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spk01: Good day, and welcome to the Infosystem Holdings, Inc. Report's third quarter fiscal year 2022 financial results conference call. All participants will be in a 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 your telephone keypad. To withdraw your question, please press star, Please note this event is being recorded. I would now like to turn the conference over to Joe Dorme of Lippin Partners. Please go ahead.
spk02: Thank you, Sarah. Good morning and thank you for joining us today to review the IMFU Systems Holdings financial results for the third quarter of 2022 ended September 30th, 2022. With us today on the call are Rich Diorio, Chief Executive Officer, Barry Steele, Chief Financial Officer, and Carrie LeChance, President and Chief Operating Officer. After the conclusion of today's prepared remarks, we will open the call for questions. If anyone participating on today's call does not have a full-text copy of the press release, you can retrieve it from the company's website at infosystem.com or numerous other financial websites. Before you give a prepared remark, 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 uncertainty, 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 31st, 2021. Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. INFUSYSTEM does not undertake and specifically disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. Now I'd like to turn the call to Rich DiIorio, Chief Executive Officer of INFUSYSTEM. Rich?
spk03: Thanks, Joe, and good morning, everyone, and welcome to INFUSYSTEM's third quarter 2022 earnings call. Thank you all for joining us today. Before providing some color around our new exciting partnership in wound care with Sonara MedTech, I would like to provide a quick overview on the recently completed quarter. In the third quarter, we once again achieved record revenue, while improving on our gross margins from the prior year, resulting in a return to gap profitability. The quarter continued to demonstrate the strength of our core business and was led by our ITS segment, which grew 5% despite the continuing headwinds in wound care, relating primarily to the availability of the cardinal negative pressure devices for new customers. Our aggregate gross margin improved by 202 basis points year-over-year. Operating income increased $1.3 million. And net income increased $900,000 for the third quarter. As we work steadily to expand our offerings and improve our long-term growth potential, we can see how InfuSystem's unique positioning in the market is drawing well-respected companies such as Sonara and GE Healthcare to partner with us. First, our seven centers of excellence are strategically positioned to serve all of North America. Second, we are a participating in-network provider in over 770 health insurance networks covering more than 95% of the U.S. population. And third, there is our strong and growing reputation for white glove service and patient-focused care. Together, these and other attributes have helped Infosystem to be increasingly recognized as a go-to partner for companies looking to upgrade their healthcare service offerings or to expand their marketplace reach. It is InfuSystem's unique problem-solving abilities and our growing reputation that attracted Sonara to partner with us. As I turn now to our new relationships and offerings related to wound care, I hope to be able to convey why we are so excited about these developments and how they are expected to impact our future business. Starting at a high level, wound care is believed to be a particularly attractive opportunity for InfuSystem. In addition to having a very large addressable market, Wound care epitomizes the need in healthcare for solutions that can help facilitate an effective transition from the hospital or clinic to the patient's home. Wounds can take significant time to heal, and hospitals, due to high costs and focus on stabilizing patients before moving them to the next care setting, are not the ideal place for patients and clinicians to advance wound healing over a long period of time. When InfuSystem entered the wound care market a few years ago, our offering was based upon a single cardinal health negative pressure device. Since that time, we have worked hard to develop several opportunities that could have materially contributed to our top line. However, Renfee Systems' experience to date in wound care has admittedly been disappointing. With the recent announcements relating to wound care, I believe this is about to change. With our new distribution agreement with Cork Medical, we now have an alternative to the Cardinal device that is no longer available in the market. Through our new relationship with Cork, we have immediate access to a state-of-the-art device and technology. Additionally, we believe Sonara will be an ideal partner as we work to provide a more comprehensive offering to the wound care market. This starts with the company sharing a long-term focus that everything we do is based on improving the quality of our patients' lives across a continuum of care by reducing the complexity of treatment and offering a diverse set of advanced wound care products. We will win business together in wound care by proving that our solutions are better for patients, better for providers, and better for payers. There are two important components to the infuse system scenario approach to wound care. First, our aligned vision on patient care, focused on providing solutions that promote healing, lowering the cost of care, and improving patient outcomes. Second, the combination of best-in-class wound care products with our leading, industry-leading turnkey services leveraging our ITS platform and our 770 in-network contracts, resulting in expanding the continuum of care and going well beyond just selling and leasing negative pressure pumps. The agreement signed last week is much more than a distribution agreement. We've been talking to Sonara for over a year, planning our combined disruptive approach to wound care. This is a true partnership, with each party bringing to the table unique and world-class capabilities. Our goal is to bring a more effective approach to the wound care market and redefine the standard of care by capitalizing on InfuSystem's unique service offerings that will include our sales, distribution, clinical support, and revenue cycle capabilities. That will complement Cenara's deep wound care experience and expertise in their leading edge products, including Biocose and Hi-Call, to promote patient healing. To fully develop this opportunity, we have formed SI Wound Care, a jointly controlled LLC that will enable both companies to maximize new wound care business opportunities and share in the profits. Barry will provide more details on this operating agreement in a moment. Coincident to launching the partnership, INFUSYSTEM signed a distribution agreement with Cork Medical with plans to almost immediately begin taking advantage of this new supplier relationship. Our team will sell and lease their NISIS brand of negative pressure wound therapy devices and supplies in the U.S. and Canada. The new relationship with Cork is the solution of the difficulties with Cardinal Health and access to their negative pressure equipment that we discussed on a call in August. Previously, with only having a single point solution in the wound care market, our team was challenged to compete effectively with the larger, more diversified players. With the Sonara partnership, we believe that obstacle has been removed. We now feature a comprehensive portfolio of wound care products and have a tremendous opportunity to grow our wound care business by offering a complete solution from a device to advance wound care products designed to heal patients and not just treat them. Our belief is that if you can take care of patients by improving outcomes and satisfaction, clinicians will take notice, leading to increased market share. Switching over to our DME services segment, I would like to give an update on the status of our ramping relationship with GE Healthcare. While the onboarding process started out slower than we had anticipated and realized revenue is behind where we expected it to be at this point in the calendar, our BioMed service team continues to work very closely with their counterparts within GE. We have confirmed that our white glove services are being well received both by GE and the onboarded facilities and that onboarding of new medical facilities will continue in a systematic manner. We finished the third quarter with a strong August and September. and we continue to build positive momentum in the deployment of our services that can involve up to 300,000 pumps located in 1,200 medical facilities, including 800 hospital systems in the U.S. and Canada. As a reminder, the foundational master service agreement with GE relates to our team performing preventative maintenance and repairs onsite at the hospitals or offsite at one of our seven service centers. We see many opportunities to potentially expand upon this relationship. and I am pleased to report that includes one project slated to start in the fourth quarter of 2022. This relates to GE's mobile asset management system using RFID tagging to track devices. Although onboarding of facilities has taken longer than we expected, we remain very optimistic about the GE relationship and opportunity. We now believe the revenue potential will be larger than our original estimate of $10 to $12 million on an annual basis once we are fully operational. Now turning to Payne. We remain very positive on the outlook of the pain management business and are excited about our near-term prospects. For the third quarter, our pain business generated a 37% increase in revenue versus the comparable quarter last year. This is as we are beginning to see the benefits of our investments in the sales team that we made last year. Despite the short-term supply-related interruptions in Q2, our team continued to gain market share despite the seasonality of the summer months when fewer procedures were performed. We are seeing rising patient treatments with this setting the stage for a strong finish to the end of the year. Our partnership with Ventus Pharma, a leader in advancing surgical and chronic pain management solutions, became effective in the third quarter. The National Sales and Marketing Agreement gives our sales team access to the Endura Kit, a single injection for pain management that can be used in conjunction with our InfuBlock or as a standalone treatment. One of the keys to gaining market share and driving revenue growth in pain we'll be providing more choices to healthcare professionals and patients by giving them an alternative to opioids. INFUSYSTEM is fully committed to doing our part in helping to reduce the use of opioids in North America. Moving on to guidance. INFUSYSTEM is estimating total revenue for the full year 2022 of approximately $112 million, which is at the lower end of the previously stated guidance of 10 to 13% revenue growth for the year. Additionally, adjusted EBITDA for the full year 2022 is estimated to be approximately $22 million with adjusted EBITDA margin in the range of 19 to 20%. I want to thank the entire Infosystem team for their hard work and dedication in ensuring our customers and partners receive industry-leading service. Now I would like to turn the call over to our CFO, Barry Steele, who will provide a review of the third quarter financial results.
spk04: Thank you, Rich, and thank you everyone on the call for joining us today. I'm going to focus on three topics. the main drivers for the current quarter's results, some details related to our outlook for the fourth quarter, and a discussion of the new scenario partnership, including how we will account for its activities. First, let me touch on our financial results for the third quarter, which will include both year-over-year and sequential improvements on various metrics. Net revenues for the third quarter of 2022 totaled $27.3 million, which was about a 3% increase from the prior year. While this fell short of our expectations, a topic which I'll talk more about in a moment, it set a new quarterly revenue record, the third time we've seen that this year. The year-over-year growth came from the ITS segment with oncology increasing by 550,000, or 4%, and pain management increasing by 308,000, or 37%. Revenue for the DME segment was slightly down compared to the prior year, but that was due to lower medical equipment sales which tend to vary from quarter to quarter due to the uneven timing of large orders. This decrease, which totaled 837,000, or 41%, was nearly offset by increases in rental and biomedical services revenue, which increased by 522,000 and 236,000, respectively, both of which saw double-digit increases of 13% for rentals and 16% for biomed. The biomedical services revenue included initial amounts of revenue from the GE Biomedical Services Agreement that was launched in April of this year. Revenue under that agreement totaled $414,000 for the quarter. You may recall that our revenue under this important contract is expected to grow as we continuously onboard locations and devices. As of September 30th, we have cumulatively onboarded nearly 27,000 devices. This represents 13% of the devices needed to reach the midpoint of her annual revenue goal of $10 to $12 million under the contract. Gross profit for the third quarter, totaling $16.2 million, was also an all-time record. This improvement was due to the higher revenue and an improving gross margin percentage, which increased to 59.5%, representing a significant increase from both the prior year and sequentially. This increase was driven by both improved phototic revenue mix coming from higher ITS and rental revenues, both of which are higher in gross margin than, say, equipment sales, which decreased, and improved productivity for our team of biomedical technicians. You may recall that in prior quarters, we had begun to increase the number of biomedical technicians, which increased costs prior to revenue coming online. These costs were better absorbed with the higher biomed services revenue during the current reporting period. Total selling general and administrative costs were $15.3 million for the third quarter. This was $333,000 or 2% lower than the prior year third quarter. Decreases in stock-based compensation, which was $900,000 lower, and intangible asset amortization, which decreased by $421,000, were partially offset by higher general and administrative expenses, including cost to upgrade our internal control documentation for Sarbanes-Oxley, which is being audited for the first time this year. and higher short-term incentive compensation accruals. Adjusted EBITDA for the third quarter was $5.6 million, or 20.5% of net revenue. This amount was $100,000 higher than the third quarter of 2021 and about the same as this year's second quarter. Now let me tell you more about our full-year outlook. As I mentioned earlier, reported revenue was behind our previous forecast. This was attributable to revenue growth coming slower than anticipated for both pain management and the new biomedical services contract. Longer than anticipated time needed to prepare a new device for wound care and the timely impacts of equipment sales. Despite year-over-year revenue growth of 37%, our expectations for pain management revenue were much higher than our actual performance. This is due mainly to slower onboarding of new customers. The slower growth rate is expected to continue during the fourth quarter. The same is true for our biomedical services revenue. While picking up significant momentum in onboarding of new devices under the GE Healthcare contract, the pace was still behind our previous expectation. This has not changed our overall assessment of the amount of revenue we will ultimately achieve under the agreement. In fact, that expectation has improved considerably. This slower onboarding pace will continue during the fourth quarter. However, the new contract to provide RFID tagging, which was not in our previous forecast, will mostly offset this. You may recall that we reduced our expectations for wound care revenue when we provided our previous guidance by taking out anticipated equipment leases that could not be fulfilled since our supplier Cardinal Health took away our ability to provide the necessary equipment. We did not anticipate that would have a negative impact on our ability to grow our treatment volume. That volume actually decreased during the third quarter. Fortunately, now that we have a new supplier for negative pressure wound therapy devices, and a new customer that needs equipment due to the cardinal supply issue, we are now expecting the equipment lease to be completed in the fourth quarter. Finally, our DME equipment sales were lower than anticipated for the third quarter. As I mentioned earlier, this represented typical timing for that business since large orders have a tendency to vary quarter to quarter. We expect to make up for this shortfall during the fourth quarter. Furthermore, we are anticipating a number of additional large orders to close during the fourth quarter as customers rush to complete their fiscal year and capital spending plans. These orders, along with the anticipated negative pressure wound therapy equipment lease, are expected to drive a significant increase in net revenue for the fourth quarter. However, we have only included a portion of these amounts in our stated revenue outlook, as we know we will not close 100% of them by year end. For example, we have only included 50% of the negative pressure wound therapy lease deal despite our confidence being significantly higher. As a result of these factors, and as Rich has stated, we are forecasting to complete 2022 with total revenue of approximately $112 million and adjusted EBITDA of approximately $22 million. The last topic I'd like to talk about relates to the new partnership in wound care. The setup for this arrangement will have an impact on how you will see earnings appear in our financial statements for the commercial activities of the partnership. That is because products that will be sold by MPSystem will run through the partnership in order to capture margins that will then be shared equally by the partners. For regulatory reasons, the partnership will not have its own revenues to third-party customers. Instead, it will sell products to MPSystem for resale to customers. Because of this, our gross profit on partnership revenue will only cover certain general and administrative expenses. In addition, there will be expenses that we charge directly to the partnership through a separate services agreement. We will not be able to consolidate the partnership's financial statements, but will account for our interest as an equity investment. As such, MPSystems' share of earnings, which is 50% and includes the gross profit on product throughput, will be reported as income from equity invested and included in MPU Systems operating income. And with that, I'd like to turn it back over to Mr. DiIorio.
spk03: Thanks, Barry. We have tremendous opportunities to deliver on multiple therapies in our ITS segment, and we expect significant growth of biomedical services in our DME segment. In wound care, we have three critical components coming together, a leading-edge negative pressure device from Cork Medical, an advanced wound care product line with expertise from Sonara, and our ITS services on the back end. The new combined partnership will give us a complete wound care solution, enabling us to capture market share and grow multiple synergenic revenue streams. We believe our focus on patient care that promotes healing, lowers the cost of care, and improves patient outcomes will give us a competitive advantage to gain market share in chronic and acute wound care. In closing, our motto is safe, smart, and trusted. And for more than 30 years, we've worked hard to build a culture that embodies the patient at the center of everything we do. The foundation of the company has never been stronger, and we are confident in our growth plans to build an even better InfuSystem. We have transformed InfuSystem into a leading healthcare service provider, improving the quality of care with the most cost-effective solutions for both clinic-to-home and acute care markets. The unique service solutions offered by our two service platforms, ITS and DME, are well-positioned for long-term success and meaningful revenue generation in 2023 and beyond. Before we take questions, as I mentioned in August, part of the executive team, including myself, were awarded stock options in the fall of 2017 that are now coming up on their 50-year anniversary and are set to expire on November 15th. You will see a Form 4 filing from me before that date with respect to the expiring options, which will reflect a net option exercise. This transaction is absolutely in no way a reflection of my confidence in this business or the future of this great company. And we are now happy to answer any questions.
spk01: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Brooks O'Neill with Lake Street Capital Markets. Please go ahead.
spk08: Good morning, everyone. I have a few questions. I guess I'd like to start off with wound care. And I'm curious if you believe that the new arrangements with Cook and Sonara position you reasonably well to compete with the industry leader, my friends, at 3M? And if so, what are the key things you think put you in that position?
spk03: Morning, Brooks. Absolutely, it puts us in position to compete against 3M and anyone in the wound care market. I think, as I mentioned earlier, Just having a negative pressure device was a tough road for the sales guys, right? Having a single product in a market where we have, you know, a competitor like 3M that has multiple products. I think the difference maker for this relationship versus a company like those guys is we're not going to just treat the patients, right? This isn't gauze pads and band-aids. These are products that actually heal wounds. And I think that's how we're going to attack the market, right? So you combine a great product or a great device from Quark as a replacement for Cardinal. You put the experience that the Sonara team has in wound care with their products that can heal wounds, and then all of our back-end support that we have on this ITS platform. You put those three things together, and that's pretty powerful. And that's not just to go nibble at the edges of the market. This is to go in and change the way that patients are treated and healed in wound care. And that's what we're trying to accomplish here. It's a totally different approach than we started with two and a half years ago. what was it, February of 20 with the Cardinal announcement. So totally different approach. Absolutely, we believe and know that we can go compete with the big guys now.
spk08: Great. I'm excited about that. So just tell me, I mean, it sounds like this arrangement puts you in a position to be more clinically oriented. I don't necessarily want to go so far as to say you're going to put hands on the patient, but I've always felt the ITS opportunity and business platform and the DME was more of a distribution and financing arrangement with the payers. But this sounds like you're actually going to get very involved in treating patients. And A, am I right about that? And B, what gives you confidence that you can extend the company in that direction?
spk03: Yeah, so I think it's more of a clinical sale to the customer for sure, right? So historically, it's been, you know, our device versus KCI's device, right? And these devices, they're all pretty simple. So device to device, we really, there was no winner or loser there. Where we were winning when we did with against KCI was really a service sale, right? I think with the products that Sonara has with Biocos and Hicol, it is more of a clinical sale because the product actually does something different than everything else in the market, right? So this isn't, you know, we're going to put some Neosporin on and put a Band-Aid on it. These are products that are actually going to heal the wound, keep them clean, eliminate or reduce infection. So it's more of a clinical sale, but I wouldn't say there's any more clinical hands-on other than the call points will be a more clinical call point than they have in the past.
spk08: Okay, that's helpful. And then just one more for me. If I'm hearing you correctly, we're a little behind in biomedical services, but you're still pretty optimistic about the outlook and the opportunity. Is that the right way to characterize it?
spk03: Yeah, I think that's a good way to look at it. I mean, August and September definitely ramped up, and we're going to continue that ramp. We actually see some things, especially in the next year, where it starts to really accelerate. I think the good news is, you know, we always thought that there'd be other opportunities with GEE. And this RFID tagging, for example, is a good way to look at that. So I think either Barry and I mentioned in our prepared comments that, you know, the 10 to 12 million, the initial number that we were looking at, we already can see that it's going to be bigger than that long term once we're fully up and running. So, yeah, I mean, it's a little bit slower, especially, you know, in the middle of the year, right, that May-June timeframe. maybe even into July. But long term, it doesn't change the outlook other than probably it gets better. You know, if we're sitting here in a year, we're going to be better off than we thought we were, you know, six months ago.
spk08: Great. And I guess I lied. I usually do that. I apologize. But would you say that there are additional opportunities beyond even RFID with GE? And or are you seeing any other companies changing recognizing what you have with GE and seeking to take advantage of your platform in those areas?
spk03: Yeah, so I think, you know, we don't see another GE specifically, but there's a lot of manufacturers that have approached us and have been for the last year or so to work on their devices for them, whether it's, you know, recalls, remediations, preventative maintenance, those sorts of things. So those are out there, and I think we'll win some of those over time. None to the scale of GE, though. Certainly not, you know, $10-plus million. I think within GE, yeah, the RFID tagging is probably the first new program outside of the preventative maintenance. But, you know, GE touches a lot of devices in these hospitals. So, you know, over time, do we end up working on more devices outside of infusion pumps? Yeah, I mean, I could foresee that happening. But, you know, we still have some time to go and some things to prove to GE and their customers and ourselves. And, you know, when we get there, I think there'll be more opportunities for sure.
spk08: Cool. Thanks a lot for taking my questions.
spk09: Thanks, Brooks.
spk01: Our next question comes from Alex Nowak with Craig Helen Capital Group. Please go ahead.
spk07: All right, great. Good morning, everyone. All the efforts that went into the Cardinal device, could you transfer that immediately to the Cork medical device, or is there Did the sales processes need to restart there, or is that something that happens pretty immediately? And then just clarification, is Cardinal still going to be a supplier of negative pressure devices for you, or are you pretty much exiting that relationship completely, which is what's the status of Cardinal?
spk03: Yeah, so I guess I'll go in reverse. So Cardinal announced to their customers about a month or so ago that that they wouldn't be selling any additional devices uh effective immediately and no more supplies at the end of the year so cardinal's going to be kind of a dead product in the market not just infu system but in the marketplace um as far as you know does that does all the work we put into cardinal transfer it absolutely does i think we still need to retrain our biomed guys on a new device which isn't isn't super complex we need to train the sales guys on the device itself um But, you know, we're able to walk into most of those opportunities that were out there in our pipeline with the Cardinal device. We're going to flip those to the Cork device. You know, there's devices, you know, there's some bells and whistles here and there that are a little bit different, but they're relatively simple devices. So as long as they work, people are okay with it. As long as they work, they're easy to use, those sorts of things. And the Cork device absolutely meets all those requirements. So, The work we put in the pipeline, all the backend support, you know, the backend stuff is all agnostic, right? It doesn't matter what the device is. It doesn't matter what model number or serial number it is, how we bill it and how our clinical team triages it and all those things remain the same. So those aren't lost efforts. We get to use those as building blocks. We just need to train the sales guys and the biomed team on the new device.
spk07: Okay. Understood. And then I just want to make sure I have all the logistics with the new LLC and the two different agreements here. So, Am I correct to say that all the Sonara distribution sales is going to show up through the LLC and be reported not in Infuse Systems' revenue line but below the revenue line? But the negative pressure devices from Cork will still show up in the Infuse revenue line. All the revenue that we have for all those products will be in our top line.
spk04: But we'll have a very skinny gross margin because we're going to be paying close to what we're selling for so that we can capture the margin in the joint venture. So the profits basically would come to our P&L through the equity line.
spk07: And does that joint venture include the Cork Medical too or just the Sonara piece?
spk04: No, the partnership will buy the products from Cork and sell them to the system.
spk07: Got it. Okay, so all the revenue will be consolidated through MQ System or your component of the revenue will be, and then it will show up as an operating income line item, not through gross profit.
spk04: That's right. There will be a little bit of gross margin just to cover our direct expenses that we'll have. And there's some expenses down in G&A that we'll charge back to the partnership. But for the most part, the bulk of the – the earnings that we'll have will come through the equity line. Okay. I understand.
spk07: And then, and then maybe on the pain side, just what, what is driving the kind of slower uptake there? You know, we're starting to see procedure volume rebound here. Has that, you know, too busy working on something else to necessarily bring up a new pain solution. Is there anything from competition or reimbursement that them a slow in the uptake there?
spk03: No, so I don't think it's anything in the competitive environment. I think it's just the nature of the business. So, you know, we came out of the supply chain issues late in the second quarter. You kind of have to restart that kind of customer intake and onboarding process. And that just, you know, it takes a quarter or so to see that happen, right? So you got to go in, you got to set up appointments, you got to in-service the customer. They have to start, you know, you have to train their entire nursing staff and team, and then they start using the product. So it just kind of starts and ramps slow. but we almost had to restart the entire engine, right? Because supply chain, we had to shut it off. So we were able to keep our existing customer base and treat all their existing patients, but we couldn't add any new ones in that second quarter or for the majority of the second quarter. So it's just a timing issue and an onboarding process that just takes a little bit of time. And then the revenue itself can take a month, two months, three months to start showing up. So that's all it is, but it's nothing in the market. I mean, we still by far have the best offering when it comes to the continuous peripheral nerve block market. I mean, it's not even close to the next best competitor. So nothing competitive, nothing, nothing has changed in reimbursement. It's just a, it's an onboarding kind of slower uptake than we would have liked because of the supply chain issues in the second quarter.
spk07: Okay. Understood. And then maybe just thinking about next year, you know, there's been a lot of moving parts this year, but for next year you got the oncology business, you know, called stable mid single digits and, The GE business is ramping, the scenario agreement, the court medical case, the pain as well, which we just talked on. How are you thinking about growth into next year, but also the expense growth as well to support that?
spk03: I'll let Barry address the expense side. I think on the top line growth, we're still going through our budget process now. It's going to be solid, right? For everything you just said, Alex, right? Whether it's the kind of organic business and DME sales, rentals, oncology, we know what those businesses are going to do. We know pain is going to grow. We know the GE agreement is going to generate revenue. You know, Sonara is going to, the Sonara partnership is going to generate something as well. So there's going to be some solid growth there. I just don't have a sense of it yet until we go through this process. And Barry, I don't know if you want to address the margin side.
spk04: Yeah, clearly cost will go up as we grow the revenue, but overall we believe that the cost will grow slower for a couple reasons. As we have already pointed out, we still have some spending to absorb on the sales line, for example, and some other areas as well. We'll be continuously fighting the inflation that you see in the marketplace, which hasn't hurt us too much so far. So those might be wild cards a little bit on the cost side, but for the most part we think we'll grow our margins getting back to normal where we were a couple years ago.
spk07: Okay, that's fantastic. Thanks for the update. Appreciate it.
spk09: Thanks, Alex.
spk01: Our next question comes from Jim Sidoti with Sidoti & Company. Please go ahead.
spk06: Hi, good morning, and thanks for taking the questions. With regards to GE, you seem pretty confident in that 10 to 12 million number, but how long do you think it will be? Is that something that will take three or four years to get to that level, or do you think it will be quicker than that?
spk09: I would say a bit quicker. Okay.
spk03: Jim, I think we had originally put out 15 months. We still may come in at that number, or pretty close. So 15 months puts us from the original agreement sometime next summer, early fall, somewhere in that range. So I think we're still pretty close to that, give or take a month or two.
spk06: And the RFID tagging project, is that related to the infusion pumps, or is that other GE equipment as well that you'll be tagging?
spk03: all the equipment in the hospital. So it's putting stickers on, it's getting the beacon set up so that the system knows where the devices are. So it's not just infusion pumps, it's any device in that hospital that they want to tag. So it could be, you know, a defibrillator, a pump, a bed, a stretcher. I mean, anything that they want to put these tags on, they'll do it and we'll help them do that.
spk06: And And so it feels like maybe there'll be other opportunities with GE as well. I mean, if they're using you for this, that if this goes well, there's other potential there.
spk03: Yeah, I think if you prove you're a good partner and you're going to do what you say you're going to do and you do it well, it's like any good partnership, right? That they're going to open that up to other opportunities where maybe they need some help. Uh, and we can, we can do it the right way. Um, so yeah, I would expect there's going to be opportunities. There's no guarantee, but if we do what we're supposed to do and what we think we can do, uh, I wouldn't be surprised to see more of these types of projects come on board.
spk06: All right. And then a last one for me, a lot of the other companies in the space have had, um, difficulty getting enough, uh, manpower in place, uh, to meet demand. You, you've invested quite a bit though in, in, uh, headcount over the past couple of years. Do you think your staff is adequate now to meet the anticipated demand in 23 and 24?
spk03: Not yet. So I think we still have some hiring to do on the biomed side. As we ramp up GE, we're definitely going to have to add some more people. We added some, obviously, ahead of that agreement, you know, end of last year and early this year, for sure, just to have enough to get us started. But as this ramp picks up, you know, this quarter, next quarter, and in future quarters, we're going to have to definitely add some more people. And it's not easy, right? It's not easy for anybody. But it's certainly not impossible. We are very picky on who we hire. We want people that are going to be here for years and fit the culture and have the right skill set. So we kept that philosophy and culture here. So it's not easy. But, you know, when we need to get people on board, we get people on board. We also don't have a We're not kind of backfilling a ton of spots just to get to the baseline. So, you know, overall, definitely tougher than it was pre-COVID, but not an impossible task for us. And we've been able to execute on it over the last, you know, six to 12 months.
spk06: How about outside of direct labor? Do you have the sales staff, the reimbursement staff in place for the anticipated revenue growth?
spk03: Yeah, so I think the sales team, we're in great shape. You know, we might add a person here or there, but generally speaking across the board, oncology all the way to wound care, we're pretty well staffed up for a while. And that's part of what Barry's answer to Alex was about. You know, we still have some costs to cover there as we grow, so the margin should expand. I think, you know, on the wound care side, we may need some back-end support in the revenue cycle if we grow this the way we think we're going to. We'll need some support back in there, but that'll be based on how much revenue comes in and how many pumps are out the door. It's all variable costs. So as we grow, that team will grow.
spk06: But in general, it sounds like you think that the bottom line is going to start growing faster than the top line at this point.
spk04: That's the idea, for sure.
spk09: Okay. All right.
spk06: Thank you.
spk09: Thanks, Jim.
spk01: Our next question comes from Aaron Warwick with Breakout Investor. Please go ahead.
spk05: Hey, guys. I wanted to dig a little deeper here on the numbers. Obviously, third quarter was a little soft compared to the full-year guidance. But looking ahead in the fourth quarter, it looks like back into the numbers, you're estimating over $30 million of revenue, and that would be 16%, 17% top-line growth. Is that accurate?
spk09: That's correct.
spk05: So is that kind of like getting to the cadence that you're expecting roughly going into 2023 to be up more closer to that area?
spk04: I think you should be a little cautious on that because we do have some equipment deals that come at different times of the year. So I don't think I would take that number multiplied by four as a baseline. That said, there's things like the GE contract will continue to run out. Every time we add a pump, that's a additional annual fee that we'll have, so it just grows and grows. So there'll be other things that get us there. It won't necessarily be some of the things we see in the fourth quarter. Okay.
spk05: And then just on the wound care, really positive to hear the developments there, and also specifically, you know, you think you have the ability to compete with the big boys. So, you know, just going back, looking earlier, I think it was in 2021, you guys had kind of said that the TAM in wound care was $600 million. and that you thought you could win 10% of that. And obviously it was a different situation back then, not necessarily asking for a precise number or anything, but is just roughly that 10% of that TAM attainable and potentially more now that some of these developments have happened over the last 12, 14 months?
spk03: Yeah, Aaron, that's a great question. So I think the TAM is completely different. So the $600 million was specific to you know, a little bit of acute care, but really patients going home with a negative pressure device. It was kind of a small subset of even with a negative pressure, right? I mean, KCI before they got bought by 3M was what, a billion and a half, $2 billion in revenue, just a negative pressure. So the TAM has grown considerably because we're not only in the negative pressure world anymore. We have these other products with the scenario relationship. You know, I don't want to put a percentage on it or a number, but, you know, This has been a long time in the making for a reason. We were very deliberate with this partnership with Senara. And by the way, they're an awesome partner. They already have been from the people and the culture to the products and expertise. I think we're creating something special here in the wound care space. And we're not just going after one sliver of it anymore. We really think we can do some special things and take care of some patients and heal some patients that have been struggling for years in some cases with wounds. So, you know, can I put a number on it? Not really. Not right now. other than we're going after a much broader market because the product offering is that much broader. And we're not just pigeonholed into this negative pressure device anymore.
spk05: Well, I think that answer speaks for itself. Again, not necessarily looking for a precise number right now, but the opportunity is obviously a lot larger than it was. So that's fantastic for you. I mean, it sounds to me, I know you probably can't comment on this, but I mean, it sounds like it's just as good of an opportunity for Sonara as it is for you. So I think you both have a lot to gain from that partnership. So I think that's fantastic for you guys as well. Um, as it relates to the GE deal, are you able to give any numbers on that? I mean, you said to be more than 10 to 12 million, but, um, you know, what, how much more than that? I mean, are we talking double that we talk in, you know, 20% more, more, just some rough ideas.
spk03: Yeah, I think it's, I think it's an incremental, you know, single-digit million number. It doesn't go from 10 to 12 to 20 to 25, right? I mean, it's a low-teen kind of number. It's just the good news is it's still there, and it's better than it was, and we're just going to onboard more pumps, I think, is ultimately what we're going to do. I think Barry has a comment, too.
spk04: One way to maybe look at it is that our 10 to 12 implied around 60% of the devices that they control us getting. So we know we won't get all of them for various reasons, but that just gives you something to measure. But that doesn't even count the other opportunities like the RFID tag and other things.
spk05: Okay. Back to the Sonara deal, in terms of sales support there, what are they providing? What's their role in that?
spk03: Yeah, so sales is going to – so we have our team that we built out I guess it was the middle of last year, still intact and ready to go and starting training here shortly. Sonara has, I think it's like 30 plus, almost 40. I think they call them regional managers, regional account managers. Most of what they do is tied to their surgical part of the business, but they are going to help on the negative pressure and wound care side as well. So we're going to leverage their team in addition to our team and hit the market that way.
spk05: Okay, final one for me then is just what are you thinking of in terms of longer term with your EBITDA margins? It sounded like those would probably be increasing based upon what was mentioned earlier about obviously revenue growing, but then expenses will also grow, but at a lesser degree. What are you kind of looking at longer term for those margins?
spk04: I think it would be the same as what we've indicated before, that if you pale back the investments we currently have on our P&L, we should be you know, mid to low 20% EBITDA margin. As you look at the contribution margin from any one of our businesses, including the biomed, which is the lower end of the range, those are all north of that amount. So we should be able to grow that margin as we grow the top line. The key will be how fast we do it, right, because we're going to see cost pressure are things that we've got to overcome over time.
spk05: Sure. Sure. So you're thinking, just to be clear, you're thinking like 22 to 25 or something like that in the long run, like if it was a steady state and no more investment?
spk04: Yeah, I think that if we're more like 22 to 25 right now, if you're able to get the volume to overcome the extra expenses that we're incurring just to help grow the business. There are probably more things in the future we want to invest in, so that will keep it down a bit, but underlying is a much better contribution margin, so that should come through at some point.
spk05: Excellent. Thank you, guys. Very happy with the direction you guys are headed. Hope you have a good holiday season.
spk09: Thanks, Aaron. You too.
spk01: This concludes our question and answer session. I would like to turn the conference back over to Rich DiIorio for any closing remarks.
spk03: Thank you, Sarah. I want to thank everyone for participating on today's call. I hope everyone has a great day. And I look forward to talking with you again when we host our fourth quarter and year-end call.
spk09: Please stay safe, and thank you.
spk01: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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