Good day, and welcome to the InfuSystem Holdings, Inc. Second Quarter Fiscal Year 2025 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Joe Dormane of Lytham Partners. Please go ahead.

Good morning, and thank you for joining us today to review InfuSystem's Second Quarter 2025 Financial Results ended June 30, 2025. With us today on the call are Carrie Lachance, Chief Executive Officer; and Barry Steele, Chief Financial 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, 2024. 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 Carrie Lachance, Chief Executive Officer of InfuSystem. Carrie?

Thank you, Joe, and good morning, everyone. Welcome to InfuSystem's Second Quarter Fiscal Year 2025 Earnings Call. Thank you for joining us today. I will provide a second quarter overview, highlighting key successes, addressing notable challenges and outlining our strategic priorities for the balance of the year and beyond. Then Barry will provide a detailed summary of our financial results. I will then come back with some closing comments before opening the line to questions. We are pleased to report another strong quarter of financial performance, marked by meaningful margin expansion, robust cash flow and enhanced profitability. In Q2, revenue grew 7% to $36 million and gross margins expanded by 574 basis points to reach 55.2%. This resulted in a 32% year-over-year increase in adjusted EBITDA to $8 million with EBITDA margin improving by 427 basis points to 22.3%. Net income increased by 262% and cash flows from operations more than doubled both for the quarter and year-to-date. These results reflect our team's disciplined execution and ongoing commitment to process improvement across our organization. In addition to operational performance, we returned approximately $3.5 million to shareholders through stock repurchases during the quarter, bringing the total shareholder return to $6.4 million for the first half of the year. We have demonstrated a significant improvement in year-over-year operating cash flow paired with a significant reduction in capital expenditures. This is in line with the expectations and trends we have discussed with you. For the first 6 months of 2025, operating cash flow was $8.7 million, an increase of $6 million over the prior year and net capital expenditures for 2025 were only $2.9 million, a decrease of $4.2 million over the first 6 months of 2024. We expect this strong cash flow to continue for the rest of the year. In a moment, Barry will share some additional details surrounding this. We use this cash flow surplus for a few different important initiatives aligned with our capital allocation strategy and priorities. These initiatives include buying back common stock under our share buyback program, acquiring a small company that facilitates our strategy to grow and improve efficiencies in Advanced Wound Care, and payments to reduce outstanding revolving line of credit borrowings. Our positive outlook for additional strong operating cash flow for the back half of the year of 2025 positions us to make similar investments. Now I'd like to touch on some underlying positives for the quarter. First, the relationship with Smith & Nephew is progressing as expected, and we believe we have an opportunity to beat our 2025 forecast. This business has lower margin but is asset-light because we rent the devices from Smith & Nephew. Revenue for the program was $1.6 million during the first half of 2025, $946,000 for Q2. So it's still a small part of our total business, but it shows promise for sustained growth with minimal upfront capital requirements. Second, investments made in 2024 for devices in the Device Solutions direct rental business are paying off. Last year, we bought $5.2 million in devices for that business that have led to $3.5 million in increased revenue annually. The rental business has one of the highest operating cash margins in our project portfolio. Third, oncology continues to be a solid contributor to steady and sustainable growth in both revenue, profits, and cash flows. And as such, we have increased our outlook for that business. Finally, we are successfully managing spending in order to maintain or expand margins. Turning to our outlook this morning, we are updating our 2025 revenue growth outlook to a range of 6% to 8% from the previous range of 8% to 10%. There are a number of reasons driving the update. However, before I expand upon those, I'd like to share a few positive financial updates. Despite the slightly lower revenue guide, we are increasing our outlook for full year adjusted EBITDA and consequently raising our range of adjusted EBITDA margin by approximately 120 basis points to 20% or higher. This adjusted EBITDA outlook continues to include expenses we are currently investing to implement new business applications, our ERP, totaling approximately $2.5 million in 2025. This program, along with most of the related spending, is expected to be completed at the end of the first quarter of 2026. In essence, the project will impact our adjusted EBITDA margin by nearly 200 basis points in 2025, but will swing to a margin tailwind as savings from the project start to pay off the investment in 2026 and beyond. There are 3 key drivers to the lower 2025 revenue outlook. First, we are delaying the rollout of additional increases in Advanced Wound Care volumes to later in the year, which allows time for important processing improvements that are needed to make this a profitable business. This opportunity continues to be very exciting for InfuSystem due to our wide breadth of payer contracts. However, while there appears to be plenty of volume within our reach, offering respectable gross margins, our current billing processes and systems lack the level of productivity needed to make the economics viable. To date, wound care billings on average have been smaller and are more complicated than our other TPP revenues such as oncology. We don't think it's prudent to sacrifice our overall company margins and profitability until we solve this issue. Fortunately, we have the solution. During the second quarter, we bought a small company that provides the opportunity to achieve increased productivity through its improved processing tools. Not only do they offer increased efficiency, but they also offer automation, connectivity to machine learning, and eliminate multiple processing steps for our teams to continue the trend of becoming a more efficient and scalable company. If it works as we anticipate, it opens a significantly attractive opportunity in the large market, and it provides opportunity to lower the current processing cost of our other TPP businesses. Second, we are taking out the 2025 revenue we had in the forecast for ChemoMouthpiece until we have better visibility. We've received notice from ChemoMouthpiece regarding changes to the previously recommended CPT reimbursement code for their product. That said, as we navigate this change in the moment, we are extremely optimistic as ChemoMouthpiece has submitted an application for new coding that could provide coverage for the product under a patient's DME benefit. This would be an exciting one for patients and providers as in this case, InfuSystem would provide the product at no cost to clinics, similar to other products currently provided under our patient services platform. This makes our contribution to the rollout of this new product even more vital, and we are working closely with the ChemoMouthpiece team through this change. We continue to see great potential and interest in the product, and we'll keep everyone informed as ChemoMouthpiece updates us on the reimbursement landscape. Our investment in this process is minimal, and we've not made any significant contributions to the program to date, which means there is no capital at risk. Finally, we are working to restructure our biomedical services relationship with GE Healthcare. The current business has not met our margin expectations, and we are working closely with GE Healthcare to make adjustments in both price and service level to address this issue. This could result in lower revenue; however, that revenue will deliver increased profitability, which has been below acceptable levels to date. Now I'll turn it over to Barry for a detailed review of the second quarter financial results. Barry?

Thank you, Carrie, and thank you, everyone, on the call for joining us today. I'm going to focus on the main drivers for the current quarter's results, and I'll update you on our current financial position and how it changed during the quarter. Now let me start with our financial results for the period. During the second quarter of 2025, our net revenue totaled $36 million. This was a record and represented a $2.3 million or 6.8% increase from the prior year second quarter. The improvement was supported by growth in both of our operating segments with the increase in patient services totaling $1.2 million or 6.5%, slightly edging out growth from Device Solutions, which increased by $1 million or 8.3%. Higher net revenue for the Patient Services segment included increased patient treatment volumes in oncology and Wound Care, offset partially by lower amounts in Pain Management. Oncology net revenue increased by more than $800,000 or 4.5%, whereas Wound Care revenue totaling $1.3 million was up by 117% and was mainly driven by volume increases in negative pressure wound therapy treatments related to the Smith & Nephew partnership. Pain Management decreased by approximately $300,000, mainly due to the timing of shipments to large customers. The growth in Device Solutions was equally attributable to higher rental revenues coming from new customers and increased equipment sales. Biomedical services revenue was flat year-over-year but included increased on-site project revenue and depot-based repair services, which offset a reduction in the number of devices on contract with GE Healthcare. Gross profit for the second quarter of 2025 was $19.9 million, which was also a quarterly record and a $3.2 million or 19% increase over the prior year second quarter. Our gross margin percentage was 55.2%, representing a 5.7% improvement over the prior year second quarter amount of 49.5%. This improvement was mainly driven by better revenue mix favoring higher margin revenue and lower pump disposal expenses. The increase also was the result of a one-time $600,000 unfavorable adjustments made in 2024 to correct an immaterial error in our travel accrual. The improved product mix included higher oncology revenues, increased Device Solutions rental revenues, and higher sales of used equipment. Selling, general and administrative expenses for the second quarter of 2025 totaled $16.1 million and was $1.3 million or 8.7% higher than the prior year second quarter amount. About half of this increase was attributable to $632,000 in expenses associated with our business application upgrade project. Other increases were related to additional headcount and revenue cycle personnel needed to support the higher revenue volume and a higher accrual for short-term incentive compensation. Partially offsetting these increases was lower stock compensation costs, mainly due to forfeitures from our outgoing CEO. Adjusted EBITDA during the 2025 second quarter was $8 million or a margin of 22.3% of net revenue, which represented an increase of $2 million or 32% and a margin expansion of 4.3%, up from 18% in the prior year second quarter. It's worth noting that on a trailing 12-month basis, adjusted EBITDA totaled $29.4 million, representing a margin of 21.2%. This clearly demonstrates that our emphasis on operational efficiencies is translating into measurable performance gains. Now a few points on our financial position and capital reserves. Our operating cash flow during the second quarter totaled $7 million. This amount was $4.7 million higher than the amount for the prior year second quarter. This increase was due to the higher adjusted EBITDA, a smaller increase in our working capital levels and lower interest expense as compared to the prior year. Our net capital expenditures were $273,000 during the 2025 second quarter, which was a significant decrease from the prior year amount of $6.7 million. The amount during the prior period was focused on infusion pumps needed to support increased volume in the Device Solutions rental business, which is now paying off as we can see from the increased gross margin previously mentioned. 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 more weighted towards less capital-intensive revenue sources. In fact, a significant amount of our expected growth during the remainder of 2025 comes from non-capital-intensive business lines. 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 decreased by $2.3 million during the second quarter. We were able to do this despite purchasing $3.5 million of our common stock during the quarter and funding the acquisition of Apollo for $1.4 million. Our available liquidity continues to be strong and totaled more than $49 million as of June 30, 2025. At that time, our ratio of net debt to adjusted EBITDA was a modest 0.86x. Our debt consists of borrowings on our revolving line of credit with no term payment requirements. A few weeks ago, we amended our credit agreement, extending the facility for 2 additional years. The facility now expires in July 2030. We continue to benefit from outstanding interest rate swap, which fixes our interest rate on $20 million of our outstanding borrowings at a below market rate of 3.8% until April 2028. I will now turn the call back over to Carrie.

Thanks, Barry. I want to emphasize the strength of our business, built on nearly 4 decades of operational excellence. At InfuSystem, one mission guides us, helping patients live longer and healthier lives. We maintain more than 800 national payer contracts covering 96% of the U.S. population and hold key strategic partnerships with leading medical device companies. We help to solve many complex problems that face our partners and health care providers in facilitating continuity and quality of care for their patients. As we reflect on how we performed in the second quarter and how we are planning for the near future, we would like to share what we see as the key drivers necessary to deliver shareholder value. First, we must focus on growing profitable revenue. This may include a willingness to restructure or even exit an underperforming business when necessary. We will delay launching new products until they are proven and ready for launch. We will prioritize internal value creation initiatives equally to new revenue opportunities. Some examples of this include our new ERP, productivity improvement initiatives we have in place for several of our teams and several cost-saving projects we have in progress that are paying off as demonstrated by our growing margins and cash flow. And finally, we will pursue new opportunities and partnerships that complement our core strength and align with a disciplined strategic investment approach. We have phenomenal opportunities at our fingertips and a clear understanding of the value of our capital allocation decisions. We remain focused on areas that offer accelerated growth, a sustainable future and a quick return on investment that will drive value creation. We are evaluating business opportunities based on their potential contribution to return on invested capital. This requires us to consider our relevant competitive strength, upfront requirements for development, capital investment, timing of cash flow, and sustainability. Lastly, our strategic priorities entering the second half of the year are clear: execute with discipline, deliver profitable growth and drive long-term value creation for our shareholders. Operator, we are ready for the Q&A portion of the call.

The first question comes from the line of Kyle Browser, ROTH Capital Partners.

Glad to see the margin expectations bumping up here. Maybe I'll start with oncology. Obviously, been a very nice cash flow on that business. Is mid-single-digit growth going forward, do you think, a reasonable expectation for this business? I know last quarter, there was slightly above that, just given the increased volume. Just want to get a sense of how we look at that business going forward.

I do. I think mid-single digits makes sense for us. We have been seeing some subtle increases in volumes, which are certainly hopeful, but I think mid-single makes sense for us.

Okay. Got it. And on the GE contract, any more color you can provide? How large is that contract? I guess, part of the Device Solutions side of the business? Or what sort of change do you envision? I know you mentioned, Care, that you're going to prioritize margins going forward, but just kind of want to get a sense of the impact on the top line.

Yes. It's about a $7 million to $8 million business currently on an annual basis where it's kind of adjusted out after some devices were taken off contract over the last couple of quarters. With the lower margins and just some of the higher costs that we've seen over time, the margins are not where we would like them to be. So we're working with GE directly to make some changes that hopefully will help us find a way to create value for them while also bringing some margin that we need for ourselves.

Okay. That's helpful. And then on the acquisition of Apollo, I think you said for $1.4 million. that will, of course, help drive more efficient collections. Is that specifically just for the wound care business? Or are there economies of scale for the broader platform?

Yes. I would say that for the broader platform, we will begin with wound care specifically because the back-end processes are a bit more complex than those in oncology. However, once that is stabilized, we are eager to transition it to our oncology platform as well. It's an impressive system.

Great. Got it. And then I guess just one last. The ERP system, how is that progressing? And what can we expect in future expenses and kind of the updated timeline there?

Yes, it's going very well. We're currently in the blueprint stage. We will begin inputting data into the system and start extensive testing in the latter half of this year as we move forward. In the last quarter, we invested $632,000 in the project. The costs are expected to remain around $0.5 million, possibly a bit higher as we proceed. However, we anticipate the project will be completed and live by the first quarter of 2026. Consequently, the estimated annual spending of $2.5 million will cease after the first quarter, with the expectation that it will begin to generate returns. In other words, we aim to achieve enhanced systems, increased productivity, and other advantages. Therefore, it will not only stop negatively impacting our margin but will start positively contributing to it afterward.

The next question comes from Matt Hewitt, Craig-Hallum.

This is Tollef on for Matt Hewitt. Congrats on a great quarter. So with the expanding margins, what levers are you planning to utilize? And how should we think about that going forward?

Yes. So we certainly have seen improved margins. If you look at sort of on a trailing 12 basis over the last few quarters, both our gross margin and EBITDA margin have certainly moved in a positive trajectory. This is coming from the improved growth that we've had and just internally being efficient on our spending and increasing some productivity. So mix has helped us. So we bought a bunch of pumps last year for the rental business, and so that's contributed to the margin sort of mix, if you will. We wouldn't necessarily predict that we can continue to improve the margins indiscriminately into the future. But we do think that if you take away the current spend on ERP, we're well into the low 20s and should be able to continue sustaining that as we continue to grow on the top line into the future.

All right. All right. Great. And then can you provide any color on the ramp-up, specifically with your new estimates and the timeline of that ChemoMouthpiece?

Yes. So are we talking about ChemoMouthpiece specifically what the outlook is?

Yes.

Yes. I think that we've taken it completely out of our forecast and the forecast changes have some other things in it, obviously, as well. We've not put it back in at any stage, and we won't until we have better visibility on what we think the launch date will be and getting codes actually updated that we'll be able to sell the product through.

The next question comes from Jim Sidoti, Sidoti & Co.

So looking at this quarter, it's the best quarter that you've reported since COVID. So clearly, something has gone right, $3.4 million of income from ops and $7 million of operating cash. Were there any one-time things that drove these results?

Sorry.

Yes. I would say, no, Jim, nothing specific. I think this is just kind of the accumulation. We've been working on some operational improvements on the back end. That's been over time, and things are starting to pay off certainly from an improvement standpoint. So no one-time, Barry.

Yes. The only thing I would add is that if you look at the trailing 12 results since the early part of last year, every quarter has improved, leading to nice growth in our EBITDA and margins. So this is really a culmination of everything we've been doing over the last 18 months.

So do you think high single-digit operating margins or low double-digit operating margins, do you think that's sustainable over the next few quarters?

Yes, it's interesting. We always kind of focus on adjusted EBITDA. The reason being there's some things in the operating margin that are a little odd, like, for example, depreciation. When we buy pumps, we depreciate pumps very fast, even though they last a very long time. So you have to be cautious about how that impacts operating margins. And then the stock comp, when the stock is really strong, we see more expense and that's noncash, we like to add that back because it doesn't take away from our actual operating earnings. So it's a little tougher to predict that. But that said, clearly, the growing EBITDA dollar amount and margin is going to help the operating margin as well.

All right. And it sounds like you still expect that the costs related to ERP and definitely the costs related to the CEO transition, those will all be out after the first quarter of 2026, right?

That's correct. The CEO transition costs were fully accounted for in the first quarter. This quarter, the ERP expenses amounted to $632,000 compared to $466,000 in the previous quarter and $245,000 in the same quarter last year. As we move into the third quarter, we expect a more favorable comparison. The ongoing run rate of $500,000 to $600,000 is anticipated to persist at least until the first quarter of 2026 when we plan to go live. We may encounter some initial challenges, but we expect those to decrease significantly next year. Additionally, we foresee improvements in productivity as we expand.

The next question comes from Neil Chatterji, B. Riley.

This is Anderson Schock. Congrats on the quarter. So Wound Care revenue more than doubled while Pain Management declined 15%. How should we think about this mix shift toward lower-margin wound care and the impact it may have on longer-term margins and profitability?

Yes. I would say that pain management is not the highest margin segment in our portfolio, so it’s not as difficult to compare in that way. However, as Carrie mentioned, our wound care segment has quite decent gross margins. We typically see a reduction in those margins when we process claims. As we resolve this issue, which we believe we can, I think you will see a business that positively contributes to our cash flow margins.

Okay. Got it. And then Device Solutions grew 8% with some really impressive year-over-year margin expansion. Is this 42% margin sustainable going forward? And what is driving the outperformance here versus the patient services?

Yes, the situation is quite varied. We experienced growth in rentals last year, which has been positive because the main cost for rental is depreciation, and we add that back for EBITDA. There will always be some fluctuations, and we are still working on improving a few contracts. Overall, I believe it is in a good position to maintain its performance, but it will fluctuate based on the mix of what we sell. We have a range of new pumps, which lower our margins since they bring in less profit. Conversely, when we sell used pumps from our fleet, the margins can improve depending on their depreciation. So that's the range within which it functions.

Okay. Got it. And then is there any timing you can share on when you expect to hear back on resolving the reimbursement challenges for ChemoMouthpiece?

Yes, we expect to receive updates by the end of the year. The ChemoMouthpiece team has submitted their applications, and we should start hearing back around Q3, possibly extending into early Q4 of this year. Once the coding is established, the reimbursement rates are anticipated to be set in July of next year. So, coding will happen first, followed by the establishment of rates for next year. Knowing more by the end of the year is exciting, and it's a significant change.

This concludes our question-and-answer session. I would like to turn the conference back over to Carrie Lachance, CEO, for any closing remarks.

Thank you, Sherry. I want to thank everyone for participating on today's call, and we look forward to our third quarter call when we update you on results and progress.

Ladies and gentlemen, the conference is now over. Thank you for attending today's presentation. You may now disconnect. Goodbye.