Good day, and welcome to the InfuSystem Holdings, Inc. Second Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like 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 second quarter 2024 financial results ended June 30, 2024. With us today on the call are Rich Dilorio, 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 and 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, 2023. Forward-looking statements speak only as of the date the times were made. The company can give no assurance except forward-looking statements 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 Dilorio, Chief Executive Officer of InfuSystem. Rich?

Thank you, Joe, and good morning, everyone. Welcome to InfuSystem's second quarter 2024 earnings call. Thank you all for joining us today. I'll get things started this morning with an overview of the recently completed quarter. Barry will go into detail on our second quarter financial results, and then Carrie and I will shift the focus forward, talking about key developments in the business and how the second half is shaping up. You can see in our second quarter results the growing momentum in our business, with the quarter being the first quarter ever above $33 million, and at $33.7 million, it came in well above that new mark. Sequentially, revenue was up 5.3% over the first quarter and 6.2% versus Q2 2023. As expected, adjusted EBITDA margin improved significantly over the first quarter, coming in at 18%. And as Carrie and I will discuss in a few minutes, our business is strong, and the momentum is building. In addition to the ongoing projects we had at the start of the year, we've got some new exciting initiatives in both our Device Solutions and Patient Services businesses to discuss. But before we get to that, Barry will walk us through the detail on the second quarter results. Barry, over to you.

Thank you, Rich, and thank you everyone on the call for joining us today. I'm going to focus on three topics, including the main drivers of the current quarter's results, our current financial position and how it changed during the quarter, and finally, I'll give you an update on our planned upgrade of our information systems. Now let me start with our financial results for the period. During the second quarter of 2024, our net revenue totaled $33.7 million. This was another all-time record and represented 5% sequential growth and an increase of 6% over the prior year. The year-over-year growth rate overcame a difficult comparison that included a surge in negative pressure equipment leases in the prior year. Taking those leases out of both periods, the growth rate was over 10% for the rest of the business, which saw growth in almost every other business line. Our Oncology segment revenue increased by $1.5 million, or 9%, due to both higher treatment volumes and strong per billing cash collection results. Biomedical Services revenue increased by over $0.5 million or almost 14% now that the large GE contract has reached full run rate. The equipment rental and disposable medical supplies categories increased in total by over $800,000, or almost 13%, mainly due to a new large customer that we signed up for a three-year agreement. The Pain Management and newer Wound Care business each grew by over $300,000, the latter of which grew at a rate of almost 190%. Partially offsetting some of these was a decrease in equipment sales, which was $300,000 lower, mainly due to the normal timing cadence for large orders. As implied in our 2024 full year guidance, we anticipate continued sequential improvements in nearly every category, with Wound Care, Biomedical Services, and Pain Management leading the way. Gross profit for the second quarter of 2024 was $16.7 million, which was $800,000, or 5% higher than the prior year second quarter. This amount includes an adjustment made to correct an immaterial error in our travel accrual totaling $600,000. Taking out this amount, our gross margin percentage, which was 49.5%, would have been 51.1%, representing a small improvement over the prior year second quarter rate of 49.9%. This improvement was driven mainly by a favorable revenue mix, favoring higher margin revenues such as Oncology and Rentals. Selling, general and administrative expenses for the second quarter of 2024 totaled $14.8 million, representing a slight increase, just over $200,000 as compared to the prior year. However, the amount represented a significant decrease of over $2.5 million from this year's first quarter when SG&A was $17.3 million. You will recall that during the first quarter, we had some non-recurring expenses totaling $1.2 million. Adjusted EBITDA during the 2024 second quarter was $6.1 million, or 18% of net revenue, which represented an increase of over $300,000 from the prior year's second quarter. The amount was also much higher than this year's first quarter amount of $3.9 million. Turning now to make a few points on our financial position and capital reserves. Our operating cash flow for the second quarter totals $2.3 million. This amount was slightly below the prior year's second quarter amount, but increased by almost $2 million sequentially from this year's first quarter amount of almost $400,000. This increase was due to a slower amount of growth in our working capital levels, which reflected slower sequential revenue increases over the immediately prior quarterly periods. As we stated in our last quarterly call and planned for, our net capital expenditures increased to $6.7 million during the 2024 second quarter, which was higher than the $400,000 we spent during this year's first quarter and about $4 million higher than the second quarter of 2023. The increase during the current period was focused on new equipment needed to support a large new rental customer, increased volume in Oncology and Pain Management, and new Negative Pressure Wound Therapy devices related to the Wound Care business. All these investments are expected to continue contributing to our top and bottom line results in the second half of 2024. We continue to anticipate that our overall capital spending requirements will moderate as compared to amounts in prior years, as the sources of our future revenue growth will continue to be weighted towards less capital intensive revenue sources such as Biomedical Services and from initiatives we have been pursuing to increase pump utilization, including reducing the number of lost pumps. We continue to be positioned well to fund continued net revenue growth with the growing cash flow from operations backed by significant liquidity reserves available from our revolving line of credit and manageable leverage and debt service requirements. Our net debt increased by just under $4 million to $34 million during the 2024 second quarter. Our available liquidity continued to be strong and totaled $40.3 million at the end of the quarter. Our ratio of total debt-to-adjusted EBITDA was a modest 1.5 times at the end of the quarter. Our debt consists of borrowings on our revolving line of credit with no term payment requirements, nearly four years remaining term, and with $20 million of the outstanding balance locked in at below market interest rates by an interest rate swap having the same expiration. Finally, let me update our plans to invest in our information technology and business applications. Our project to upgrade some of our core business applications is continuing in the early stages. As we have previously stated, this includes a full replacement of our main ERP application and other upgrades which will facilitate our continued growth and enhance our operating efficiency. The investment is also prompted by the approaching end of life for support on our current ERP application. The amount spent on the project during the second quarter was very modest. The total expected cost for the project is expected to be between $3 million and $4 million and will include software, subscription expenses, integration consultants fees, staff augmentation costs, absorption of internal direct staff time where staff augmentation is not deployed, and miscellaneous expenses. The project and related expenses will occur over an 18 month to 24 month period and the amount expected during the remainder of 2024 is less than $1 million. We have determined that we will not capitalize expenses related to this project and we will not be adding back the expenses incurred to arrive at our reported adjusted EBITDA results. I will now turn the call back over to Rich and Carrie.

Thanks, Barry. Carrie and I will walk through some of the key developments in the business highlighting some of the areas we are seeing increasing momentum that will drive future growth. Carrie will go first and cover the latest developments in our Device Solutions business unit. Carrie?

Thanks Rich. Our Device Solutions unit includes our legacy direct payer pump rental business, our equipment and consumable sales business, and our Biomedical Services business. Biomed has been one of our major growth initiatives since the signing of the master service agreement with GE in 2022. That was followed by the launch and ramping of our national network of Biomed technicians in 2023. We completed the initial GE rollout in the first quarter and now provide service to more than 200,000 devices. With respect to this work, our focus has shifted from the growth phase to the accretion phase as we pursue constant process and efficiency improvements to increase our net margins. We are in near constant dialogue with our partner on additional opportunities where GE can leverage our expertise and skills. We expect to pursue some of these opportunities and will likely have news to share on some of these initiatives on future calls. Away from GE in the second quarter, we started work on a substantial biomedical device remediation project for one of our largest device manufacturer partners. This involves primarily depot work that will continue through most of 2025 and add approximately $2 million of incremental revenue during that period. We are also working to finalize some new biomedical service agreements with other device manufacturers. One or more of these new partnerships should start in the second half of the year and will leverage the national network that the GE relationship allowed us to build. We are seeing strong interest in the marketplace for InfuSystem to offer a single point of contact for regional to national service coverage. Our large geographic footprint, combined with our strong technology integrations for enhanced reporting and coordination, gives us an edge that we expect will lead to significant new business and premium pricing. Back to you, Rich.

Thanks Carrie. I'll walk through the important developments in our Patient Services business unit of which includes Oncology, Pain Management, and Wound Care. Our original and largest business unit is Oncology, which is having another strong revenue growth year, up approximately 9% in the second quarter versus last year. The strong performance continues to be the result of both increased treatment volume and increased collections efforts from our revenue cycle team. Next is Pain Management. Revenue is up more than 29% in the second quarter versus the prior year, and we expect this to accelerate as we continue to onboard recent account wins. We believe InfuSystem is in a good position going into 2025 when CMS is planning to publish a new reimbursement code with the NOPAIN Act. We've consolidated our clear market leadership position for electronic pumps used for post-surgical pain control outside the hospital and stand ready to support physicians that will be increasingly incentivized to provide non-opioid alternatives for post-surgical pain management. Last, but definitely not least, is Wound Care. As Barry reported in his section, there is one area of the business where revenue has decreased significantly due to fewer placements of negative pressure pumps compared to last year when we benefited from facilities replacing their discontinued Cardinal devices. Although leases are down versus 2023, which was expected, we are seeing that revenue being replaced by our advanced Wound Care offering related to our joint venture with Sanara. First, we are seeing increasing momentum around our referral and product and supply business for Wound Care. This has become another area where our platform services approach is creating opportunities, particularly related to our extensive payer contracts and robust revenue cycle capabilities. Second, I am very excited to report progress on a new initiative with Sanara involving distribution of advanced Wound Care products through our long-established relationships in the Oncology market. The first of these products, which we launched last week, is Radiaderm. This is a skin care product line popular in Europe that is used by patients undergoing radiation treatments. Sanara licensed the products for exclusive distribution in the United States, and InfuSystem is providing that distribution as part of our Wound Care joint venture. It is worth stressing that Radiaderm is a product with general application; that is, it is not specific to the types of cancers that have historically been treated by InfuSystem's Oncology business. However, InfuSystem has exceptional access into almost all of the cancer centers in America and is therefore an ideal distribution partner for these cancer-related Wound Care products. Together with Sanara, we are very excited about the potential for this product, which could easily seize market opportunities growing into the millions of dollars within a few years. It's my expectation that Radiaderm is just the first product of this type that we will be adding that can help patients and cancer centers across the country. I'm looking forward to future similar announcements. Finally, in Wound Care, I'll highlight the recently announced agreement to provide clinic to home support for Smith+Nephew Negative Pressure Wound Therapy business. We'll be offering the RENASYS EDGE Negative Pressure Wound Therapy system. When Smith+Nephew approached us to assist them as a distribution partner, we were excited to leverage our revenue cycle and service capabilities to give patients increased access to their new RENASYS EDGE technology at home. We have recently begun executing under the new agreement with Smith+Nephew and have added their negative pressure devices to our device-agnostic platform of products. I'd like to emphasize the concept of being device-agnostic. We are positioned in the market as a services company. We are not looking to compete with entrenched device incumbents. In our original Oncology business, we have always carried a wide variety of devices and we're happy to work with physicians and hospitals to supply and build our services around whatever pumps they prefer. In the negative pressure space, we are again working with multiple manufacturers including Cork, Genadyne, and now Smith+Nephew. We have already begun executing under the new Smith+Nephew agreement. Our revenue cycle group is busy submitting for third-party payer billing and we will see contributions from this new partnership in the second half of this year. Before going to Q&A, I would like to comment on our guidance. We reiterate our guidance of high single-digit growth and high teens adjusted EBITDA percentage for the year. As Barry noted, we have studied the issue and decided it is best to not add back our investment in our ERP system, but we are still able to reiterate our guidance for high-teens adjusted EBITDA percentage for this year. While the first half delivered results below our year-end targets, we have been performing right on track with our internal models. Momentum is building in the business, both regarding the work we were pursuing at the beginning of the year and the new opportunities we have added since, including the biomedical pump remediation, the Smith+Nephew opportunity, additional growth in pain, and continued strength in our core rental and Oncology businesses. We are confident that our second half will reflect this growing momentum. We expect the third and fourth quarters to come in above the full year targets, bringing us in line with the annual guidance.

We will now begin the question and answer session. Our first question comes from Brooks O'Neil with Lake Street Capital Markets. Please go ahead.

Thank you very much. Good morning, everybody. I appreciate all the commentary, and I applaud the decision to not add back the ERP investment. I think that makes a lot of sense. So I have a couple of questions. First, I'm curious. Obviously, you highlighted the significant leasing activity in Negative Pressure Wound Therapy devices last year, and now you have a new agreement with Smith+Nephew. Can you just comment about whether those leases you put out last year are still functional in place, or whether you expect some replacement with the Smith+Nephew devices, or how are you thinking about negative pressure as a component of your wound treatment business going forward?

Yeah. Good morning, Brooks. Great question. So I look at it as two different pieces. So the leases last year were, I think, almost all the medical devices; those will stay in use until their useful life is over, which will be years. The Smith+Nephew agreement is separate from that; as opposed to just a lease, it's more of our referral business, our third-party payer business. So those will go home with a patient; we will bill monthly for every month that they're on the device. When they're done, we get the device back, and we put it on the next patient. So it's two separate pieces of the negative pressure. So we certainly have the leases out there that'll stay, and hopefully we continue to add more leases. And then we have the referral business, which is where Smith+Nephew comes in. So most of our leases are Cork today. It doesn't mean someone won't lease a Smith+Nephew device, but right now it's really about the referrals with that agreement.

Okay, cool. Let me just shift to the biomedical business. I think you alluded to the opportunity with a number of new customers. I'm excited about that. I don't know if you can provide any additional color. And can you just reinforce the idea that the GM business and relationship remains strong and there's probably hopefully some opportunity there as well.

Yeah, I think by our next earnings call in the fall, we'll have a couple of things. Hopefully, we'll have a new GE component to that agreement. They have approached us about some other types of devices and other programs that they could use help with. We're reviewing some of those, and we will be able to talk about those in a couple months. There are definitely some new partnerships outside of GE. A couple of them, we're close to signing the agreements where they're just not here yet; there's not ink on paper, but as soon as we get those, we'll let everybody know about it. But the GE relationship is fine. They continue to look for other things where we can help them. And then as we've discussed for about a year and a half now, that the kind of initial MSA and statement of work is kind of up and running with a couple hundred thousand devices; now we can start looking at other opportunities outside of GE, and there's no shortage of those. It just depends on which ones we want to take on and when, and to what order of magnitude. Including the pump remediation that Carrie mentioned earlier, that'll be a couple million dollars over the next year and a half or so. Those are the types of things we wouldn't have wanted to do a year and a half ago, but now we have the capacity to go do those. So there is no shortage of biomed opportunities in GE and outside of GE.

Let me ask one more question. A couple of months ago, I had a chance to meet with the Sanara medical team in Dallas. I was very impressed with them, and I believe they share your enthusiasm about the partnership. That's great to hear. Can you comment on how things are progressing? Do you still anticipate that the most significant growth for that business and joint venture will occur in 2025, or what is your current perspective on this?

I completely agree. Working with them has been fantastic, and they are excellent partners. I believe our partnership will yield results in three key areas. Firstly, we are already collaborating on Advanced Wound Care products, incorporating their offerings alongside our own. They are also focusing on a value-based care model that is a couple of years away from generating significant revenue but has the potential for substantial growth in the future. Lastly, as I mentioned earlier, there's the Radiaderm product. They have additional products that enhance skin protection and soothe skin during radiation therapy, along with others in their pipeline. I foresee revenue coming in from these various products at different stages. We will definitely see some revenue this year from existing products, with expectations for significant growth next year, and value-based care revenue will likely materialize later due to the larger market shift it entails. All three areas are integral to our partnership, which has been incredibly positive, with no issues at all; they have been outstanding partners.

Great. Thanks for taking my questions and congratulations. Keep up all the hard work.

Thanks, Brooks.

And the next question comes from Matt Hewitt with Craig-Hallum Capital Group. Please go ahead.

Good morning, and thank you for taking the questions. Maybe first up, regarding the NOPAIN Act, could you walk us through a little bit on what your expectations are once that goes live? I believe it's January 1. Will that be a driver to your revenues? Is there a gross margin impact? Just kind of walk us through your expectations once that goes live.

Good morning, Matt. Yes, we expect it to be a revenue driver. One challenge with non-opioid alternatives, including those from InfuSystem, is that it requires more effort to deliver the device and send it out with the patient compared to simply writing a prescription for oxycodone. We anticipate decent reimbursement for physicians, not for InfuSystem or other device manufacturers or providers, but specifically for doctors and clinics who spend time and resources doing something different from just writing that prescription. There’s a general consensus in the market, including among most physicians, that non-opioid alternatives are preferable. With the introduction of reimbursement, we believe this will encourage a shift among physicians. This means more customers for us. Currently, the number of patients using such devices to manage their pain is relatively low, but we expect that to increase, allowing us and others in the market to gain share. Ultimately, this will lead to more customers, greater market share, and increased revenue for InfuSystem.

Got it. And then maybe a separate question here regarding the share repurchase authorization that you announced back in May; were there any shares repurchased during the quarter? How should we be thinking about that? Thank you.

Yep, we did buy back some shares. Oh, good, Barry, you can take it.

Yeah, we bought back a small amount of shares, about 40,000 or a little over $200,000 that we spent on that.

Got it. Thank you very much.

Thanks, Matt.

Our next question comes from Jim Sidoti with Sidoti & Company. Please proceed.

Hi. Good morning. Thanks for taking the questions. So I just want to be clear on the negative pressure business; the Cork pumps or the Cork devices, those are primarily long-term care facilities, whereas the new Smith+Nephew devices, those will be used in the home. Is that the right way to think about it?

So I would think about. There's a couple of ways to look at it, Jim. So the Cork devices, the Genadyne devices, and Smith+Nephew can all go into the patient's home as a referral device. So the doctor says John Smith has to go home for his negative pressure and get treated at home; we can fill that order with any three of those devices, depending on what the doctor wants. As far as what has historically happened with Cork, those are leases that still end up in the patient's home, or they could end up at a long-term care facility or skilled nursing facility, that sort of thing. So, whether they actually go home or not, if we can bill for the third party payer referral, we want to be device agnostic. We want the clinic to be able to decide which device they want, right; which bells and whistles they like, ease of use, what they're comfortable with, those sorts of things. So now we just added another option with Smith+Nephew. They came to us because they had some patients that they knew had to be treated, and they didn't have a partner that had the payer contracts to be able to treat that patient and get reimbursed for it. With our 800-plus contracts, we can fill that void for them pretty quick; and that's why we're already billing for patients as of, I think, in July.

All right. And then in terms of purchasing the medical equipment that shot up in the quarter, up over $7 million. What was that for, and how do you expect that to trend going forward?

I believe it will return to a more reasonable level. The first quarter was artificially low due to timing. In the second quarter, we had a significant customer on the rental side of the business that required devices, which contributed to the growth in pain management, as well as some growth in negative pressure and oncology. This made for an unusual quarter but helped to balance out Q1 somewhat. We do not anticipate sustaining that growth rate moving forward. However, the good news is that when we invest that money, revenue tends to follow, and historically, that has been the case.

Okay. And so that was spread over your three different businesses, the Oncology, the pain, and the negative pressure.

Yeah. I would even add our rental business on the device solution side. They signed up a huge rental customer. I think almost a couple million of that was just one customer.

Okay. All right. Thank you.

Thanks, Jim.

This concludes our question and answer session. I would like to turn the conference back over to Rich Dilorio for any closing remarks.

Thank you. And I want to thank everyone for participating in today's call. We look forward to our third quarter call when we will update on our results and progress. Have a great day.

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