Hello, and welcome to the InfuSystem Holdings, Inc. Second Quarter 2023 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 this event is being recorded. I would like now to turn the conference over to Joe Dorame, Managing Partner. Please go ahead.

Good morning, and thank you for joining us today to review InfuSystem's financial results for the second quarter of 2023, ended June 30, 2023. 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. Before we begin with prepared remarks, I would 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, 2022. 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, except as required by law. Now I'd like to turn the call over to Rich DiIorio, Chief Executive Officer of InfuSystem. Rich?

Thanks, Joe, and good morning, everyone. And welcome to InfuSystem's second quarter 2023 earnings call. Thank you all for joining us today. I'll start by noting that a key theme in our prior two calls this year was that 2023 is going to be an execution year. With this morning's press release, we now see strong second-quarter numbers building on those from the first quarter, and delivering results for the first half of the year that meet or exceed expectations. Barry will cover the specifics of the quarter in a few minutes, but I will point out that Q1 2023 was the first quarter in our history where revenue exceeded $30 million. And the recently completed second quarter was the first ever above $31 million, coming in at $31.7 million, which reflects 17% growth year-over-year. Our growth in the first half of the year is the result of strong execution in our biomed and wound care businesses, specifically the rollout under the initial master services agreement with GE, and it's moving rapidly and has achieved the desired momentum. In wound care, we saw another strong quarter of negative pressure device placements as part of our relationship with Cork Medical. As a reminder, these device placements not only contribute to our top line, but they are also important to establish our customers base as we prepare for the introduction of Sanara products that we hope will be a growth driver, starting in 2024. I'd like to do a quick review of the strategic decisions that paved the way for the performance that we are seeing in 2023. Prior to 2020, InfuSystem had a long history as primarily an oncology pump company. Hidden within that business was a collection of underappreciated and underutilized assets and capabilities. These include our national payer contracts, covering 96% of the U.S. population, a strong and scalable revenue cycle management team, and great biomedical services capabilities. Starting just a few years ago, we began looking beyond oncology and infusion pumps to expand the potential of both of our business units, Patient Services, and Device Solutions. And this has led to material growth and opportunities, first involving McKesson, then Cardinal, GE, and most recently Cork and Sanara. To understand how these partnerships and opportunities grow our business, it is important to emphasize that InfuSystem is a service company; we provide services that solve difficult problems for manufacturers, healthcare providers, patients, and payers. What we do is challenging, requiring a long-term vision built around a culture dedicated to patient care. All this is to explain why it often takes time between when we announce the business initiatives and when the revenue from these initiatives begins to ramp. We attempt to be as transparent as possible. Often, our initiatives require investments be made several quarters in advance of anticipated revenue. In this, we would like to thank you for your patience as we've all waited for some of the big initiatives we've been pursuing to begin bearing fruit. 2023 is the year where the benefits of the hard work and effort in prior years is beginning to show up. With GE, that work began back in 2022 or '21, when we started talking about what would become the Master Services Agreement. We signed that deal and started work in '22. And now, in '23, we see how impactful the relationship is and will continue to be. The next big initiative is the joint venture with Sanara. The nature of that relationship was developed through '22. And in 2023, we're steadily working towards the necessary preparation to allow material revenue to start in '24. GE and the Sanara joint venture are not the only projects we are working on, but they are currently the biggest and are expected to be the most impactful. The total addressable market for biomedical services is huge, especially in acute care. And the GE opportunity will open doors for us as we execute on the existing agreement, and place our technicians in hospitals all over the country. The new initiative with Sanara is a much larger opportunity than our initial project a few years ago, which involved only negative pressure wound therapy. But it was that early work with Cardinal that brought Sanara to us and led to the joint venture. Sanara has incredible products and a disruptive model that can greatly benefit patients and payers focused on healing patients. The partnership brings together these products with our national payer contracts, robust RCM capabilities, and the logistics backbone that are needed to address the opportunities that Sanara has long seen in skilled nursing and long-term care facilities. That will be a 2024 story, and I'm happy to report that the progress and preparations remain on schedule. Now, I would like to update everyone on our guidance. At the beginning of the year, we gave guidance for the full year, estimating net revenue growth of 8% to 10%, and greater than 19% adjusted EBITDA margin. Through the first half of this year, our revenue has grown at a pace above the 8% to 10% rate we guided for the full-year. We expect our revenue to come in above the range previously provided. How much above depends on a variety of factors, some of which are outside of our control. Accordingly, we are taking a conservative approach and raising our full-year guidance to have net revenue growth of 10%-plus. We should have even greater visibility when we speak again after our Q3 results in the fall, and we'll provide more color and updated numbers. Barry will now take us through the financial results for the second quarter, and then Carrie will provide additional color on operations involving GE and Sanara.

Thank you, Rich, and thank you everyone on the call for joining us today. I'm going to focus on three topics; the main drivers for the current quarter's results, our forecast for the rest of the year, and our progress towards clearing the internal control deficiencies identified during the 2022 audit. First, let me touch on our financial results for the period. Net revenues for the second quarter of 2023 totaled $31.7 million, representing a 17.4% increase from the prior year. This was a fixed rate quarter, setting a new all-time revenue record, and the seventh record in the last eight quarters. Both of our operating segments contributed to this growth, with Device Solutions leading the way with increased revenues totaling $2.6 million, up 27%, while the Patient Services segment delivered an improvement of $2.1 million or 12%. In Device Solutions, revenue growth was primarily attributed to the continued ramp-up of the biomedical services contract with GE HealthCare, which booked revenue of $2.4 million during the 2023 second quarter, compared to only $145,000 in the prior year second quarter, which was the quarter when the program was first launched. On June 30, the annualized revenue run rate for devices onboarded to the contract stood at approximately $9 million, and we continue to march towards our current target of $12 million. The improvement in Patient Services was driven by negative pressure equipment sales on lease, which totaled $1.3 million. This was nearly triple the amount from the 2023 first quarter. We had no negative pressure from the sales during the second quarter of 2023. Most of these sales were to one customer, and this channel is expected to taper off in the next couple of quarters. Most of the rest of the improvement in Patient Services was in oncology, which increased by $900,000 or almost 6%. Gross profit for the second quarter of 2023 was $16.4 million, which was $1.5 million or 10% higher than the prior year's second quarter, and an increase of $900,000 or 6% in the gross profit of this year's first quarter. This was mainly driven by the higher sales, but was partially offset by a lower gross margin percentage, which was 51.8% during the second quarter of 2023, down from 55.1% from the prior year, but up slightly from this year's first quarter. The year-over-year decrease was mainly due to unfavorable product mix changes and additional startup costs with the GE HealthCare biomedical services contract. The products mix impact is due to higher biomedical services revenue, and the negative pressure equipment sales growth, most of which have a lower gross margin than the company average. GE HealthCare startup costs are estimated to have been about $900,000 for the 2023 second quarter. While this amount is still higher than we originally planned, it is significantly lower than the amount we started off with during the first quarter when we also had lower amounts of revenue on the contract. You may recall, in this case, startup costs largely include employee acquisitions and development costs, such as recruiting fees and hiring bonuses, training time, lower initial productivity in the field, and higher travel expenses for the travel team. These upfront expenses were higher than originally planned due to the decision to accelerate the onboarding process when the opportunity was presented. We anticipate that these higher-than-planned expenses will continue to dissipate over the next several quarters, and then our margin will approach our original estimates once we reach full ramp. Selling, general, and administrative expenses for the second quarter of 2023 totaled $15.6 million, representing an increase of $500,000 or 3% as compared to the prior year. However, the amount was 47.9% of revenue during 2023, which represented a 6.4% decrease from the prior-year ratio, which was 54.3%. As a result of these impacts, our adjusted EBITDA was $5.8 million or 18% of net revenue during the second quarter of 2023, which represented a slight increase in dollars from the prior year, totaling $200,000, but a decrease in margin of 2.2%. Sequentially, from the first quarter, the dollar amount of $1.6 million better, and the margin percentage improved by 4.4% to 18.3%. Turning to the prospects for the rest of the year, as Rich stated, we now expect to exceed our previously stated revenue growth outlook of 8% to 10%. However, we expect to fall slightly short of our adjusted EBITDA expectations. Important factors that have contributed to the improvement in revenue growth include a faster than originally planned ramp rate for the GE contract, and a significant amount of negative pressure wound therapy equipment sales. As we look towards the second half, we anticipate a continued steady ramp for the GE contract, but lower shipments of negative pressure wound therapy equipment. Our adjusted EBITDA outlook is now expected to be 17% to 18% mainly due to the higher GE contract startup expenses, which were heaviest in the first quarter. We anticipate the adjusted EBITDA margin for the second half to meet or exceed the original 19%-plus level. Finally, let me update you on the progress of remediating our material weaknesses, and while I'm at it, I'll tell you a little bit more about an important change in our annual audit process. When we filed our Annual Report, we told you about three material deficiencies in our internal controls. They include deficiencies in the design of controls over the completeness and accuracy of information produced by the entity and used by control owners, so-called IPE, general information technology controls over access rights within certain financial reporting and accounting applications, and a deficiency in controls over management review of established pricing and contract terms to support recorded revenue and accounts receivable for some of our revenue categories. These general deficiency categories, with an aggregate result of a number of individual-specific control findings. We have addressed many of these individual underlying items by redesigning and implementing new procedures and policies, and adding specific steps to our existing process. We have made many of the necessary corrections and are working to complete the remainder. In addition, we still need to validate that the new activities are operating as intended, which is a testing and review process that we will be performing in the coming weeks and months. Given our current progress, we continue to anticipate that the material weaknesses will be completely mitigated by December 31 of this year. The update to our annual audit process I want to tell you about is the recently announced appointment of Deloitte as our independent registered public accountant for the 2023 annual audit. Deloitte has been completely engaged, and we are working to complete the second-quarter review process before we file the second-quarter 10-Q next week. Next up, is our President and Chief Operating Officer, Carrie Lachance, who will provide some additional color on developments in biomedical services and our wound care business.

Thanks, Barry, and good morning, everyone. I'd like to provide more details on the rollout under the current MSA with GE, and update the status of the JV with Sanara. During the second quarter, we accelerated the pace of onboarding and increased the number of devices generating revenue under the MSA to nearly $170,000. As a reminder, we recognize an initial fee when each pump is onboarded, and then a monthly maintenance fee that will continue for the life of the contract. We currently estimate that the initial phase of the MSA will involve approximately 230,000 devices, and that the initial onboarding process will be substantially completed by the end of the first quarter, in 2024, as Rich mentioned. A key part of the GE rollout involves building a national network of biomed technicians that will perform ongoing maintenance and complement our mobile strike teams. The strike teams are responsible for the onboarding process as well as the annual return to each facility to perform required preventative maintenance. While we are still very much focused on delivering white-glove levels of service under the initial phase of the MSA, GE has made clear its own intention to leverage InfuSystem's rapidly scaling capabilities. This may include adding different types of devices such as ETCO2s and sequential compression devices, and adding additional services that our teams can perform within the hospitals. A good example of this is the RPID inventory project that we have already started. As the national network is built out, both that network and our strike teams can and will be leveraged to perform biomedical services for manufacturers and facilities outside of the work we are doing for GE. Again, we believe it's strategic to defer such opportunities into next year so as to focus on delivering superior services under the GE MSA, and building our reputation for quality that will benefit our future business initiatives. Turning to wound care, we had another strong quarter of negative pressure device placements. This was partly the result of the backlog that developed due to the supply chain issues experienced by our supplier, Cork Medical, at the end of last year. Cork has resolved all issues, and we are currently receiving delivery of devices as expected. However, I'll take this opportunity to remind everyone that we added as second negative pressure device supplier, Genadyne, in the first quarter. The vast majority of pumps we have been placing have been going into long-term care facilities. This is strategic as it allows us to distribute Sanara's advanced wound care products into these same facilities. With regard to that, I'm happy to report we are making steady progress with our revenue cycle team taking the lead in establishing the processes and connections necessary to successfully implement third-party payer billing. We are on schedule, and expect testing and other selling efforts to begin before the end of this year. At this point, I would like to turn the call back over to Rich.

Thanks, Carrie. As we sit today, a little over halfway through 2023, we are in a very good place. The GE rollout continues to ramp, and is expected to help drive strong revenue growth for the rest of this year, and into 2024. Our relationship with GE is excellent, and there are regular discussions on how to expand beyond the scope of the initial MSA. We expect to be aggressive next year, identifying the best opportunities to leverage the national service network we are building, and this will involve opportunities both inside and outside of GE. As I said, Sanara should start materially contributing before the end of 2024, as our other businesses continue making steady progress. Oncology has been a great contributor this year, and paying continues to ramp as we target strategically important surgery. Equipment sales, rentals, and consumables are holding their own, and are ready to make bigger contributions if and when opportunities emerge in acute care. We are now ready to begin the Q&A portion of the call.

We will now begin the question-and-answer session. Our first question comes from Brooks O'Neil of Lake Street Capital Markets. Go ahead.

Hi, good morning everyone. This is Aaron Wukmir on the line for Brooks, so just a couple of questions here. You guys mentioned, in the long-term care facilities, those opportunities in the wound care area. I'm wondering if you could just provide a little more color on that. Do you see any opportunities in the home as well or are you mainly just focusing on those long-term care facilities?

So, it's a little bit of both. When a patient gets discharged from the hospital and they go down steps, whether it's a skilled nursing facility or a long-term care facility, they need their wounds treated. So, a lot of the care is done at that facility. But when they go home as well if they need continued care, we can place the Sanara products there as well.

Thank you for that. Just to follow up on Sanara, are you expecting a revenue increase in 2024? Do you have any specific guidance regarding whether this will occur in the first half or the second half?

Nothing yet. As we build on our budget for the year, we'll start to roll that in. But the team is already out there building the pipeline, so we'll see some revenue probably early in the year, but it should really kick in second half, towards the end. But we don't have anything specific yet; we haven't built that out for 2024 just yet.

Okay, very helpful. Congrats, guys, on the results.

Thanks, Aaron.

Our next question comes from Alex Nowak of Craig-Hallum Capital Group. Go ahead.

Okay, great. Good morning, everyone. Rich, I was wondering how much of the strength we're seeing in Q1 and now in Q2 is due to a favorable environment and the staffing returning to normal. This situation is enabling InfuSystem to go out and secure these deals and ramp them up.

Yes, I guess on the nursing side and hospitals, it's definitely not back to normal, and I don't know if it ever will get to where it was. But it's really not having an impact on us anymore. In our core businesses, we're very much viewed as a partner, so the access even during COVID wasn't terrible. With the new businesses, I wouldn't say it's back to normal, but it's good enough to get the access we need to go place products, and talk to customers, and in-service them, and that sort of thing. But there's definitely a national nursing shortage in acute care sites, for sure, but in general, not really a concern for us anymore.

Okay, that's great to hear. As the business ramps here, is it still fair to assume that you've made all of the investments that you needed to do so far, and we're going to start to see some leverage, whether it be in the second half of this year or into 2024?

With GE, in general, we're observing a tapering off in the cost of hiring people and improving training efficiency. It will likely take some time until we're fully onboarded and can refine our efforts to where we want to be on that contract. However, there are other investments being made for different opportunities, and we will continue to invest in business growth. Overall, we expect to move past our current initiatives fairly quickly.

Yes, and just to add to that, Alex, in the wound care and pain side, the big investments were the team, the sales teams, and those investments are already in, so we can grow those businesses a fair amount over the next couple of years without adding to that cost because then the team is in place that we need for quite a bit.

Okay, got it, makes sense. And I appreciate the update on GE. What other biomed deals are out there being discussed in the background? Is there a handful of GE-like names that would make sense to ultimately partner with InfuSystem to help with your devices out there in the market?

We are taking on some smaller hospital partnerships outside of GE when we have the time and our technicians have gaps in their schedules. However, we are primarily focusing on GE this year to ensure we are stable going into 2024. Looking ahead, we anticipate individual hospital deals where hospitals need our assistance. We also expect to collaborate with manufacturers. There are a few companies that, while not as well-known as GE, could be potential partners. Although nothing is imminent, once we establish our presence and logistics capabilities, we can consider partnerships with any of these entities.

Got it. One more question, and then I want to get the guidance quickly. Sanara is building a unique wound portfolio. How important is InfuSystem to that setup? Is Sanara considering multiple vendors that could offer similar services as InfuSystem, or are you really the sole provider that can deliver those services?

Yes, we are definitely the sole source, which is why we chose the joint venture approach. This integration means we have less incentive to seek out products from other suppliers. The same applies to them in terms of bringing on another company for revenue cycles, clinical logistics, and biomedical needs. The joint venture effectively binds us together, which is exactly what we both wanted when we entered into this agreement.

Okay, that's good. And then on the guidance front, and obviously, we're not getting a new range here, but in the past, we've had guidance issued and we've maybe fallen a little bit short of it or have just met it. So, as you're looking about growing above the range, is it a meaningful amount above the range versus setting a new range? And what sort of, I guess, cushion did you leave yourself if a couple of items didn't pan out in the second half that will get above the range?

Meaningful is a subjective term. We're targeting 10%, and you can already see that in the numbers. There are always risks to our business, as we've experienced over the past few years with supplier issues and other factors beyond our control that can affect deals. Given our size, a difference of $1 million or $2 million really matters. We wanted to create some cushion for ourselves. Achieving 20% growth this year is not a possibility, but can we exceed 10%? Absolutely. The extent to which we exceed it will depend on various factors. We hope that when we announce Q3 in early November, we'll have a clearer picture and be able to refine the range for you, especially with only six to eight weeks left in the year. You're correct that the past couple of years have shown us the unpredictability of the market, and we aim to be conservative so we can at least meet our target and ideally surpass it.

Absolutely. Well, congrats on the good results, keep up the work, and thanks for the update.

Thanks, Alex.

Our next question comes from Jim Sidoti of Sidoti & Company. Go ahead.

Hi, good morning, and thanks for taking the questions. I think I heard Barry say that equipment sales for the negative pressure pump were $1.3 million in the quarter. Were there other, what you would consider maybe, one-time sales in the quarter beyond that?

No, nothing particularly unusual stood out. Our regular equipment sales performed well this quarter, remaining within our typical range for future quarters. Regarding the negative pressure equipment, as Carrie noted, we are addressing a backlog. This doesn't mean that our backlog will diminish completely moving forward; we still have additional units to fulfill. The numbers could vary significantly.

Okay. So, other than that $1.3 million, it was a pretty, you would say, sustainable quarter in terms of revenue?

I agree, yes.

Okay. You've been managing a lot of supply chain issues in the past, especially with the pumps. Are there any current concerns, or do you believe you have sufficient dual sourcing for most of your equipment?

I think, from a supply chain standpoint, we're in good shape, certainly a lot better than we have been in the last couple of years. Jim, you're dead on, on the negative pressure side we ran into the single-source issue at the end of last year, and that was solved with the Genadyne agreement this year. So, we're in a pretty stable position. That being said, we don't know what phone call we're going to get tomorrow, next week, or at the end of the year. But right now we're in a very good position.

I want to clarify regarding the ramp-up for Sanara. Do you already have the team ready to manage that, or will you need to hire additional staff as revenue begins to come in?

Yes, on the sales side, we're in a good position. The team is established and can generate millions in orders before we need to hire more staff. We will need to add some backend support, such as customer service and revenue cycle teams, but we will fill those roles as the business grows. The major investments in the sales team are already in place and we have ample time before we need to expand that team.

Okay. All right, that was it for me. Thank you.

Thanks, Jim.

This concludes our question-and-answer session. I would like to now turn the conference back over to Richard DiIorio for any closing remarks.

I want to thank everyone for participating in today's call. And we look forward to our call in the fall to discuss our third-quarter results. I hope everyone has a great day. Thank you.

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