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spk02: Good day and welcome to the NP Systems Holdings, Inc. Third Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Joe Dorme with Littleton Partners. Please go ahead.
spk04: Thank you, Rocco. Good morning, and thank you all for joining us today to review the financial results of Infosystem Holdings, Inc. for the third quarter of 2021, ended September 30, 2021. With us today on the call are Rich DiIorio, Chief Executive Officer, Barry Steele, Chief Financial Officer, and Carrie Lachance, President and Chief Operating Officer. After the conclusion of today's prepared remarks, we'll 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 with prepared remarks, I'd like to remind everyone certain statements made by the management team of InfuSystem During this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 in documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31st, 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 event, or otherwise. Now I'd like to turn the call over to Rich DiIorio, Chief Executive Officer of InfuSystem. Rich? Thanks, Joe.
spk05: Good morning, everyone, and welcome to our third quarter 2021 earnings call. Thank you all for taking the time to join us this morning, and I hope you and your families are staying safe. This morning we will review our financial results for the third quarter of 2021, provide an update on our business, discuss the status of our current growth initiatives, review guidance for 2021, and talk about the outlook for 2022 and beyond. To start, I'm as excited as I've ever been with the progress the team is making across the board. We are building meaningful momentum in both of our business units, and we're doing this on top of delivering record revenue in the third quarter. Our financial performance came in on plan, which puts us on target to meet our updated guidance for 2021. As most of you know, InfuSystem has two operating units. Integrated Therapy Services, or ITS, is the original and larger of the two, and it is focused on providing turnkey solutions for continuity of patient care between the hospital or clinic and the patient's home, specifically when the care includes the use of complex durable medical equipment, including oncology pumps, negative pressure wound therapy devices, et cetera. Integral to the ITS business is our third-party payer billing capability. Durable medical equipment reimbursement has unique billing requirements, and our operational focus on it, combined with our extensive payer contracts, is a key part to the turnkey solution that InfuSystem brings to the table. Our second operating unit is our durable medical equipment services business, which focuses on equipment rentals and biomedical services. The DME business was originally acquired to support our ITS segment, This is the part of the business that provides equipment repair and maintenance and where our equipment rental offerings are located. About two years ago, we began efforts to expand and extend the operations of the ITS segment. The idea was to leverage the core competencies that were developed and perfected for our original therapy in oncology and apply those skills to an expanding number of additional therapies. Today, we have four therapies in ITS. Oncology is still the largest. The next two, pain and wound care, both have momentum, and we believe they will generate significant revenue in 2022 and 2023. The fourth and newest therapy is pneumatic compression to treat lymphedema, which is a couple years away from any revenue contribution, but with a $1 billion-plus addressable market, we are extremely excited for what the future holds. The reason why we are so excited is that each one of these therapies could be transformational in their own right. Therefore, we don't need to hit on all four to be successful, but I remain confident in our ability to deliver revenue growth in each of these four therapies due to our team's ability to focus and execute our growth plans at a high level. Additionally, all four business opportunities fit perfectly into our core competencies, and we have the capacity to manage each of these businesses effectively as we've been doing some form of each of these for the last 30-plus years. And one final point. there will almost certainly be more ITS therapies in addition to the current four in the future. By becoming a preferred partner for providing the last mile solutions for durable medical equipment going from the clinic to the home, InfuSystem has positioned itself such that we get a lot of inquiries from medical equipment manufacturers looking for help as more and more patients and therapies transition towards the home environment. My vision is that we will double the company revenue to approximately $200 million in the next three to five years. This is tremendous growth, given it took us more than 30 years to get to our current top-line levels. We have the right team in place to manage the growth, a strong financial foundation, and a highly leverageable service platform that will enable this growth. Now, getting back to the investments we're making this year to support our growth. I've frequently highlighted that the nature of our business is that we often have to make investments first, absorbing some expenses, and then waiting a quarter or more before revenues begin to show up in our financials. We saw this a few years ago when a major competitor left the oncology market and we ramped up our inventory and operations to allow us to capitalize on the opportunity and take on most of the former customers. And we are seeing something similar this year. While we didn't enter 2021 expecting it to be a material investment year, it has turned out that way due to a series of opportunities that we have eagerly capitalized upon and that have put us in a perfect position to build on the future. The first was discussed in some detail on our last call when we disclosed that we nearly doubled the size of our sales force after being given the chance to hire some of the best salespeople in the pain and wound care markets. With the help of these new experienced reps, we hope to be able to make more announcements like the one we made in the press release on November 2nd, announcing that INFUSystem has been selected by a leading US-based healthcare provider to provide our pain management service, INFU Block. In the agreement, InfuSystem will be providing pain management services to a top U.S. healthcare provider with more than 12 million customers. As part of the service agreement, we will provide InfuBlock, which includes electronic infusion pumps for continuous peripheral nerve block, a 24-7 clinical hotline in biomedical services, along with supplies. The pain business is really gaining traction in the marketplace, and a win like this gives us even more confidence. There is so much more to come as the team continues to build on its momentum. Our second biggest investment this year was touched on briefly on the last call. It involves our aggressive hiring of technicians into our biomedical team in DME. This hiring accelerated in the third quarter, and we've been busy onboarding, training, and equipping the expanded team, getting them ready to execute on the business we expected to come. As disclosed in this morning's press release, we are finally in position to begin discussing a major new opportunity. InfuSystem has been selected to provide biomedical services to a leading global medical technology and diagnostic equipment company with operations in more than 100 countries. As part of this service, we will provide biomedical services, including annual preventative maintenance and repair solutions, to the fleet of infusion pumps at hospitals and other medical facilities under contract in North America. Service will be conducted either on-site at most of their 1,200 medical facilities, including 800 hospital systems in the U.S. and Canada, or offsite at one of INFUSYSTEM's seven service centers. Once negotiations and contracting are finalized in the coming weeks, this program is estimated to generate approximately $45 million over three years, with $8 to $12 million in the first year of service. This new relationship marks a major shift in the DME side of our business and comes as a direct result of the acquisition of two unique biomedical services companies in the first half of the year. We decided it was finally time to extend our capabilities into the acute care space, so we enhanced our already strong biomedical team with on-site capabilities, which was done with the OB Health acquisition in April of this year, and to diversify our skills to be able to work on more types of medical devices, which was done with the Filamed acquisition in February of this year. With the addition of the OB Health and Filamed teams and their capabilities, INFUSYSTEM can cover a broader range of services, including on-site repair, preventative maintenance, and physical device inventory management to hospitals and healthcare systems nationwide. We can also service not only infusion pumps, but also compression devices, defibrillators, electrosurgical units, and patient monitors. These incremental capabilities make it possible for InfuSystem to pursue potentially transformational deals in the future. I firmly believe our DME platform now has the same growth potential as our ITS platform and could be the fastest growing segment over the next couple of years. A QCARE is a huge market opportunity, and it is our strategy to maximize the synergies created by the two acquisitions to drive growth and expand our market share in that space. Of course, executing against all of the available opportunities will require both operating discipline and increased scale. This points back to my earlier comments about upfront investments being necessary before material revenue is realized. In the case of our planned growth in DME, the investments began in the first quarter with the acquisition of filament, followed by the acquisition of OB Health in the second quarter. We have been ramping up our team and operations steadily ever since. To discuss how we've been preparing to onboard the anticipated new revenue, I will turn it over to President and Chief Operating Officer, Carrie Lachance.
spk01: Thanks, Rich, and good morning, everyone. As Rich just mentioned, the process of upgrading the company's systems and operations in preparation for growth has been ongoing for some time now. Our third-party payer billing and collections team was the first area of focus given the importance of getting paid for the services we provide. We have a very strong team under Jamie Finkbeiner, our VP of Revenue Cycle, in place now. And we've implemented a system of constant process improvements. This includes increasing automation and new efficiencies that reduce cost and drive both higher revenues from increased collections and higher operating margins. Our process in rationalizing the billing and collections function has been so successful We completed the long desired integration of teams, bringing ITS and DME under a single more efficient operating structure. The next functional area I'd like to comment on as delivering substantially greater output with far greater efficiency is our IT department under Adam Tupa. We've got great coordination now with IT operating very comfortably in support of the rest of the company. Key implementations have been rolling out on schedule. including upgrading and integrating systems that support our continued growth. Integration of the two biomed acquisitions went very smoothly and is complete. As Rich discussed, we are adding to those teams as well as to our legacy biomed team, adding people, equipment, and increasing the footprint of our biomedical operations. With COVID having changed many work practices, we're taking advantage. Changing over space where cubicles used to sit and setting up dozens of new workbenches. Training of new technicians has progressed smoothly, and the team is ready to begin onboarding new work. We expect hiring to continue as the workload ramps up through much of the next year. Senior management has given careful thought to setting priorities for the next year. Obviously, biomedical services is a top priority, and we plan to continue the same work done over the last two quarters to hire, train, and ensure the highest quality work and the most efficient operation of this rapidly expanding part of the company. Pain management is also growing quickly, and we are focused on streamlining processes both in the field and the back-end office to stay ahead of the anticipated growth. Wound care is next, and we've had time this year to fine-tune our processes in advance of the revenue scaling expected in that business. And finally, operations will be ready to support the pneumatic compression business when the therapy begins to come online. Overall, the approach is to scale existing operations in ITS and DME, taking advantage wherever possible to achieve greater efficiencies via greater throughput. Areas including warehouse and nursing support have existing capacity to support higher volumes, while our biomedical team and billing and collections have the space, structure, and leadership to support significant growth. Operations is ready for growth, and we are already executing in anticipation of everything we have talked about here today. With that, I will turn it over to our CFO, Barry Steele, to provide a review on our financial results.
spk06: Thank you, Carrie, and thank you, everyone on the call, for joining us today. I'm going to focus on three areas, the status of our financial resource reserves, the main drivers for the current quarter's results, and some important factors that will drive our revenue and profitability higher during the fourth quarter. First, let me touch on our financial position. As Rich has indicated, we are expecting a significant acceleration in our revenue growth in the next quarter and into 2022. We are well positioned to fund that growth with strong cash flow from operations, backed by significant liquidity reserves available from our evolving line of credit. Notwithstanding this 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 businesses. This year, through the first three quarters, we have generated $14.6 million in operating cash flow. This compares to $12.7 million during the prior year, a 15% increase. The amount was sufficient to cover $8 million in net capital expenditures during the period and finance all but $1.1 million of the Philomed and OB healthcare acquisitions, which totaled $7.7 million. We continue to anticipate that our full year operating cash flow will be $19 to $22 million. We also continue to anticipate that our investing cash flow, which includes cash used to purchase medical devices and other capital expenditures and cash provided by the sale of used equipment, for the full year of 2021 to be within the range of $12 to $15 million. At the end of the 2021 third quarter, our total debt stood at $30.9 million, a decrease of $1.6 million since the end of the second quarter, and our ratio of total debt to adjusted EBITDA for the last 12 months is 1.3 times. Our debt included $30.8 million of outstanding borrowing on our $75 million revolving line of credit and an equipment loan totaling $400,000. This debt structure aligns perfectly with our growth strategy for the following reasons. The credit line is not a term loan and therefore requires no principal amortization. It does not expire until February 2026, and we have strong traditional bank partners including J.P. Morgan, Wells Fargo Bank, PNC Bank, and Comerica Bank. Under the credit agreement, we have significant financial covenant headroom, allowing for a maximum leverage ratio of 3.5 times and a minimum fixed charge ratio of 1.2 times. We currently enjoy a very low rate of interest at LIBOR plus 200 basis points and have protected $20 million of the outstanding drawings against increases in interest rates through the end of the facility term. Because of the flexibility of having an all revolver facility, we have the ability to manage our cash on hand very efficiently, which is why our cash balance at the end of September was only $165,000. Our available liquidity at the end of the quarter totaled $43.6 million and consisted of $43.5 million in available borrowing capacity under the revolving line and the cash on hand. Turning to a few points on the operating results. Net revenues for the third quarter of 2021 totaled $26.6 million. This was our highest quarterly revenue ever. It even beat our best quarterly revenue amount in 2020 during COVID. when the market demand for infusion pumps was unusually elevated due to the pandemic. This represented a 6% and 7% increase, respectively, from the prior year and sequentially. The amount was right in line with our forecast. Growth drivers include revenue from the acquisition, increases in pain management and negative pressure wound therapy, strong collections, strong equipment sales, and improvements in rental fleet volumes. Preparations for the new large biomedical services opportunity created additional costs during the quarter in both cost of sales and general administrative expenses that slightly diminished our gross profit and adjusted EBITDA margins and increased our G&A expenses. Other factors impacting profit margins included slightly higher pump maintenance and an increase in our lost pump reserve in the ITS segment, unfavorable gross margin mix in the D&E business due to lower rental revenues compared to the prior year, and $800,000 in costs related to increased sales team for nighter pressure wound therapy and pain management, which started during the second quarter. A portion of this increase totaling $500,000 was included in selling expense, with the remaining amount included in G&A expense. Finally, higher equity compensation of $1.3 million increased G&A expenses during the quarter. This increase includes both impacts from a higher market price for our common stock and for performance-based awards related to the acquisitions and other operating targets, including both growth-related achievements for the biomed services business. Finally, a few comments about our performance expectations for the remainder of the year. As Rich stated in this morning's press release, we are maintaining revenue and earnings guidance with 2021 revenue expected to be between $107 and $110 million and adjusted EBITDA to be between $27 and $28 million. In addition, we continue to expect a combined revenue run rate for pain and wound care to exit this year at a run rate of approximately $15 million. These amounts include significant increases from previous quarters, which stem from a continuation in the sequential increases in revenue we have seen in the third quarter. The increase also includes several significant medical equipment and capital lease sales in our negative pressure wound therapy business, representing an important part of our go-to-market strategy for the therapy. The outlook also includes some additional expenses related to our efforts to be ready to successfully launch the new programs in the biomedical services business that Rich and Kerry mentioned. These mainly come in the form of new personnel, but also supply costs and other expenses. However, despite the higher expenses, the significantly higher revenue is expected to come at a favorable contribution margin, which will improve overall profitability. And with that, I'd like to turn it back over to Mr. DiIorio.
spk05: Thanks, Barry. I believe InfuSystem is at an inflection point, and I am extremely confident about the future of the company with multiple material growth initiatives in both our ITS and DME segments. The strength of our business model and positive outlook for 2022 and beyond provides us the confidence to make these important growth investments in 2021 that will allow us to drive long-term revenue growth. We are reaffirming our guidance for 2021, as Barry mentioned. and we'll be exiting 2021 in a position of strength to successfully execute our growth plans. As a result, we expect stronger top and bottom line financial performance in 22 and subsequent years. I'm extremely excited for the future of InfuSystem as we are transforming the company for long-term success. And now we're happy to answer any questions.
spk02: Thank you. We will now begin the question and answer session. To ask a question, you may press star one on your touch-tone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press Start in 2. Today's first question comes from Alex Novak with Craig Hallam. Please go ahead.
spk09: Great. Good morning, everyone, and thanks for the update. I just want to better understand the sales agreement with this medical device company that you announced this morning. Are they a global manufacturer of devices and InfuSystem will essentially become the contract service provider for them and just those devices? And then what sort of additional staffing do you need to do to get ready for this deal next year?
spk05: Good morning, Alex. Yeah, so great questions. They manufacture devices. They also provide services. So we're going to be helping them with their service of infusion pumps and all of their customers once the agreement is signed. So They are definitely global. When everything is finalized, we'll put out a press release, likely with their name in it. You guys will see that. But what we're going to be doing is we're going to be providing some supplemental services for them on their mostly infusion pumps around the country and even a little bit in Canada. From a staffing standpoint, we definitely need to hire the biomed techs. They only have so much capacity per person per day. So we have all the numbers, and we can back into how many techs we need, where they need to be, whether they're on-site or in one of our service centers. But that's the majority of the staffing. We don't need a bunch of extra salespeople. There's no clinical involved. There's no revenue cycle involved. So it's really just the biomed technicians that we've been adding now for a little bit in the second quarter, quite a bit in the third quarter, and that will continue through the fourth quarter as well to get to the number we need to service the number of devices that we're going to need to service.
spk09: Okay, got it. That makes sense. And then your competitor in lymphedema, the big one out there, hit some disruption in this earnings cycle. Is there any potential to go faster in that market, make some investments like you've made in the pain and the wound space to get you better positioned for 2022 or at least early 2023?
spk05: Yeah, so we're not putting lymphedema on the back burner. We're going to build the program the right way. And we are going to invest a little bit in it next year. We have to a degree this year as well. But yeah, realistically, early 2023 is when we should start to see revenue come in. Next year, we'll continue to build the program, build up the team a little bit of experts that we need to bring in-house and go attack that market. But we're confident kind of long-term with lymphedema. I'm also very conscious that with this new opportunity that we have in front of us with Biomed and With the growth of pain and wound care, we need to make sure we execute on what's standing right in front of us with the programs that have their feet under them already. But we're not forgetting about lymphedema in any way. The revenue is just another year or two away.
spk09: That's helpful. And then thinking about Q4 but also next year, the company has a number of building blocks that are going to help make 2022, I think, look pretty good. You've got pain and wound ramp into that run rate. You've got this DME contract coming on board. So I guess the guy that seems a pretty material step up for Q4. So are you already starting to see some of these contracts materialize in October and November, or are these all kind of put to the end of December? Just help us get comfortable with the Q4 guys. But then also, how are you thinking about 2022 from a growth perspective when you put all those together?
spk05: Yeah, so the fourth quarter is a combination of a lot of factors. So there's just kind of normal growth. The reps that we hired in Q2 will be kind of just hitting the ground at that point. So we will see a little lift in pain and wound care in the fourth quarter. Pain also has seasonality in Q4. Once patients start to hit copays and deductibles, they tend to come in for elective surgeries at the end of the year when they don't have as big of an out-of-pocket expense. So we see that every year. So that's a piece of it. And Barry mentioned earlier on the wound care side, as part of the go-to-market strategy, you need the inpatient and outpatient program to service patients for negative pressure. So we have some pretty good-sized leases that are on the books or in the pipeline, I should say, that we think are going to come to fruition in the fourth quarter. So that's how we're going to get to the Q4 number. 2022, yeah, growth is – we should see significant growth. I mentioned, you know, top and bottom line improvements next year – You know, the $8 million to $12 million we expect from this one agreement once it's signed alone is a good number. Throw in pain and wound care. And, you know, we're still finalizing our budget for the year, so I don't want to get out ahead of ourselves. But, yeah, next year should be a really good growth year for sure, much better than this year.
spk09: No, it certainly looks like it. All right, appreciate the update. Thank you. Thanks, Alex.
spk02: And our next question today comes from Brooks O'Neill at Lake Street Capital Markets. Please go ahead.
spk08: Good morning, all. Thank you very much for the comprehensive overview. I found it terrific. I have a couple questions. One is, you know, most of the companies that have reported in our area, our sector so far this quarter have highlighted, you know, COVID disruptions, nursing shortages, labor shortages in general and supply chain disruptions. I don't think I missed it, but I don't think you mentioned very much about that. Do you guys see that in your markets? Are you being hurt by it? Are you benefiting from it? What's going on out there?
spk05: For us, we're kind of neutral. So, you know, we see the disruption, but we're not really affected by it. So from a labor perspective, we've done a great job of retaining our team. And when we need to go hire people, we offer great benefits, great company to work for, great culture. So we don't really struggle to find people, even in this kind of crazy market to hire. Supply chain has been no issue. Although we're small in the health care world, we're pretty large in our space. So we can throw our weight around a little bit when things get tight and get the products we need. But we've seen zero supply chain disruption, really, since the beginning of COVID. you know, at the end of the day, people need these services, right? These aren't something that you can decide whether or not you want them. So we really haven't seen much disruption at all, you know, this year. I would say, obviously, last year was much different when it first hit, but in 2021, there really hasn't been a big disruption at all. I mean, there's, you know, here and there, you'll see a pocket of a hospital or two denying access if they have a surge in that town or city or state, but nothing that's material kind of on either side for us.
spk08: Great. So second question, what I have found over a long period of time is words that are tossed around in our industry, some people think they know what they mean, and I usually don't. So I'm going to ask you to help me understand what the acute care opportunity is like or what you're seeing there, just to make sure that I'm clear about what you're doing in that area and what the opportunity is.
spk05: Sure. So acute care, you know, in the hospital space, right? So InfuSystem historically has lived in what we call alternate site. So physician practices, ambulatory surgery centers, home infusion providers, basically all healthcare kind of entities outside of the hospital. And that's been great for us, right? That's where our DME business has rented pumps and service pumps. That's where oncology kind of lives, even pain and wound care to a degree. The shift in the last you know, call it nine months, ten months since the acquisitions, is really on the biomedical services piece in the acute care setting. So, you know, historically we've done a few million dollars in repairs outside of our own fleet, and that's meant for home infusion companies that need some repairs and maintenance done on their devices. But the acute care space is where all the devices are, right? So a hospital system could have 5,000, 10,000 devices in one hospital system. just infusion pumps, in addition to everything else that moves around that hospital that's in there. So the opportunities are just at a much bigger scale, and we never had the chance to take advantage of them because we didn't have on-site repair. We could only do infusion pumps. And between the two acquisitions, now we can repair more than just infusion pumps, and we can do it on-site at the hospitals. the hospital is not going to want to ship back 1,000 pumps to do a preventative maintenance. You have to do it there, right, kind of right next to the bed in their basement kind of thing. So now we have those capabilities, and it just creates a whole new world of opportunity for us that we're already seeing the team capitalize on and the sales team go out and win some major accounts and some big business, and obviously this new opportunity is a piece of that. So it's just a market that was untapped for Infosystems. And strategically, we made those acquisitions to get into that market, and now we're off and running.
spk08: And, Rich, it's pretty much the DME business. You don't see an opportunity to provide services in acute care facilities. I mean, the clinical services that you've done.
spk05: Yeah, I think that's accurate. You know, the fact is we have most of the major hospitals for oncology around the country. We might be in their outpatient oncology center, but we're in the hospitals. Same thing with wound care. We have a growing presence there. Now we have some pain customers that are in the hospital setting. So it actually, we can leverage some of those relationships in some of the acute care hospitals because we already have so much of their trust to use our other services. So now to gain their trust for the biomed services piece is a nice additional component to our bag. But yeah, we're not going to be providing clinical support for the pumps. It's just us going in and repairing, maintaining, doing inventories, those sorts of things.
spk08: Okay, that's good. And then Carrie and Barry provided great insight to your ability to scale. I'm just checking with you to make sure you don't think your eyes are bigger than your stomach in terms of your true ability to manage all the growth and all the things you're doing while continuing to deliver the kind of steady, profitable business results you've always done.
spk05: I'm not concerned at all. So we very deliberately have built this team over the last few years to be ready for this. We have an infrastructure in place that we've built over 30 plus years. And at the end of the day, I think I mentioned in the opening remarks that nothing we're embarking on is anything different than what we do every day and have been doing every day for 34 years. So whether it's biomedical services that we've been doing for years on our own pumps, you know, pain management and wound care, which mirror our oncology program that we've had for 34 years. All of these things are right in our wheelhouse. If you see us start selling software, we probably have a problem, right? But when we're repairing devices and helping patients get home, that's exactly what we do, and I would argue we're the best in the world at that. So I have no concern between this team and the system we have in place and the infrastructure, no concerns at all.
spk08: Great. Perfect. Thank you very much. Congratulations. Keep it up. Thanks, Brooks.
spk02: Ladies and gentlemen, as a reminder to ask a question, please press star then one. Today's next question comes from Jim Sedoti of Sedoti and Company. Please go ahead.
spk03: Hi, good morning, and thanks for taking the questions. First one's a quick one. Were there any one times in the quarter that contributed to revenue or on the expense side other than the option expense, any one time? Expenses that are notable?
spk06: We did have some expenses, again, related to just the ramp-up that we need to plan for for the new opportunities, but nothing that was really one-time in nature, I would say. We'll have the revenue to pay for it very quickly, but that's the way I characterize it.
spk03: And then kind of a bigger question, a bigger picture question. As you look out over the next couple of years, it sounds like you have four or five, you know, significant opportunities to grow revenue. How important is it for you to grow the bottom line in the near term? I mean, is that something you kind of put on to the side as you make these investments? Or do you think you'll still be able to grow earnings and increase cash flow in the near term while you're investing for these you know, larger opportunities on the top line.
spk06: Yeah. What I would say is that we certainly have the ability to grow the profitability. We, as we said before, we have, we can see a path to higher EBITDA margins. I think that will mostly be, be determined based on how much investment opportunities we have. And for this company, there's more investment opportunities on the P and L than there is necessarily in capital. So I think that at the, Again, if you kind of peel it back, there's certainly higher profitability, higher cash flow. But, again, we'll have to make some investments along the way.
spk10: All right. Thank you. Thanks, Jim. And our next question today comes from Aaron Warwick with Breakout Investors. Please go ahead.
spk07: Hey, guys. Thanks for taking the call. I'm going to kind of piggyback off the last question. Your EBITDA margins around 21% this quarter. In the first quarter, 25%. Last year, 27%. What are you kind of thinking for next year? Are you thinking we'll see a return to that 25%, 27% level? And then I know long-term you've said 30% is your target. Is that kind of still what you're thinking? And specifically then, you know, that 25%, 27%, is that attainable next year?
spk06: First couple clarifications. Last year's margin was elevated mainly because of the benefits for COVID. We sold a lot of devices out of inventory that had no book value anymore. They were fully depreciated. So it's not really a great proxy for us. If you sort of peel back the investments we're making this year, we're at sort of that 25% mark. We haven't done our budget completely for next year. Some of the investments we're making in the sales team won't fully be paid for with the revenue. They'll be almost paid for by the end of the year, so we'll still have a little bit of headwind. That said, I think we still are confident that we see a path to 30%, maybe not next year, but certainly after that. The one nice thing that we see is that things like Biomed and even Lymphedema, when it really comes online, they have decent contribution margins, so they're accretive, clearly. The opportunity with the new Biomed contract is very accretive to us, And yet those two things, the biomed and the lymphedema, require no capital. So certainly our cash flow, our free cash flow is definitely improved, which is an important measure for this company.
spk07: Yeah, thank you for that because I guess my read of it was that the biomedical services business would probably be one of the higher margin businesses for you. It sounds like that's correct.
spk06: Yeah, the DME business generally has lower gross margins. but it has a lot less sort of overhead in GNA. So that's, again, what we see is the biomed as we grow, it definitely is a creative to EBITDA.
spk07: What are you guys thinking about, you know, last year, I think it was in December, you came out, you know, apart from an earnings release and gave the 2021 guidance. What should we expect? And a lot of moving parts, I know. But when do you expect to give any sort of guidance on 2022?
spk05: Yeah, Aaron, I think you just hit the nail on the head. There's a lot of moving parts. We want to finalize this agreement first to make sure we can put it in the books for next year. There's a couple other opportunities that are out there that we should have better visibility into in the next call 30 to 60 days. But once we finalize it, we'll certainly come out with our guidance. If I had to put a date on it, it's probably early January. It could be a little bit sooner than that, a little bit later, but it's in that ballpark. We just want to get comfortable with You know, the opportunities between the salespeople we've added in wound care and pain that are starting to come to the door, this one big opportunity in biomed, there's a couple more out there. We want to get our arms around them and have as much information as possible before we put the number out. But the good news is it's going to be a really good number in 2022. Almost any way that we look at it, any model we've looked at, 2022 is going to see some significant growth for sure.
spk07: Yeah, I mean, I was just kind of running the numbers based on, you know, what you've said on this call and not even adding anything more, which you just indicated, you know, could possibly happen. I mean, I don't see any way that it would be under, you know, 15%, 16% in terms of revenue growth. Is that a – I don't know how much you can say about that now, but is that an accurate based just on the numbers you put out now, it seems?
spk05: Yeah, I mean, I think that that's on the very low end. That's what I thought, yeah. Yeah, I mean, without getting into all the numbers, I think an order of magnitude of 20% is probably a good baseline to start at. But again, we'll finalize what the opportunities are out there and see what that looks like. But yeah, next year is going to be a pretty solid, if not better, growth year.
spk07: Yeah, and then the EBITDA should be even higher percentage-wise given the return to better margins that Barry just mentioned. So that's good. So, you know, we're probably not going to hear from you again until March since it's the end of the year for you. Are you thinking then that there may be some updates in between besides just the guidance? It sounds like you've got some things in the pipeline. Maybe we'll hear from you before that.
spk05: Yeah, I think when something significant happens, we'll let everybody know for sure. There's no reason not to. That could be a combination of announcements or updates or guidance for next year. I think all of that will happen before March. So you'll hear from us.
spk07: All right. Thanks, guys. I appreciate it. Keep up the good work. Thank you.
spk02: Okay, ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to Rich DiOrio for closing comments.
spk05: Thanks, Rocco. I want to thank everyone for participating on today's call. I hope everyone has a good day, and I look forward to speaking with you again when we report our fourth quarter 2021 results. Please stay safe, and thank you.
spk02: Thank you. This concludes today's conference call. We thank you all for joining today's presentation. You may now disconnect your lines and have a wonderful day.
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