Good day, and welcome to the InfuSystem Preliminary Fourth Quarter and Full Year 2021 Financial Results Conference Call. Please also note this event is being recorded. I would now like to turn the conference over to Joe Dorame, Managing Partner. Please go ahead.

Thanks, Tom. Good morning, and thank you all for joining us today to review the preliminary financial results of InfuSystem Holdings, Inc. for the fourth quarter and year-end 2021, ended December 31, 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 full text copy of the press release, you can retrieve it from the company's website at www.infusystem.com or numerous other financial websites. Before we begin our 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. 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 preliminary fourth quarter and year-end 2021 earnings call. Thank you all for taking the time to join us today, and I hope you and your families are staying safe. This morning, we will review our preliminary financial results for the fourth quarter and year-end of 2021, provide an update on developments in our business and talk about our priorities and outlook for 2022 and beyond. To start, the team delivered a record year in 2021 with revenue of $102.4 million. While that number is certainly not what we expected for the year, we remain very confident in the continued strong growth potential of the business. We are transforming the company for long-term success in facilitating the clinic-to-home last mile solution and biomedical services for hospitals in North America. As I will discuss shortly, some major initiatives that were expected to contribute to our fourth quarter have slipped into 2022. This was largely, but not entirely, due to the impact of steeply rising COVID cases starting in November. While most of America largely avoided a repeat of the 2020 shutdowns, the health care sector was impacted by Omicron in a way similar to that seen with earlier waves of the virus. Before continuing further, I would like to take a moment to thank the members of the InfuSystem team, who once again showed their professionalism and dedication to our patients and providers that we serve. What we do is important, and I'm proud to be a part of it. So we know going into the fourth quarter that we had to get a lot done to deliver against our guidance. We started the quarter confident as we had some very good momentum going into year-end. There was the exclusive agreement with a leading West Coast health care provider for our pain management solution and we expected to close some larger deals for negative pressure wound care equipment before year-end. On top of this, it was normal to see the number of elective surgeries rise at the end of the year due to people taking advantage of the annual cycle with their health care insurance deductibles. Instead of the expected increase in activity during the fourth quarter, our business experienced a rapid deceleration as Omicron cases exploded. Although not to the extent seen when COVID first appeared in early 2020, the health care community took actions they thought necessary to focus on the potential emergency. This included reducing access to facilities, curbing elective surgeries, and deferring contract signings and the onboarding of new products and services. We felt the impact of these effects in almost every product and therapy across both platforms. In oncology, new patient starts dropped off after Thanksgiving, pain procedures did not scale at the end of the year and wound care contracts, we thought would be signed in December, slipped into 2022. These unforeseen headwinds negatively affected our ability to gain the expected business traction, causing us to fall short of the expected combined year-end run rate for pain and wound care. As you can see from reading the management discussion section of this morning's press release, despite the year-end slowdown, our revenue did still come in materially above last year's levels. Our fourth quarter revenue was actually up 7.3% versus the prior year. Our business is perfectly sound. We just experienced a temporary break in our growth momentum, which, much of this due, is due to the unexpected impact of Omicron in the fourth quarter. As I'll discuss shortly, after Barry has finished with his discussion, we see our revenue momentum coming back strongly in '22 and into '23. InfuSystem is very well positioned in the marketplace as a solutions provider, and we continue to see many attractive opportunities. Our business grew by approximately 20% in 2019, and again in 2020. And we see the business returning to 20% growth in 2022, and we are very well positioned to make that happen. We feel like we're a runner at the starting line, ready and eager for the signal to sound so we can get going, and execute on our plan and the opportunities in front of us. Now I'd like to turn it over to our CFO, Barry Steele, who will provide a review of our preliminary financial results.

Thank you, Rich, and thank you, everyone, on the call for joining us today. I'm going to focus on 2 areas: The main drivers for the current quarter's results; and advance our financial resource reserves. First, let me touch on our financial results for the fourth quarter. Net revenues for the fourth quarter of 2021 totaled $26.5 million, representing a 7% increase from the prior year fourth quarter. This amount was nearly tied with our highest quarterly revenue ever, a record freshly minted during the 2021 third quarter, and also beating our best quarterly revenue amount in 2020 when the panic of COVID-19 significantly accelerated market demand for infusion pumps. Growth drivers included revenue from the acquisitions, increases in pain management and negative pressure wound therapy revenues, and strong treatment volumes of patient collections in oncology. Preparations for the new large biomedical services agreement continued to create additional costs during the quarter, totaling $700,000 in both cost of sales and general and administrative expenses that slightly diminished our gross profit and adjusted EBITDA margins and increased our G&A expenses. Other factors unfavorably impacting profit margins included: Unfavorable gross margin mix related to the increased DME revenue from the 2 acquisitions; and $800,000 in costs related to the increased sales team for negative pressure wound therapy and pain management, which started during the second quarter. A portion of this increase totaling $600,000 was included in selling expense with the remaining amount included in G&A expenses. Partially offsetting these were a decrease in our lost pump reserve in the ITS segment, and a decrease to our management bonus expense totaling $2.2 million compared to the prior year. Turning to a few points on our capital reserves. We continue to be positioned well to fund our growth with strong cash flow from operations backed by significant liquidity reserves available from our revolving line of credit. Notwithstanding the strong position, our growth capital needs are expected to be markedly lower as compared to historical growth periods. This is because our biomedical services revenue growth does not require us to purchase medical equipment or other capital items as compared to our ITS business. At the end of 2021, our total debt stood at $33.1 million, an increase of $2.2 million since the end of the third quarter, and our ratio of total debt to adjusted EBITDA for the last 12 months is 1.38x. A portion of this increase was due to $500,000 in purchases of our own common stock under our $20 million stock repurchase program. We continue to be enthusiastic buyers of our stock at the current market prices. Our total available liquidity at the end of the quarter was $41.6 million and consisted of $41.4 million in available borrowing capacity under the revolving line and cash on hand. And with that, I'd like to turn it back over to Mr. DiIorio.

Thanks, Barry. Notwithstanding the negative impact of Omicron in our business at year-end, 2021 was a strategically productive year, with several developments that we believe will drive top and bottom line growth in '22 and beyond. We started the year by expanding our capabilities with 2 biomedical services company acquisitions, FilAMed and OB Health in February and April, respectively. We took advantage of a one-time situation and expanded our pain and wound care sales forces midyear. In early November, we announced an exclusive 3-year agreement for our pain management solution with a leading West Coast health care provider. And later in November, we were down selected by a leading global medical technology and diagnostic equipment company to provide biomedical services to 800 hospital systems in the U.S. and Canada. It would be difficult to overstate how material the emerging opportunity in acute care hospitals is for InfuSystem. Our business has historically been almost exclusively related to the home health care sector, and that is where we've spent the last several decades developing a number of skills that are increasingly providing InfuSystem with competitive advantages in a rapidly evolving marketplace. As a company, we are now big enough that our skills, and in particular, our high service levels have started to be noticed outside of the home health care market. Of course, this is no accident. Our acquisitions in the first half of 2021 of 2 biomed companies were specifically designed to increase our capabilities and our profile in acute care. Almost immediately after integrating these 2 companies, we began to uncover opportunities to scale our legacy skill sets and our new capabilities into our opportunities far larger than the business we acquired. Take, for example, the opportunity we disclosed in November. We expect $8 million to $12 million in new business during the first 12 months, with the potential of the work scaling up to $14 million to $15 million per year. This is obviously very material for a company of our current size, and the revenue ramps very quickly. This is different than the slower burn we see in our ITS business segment where the opportunity may be just as big, but the revenue ramp comes more slowly, typically at least 6 to 9 months. Because of the materiality of the pending contract, we believe we had to disclose it in November and that we have to update investors today. We are at the ready to formally sign this agreement and begin the work, not just because of the significant contributions of this contract and what will happen to our top and bottom lines, but also because of the further opportunities we believe this contract will create. Our team and our services will gain exposure within 800 hospital systems in the U.S. and Canada. I've talked about cross-selling opportunities before. Well, those opportunities are going to be a lot more significant as soon as our partner is ready and we get to work in all those facilities. InfuSystem's unique skill sets relate to managing mobile devices used in health care. To support our existing operations, we manage a fleet of more than 110,000 medical devices. As we move into the acute care hospital environment, we are going to be exposed to millions of devices with us creating constant opportunities to leverage the skills we have developed over the last 30 years. We will see large new opportunities to rent equipment, buy and sell equipment, provide annual maintenance, repairs and upgrades to equipment, and provide consumables. I should take a moment and emphasize that this is not a change in our business. This is a new opportunity relating to our second business unit, our DME services business. The services I listed above, including rental, sales, and equipment services, are things that our DME business has always done, but almost entirely to just the home health care market. Now we can target home health and acute care, and acute care has many more devices and a much larger total addressable market for us. Going forward, we believe that our DME business segment will have growth potential on par with our ITS business segment. And there's one more thing: new business in DME often has a defined value. By that, I mean that we agree at the onset to rent a certain number of pumps for a defined period and a defined price, or that we agree to provide biomed services with an agreed fee per device for labor and parts. This means when we sign a new contract to provide DME services, we will know before the contract has even signed how much revenue we can expect from the new relationship. This also means that the timing of a material new contract will have the potential to affect our results for a particular quarter. In InfuSystem, our culture has and will continue to manage the business for the long-term creation of value. We will resist the urge to manage our results by pulling business forward. We will manage the potential of periodic lumpiness in our business by disclosing, to the extent we can, the status and timing of large new contracts. We thought the 800-hospital contract will be signed before year-end. The delays are not completely related to COVID, although I'm sure that has contributed. We believe the delays are the result of working on a complex agreement with a very large and complex organization. This is a very big deal for us, but a very small deal for them. Although it hasn't worked on our time frame, it certainly will be worth the wait. We are ready and anxious to start and plan to provide updates and disclosures as we make progress. And I should note, the big contract is not the only opportunity we are pursuing in biomed services and DME. We are currently doing work related to 3 agreements recently signed with GE Healthcare. We expect approximately $3 million in annual revenue under these contracts, and the work includes device maintenance, inventory management, and repair services for some of their hospitals. As we continue to grow our capabilities, we continue to see rising demand for our expertise and high levels of service from some of the largest health care companies in the world. Our motto is safe, smart and trusted, and we are increasingly seen as a company with the skills to solve problems and facilitate quality care, whether that involves our ITS turnkey solutions or our DME suite of products and services. Before opening the line to questions, I think it's important to emphasize that while I've spent significant time this morning talking about material developments in our DME business, none of it is intended to take away from our continued opportunities in the ITS business segment. Omicron stole some of our momentum last year, but we see '22 as being a very good year for ITS with pain management expected to take the lead in delivering solid top line growth. This is, in part, due to the 3-year exclusive agreement with a large West Coast health care provider. For the year, we currently believe ITS will match the strong growth forecast in our DME segment. Together, our 2 business units are currently expected to drive an aggregate of 20% top line growth in '22, with equal top line contributions coming from the ITS and DME segments. Pain management is expected to be the largest contributor to growth in ITS and the large new biomedical contract is expected to contribute a lot of the growth in DME. This aggregate outlook is, of course, contingent on the execution and timing of the large biomed contract and the return to somewhat normal operations in the health care sector post-Omicron. Once we have the necessary visibility on these matters, we'll host an investor call to share guidance for the remainder of the fiscal year and give an update on our progress. We are working hard not only to regain our momentum in '22, but to grow and extend the potential of our 2 business platforms. We are well positioned to successfully drive operational performance and create shareholder value. And now we're happy to answer any questions.

And the first question comes from Alex Nowak with Craig-Hallum.

I haven't listened to a variety of health care earnings calls so far this earnings season. I think we all get the COVID impacts that we're seeing in Q4. But I think the biggest question here is just besides Omicron, what has changed from November's Q3 earnings call through the end of this quarter? You made it seem like Omicron was the big piece of it, but you said it's not only Omicron. So I'm curious what else changed?

Yes. So Omicron is definitely the biggest piece of it, right? That slowed down elective surgeries, which impacted our pain management business. And it definitely impacted our wound care business in a little bit different way in that when nurses are struggling and there are 7 instead of 20 nurses in a facility, they're just not making decisions, and executing on agreements, and bringing in new devices. And that was a big deal for us because we were relying quite a bit on some big wound care device leases that we expected to come in December. Part of the slippage was because of Omicron, people out, not available to sign, and part of it is just a timing thing, right? It just didn't happen to fit with our quarterly target, but we expect those to come in very shortly, actually here in the first quarter of this year. So it's just something that got pushed to the right a little bit. So a big part of it is definitely Omicron, and some of it is just timing of working with big facilities, and big leases, and big deals similar to the contract, the big biomed contract. It was kind of out of our control, but it's still a deal we're working on and we expect to get. But Omicron is definitely a big piece of it, especially in pain and wound care.

Okay. Understood. And actually on that big DME biomedical deal, I mean I think last quarter, I think we all thought that the deal was pretty much done. I guess I'm trying to figure out why it seems that, that agreement is a little bit further off than originally expected in November? Was this a pushback from the big device company that ultimately led to delays? Do you combine that with COVID, and that's why it's being pushed out a little bit? And then when you take that 20% growth guidance, is that deal included in that number? Or what is included there?

So that is, let me go kind of in reverse. So it is included in the number. If for some reason, it fell apart, we have the team in place to go out and work on other agreements we could bring in. So it's not the only agreement we're working on. To answer your question about why did it slip and why is it pushed out that far, nothing has really changed. All the terms and conditions are agreed to. It's literally just a matter of getting their legal teams' time and focus. I think when you guys see the name, you'll know why it's taking so long. So part of it, we are into the holidays. Part of it is COVID, and part of it is just dealing with a big company. But our confidence in getting it hasn't wavered at all since November. So we're still in the same position. It's just taking longer than kind of we would hope. It's just not on our time frame.

Yes, understood. And then what did the pain and the wound business run rate end at the end of 2021? The original target, I think, was $12 million to $15 million, so when do you expect to get to that number during 2022?

Yes, I think it was closer to $6 million on an annual basis.

Yes. A significant portion of that run rate was attributed to those leases. Regarding the second part of your question, Alex, I am hesitant to specify a date for when we will reach that run rate, but I believe it will be quite soon. The timing will largely depend on when patients feel comfortable returning to the hospital and when hospitals resume those surgeries, particularly for issues like torn rotator cuffs and ACLs. On the wound care side, our leasing strategy is crucial for entering the inpatient market, as we need to be successful in both inpatient and outpatient sectors. Some of these contracts exceed $1 million, so as they come in, we will begin to see a significant increase in the run rate. For this year, most of the growth in ITS will stem from pain and wound care, with pain being the primary driver. Thus, the run rate should increase considerably and relatively quickly, though it is difficult to predict due to Omicron.

Okay. Got it. And then just last question for me. This one is a housekeeping clarification item. The press release says the results are preliminary, but it looks like these are full financial statements. So I just want to clarify, are these financial statements subject to change? Or just clarify what is preliminary here.

Yes. We're not fully complete with our audit, so that's the main thing. I would not expect them to change, but we're only about halfway through. So we don't typically have audit adjustments, but after March.

I see. But you want to get the results out or at least the commentary out there now.

That's correct.

Yes. As soon as we felt we had solid numbers, we have the call. So they'll be finalized in the next few weeks.

The next question comes from Brooks O'Neil with Lake Street Capital Markets.

Appreciate all the color and the answers to Alex's questions. I'm just curious, you mentioned, I think, in the press release, in the preliminary remarks that you also saw a bit of a slowdown in the cancer business, and I was kind of surprised by that. I kind of view cancer as one of those things that doesn't stop for much. So can you just give us some color on what you're seeing in kind of that big business?

Sure, Brooks. That's a great question. The slowdown is due to fewer people seeking preventative care, leading to a decline in colonoscopies. This trend is similar to what we're observing with heart disease and other health issues where individuals are not attending their checkups. Consequently, we see a decrease in new patients because there are fewer diagnoses. There is no fundamental issue with the business. We experienced a similar situation at the end of 2019 and a bit in 2020 during the second surge, but early in 2021, all those patients returned for their colonoscopies once they rescheduled. The positive news is that in this business, we will make an announcement in about two weeks. We have partnered with one of the largest private oncology practices and signed on one of the top three cancer centers in the country. The oncology sector remains robust; however, we cannot control when patients will get their colonoscopies and diagnoses. It is mainly a matter of timing. As Omicron’s impact diminishes, we expect to see those new patients returning.

Yes, I just want to add we actually grew in oncology in the fourth quarter compared to the fourth quarter of the previous year, but it just wasn't at the level we anticipated.

Okay. That's good. I'm always torn in the health care business about whether I should hope for more patients to experience serious diseases or whether I should be pleased that I don't think this is a slowdown, but at least you're not seeing it in your business right now. So on the DME side, would you say any of the delays will create pent-up demand here in 2022? Or do you think the delay simply results in lost business that we won't see in 2021 or 2022?

Are you asking about the biomed services? I would say there's pent-up demand. If a pump requires maintenance this year, it has to be addressed this year, in accordance with FDA guidelines and manufacturer regulations. This means we'll need to work a bit faster to catch up, as facilities require their devices to be repaired and maintained. If a device is malfunctioning, it remains in that state until repaired. Maintenance still needs to happen, just as inventory management still needs to be carried out. So, I wouldn’t say this demand is gone permanently. The timing of contracts does play a role in the situation. We can only catch up at a certain rate daily, but I believe we are on track. I still estimate we will maintain between $8 million to $12 million in the first year, and we hope to capture as much of that as possible this year for alignment.

That's great. And then I think you mentioned the potential for some other contracts out there? And would you say your pacing there is related to your ability to scale that DME services business? Or is it more sort of the same kind of phenomenon that you're seeing with the current big contract that's pending?

It's a combination of both. I mentioned the three GE contracts and our team's excellent relationship with a major company. We're looking to secure additional contracts, but when a significant one comes in, it will require a lot of resources. The good news is we're prepared and ready to mobilize immediately when we finalize that contract. Our team will be booking flights and traveling across the U.S. to repair devices. We're being cautious about taking on any large commitments before that contract is secured. However, there are substantial opportunities out there for us to sign, even though not all are $15 million contracts. This particular contract is one of many lucrative possibilities. There are millions of devices needing attention in acute care settings, and given the financial struggles many hospitals are facing, they are inclined to repair and maintain existing equipment rather than replace it outright. This creates an expanding opportunity for us. While landing one large contract on the DME biomed side would be fantastic, it represents just a part of a much larger strategy.

Great. And then let me ask you one more question. Obviously, the delays are impacting your growth really on both sides of the business. But the platform you have in ITS, we've always sort of thought there might be more devices, more categories that you can target. Would you say the current environment is such that you're going to be perhaps more cautious in adding another leg to that ITS stool in 2022? Or do you think you'll continue to push the envelope and expand that platform for the future?

Yes. So I don't think we're going to turn a blind eye to new therapies, but at the same time, I think our mantra this year is going to be to focus on executing on what we have in front of us, right? So between biomed services, wound care, and pain, those are 3 huge opportunities for us that are ready to go. I think the focus for this team and this company this year is to go execute on those 3. Now if something really nice comes up and it's the right time, the right product, the right partner, all that stuff, then great, right? We'll think about it. But right now, we have 3 tremendous growth opportunities, like right in our hands, right, within our reach. So that's where we're going to focus in 2022. And as things progress, we'll see what happens.

Great. And I don't mean to belabor this, but Lymphedema, you're still working on, you're still enthusiastic about? This might not be a big contributor in 2022?

Yes, I think that's reasonable. We are continuing to refine the model and enhance our go-to-market strategies, which are still in progress. Our focus is not on that aspect at this time; it's more of a long-term initiative for 2023 and 2024, rather than for 2022. The three projects we are currently working on have the potential to significantly impact the company, and I believe we will successfully implement all three. If we achieve that, we can potentially double the company's revenue. We have exciting opportunities ahead of us, and Lymphedema is included in that group, though it is at a different stage compared to the others.

And our next question comes from Jim Sidoti with Sidoti & Company.

Can you quickly tell me what the other two big opportunities are besides the major contract on the service side?

So the other 2 were just the growth in pain and the growth in wound care. So wound care is ready to go. It's just a matter of getting the health care world to be properly staffed, so they can start to make decisions and bring in new products. And on the pain side, they're ready to go as soon as elective surgeries kind of comeback fully online. We've added a bunch of market share in the last 6 months. And as soon as the patients come back in, it's going to really, really accelerate in the next few months. So between pain, wound care, and biomed, all of those can be transformative if they hit.

And how many sales folks have you added for the pain and wound care business in 2021?

So in pain, we went from 3 to 8. So we added 5. And in wound care, we went from 3 to 15 or 16. I forget the exact number. So effectively, we doubled the sales team of almost the entire company, even including well, we didn't add it in oncology, but if you add the totals up, it almost doubled.

Okay. And then one of the things about Omicron is it ramped up very quickly, but it also seems to be ramping down fairly quickly. I know it's very early in February, but are you seeing any indications that things are improving?

I agree that the perception is it’s ramping down. We all noticed a difference compared to December and January when many people were sick, and now it seems to be fading a bit. In the hospital environment, they were still feeling the effects in January, so for them, it’s more of a reality than just our perception. The health care market will likely take longer to recover, but we are starting to see signs of improvement, though it’s unclear how quickly this will happen. We definitely felt the challenges in January, but as we move into February, now a week and a half in, things are starting to look a bit better for us. That’s the hope as we progress through this month and into March. While no one can predict Omicron with certainty, we anticipate seeing the impact lessen over the next few weeks.

And then the last question. You didn't provide formal guidance, but you kind of gave an outlook including the contract, but why not give us guidance without this contract, and then you could always take it up later on when you get it?

We could, but I don't want to put out numbers too frequently. I believe it’s close enough in time that it’s worth waiting for. We are confident in achieving 20% growth with the contract. Even if we don’t secure it, I still expect we’ll be in the mid- to high teens due to the opportunities available. We just need to wait for this contract to come through. While obtaining the contract is significant, the timing is equally important. It represents a $15 million annual run rate, approximately $1 million a month. The sooner we receive it, the greater its contribution will be. However, we want to be conservative and cautious to ensure we provide the best possible figures for you. We will share both top and bottom line numbers as soon as we can.

And do you think you'll get this contract in the first half of 2022? Is that the expectation?

Absolutely.

This concludes our question-and-answer session. I'll turn the conference back over to Joe Dorame for any closing remarks. I'm sorry, Rich DiIorio for any closing remarks.

Thanks, Tom. 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 host our 2022 full year guidance call. Please stay safe, and thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.