Good day, and welcome to the InfuSystem Holdings, Inc. Second Quarter 2021 Financial Results Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note today's event is being recorded. I'd now like to turn the conference over to Joe Dorame with Lytham Partners. Please go ahead, sir.

Thanks, Rocco. Good morning, and thank you for joining us today to review the financial results of InfuSystem Holdings, Inc. for the second quarter of 2021 ended June 30, 2021. With us today on the call are Rich DiIorio, Chief Executive Officer; Barry Steele, Chief Financial Officer; and Carrie Lachance, President and Chief Operating Officer. After the conclusion of today's prepared remarks, we will open the call for questions. If anyone participating on today's call does not have a copy of the press release, you can retrieve it from the company's website at infusystem.com or numerous other financial websites. Before we begin with prepared remarks, I'd like to remind everyone certain statements made by the management team of InfuSystem during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. And except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under Risk Factors and documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2020. Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. InfuSystem does not undertake and specifically disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Now I'd like to turn the call over to Rich DiIorio, Chief Executive Officer of InfuSystem. Rich?

Thanks, Joe. Good morning, everyone, and welcome to our second quarter 2021 earnings call. We appreciate you joining us this morning and I hope you and your families are safe. Today, we will discuss our financial results for the second quarter of 2021, provide business updates, go over our guidance for the remainder of 2021, and share our outlook for 2022 and beyond. Reflecting on how to best conduct this call and update external stakeholders on InfuSystem's current status, I want to point out a parallel to our recent history. In late 2018, when we anticipated a significant increase in oncology revenue due to the exit of two long-time competitors, I addressed this during our earnings call, explaining market developments, how InfuSystem planned to seize the created opportunities, and emphasized our need for patience since we would invest upfront and wait some time for revenue to materialize. Fast forward to 2021, and InfuSystem is facing a similar scenario. However, this time we have four areas of our business that echo the challenges we encountered back in 2018. First, we have pneumatic compression, which includes Lymphedema. We announced this in a press release on June 29 as the fourth therapy in our Integrated Therapy Services segment. We see a $1.5 billion Total Addressable Market in pneumatic compression, representing the largest therapy we've ventured into so far. We are making consistent progress in this new therapy, yet, staying true to our business model, we do not anticipate seeing significant revenue until 2022. Second, we are focusing on wound care. In our last earnings call, we talked about our decision to accelerate investments in this therapy due to recent market developments. Over the past few months, we have added more than a dozen experienced wound care salespeople to our team. I believe this move will significantly reduce the time needed to achieve a 5% to 10% market share in the $600 million Total Addressable Market. While the costs from this strategic initiative are reflected in our second-quarter results and have influenced our bottom line guidance for the full year, our business model requires patience with the revenue side, and we do not expect wound care revenue to start ramping up until the fourth quarter of this year. Third, we have Pain Management. In the second quarter, we encountered an opportunity similar to what we had seen in wound care. Some of the industry's most capable and experienced salespeople were available, and we seized that opportunity. Altogether, we have nearly doubled our sales team so far in fiscal 2021. We are thrilled with these new hires, which we consider strategic and believe will greatly enhance our business, particularly in the wound care and Pain Management sectors. This investment will increase our annual expenditure by around $2 million, but we expect to generate significant revenue in the following years. Fourth, we are focusing on biomedical services, which is a key area in our Durable Medical Equipment business and marks a significant shift in that segment. As previously noted, the acquisition of two small biomedical services companies in the first half of the year represented a strategic move into the acute care space. I can't share much more at this moment, but we plan to issue a press release soon to provide further clarity. The DME segment has the potential to match the double-digit growth of our Integrated Therapy Services segment. Historically, our DME business has been mainly focused on pump rentals in the home health care space, but we expect to expand into larger acute care rentals through biomedical services. As mentioned in our press release, 2021 has been a very dynamic year for us. Our business development activities are progressing at an unprecedented pace, and we anticipate a steady stream of announcements moving forward. In preparing to leverage these new opportunities, we are making crucial investments, primarily in personnel. We have significantly bolstered our sales teams and have begun hiring a considerable number of new biomedical technicians. The timing and scale of these investments were not anticipated at the start of the year when we provided our annual guidance, but we now have better visibility. Since expenses precede revenue, our adjusted EBITDA guidance is lower for the year, but we are confident that these investments are justified and will pay off. Barry will soon walk you through our financial results for the second quarter, but first, let me share some highlights from the quarter. In Q2 2021, we expanded our biomedical services capabilities and our DME platform, positioning the company for new growth. We entered a new $1.5 billion market in pneumatic compression and announced a $20 million stock repurchase program. Now, let me provide some insights into our two business segments. Our Integrated Therapy Services platform grew by 5% year-over-year, with a solid gross margin of 64%, primarily driven by increased treatment volumes in wound care and Pain Management. Combined, wound care and pain generated a revenue growth of 114%. Wound care continues to progress well, with our team adding new customers and treating more patients this quarter than ever before. The new sales team members are fully onboarded and trained, and we expect them to accelerate our market share capture. Pain Management is also building momentum, as we treated a record number of patients for the second consecutive quarter. Our business momentum is increasing, instilling confidence that we will double our pain revenue in both 2021 and 2022. With additional experienced salespeople on board, we project combined net revenues from pain and negative pressure to be around $15 million as we close out 2021, surpassing our initial estimate of a $12 million run rate from the start of the year. On to our fourth therapy within Integrated Therapy Services, the pneumatic compression therapy that includes Lymphedema. We launched pneumatic compression at the end of Q2, making this the first time we are discussing it on our earnings call. Lymphedema results in fluid accumulation, causing swelling, pressure, and pain in various body parts. This therapy is fully reimbursable and integrates well with our Integrated Therapy Services platform. We have partnered with Bio Compression Systems as their national turnkey solutions provider for pneumatic compression devices and garments. We plan to begin onboarding new customers and treating patients in Q3. We do not expect any revenue contribution this year as it takes 6 to 9 months to start receiving reimbursements. Thus, we anticipate seeing revenue contributions in 2022, with meaningful growth from Lymphedema therapy expected in 2023. Initially, our market focus will be on oncology customers since 20% of Lymphedema patients come from oncology practices, and we service 2,200 accounts regularly. The estimated addressable market for oncology is around $300 million out of the overall $1.5 billion market. We are excited about our new Lymphedema therapy and look forward to providing excellent patient care and customer service as we expand our home health care services. Moving to our DME business, 2021 has been exceptionally dynamic. Last year, our rental and sales business surged because of COVID. At the start of the year and into the first quarter, this segment appeared to be steady. However, as COVID cases sharply declined in the U.S. during Q2, our health care partners understandably returned pumps. This trend mostly halted with the rise of the Delta variant. Currently, the situation is stable. Our technology and inventory are up-to-date, so we have no issues reintegrating equipment back into service, regardless of COVID, flu season, or typical market conditions. The return of DME rental pumps in Q2 caused a 13% revenue decrease, yet we maintained solid gross margins of 45.5%. The return of these pumps and the unpredictability of when they will re-enter the rental fleet have largely driven us to guide toward the lower end of our revenue range for the year. It's essential to note that our recent acquisitions of the two biomedical service companies are significantly strategic for our DME business. OB Healthcare and FilAMed are valuable assets that broaden our capabilities and create substantial growth opportunities within our DME platform, especially in acute care. Alongside depot services, our biomedical teams will offer on-site repair, preventative maintenance, and inventory management for hospitals and healthcare systems nationwide. Consequently, our approach to cross-selling is shifting. We previously sought to utilize our oncology sales team exclusively for disposable sales. Now, with our expanded service capabilities, we’re focused on promoting our biomedical repair services, which offer higher margins. I want to emphasize that we see crucial biomedical service opportunities that will positively impact the long-term growth of our DME platform. I firmly believe that our DME platform has the potential to achieve the same growth trajectory as our Integrated Therapy Services segment. Our strategy will be to leverage the synergies provided by our two new biomedical services companies to drive growth and enhance our market share in the acute care sector. Now, I would like to pass it over to our President and Chief Operating Officer, Carrie Lachance, to further discuss our oncology business and the onboarding of new customers, patients, and team members. Carrie?

Thank you, Rich, and good morning, everyone. There has never been a more exciting time for InfuSystem. In oncology, we continue to see great success with our case management program. We have continued to streamline that offering with our world-class clinical team, reaching more patients in meaningful ways than ever before. It's humbling to have the ability to touch so many patient lives while continuing to create added value for the ever-increasing number of clinics. Operationally, we continue to make improvements in our back-end systems by automating processes, improving workflow and adding increased scalability and efficiency as we grow. These improvements have allowed for decreased denials, improved collections, and improved bad debt in all areas of the business. As a result, our cash collections have improved by approximately $800,000 annually without significant additional costs. In our DME business, I'm extremely pleased with our team on the seamless integration of OB Healthcare. The acquisition of OB Healthcare on April 18 opened the door to multiple opportunities within the acute care space. Their expanded capabilities have been the perfect complement to our existing biomedical services. We have spent the past few months integrating teams, completing system integrations, and cross-training. I'm happy to say that everything has been completed seamlessly and in record time. The great news is that today, we can turn our focus to the sales opportunities that the addition of both OB Healthcare and FilAMed have given us. We are now focused on getting all teams prepared for the growth in front of us in the acute care space. With that, I turn it over to Barry.

Thank you, Carrie. And thank you, everyone, on the call for joining us today. I'm going to focus on three areas: one, the main drivers for the current quarter's results; two, how those results play into what we are seeing for the rest of the year; and three, where we stand from a financial resources position, including the status of our financial reserves available to fund the coming growth in revenues. First, I'll talk about the second quarter financial results. Net revenues for the second quarter of 2021 totaled $24.8 million. This represented a 4.4% decline from the prior year and was below our 2021 plan. The challenging prior year comparison had been anticipated since during 2020, we experienced a significant COVID-19-related windfall, which included an unexpected one-time sale of used infusion pumps from our reserve fleet, additional elevated sales in other new and used equipment, and a significant increase in the volume of rental pumps in service. These prior year COVID benefits, which had been partially offset by lower Pain Management revenue volumes, were approximately $2 million. Adjusting for this, our second quarter 2021 net revenue would have increased by 3.5%. This increase would have been due to higher revenue in emerging therapies of Pain Management and Negative Pressure Wound Therapy, which, on a combined basis, increased by $700,000 or 114%, and new revenues from the acquisition of FilAMed during the 2021 first quarter and OB Healthcare, which, as Carrie mentioned, we acquired halfway through the 2021 second quarter. In our original expectation for 2021, we had anticipated that the rental volumes would continue at their elevated COVID-19 levels and even grow further due to the continued market penetration and from additional devices. That assumption was borne out by continued strong levels during this year's first quarter. However, additional market penetration during the second quarter was not enough to offset reduced rental volumes for existing customers as the COVID-19 influenced market demand softened. Adding to the shortfall was lower-than-expected growth in our sales of disposable medical supplies related to a cross-selling initiative between the DME Services segment in the oncology business in the Integrated Therapy Services segment. This decrease reflects an intentional change to focus the sales team on the higher-margin biomedical services now available due to the strategic acquisitions of FilAMed and OB Healthcare and less on disposable supply. Adjusted EBITDA and adjusted EBITDA margin for the second quarter of 2021 were $24.8 million and $23.7 million, respectively. These were both lower as compared to the prior year and to our original plan. The reductions from 2020 are mainly due to the favorable COVID revenue in the prior year which did not only improve the top line, but enhanced our operating margins because they favored high-margin revenues, including rentals and used equipment sales. As Rich talked about, the adjusted EBITDA and adjusted EBITDA margin was also in the current quarter due to the initial amount that we are now spending to accelerate the Pain Management and Negative Pressure Wound Therapy revenue growth programs. This additional amount of expenditures was approximately $400,000 for the second quarter. Turning now to our revised expectations for the year. As Rich mentioned, we now expect that our full-year 2021 net revenues will end up at the lower end of our previously stated range of $107 million to $110 million. There are four main drivers of that revised amount: two unfavorable, but two favorable. The unfavorable items include a reduction of $3 million to $4 million in equipment rental and sales revenue for the year based on what we have seen in COVID-19 recovery related reduced volumes during the second quarter and our current outlook for the back half of 2021. Sequentially, comparing the second half forecast for the first half actual amount, we see increased amounts in these revenue categories resulting from newly acquired customers and a very modest favorable demand impact from the proliferation of the Delta variant of COVID-19. We are also reducing the amount of revenue associated with our cross-selling program by $2 million to $3 million as we refocus the program away from the high-volume, low-margin sales of disposable medical supplies in favor of biomedical services because of the newly enhanced service offerings from the FilAMed and OB Healthcare acquisitions. While this change yields smaller revenue in the current year, the margin contribution is much better. We acquired these businesses mainly to build these capabilities and not necessarily for the small book of business they came with. This brings us to the first favorable adjustment for the 2021 revenue outlook, which is new revenue for these acquisitions totaling $2 million to $3 million that was not in our original 2021 operating plan. The last adjustment to the outlook is an increase of $1 million to $2 million for Pain Management and Negative Pressure Wound Therapy, representing the early benefits of the additional investments being made in these businesses. As Rich mentioned, these increases are expected mainly in the fourth quarter, which means that we expect to end the year at a significantly increased combined annual run rate of approximately $15 million for these two therapies. We are also changing our full 2021 outlook for adjusted EBITDA margin to 25%, a reduction of 2% from the original operating plan. This decrease is mainly driven by the unfavorable gross margin mix as we lower our rental revenue, our highest margin revenue category, and due to the investments in selling expenses run rate to accelerate the growth of Pain Management and Negative Pressure Wound Therapy. Let me close by providing an update on the base of our financial reserves. During the 2021 second quarter, our operating cash flow of $6.2 million represented a significant increase over both the prior year second quarter amount of $3.7 million and sequentially in the first quarter, which was $2.7 million. The amount was sufficient to cover $2.1 million in capital expenditures during the period and financed nearly two-thirds of the OB Healthcare acquisition. On a year-to-date basis, our operating cash flows were approximately $1.8 million ahead of our planned amount. However, due to the reduction in our full-year adjusted EBITDA outlook, we are decreasing our full-year operating cash flow guidance to $19 million to $22 million from a previous range of $21 million to $23 million. We continue to anticipate that our investing cash flows, which includes cash used to purchase medical devices and other capital expenditures and cash provided by the sale of used equipment for the full year of 2021, to be within the range of $12 million to $15 million. At the end of the 2021 second quarter, our net debt stood at $32.3 million, a quarterly increase of $2.6 million, mainly due to the cash used for the acquisition of FilAMed and OB Healthcare, which totaled $6.3 million and capital expenditures, offset partially by the favorable operating cash flows. Our total available liquidity at the end of the quarter totaled $42.2 million and consisted of $42 million in available revolving line of credit availability and $164,000 in cash. And with that, I'd like to turn it back over to Rich.

Thanks, Barry. I'm extremely confident about the future and excited that we are again at a transformative moment for InfuSystem. We have multiple material initiatives in both our Integrated Therapy Services and DME segments. The strength of our business model and positive outlook for '22 and beyond provided our Board and management the confidence to authorize a new $20 million stock repurchase program. While our top priority remains making investments in the company to drive long-term revenue growth, this program provides us with the flexibility to be opportunistic in repurchasing shares. Our focus for the balance of 2021 will be on: one, growing our four therapies on our Integrated Therapy Services platform, Oncology, Pain Management, Negative Pressure, and our new addition Lymphedema; two, successfully onboarding our Lymphedema customers and patients in the coming months; three, leveraging our biomedical services to drive growth and expand our market share in acute care; four, integrating additional new team members to successfully grow our business; and five, developing new strategic partnerships and small tuck-in acquisitions that will enhance and expand our current capabilities and offerings. While we revised our guidance, as Barry mentioned, we will be exiting 2021 better positioned and executing at a greater run rate than we had initially forecasted. This will result in even better top and bottom line results in 2022 and subsequent years. I am very excited for the future of InfuSystem with our Lymphedema, Negative Pressure, and Pain Management therapies and our new DME biomedical services as we are aligning these four growth opportunities to drive sustainable growth for many years to come. I believe if we can successfully execute our strategic plan, any one of these four businesses could be bigger than our current book of business. I'm extremely confident the team will continue to successfully execute our growth plans by adding new therapies, biomedical services, and developing new strategic partnerships. InfuSystem is highly committed to providing our customers with industry-leading service and improving patient outcomes. And with that, we are happy to answer any questions.

Today's first question comes from Brooks O'Neil at Lake Street Capital Markets.

We appreciate all that information, although I probably didn't get 1/10 of it down on a piece of paper. So I'll have to read the transcript. Anyway, can you guys talk a little bit about the build-out of your biomedical services? It sounds like that's a big opportunity and in particular, with the recent acquisitions. But I'm curious, clearly, those are small acquisitions. How do you get the capability to deliver those services nationally in relatively short order?

Yes, that's a great question. We expect our biomedical services to significantly contribute to revenue growth in the coming years, even by the end of this year. We have all the necessary information, training, and institutional knowledge, much of which we gained from the FilAMed and OB Health teams. FilAMed enables us to service more devices beyond just infusion pumps, while OB Health lets us perform repairs on-site instead of solely at our depots. We anticipate several developments. Firstly, we'll acquire many new customers, as our sales team now has a broader range of products and services to offer than ever before. We can enter the acute care market, which we didn’t have the capability for previously because we can conduct on-site work. Additionally, we are hiring a significant number of biomedical technicians, which is crucial for our growth in this area. There isn’t a large capital investment required since we’re not purchasing infusion pumps; instead, we need people, workbenches, and tools for device repairs. The encouraging aspect is that we are not hiring service technicians on the hope that revenue will follow; we can already see the revenue on the horizon, both at the end of this year and certainly into 2022 and 2023. We are hiring in direct response to the revenue we anticipate from new customers. To develop this capability, we just need to recruit the appropriate technicians to work on the devices. We could be bringing in dozens of biomedical techs, reflecting our strong belief in significant revenue growth from biomedical services in the near future.

Great. Nice. Second question. So I'm, as you know, pretty excited about the opportunities you have on the Integrated Therapy Services side of the business. I'm curious if you continue to believe you can leverage your existing infrastructure to grow those businesses and whether or not you feel either a need or an opportunity to add medical personnel to go into the home in any area.

I agree with you on the excitement surrounding Integrated Therapy Services, including pain, wound care, and Lymphedema, as we can fully leverage our existing infrastructure. Carrie has done an excellent job over the past few years in setting up and integrating those teams, creating a unified team for all therapies instead of separating them. This allows us to utilize our current teams effectively. Regarding the addition of medical personnel, such as nurses and clinicians, I definitely see us increasing their numbers as we expand our business and serve more patients. We will need more staff to reach all those patients. While our business model does not primarily focus on home care, that doesn’t mean we won’t pursue it when necessary. However, if we do, it may be more efficient to partner with someone rather than hiring hundreds of nurses to facilitate home visits.

Let me add to that briefly. We don’t need to bring on more team members to manage the revenue cycle because we already have all the necessary infrastructure. However, we will have to manage the increased volume. The positive aspect is that as we generate more revenue or volume from these therapies, it positively impacts our EBITDA margin. That’s why we can confidently aim for a 30% EBITDA margin in the coming years, rather than settling for 25% or maintaining our current level.

Yes. I appreciate that, Barry. Could you just say recognize you have liquidity that might make it possible to buy back stock? But how do you feel about the trade-off between investing in the business and buying back stock? And do you truly believe you have the resources available today to buy back $20 million of stock while continuing to invest in the business?

We approach capital allocation with a strategic mindset. Our top priority is to invest in our current business. As I've noted before, when we're experiencing middle double-digit growth or a bit lower, we can generate cash, which allows us to repurchase shares. However, as our growth accelerates, we plan to direct our capital towards acquiring devices and other essential items. Most of the new ventures we are pursuing are relatively cash-intensive, but not heavy on capital, which is beneficial. For instance, with lymphedema, we won't need to purchase devices. Thus, we prioritize our strategies accordingly. When opportunities arise to repurchase shares below what we consider their intrinsic value, we will take action, but it won't be our primary focus. The $20 million allocation provides us with the flexibility to execute this over the three-year period we outlined for the authorization.

And our next question today comes from Alex Nowak at Craig-Hallum Capital Group.

I wanted to discuss the decrease in pump usage on the DME side of the business. If COVID continues to decline for the rest of the year, excluding the Delta variant, I am curious about the future of DME revenue if this trend continues. What would normalized revenue look like in that scenario?

Yes, I can address that, and then Barry can provide the numbers. It seems that the drawdown we've observed over the past few months has stabilized. There was a significant decline from March to April, but April, May, and June have been relatively flat. We believe the drawdown has effectively concluded. Excluding the Delta variant and any potential increases in activity, we are not factoring in any significant changes for the remainder of the year. If anything positive happens, that's great, but it's beyond our control. Overall, we believe we have leveled out. The decline was noticeable in the second quarter, occurring more rapidly than anticipated, especially the drop in April, but May and June mirrored that trend. Therefore, we feel we have reached our new baseline.

I would add to that. We actually had growth in our plans, and what we'll end up with is back half revenue that's better than the first half slightly and still keeping the level of revenue that we had last year. So we're actually not going to go down. We just didn't get as much growth as we thought because the penetration that we're getting and seeing new customers didn't quite offset some of the devices coming back. So we feel pretty confident that there is real growth buried in there. We just got to work through the adjustment.

Yes, that makes sense. I'm glad Delta is not part of the guidance. Regarding the wound care segment, you mentioned a significant ramp-up occurring in Q4, enough that you've raised the annual run rate guidance. Could you provide an update on the wound care market, the main competitor, and any disruptions there? Additionally, what factors lead you to expect such a substantial ramp in Q4?

Certainly. To give you an idea of the ramp-up, we had about three sales representatives in the first quarter, and now we have nearly 20 in the wound care segment. This is where we focused our investment. If you look at the growth expected in the latter half of the year, especially in the fourth quarter, it relates to the timing of the sales cycle. We hired the new reps in April, May, and June, and it takes time for them to get into the field and start closing deals, which will begin to reflect in the fourth quarter. Their efforts will begin to pay off now that everyone is trained and actively meeting clients to secure contracts. We anticipate experiencing significant momentum moving from 2021 into 2022, particularly in wound care. The delay we’ve seen is simply due to the sales cycle timing, and we will start recognizing revenue in the coming months.

No, that makes some sense. And then just on the Lymphedema side, maybe just a thought process that went into partnering with Bio Compression. What didn't Bio Compression have that you're giving them? What drove the Lymphedema market? And then ultimately, how to take share from the, I would say, the main competitor, Tactile?

Bio Compression has been an excellent partner. They were lacking a national distributor with our contracting and revenue cycle capabilities. While they had several regional players for many years, they sought someone who could service all customers, patients, and payers across the United States. This need is not exclusive to them; other manufacturers, such as Cardinal in wound care, have similar motivations. The ability to leverage our contracts for new therapies is a significant attraction. Lymphedema fits seamlessly into our Integrated Therapy Services segment, particularly on the oncology side, where we have around 30 representatives engaging with over 2,000 customers daily, discussing pumps and paperwork. It adds another product to our offerings in a market we already dominate. Additionally, reimbursement for this device is excellent, and it doesn't pose a challenge for our revenue cycle team since it doesn't return like our oncology pump, minimizing the burden on our biomedical team. If we were to define an ideal new therapy for ITS, Lymphedema would be a top contender. The addressable market is substantially under-treated in the U.S., and we believe we can raise awareness among physicians about available options for patients. Our main competitor, Tactile, does a commendable job but holds a very small share of that market. We believe we can compete effectively against them, as they offer only one device while we have a long history in oncology and established relationships with numerous customers over the past 30 years. We plan to leverage these relationships to consolidate vendors and provide more than just one device to our clients. There are several strategic reasons why we believe we can capture market share in this area, which is the main rationale for entering the Lymphedema market.

And our next question today comes from Jim Sidoti of Sidoti & Company.

I wanted to ask a couple of questions about the sales force. It sounds like you're making some pretty significant investments. I think you said you added 12 on the wound therapy business. How many did you add on the Pain Management business?

We added about 15 to the team. In the pain management area, we increased our team from 4 to 8 in the past couple of months, effectively doubling that division. This growth wasn't anticipated at the end of last year or the beginning of this year, as we believed we could still achieve substantial market share gains with our existing team. However, we had the chance to hire some exceptional talent in the market, and it would have been unwise to let that opportunity slip away. These new hires are just starting to come on board, and similar to the negative pressures we've experienced, we expect to see the benefits from their contributions towards the end of this year into next year.

And as you get into the Lymphedema market or therapy market, can you use the sales force you already have for oncology devices? Or do you have to add specialists for that therapy?

We will certainly utilize our oncology team, which is currently our largest sales team. They will assist us in oncology. Additionally, we can make use of our wound care representatives in acute care. With approximately 15 to 20 people already engaged, they're speaking with case managers about wound care. Often, the same case managers handle Lymphedema and pneumatic compression. Therefore, we plan to utilize our existing teams for both acute care and oncology. While we may add a specialist when necessary, we do not intend to create an entirely new sales team for this initiative.

So is it correct to assume that it's easier to leverage your existing infrastructure for that business than it would be for the Pain Management business?

Absolutely. And I think that goes back to what I mentioned, I think, with Alex's question that we will add some revenue cycle people just because of the numbers, but we don't have to touch the devices very often, if at all. The revenue cycle pieces, it's a one-time reimbursement. So we're not billing for the same device over and over and over again. It's just a one big reimbursement on the front end. So yes, you're absolutely correct that it will take less manpower to kind of grow that business relative to oncology or pain.

And with these three new markets that you're already in process developing, do you need to do more acquisitions? Or more acquisitions really the priority? Or do you have enough on your plate right now that you think you can grow double digits without doing any additional acquisitions?

We believe we can achieve double-digit growth fairly easily in the coming years without any acquisitions. However, that doesn't mean we will avoid a strategic move that makes sense for the company. Our focus will not be on acquisitions to drive growth; rather, we will pursue them because they are aligned with our business strategy and growth objectives. We expect significant revenue growth to come in at the end of this year and into the next year without needing to make additional acquisitions.

Today's next question comes from Douglas Weiss of DSW Investment.

On gross margins for Integrated Therapy Services, can you just explain why that dropped so much year-over-year? I mean, I know you've invested in some of these new product lines, but it sounded like a lot of those investments were on the SG&A line.

In the second quarter last year, we were at 65.9% and this year at 64%, showing a slight decrease. The primary reason for this is that we had very strong collections last year during COVID, which led to higher revenue, and this year is more in line with normal expectations. COVID contributed to that performance.

It seems that for the first nine months of last year, you maintained over 70%. I'm looking at the Integrated Therapy Services slide, and then it dropped in the fourth quarter and has remained in the 60s this year. Do you believe this is the right model, or is there a chance for improvement?

Before we have an intercompany charge, which brings up another issue that I forgot to mention is that we did have less repairs and services to keep that fleet going last year. We didn't bring the pumps into the building, so we had a little bit less normal maintenance on those devices. That is more normalized in the current quarter. But when you adjust our inter-service that we do part of sales in the DME business, the Integrated Therapy Services business, our gross margin is close to that 55% range.

So I mean, do you think this quarter's gross margin is kind of mid-60s is the right number to model going forward? Or would you say it's going to improve in over the next year?

No. What I would say is that the Q2 last year clearly stood out of all the quarters. It was almost at 66%. Every other quarter, if you look back 4 or 5 quarters, it's in that 64% to 65%, a typical range. As we add the new therapies, it's likely to get helped a little bit, but mostly is going to stay in that same range, we think.

Okay. And then in terms of the revenue, the new revenue guidance, I had thought you had already sort of taken into account the fact that you had those large one-time benefits a year ago. Can you just explain a little more what it was that surprised you?

The key difference is the decline in rentals during the second quarter. There was a significant drop from the first to the second quarter. When COVID sharply decreased in late winter and early spring, rentals rebounded quickly, which we didn’t observe in the first quarter; that’s why we expected a stronger performance. However, the good news is that things have stabilized, and we’ve noticed this trend. We feel more optimistic now about our outlook, whether it’s for DME rentals, biomed services, or Lymphedema and negative pressure, than we did just a month or two ago. The softness in the rental aspect has been the main factor affecting our guidance, and it’s not something that can be recovered quickly. That’s what is influencing our guidance.

And I think you may have already said this, but how much of the change in EBITDA guidance reflects additional investment into the new products that you hadn't anticipated?

About $2 million.

$2 million, okay. And how much incremental EBITDA do you get from the acquisition you did for the acquisitions?

We haven't specifically disclosed the profitability of those businesses. However, it's safe to say that their margins, at least from a gross margin perspective, are comparable to the rest of the DME business, falling within the middle 50% range. They did contribute to general and administrative expenses, but they also have some of their own selling, general and administrative expenses.

Right. Okay. And then in terms of the trade-off between focusing on the higher-margin DME work versus some of the disposables, my impression was that those disposable sales were pretty low. It didn't take a lot of effort in terms of the sales force. Why not just do both? Why deemphasize the disposable work?

I don't think we're abandoning disposables. It still requires attention, but every minute our sales reps spend on that is a minute they're not focusing on our core oncology business, lymphedema, and biomed services. Therefore, it has become a lower priority compared to the biomed services. Our capabilities with OB and FilAMed are exceptional and provide significant benefits. Our team works with the largest hospitals in the country, and by engaging with the biomed department, they've been able to generate substantial revenue with high margins. It wouldn't make sense to emphasize products with lower margins over this. We're not walking away from disposables; we're just shifting our focus a bit further down the list of priorities.

It's okay. On share repurchase, if you were considering buying back shares, how soon can you come back after earnings announcements?

Our trading policy is basically the day after earnings we are allowed to trade.

Our next question today comes from Aaron Warwick at ES Capital.

Rich, I wanted to ask, I think it was like your final comments that you made before you turn it over to Q&A, make sure I understood you correctly. It sounds to me like you've got three or four different new aspects to your business, each of which could become larger than the current business. Is that correct?

That's correct. We have Lymphedema with a total addressable market of $1.5 billion, which is the largest market we are targeting. Wound care has a potential market of $600 million, where we believe we could capture 5% to 10%. Pain Management, especially with our new sales team, has significant potential. Additionally, while I can't provide a specific number for the DME and biomedical services market, it's likely larger than the Lymphedema market. Looking at oncology, which generates about $60 million in revenue, any of these four product lines could potentially be as large, if not larger, than oncology. While this growth may not occur in 2022, over the next three to five years, I believe that at least a couple of these areas will exceed oncology in size.

Yes, you answered my next question regarding the timeframe we're considering. I understand it may vary for each area and circumstances can change. When discussing that level of growth, do you anticipate it over the next three to five years? You mentioned you're making significant investments, particularly in people, but do you believe your business's basic infrastructure can support all those different areas simultaneously?

Yes, it's different in each area. Earlier, we talked about DME, which is focused on implementing technology. In cases like Lymphedema or when we started with wound care and pain management, there's more work behind the scenes. This involves a lot of preliminary work related to the revenue cycle, including licensing and credentialing. However, looking across the company, we have the necessary warehouse space and capacity for additional team members. We already possess certain capabilities, and none of this falls outside our core competencies. We currently have around 70 to 80 biomedical technicians, and it's closer to 90 working at our facilities today, so we don't need to acquire new skills or trades. The same applies to the revenue cycle for Lymphedema, pain, and wound care. Our team excels at building and collecting revenue, and they continue to improve. These are core competencies we already possess, which is the advantage of our platforms. We are not reinventing the wheel at InfuSystem; with 34 years of experience, we are simply incorporating new therapies, products, and services into the existing strengths that our leadership team and staff have extensive experience with.

Yes, that's fantastic. So obviously, as you said, the EBITDA margin took a bit of a hit because of this initial investment, if I hear correctly, I don't know if it was you or Barry said that you're targeting 30% margins in the long run. And when do you think it will start working up to that? How soon will that be?

Yes. So I'll let Barry talk about how quick we'll get there. But yes, I mean, the hit this time around is pretty simple, right? It's the rentals that a lot of that drop to the bottom line. And a bigger piece is the investment in wound care and pain. And it's something we went into knowing it was going to happen over the last few months. It's something I will do 10 times out of 10, investing a couple of million dollars in two markets that potentially could be, I don't know, tens of millions, if not more, combined. We'd be crazy not to make that investment. So in the short term, adjusted EBITDA takes a little bit of a margin hit, but it's still pretty solid at 25% this year. And Barry, if you want to talk about when we think we can get to 30%.

Yes. The first thing I'd point out is that we're calling for a 25% EBITDA margin for this year. That's with the $2 million investment, which is almost 2%. So if you add that back, we're almost halfway there. As Rich mentioned, we think that everything we add is accretive to the bottom line. Again, there will be some SG&A spending, but it's accretive. So I don't know that necessarily we will be consistently next year will be in the 30% range, but these businesses and the things we're doing, move us in that direction pretty quickly.

I appreciate it, guys. And giving us that perspective, it sounds like you said you make that investment 10 of 10. It sounds like a good call.

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Rich DiIorio for any closing remarks.

Thanks, Rocco. I want to thank everyone for participating in today's call. I hope everyone has a good day, and I look forward to talking with you again when we report our third quarter 2021 results. Please stay safe, and thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.