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Viemed Healthcare, Inc. (NASDAQ:VMD)
Q2 2020 Earnings Call
Aug 5, 2020, 3:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Viemed Second Quarter 2020 Earnings Call. [Operator Instructions] As a remainder this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Todd Zehnder, COO. Thank you. Mr. Zehnder, you may begin.

Todd Zehnder -- Chief Operating Officer

[Technical Issues] Hello?

Operator

Mr. Zehnder, you are now connected. You may begin.

Todd Zehnder -- Chief Operating Officer

Okay, thank you. Good morning everyone. Please note that our remarks in the 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 our 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 this date and the Company undertakes no obligation to update or revise any forward looking statements as required by law -- except as required by law. The second quarter financial results news release, including the related financial statement is available on the SEC's website.

Now, I'll turn it over to Casey to get things started.

Casey Hoyt -- Chief Executive Officer

Okay. Thank you, Todd, and thank you, everyone, for participating on our call today. I'd like to begin with thanking the Viemed team members for their courageous work on the front lines of this pandemic. A lot of patients are receiving the care they need inside of their home and out of harm's way today, thanks to these individuals. Without this wonderful team, I would not have the opportunity to be reporting to investors on yet another record-breaking quarter.

I'd like to focus the call this morning on how our business has been affected by the pandemic. Let me begin with how we have pivoted to help keep our existing core business coming through the door.

First, despite having little physical access to our clinics and referral sources, our outside sales people have done a good job of electronically communicating to our physicians via email, videos and video conferencing. Our VieMed Connect app and patient engagement portal has allowed us to stay in touch with our patients through telehealth portals, which in turn have driven meaningful clinical value to report back to our physicians. Our investment this past year into our technology platform couldn't have come online at a more crucial time.

Secondly, we engaged the Company to assist us with implementing our training programs into a virtual form, one where we are less reliant on travel to get new folks up and running in new territories. I was pleased that our managers and recruiters were able to hire and train seven new salespeople in seven new territories, despite facing the many logistical challenges of getting employees in the office for training.

Third, our purchasing and inventory team sourced, both domestically and abroad, the appropriate levels of PPE inventory to not only keep our clinician's safe, but also have plenty of inventory to offer around the country to our partners in need.

Fourth, we doubled down on building out our inside sales department realizing that the future will support more touch free call points. The new inside sales reps have been tasked with tactics to stay in front of existing referral sources, creating new ones, and deliver the message of our new offerings to the hospitals and clinics.

These pivots inside of our core business allowed us to be in position to further solve problems outside of our normal course of business during the pandemic. One successful example is the development of our call center for inside sales put us in position to land a statewide contract for COVID contact tracing.

The COVID [Phonetic] tracing contract will have us calling and gathering information from patients who have previously contacted the disease -- contracted the disease and reporting back to the customer. The contract is for a total of one year and has the potential to bring in seven figure monthly revenue for as long as the customer has the need.

Since the VA centers began limiting physical visits from our salespeople and clinicians, we decided to pivot and build out another call center campaign around rural access to care for VA patients. Many of our other campaigns are targeted to communicate directly to physicians and referral sources, but this one is designed to create awareness of our rural access to care directly for the patients themselves. The initiative is designed to get patients requesting Viemed respiratory services as they visit their local VA facility.

As expected, our marketing team has been extremely busy developing collateral for these new initiatives. The team quickly created a website www.viemeddelivered.com, a site set up to provide transparency and to the availability of PPE products like gloves, masks, thermometers, sanitizers wipes etc. available for purchase.

This site has contributed to the sale of many PPE deals which have become a significant portion of our revenue. Another example of a successful program has been the rollout a vent rental program designed to help smaller rural hospitals struggling to find affordable ICU ventilators.

With many hospitals around the country faced with stocking up on vent strictly for the pandemic, this unique program allows them to have an affordable and lean solution for their immediate inventory needs. With that being said, the majority of the revenue related to COVID in Q2 has still come from hospitals and states who are purchasing equipment.

We made a lot of sales early on facilitating equipment inside of the epicenters such as New York, Illinois, Louisiana and Wisconsin. As inventory stabilized in those states, we began receiving more and more requests from the second tier states as well as hospitals throughout the country.

We are still fulfilling request for equipment to various pockets throughout the country along with PPE and this could be a significant portion of our revenue in Q3. Todd and I have been doing our best to keep our shareholders up to speed and create as much awareness of the Viemed investment opportunity.

Not only have we been busy communicating virtually with many institutional shops, but we also held a webinar in Q2 to tell our story to new investors and open the floor up for all investor questions. A recording of this webinar can be found on our website at www.viemed.com.

At this time, I'd like to turn the call over to our Chief Operating Officer, Todd Zehnder to review the operations and financials for the quarter.

Todd Zehnder -- Chief Operating Officer

Okay. 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.

We generated net revenue of $42.9 million during the second quarter of 2020 as compared to net revenues of $20.3 million in the second quarter of 2019, which equates to a 111% increase. Included in the current quarter amount is approximately $19.7 million of equipment and supply sales in response to the ongoing COVID-19 pandemic.

Just like last quarter, in addition to the sales of new equipment cited above, we assisted in certain areas by deploying equipment that had previously been in our active rental fleet. Those proceeds were recognized in the gain on disposal of property and equipment and the gross proceeds related to those sales was approximately $2.5 million.

Not considering the effects of COVID-19 pandemic, our second quarter 2020 organic revenue was approximately 14% higher than the second quarter of 2019. Our vent patient count declined slightly from the first quarter and was up 8% over the prior year second quarter amount.

As previously mentioned, we tightened up on our processes during the pandemic to make sure we retrieved non-compliant vents more aggressively, as we were seeing the need for equipment at such a high level. As we reported during the last quarter, new patient referrals have slowed as a result of slower hospital admissions with the ongoing pandemic, but we continue to admit new patients into our program.

As I mentioned on the prior earnings call, our margin percentages, both gross and EBITDA will be fluctuating as COVID related product sales during the current year skew comparability. Most importantly, both gross margin and EBITDA hit all-time highs during the current quarter of $25.9 million and $16.3 million respectively.

While our gross margins didn't reflect it, our EBITDA benefited from the CARES funds received during the quarter totaling approximately $3.5 million. Although it doesn't impact our EBITDA, I wanted to point out that we recorded a large tax benefit during the current quarter. The $6.6 million benefit is the result of removing the valuation allowance that has been carried against our deferred tax assets.

We expect that we will be able to benefit from these assets over time as we expect to generate more taxable income. Accordingly, we have removed the valuation allowance in order to begin utilizing these assets.

Our SG&A for the quarter totaled approximately $16.4 million as compared to $11.5 million in the prior year second quarter. The rate of hiring slowed down at the end of the first quarter with travel restrictions, but we have picked that back up during the quarter. We have mainly been looking for new sales reps and clinicians, but we have also bolstered our marketing technology divisions.

We have many initiatives in these areas because the pandemic is rapidly changing how most healthcare companies are conducting business. Our investments into the future growth of the company continue with our PEP Pilot and the VieMed Connect app.

As previously mentioned, the development of this app was able to be fast-tracked as a result of our prior technology investments. We are, once again, looking at ways to augment our technology platform into other areas and our current focus of time and resources is in the remote patient monitoring area. While we don't have anything specific to discuss related to our upcoming plans, we are working diligently across a variety of different projects in order to provide a world-class solution.

Because we have made technology investments over the last couple of years and continue to invest in this area, we are in a unique position to capture the rapidly expanding market segment. As in prior quarters, we once again have a very solid balance sheet with approximately $29.7 million in cash at quarter end, $11 million of AR, and an overall working capital balance of roughly $17.4 million. Our AR during the second quarter came back down to traditional levels and is actually at the lowest that it has been in about 18 months, which is a good sign that our new workflow system is operating effectively.

Our long-term debt is approximately $8.3 million and being serviced with operating cash flow. We plan to continue to minimize the amount of leverage on our balance sheet in order to remain opportunistic to changes in the business landscape. This record quarter has allowed us to improve our liquidity position and we are poised to continue investing into our rapidly growing and changing business.

Along the regulatory landscape, we previously noted that the non-invasive ventilation code was pulled out of the 2021 competitive bidding program. During the current quarter, the movement toward more defined clinical guidelines for non-invasive ventilation took a major step when MEDCAC conducted a detailed review of the criteria that should be used when evaluating a patients' need for our therapy.

Our Chief Medical Officer, Dr. Frazier, was a presenting speaker at MEDCAC along with other industry experts and gave evidence to the successful outcome of at-home use of non-invasive ventilation for the treatment of certain respiratory diseases.

We are hopeful that guidelines will coming in the future, which would undoubtedly decrease the amount of unsupported audits conducted by the contractors that do not have current authoritative rules to follow. We support the development of more defined clinical guidelines and clear admitting criteria and ultimately feel that this would benefit both our business and the patients in need of treatment.

Moving on to the third quarter, we have provided net revenue guidance in the $31 million to $35 million range, which includes approximately $6.8 million to $9.8 million of revenue related to the COVID-19 pandemic. Once again, our margins will be difficult to guide due to the efforts in the pandemic having an impact on revenue composition. We have a broad array of various orders that we are working to secure and our current focus is to procure the equipment and services needed to fulfill these potential orders.

This record quarter is a testament to our talented team of professionals who continuously prove to be a piece of the solution in this pandemic.

At this time, I'll turn it over to Casey to wrap things up.

Casey Hoyt -- Chief Executive Officer

Thank you, Todd. There were many positive and important themes to report on during the second quarter. We had themes of diversification through different products and services -- service offerings. We consider it to be a major win that our core business is not fallen off despite having limited access to stay in front of our referral sources.

The work being put into the remote patient monitoring has the potential to transition our multiple as an organization in the future of more of a technology play. We intend to capitalize on the relationships that we've created with our hospitals through joint venture discussions.

Maybe the most exciting thing to investors is that we are still servicing patients in an underserved market with less than 5% market penetration at a time where we desperately need to keep patients out of the hospital and treated in the home.

While I too am excited about all these tailwinds for our business, there is one theme that I'm most proud of. We have the management team in place to take this business to a special place. Never before we had the opportunity to pressure test our team's ability to be creative and nimble.

Historically, our team has always stepped up to the challenge of creating value and constantly growing this Company, but to do it in uncertain times and in such a creative manner, it really gives me the confidence as the leader of this organization that we will make Viemed the largest respiratory home healthcare technology company in the country.

We all appreciate your interest and investment into our Company and look forward to continuing to create more shareholder value. This concludes our prepared remarks. We'll now open up the floor for questions.

Questions and Answers:

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question is from Brooks O'Neil from Lake Street Capital Markets. Please go ahead.

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

Guys, congratulations on your continued success. That's fantastic.

Todd Zehnder -- Chief Operating Officer

Thank you Brooks.

Casey Hoyt -- Chief Executive Officer

Thank you Brooks.

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

Yeah. So, I have a couple of questions, I guess. I think Todd mentioned in his prepared remarks the fact that your number of ventilator patients was down quarter-over-quarter this period, but at the same time your ventilator revenues were up this quarter -- quarter-over-quarter. So I'm hoping you can just explain a little bit more about what's going on there. Obviously, we could guess a little bit about the number of ventilator patients, but just tell us what you see going on there and what's driving the improved revenue?

Todd Zehnder -- Chief Operating Officer

Yeah, what's happening Brooks is, if we had non-compliant patient, that really -- they go on hold and we're not able to bill those patients and so it doesn't really contribute to revenue. And our policy has always been to have our therapist get in there and do everything we can to try to get that patient utilizing the vent so that we can get the therapy going and we can start billing again.

This quarter, there was such a huge need for ventilators during the pandemic and if we couldn't get compliance going, we were picking those up and we -- obviously we sold vents and rented vents to the most appropriate place. So while our active patient count was down slightly, we didn't have any impact from that loss to our revenue line.

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

Yeah, that's fantastic. Okay, second thing, obviously in a pandemic-impacted quarter, 14% organic growth is tremendous in the core business, but as you guys think about the next few quarters and I know there is not a lot of visibility. But do you think you can get that organic growth in the core business back into the 20s or maybe even higher?

Todd Zehnder -- Chief Operating Officer

We're not going to guide a number because we obviously just have our one quarter out. We are doing all we can to continue to get -- or to get back to that historical growth rate and we're -- it's taking new technology and it's taking different ways of selling. We don't have access to the hospitals as much.

So our goal is to get there. But, look, things are changing pretty quickly, and so we -- one of our biggest advantages is evolving as fast as anyone. So we're going to give it our best shot, but we don't have any formal guidance out there.

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

Yeah. Okay, I understand that. And then I'll just ask one more. So I confess, I got a little distracted in the middle of the call and I might have missed it but do you still see a big opportunity with the VA? Are you making progress with the VA? And is there some near-term white space out there that will turn the VA into a more meaningful revenue contributor in the next few quarters?

Todd Zehnder -- Chief Operating Officer

Yeah, we still are very excited about the VA, Brooks. It's -- in June, we really got back out into the field and then we had to pull back in July. So that kind of halted us a little bit, but we saw new VA centers coming online, they're paying -- the VA centers, just to give you an example, in Arkansas are paying attention to what the centers are doing in Oklahoma that are doing business with us.

And so, you can see signs of how we can build up on that momentum to get our business go on. As mentioned in previous calls, we're in with all the third-party administrator payers, got the national natural contract with the BCA. We've got all of our services uploaded.

We've begun to get paid on our pulmonary rehab program, and so, we expect once we can get back into the home physically that we'll get a lot of momentum in the VA, but it kind of -- we got to turn back on and we got to turn back off right at the end of the quarter. So that's the reason that we have a little bit of a hold up right now.

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

Okay, great.

Todd Zehnder -- Chief Operating Officer

But we remain very excited about the opportunity for sure.

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

Yeah. Okay, thanks a lot and congratulations. I mean it's a perfect environment for you and you guys sound like you're executing beautifully.

Casey Hoyt -- Chief Executive Officer

Thanks Brooks.

Todd Zehnder -- Chief Operating Officer

Thanks Brooks.

Operator

The next question is from Nick Corcoran from Acumen Capital. Please go ahead.

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

Good morning and congrats on the great quarter.

Casey Hoyt -- Chief Executive Officer

Thanks, Nick.

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

So one question I have is, vent patients were down about 3.3% quarter-over-quarter and I'm wondering how much of that decrease is from the non-compliant patients that you took the vents back from?

Todd Zehnder -- Chief Operating Officer

Probably the majority of it Nick. I was just telling Brooks, those don't really drive revenue on a day-to-day basis if they're are not compliant, we're not able to bill for them. So if we look at just our setups and our true pick-up due to death or due to going into facility and so forth, that would have been probably relatively flat.

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

Great. And then, how should we maybe think about Q3 in terms of the total patient number? Will we expect that to be flat or it could potentially go up quarter-over-quarter as you don't have a drag from the non-compliant patients anymore?

Todd Zehnder -- Chief Operating Officer

Yeah, we don't have that. Our guidance implies some growth and you can see the revenue growth. I forget, maybe it's probably in the 5%, depending on where it is in the range of guidance. So we are expecting to see some growth although, like I said in my prepared remarks, facilities are still a little slower than they are in a traditional manner, and so, we're having to get business from more unconventional methods and supplement that through our new service offerings that we've been actively building out.

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

Okay, that's great. I was wondering if the guidance implies some growth there. And then, bad debt expense was down quarter-over-quarter and I think it's one of the lowest levels you've had in at least a few quarters. Can you maybe comment on what was happening there?

Todd Zehnder -- Chief Operating Officer

I think it's really just due to -- look, we're a year-and-a-half into this new workflow software. We talked about it last year, when you're working through two different databases, it's going to be harder to collect things more real-time. What's a great testament is our AR -- actual accounts receivable is as low as it's been in a year-and-a-half and bad debt was still low. So that just means we're doing a good job of collecting the revenue we bill.

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

And then, do you still expect the bad debt expense to be in that historical range that you talked about?

Todd Zehnder -- Chief Operating Officer

Yeah, we do. I mean, obviously, we're looking at a notional amount now because when you're looking at things on a percentage basis by us having all these COVID revenue, that's really very, very, very collectible. So from a notional amount, I think it's going to be somewhere near historical, but look, maybe one quarter becomes -- we can't say it's a trend. Maybe if we have another quarter of lows, that it's going to be starting to creep back down over time. We'll have to wait and see that.

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

And then the final question from me just has to do with the CARES Act, you received $3.5 million in the quarter, what are the conditions for that money?

Todd Zehnder -- Chief Operating Officer

There's a lot of details to it, but effectively, you just have to show that you have the ability to utilize this on COVID-type items, which our Company will obviously have no shortcoming on spending money on COVID, whether it'd be through all of our front line workers to all the equipment that we're sourcing and so forth, we have no problem.

We'll have a multiple of a different ways to show the utilization and that's why we were able to recognize the entire $3.5 million during the quarter because we've just spent well over that already.

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

That's all from me. Thanks a lot.

Todd Zehnder -- Chief Operating Officer

Thank you.

Operator

Next question is from Richie Khadir from Richie Capital Group. Please go ahead.

Richie Khadir -- Richie Capital Group -- Analyst

Hi good morning, Casey and Todd. Congrats on the strong quarter. Thank you for taking my question.

Todd Zehnder -- Chief Operating Officer

Sure.

Richie Khadir -- Richie Capital Group -- Analyst

So just -- it sounds like you're making a few adjustments in your sales approach, kind of moving from kind of traditional sales channels to kind of inside sales and so I wanted to get some more color on how you're adjusting your high-touch model which I've always viewed as really a differentiator for Viemed. How do you see that changing both in the near term? And kind of post COVID, do you see these adjustments that you're making now is being kind of something that you plan to continue going forward?

Casey Hoyt -- Chief Executive Officer

Yeah. This is Casey, I'll take that one. The adjustments really to our service protocol are no different other than the fact that we physically are not able to get back into the home as much. So what we're doing is, we are connecting them through our VieMed Connect app and our patient engagement portal.

And our therapists are interacting, actually more frequently than they were in the past. So we have some tremendous success stories on how we're just able to stay in front of the patient more frequently and deliver a better quality of care in some cases.

In the event that we physically need to get out there and we're just being very careful and we're following clinical protocols of suiting up in ways that we can drop off equipment at the front door, we'll do that. And we if could walk them through a telehealth kind of camera, put your mask on and feel it up this way, we're going to take advantage of that as well.

So, I think all of those things are positive. What we're seeing is, where a therapist might be only to manage 60 patients, well now you're seeing numbers where they can manage 90 patients by way of using technology at their disposal.

As it relates to the sales process, we're getting creative and also having some success. Now, we're able to stay in front of these physicians with some short clip videos. They totally get it. They understand that we're hindered and a lot of times they're like, why haven't we've been doing this all along before? Because we're just getting a short 60 second message in front of them and, "Oh, I didn't realize that about KPMG, send me more on that." And so they -- we're responding with the studies and giving them intel.

They have more time to kind of download information when they're not in the hustle and bustle of their day-to-day as much as well, too. So lots of positives there. It's just we're kind of going through just a shift of the landscape of how we communicate.

But I completely intend on this being a part of our strategy on a go forward basis even whenever we can physically get back into the office. We're going to continue to use these tools and tactics to stay in front of our folks. So I see it only as building momentum for the future.

Richie Khadir -- Richie Capital Group -- Analyst

Okay, that's great. And one more quick question. With your cash balance growing so quickly, are there any kind of new thoughts on how to deploy, whether investing in new technology or seeking out inorganic opportunities?

Todd Zehnder -- Chief Operating Officer

Yeah, right now, it's -- the top two uses are technology-based solutions, whether that's -- we've made -- both made comments about remote patient monitoring and finalizing this PEP program. So technology investment is a big one. Obviously continue to invest in equipment as we continue to grow our patient base and get ready for that. And then ultimately, we will look at inorganic opportunities as we've always said, it's just not our number one focus with the cash right now.

Richie Khadir -- Richie Capital Group -- Analyst

Okay, Great. Thank you, gentlemen. That's all I have.

Casey Hoyt -- Chief Executive Officer

Thanks, Richie.

Operator

The next question is from Mordechai Yavneh from Focus Capital Management. Please go ahead.

Mordechai Yavneh -- Focus Capital Management -- Analyst

Hi, congratulations on the quarter. I just have a couple of questions about the vent count. How much of the decline in vent count could be due to attrition and how much is just not being able to replace patients. Is there a higher attrition because of COVID and therefore you're just replacing the patients instead of growing? Or is it pretty much the same attrition and you're just not able to get new patients?

Casey Hoyt -- Chief Executive Officer

No, like I told Nick earlier Mordechai, it's really our new patients and our pickups were probably about flat. This was just a matter of us needing to clean up some processes to go get some of these non-compliant patients where the billings were on hold and we needed to get vents to sell to people. So if you look at our quarter, it was really pretty flat. But we took the time to go get some of that inventory and put it in the most needed hands.

Mordechai Yavneh -- Focus Capital Management -- Analyst

That much I get. I was just wondering whether the attrition is higher than normal because of COVID or I think you're pretty much seeing the same on that.

Casey Hoyt -- Chief Executive Officer

Attrition was about same, set ups were slightly lower.

Mordechai Yavneh -- Focus Capital Management -- Analyst

And are you able to give any color about different parts of the country, are there other part of the country where may be -- I know let's say New York is in Phase IV reopening. Other parts of the country where you're able to act -- get new patients more normally apart [Phonetic] from that or in terms of your business, it's pretty much the same nationwide?

Casey Hoyt -- Chief Executive Officer

Yeah, every area is really different. And I mentioned in my prepared remarks, the early epicenters such as New York and Louisiana have somewhat stabilized, but the -- you got new areas out in the Midwest and further west that are kind of turning into hotbeds. We're seeing request for ventilators from hospitals and states. So we're just kind of sticking and moving. It's not one particular State right now. It's kind of random. So it's very hard to track.

Mordechai Yavneh -- Focus Capital Management -- Analyst

Okay. You expect that after COVID eventually is in the rear view mirror that you'll be going back to the growth rates that you had before, in the core business?

Casey Hoyt -- Chief Executive Officer

Absolutely. You know, look [Speech Overlap] just to follow-up on that Mordechai and give you a little bit more color. I mean if you think about it, our patients are struggling with a chronic disease, they -- its terminal, they haven't gone away. We still have the market penetration number being low. It's just the fact that we can't get more proactive with interacting or intervening with care earlier and staying in front of the physicians to get them to look for it sooner and that's the part that really has made us flat. So we still got the patients, we still got the sales program, and once we get back on the tail end of this thing, we expect to get back to those same growth rate.

Mordechai Yavneh -- Focus Capital Management -- Analyst

Okay, great. Thank you. Congratulations, again, on your quarter.

Casey Hoyt -- Chief Executive Officer

Thank you.

Todd Zehnder -- Chief Operating Officer

Thanks.

Operator

[Operator Instructions] The next question is from Michael Eisner [Phonetic], Private Investor. Please go ahead.

Michael Eisner -- Private Investor

Great quarter guys.

Todd Zehnder -- Chief Operating Officer

Thank you.

Casey Hoyt -- Chief Executive Officer

Thank you.

Michael Eisner -- Private Investor

I like the cash position. Couple of questions. As a percentage of employees, are you going to be hiring more RTs?

Todd Zehnder -- Chief Operating Officer

No, I don't think our composition will really change, Michael. We -- the only thing that could change it is, like Casey said, if we -- if our technology investments have it to where we can actually get more efficient and have more patients for the RTs, that could change our composition. We're always looking for new RTs and especially new RTs that we can turn into salespeople. But I don't think as a percentage, it will change over time.

Michael Eisner -- Private Investor

Going forward, will each RT be able to see more patients a month when the COVID finally gets back to normal?

Todd Zehnder -- Chief Operating Officer

Yeah, maybe. It really will depend on the technology that I've just mentioned. But, you know, right now it's staying pretty flat.

Michael Eisner -- Private Investor

Question on that contract, did that begin yet? For tracing -- the tracing contract. I'm sorry.

Todd Zehnder -- Chief Operating Officer

No yet. We are in the -- we are building it out right now. It should start in a couple of weeks.

Michael Eisner -- Private Investor

How big can that get?

Todd Zehnder -- Chief Operating Officer

Well, like Casey said, it could be -- it could be seven figure -- it could be a $1 million plus month -- per month contract if we're able to source everything.

Michael Eisner -- Private Investor

All right. And I guess your expected revenue for the third quarter, the big spread is because of vent sales?

Todd Zehnder -- Chief Operating Officer

Yeah, just because of PPE and product sales, not just vents. We're -- like Casey said in his remarks, we're selling all kinds of different products now. So there is a lot of variability to those contract and what we're able to source. So we just put a wider range.

Michael Eisner -- Private Investor

All right. And do you see consolidation in this industry?

Casey Hoyt -- Chief Executive Officer

Not really. Not so much just yet. We expect to see some here in the future, but as it stands right now, it hasn't begun to a different degree than it was before COVID, let's just say it that way.

Michael Eisner -- Private Investor

And final question, how long do you -- I don't know if you can answer this, how long do you see the vent sales going on for?

Todd Zehnder -- Chief Operating Officer

Yeah, it's hard to say. We kind of had a low in July and then it turned back on here at the end of -- beginning of July and turned back on in the end of July in various little pockets. And so that's got us really active in blitzing all hospitals across the country and just checking on them just to see what their needs are.

It really spawned our vent rental program as well where we find a lot of rural pockets of hospitals that were struggling to buy vents and -- just because they were cash poor and so we started a leasing program just to get them some invasive ventilator that they can use. All sorts of different opportunities are popping out still, probably on a smaller scale in terms of volume, but more of them than when COVID first started.

Michael Eisner -- Private Investor

And so that's like kind of a new area you got into, vent leasing.

Todd Zehnder -- Chief Operating Officer

That's correct. Vent leasing directly to the hospital, yes.

Michael Eisner -- Private Investor

So this way you don't have to supply the RTs to work with them.

Todd Zehnder -- Chief Operating Officer

Yeah, we are either selling the vent directly to the hospital or we are offering them a leasing program. And yes, technically, that is new.

Michael Eisner -- Private Investor

So going forward, in the next -- that work out very well.

Todd Zehnder -- Chief Operating Officer

Yeah. No, we expect it to, and then there's other opportunities for us to maintain the vents and manage the vents and help them with inventory and so on and so forth. So we're exploring all those opportunities as well.

Michael Eisner -- Private Investor

Yeah, I think your inventory was up?

Todd Zehnder -- Chief Operating Officer

Yeah. Our inventory balance -- that's really more PPE and so forth, not as much of our rental fleet type items.

Michael Eisner -- Private Investor

All right, thank you. Great job.

Todd Zehnder -- Chief Operating Officer

Thanks, Michael.

Operator

The next question is a follow-up question from Nick Corcoran from Acumen Capital. Please go ahead.

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

Hey guys. Just one more question from me, I noticed that SG&A is up quite a bit quarter-over-quarter. And I was wondering if you could break that down, what's the variance from Q1 to Q2 was?

Todd Zehnder -- Chief Operating Officer

I don't have it right in front of me. I think there is -- I think some of that is disclosed in the 10-Q, Nick. But if you follow up with me later, I mean probably a lot of it has to do with wages and then the stock price going up. So just why don't you -- why don't you follow up with us a little later and we can break that down.

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

Okay, that sounds great. Thanks again.

Operator

There are no more questions at this time. I would like to turn the floor back over to Viemed for closing comments.

Todd Zehnder -- Chief Operating Officer

All right. We want to thank everybody for participating on the call. And, as always, follow up if you have more information and appreciate your continued support.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Todd Zehnder -- Chief Operating Officer

Casey Hoyt -- Chief Executive Officer

Brooks O'Neil -- Lake Street Capital Markets -- Analyst

Nick Corcoran -- Acumen Capital Finance Partners Ltd. -- Analyst

Richie Khadir -- Richie Capital Group -- Analyst

Mordechai Yavneh -- Focus Capital Management -- Analyst

Michael Eisner -- Private Investor

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