one by one salespeople around the country, which is very effective, but this just opens up a huge audience of a new potential referral sources.

So I guess, I mean, the 45% year-over-year growth is incredibly impressive, and aided, in part, I’m assuming by the KPMG study. Could – if this PRECISION study from Dr. Fraser, does that carry more weight within the referral community, could you see actually growth accelerate? Is that possible? I mean…

Yes, yes. We expect it to.

Maybe, starting. I think that all my other questions have been answered. Congratulations on a great quarter, guys. Thanks.

Thanks. Thanks for your support.

And there are no other questions, so gentlemen, I’ll turn it back to you for any additional or closing remarks.

All right. Well, we’re going to thank everybody for tuning in today. We’re extremely proud of what we’ve accomplished this quarter and with our NASDAQ listing, NASDAQ listing, I want to echo Casey’s comments – and thank you all of our employees and look forward to meeting a bunch of new shareholders down here, south of the border. And that’s it.

Thank you very much. That does conclude our conference for today. I’d like to thank everyone for your participation and you may now disconnect.