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spk03: Good day and welcome to the MFU Systems Holdings Incorporated reports first quarter and full 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 touch tone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Joe Dorme. Please go ahead, sir.
spk01: Good morning and thanks for joining us today to review IMFU System Holdings financial results for the fourth quarter and full year 2022, ended December 31st, 2022. With us today on the call are Rich DiIorio, Chief Executive Officer, Gary 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. Before we begin with prepared remarks, I would like to remind everyone, certain statements made by the management team of MPU Systems 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 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 over to Rich DiIorio, Chief Executive Officer of InfuSystem. Rich?
spk02: Thank you, Joe. Good morning, everyone, and welcome to InfuSystem's fourth quarter and year-end 2022 earnings call. Thank you all for joining us today. Our press release announcing results for the fourth quarter and for our fiscal year 2022 was distributed earlier this morning. As you can see from the summary financials in the release, we underperformed against our expectations for the end of the year. This was the result of a few material deals that did not develop as expected at year end. It should be noted, however, that in the fourth quarter we did deliver 8.7% top line growth versus the prior year. Our core oncology, pump sales, and rental businesses remained very sound, and we delivered another year of strong operating cash flows. Our core business remains strong, but we did struggle in 2022 to advance certain growth initiatives. Case in point is our negative pressure wound therapy business. We had expected to close on some material new pump placements during the fourth quarter. In December, we had the orders, but found ourselves unable to ship devices and book the revenue when our manufacturer could not get us the devices before the end of the year. This time, the supplier problem was not with Cardinal, but instead the new supplier that we had selected to replace Cardinal. Our new partner identified a circuit board problem related to one of its components. The faulty circuit board made the equipment unreliable and unsafe for patients, and this made it impossible for the manufacturer to release the devices. In response to the supply chain problem, we have expedited our efforts to identify and onboard multiple reliable negative pressure device suppliers. In the meantime, I can report that the supply chain issue did not hurt us with respect to the affected customer. The circuit board problem is being resolved, and we have begun making the planned deliveries in the first quarter of 2023. At this point, I would like to turn the call over to our CFO, Barry Steele, who will discuss in more detail our fourth quarter and fiscal 2022 financial results.
spk04: Thank you, Rich, and good morning, everyone. Let me start with an explanation of why we are reporting results much later than we have over the past few years. As many of you are aware, NP System reached a key milestone in 2021 by exceeding the $100 million revenue threshold. While exciting for our team, it also brought new reporting responsibilities, namely a requirement for an integrated independent audit that included an audit of our internal control environment in accordance with Rule 404 of the Sarbanes-Oxley Act of 2002. Like many companies addressing such a challenge, the amount of effort put forth to complete the controls audit for the first time slowed our reporting process timeline. To prepare for this eventuality, we'd begun putting resources towards making ourselves ready for the controls audit in the summer of 2021. This readiness project included expanding our internal audit resources, documenting our financial processes and controls, and identifying and enhancing key control activities. These efforts were not completely successful and, like many companies experiencing their first integrated audit, we identified several material control deficiencies that we are unable to correct prior to the end of the year. These will be outlined in detail along with our plans to correct them when we file our 2022 annual report. In summary, the deficiencies fall into three categories that first include control surrounding information and reports that we create and use to support our controlled activities, or so-called IPE. Second, controls over access rights of our team members within certain software applications used in financial reporting meant to establish adequate segregation duties over certain financial reporting processes. And third, manager review controls covering both customer prices and contract terms in certain of our revenue cycles. While these deficiencies are important and correcting them will be a high priority for 2023, it is an important fact that the deficiencies were not identified in conjunction with any specific error in or restatement of our financial statements for any period. In fact, our audit firm has not identified any necessary adjustments to our financial savings in conjunction with their substantive audit procedures. This has been the case for 2022 and for several prior years. Furthermore, as the audit has proceeded, we have already begun to plan and implement improvements to our control activities and add additional controls that we believe will mediate each of these controls efficiency areas without significant additional administrative problems. Turning to the actual results themselves, I want to share with you some insights into the financial performance of the fourth quarter. For 2022, fourth quarter revenue was $28.8 million, which topped the prior year fourth quarter by 8.7%, and represented a 5.7% improvement sequentially from the third quarter. This amount establishes a new quarterly revenue record, our fifth in a row. The year-over-year quarterly revenue growth of $2.3 million included improvements in oncology, pain management, biomedical services, equipment sales, and equipment rentals. Three of these categories, oncology, biomedical services, and equipment sales, all grew by just over $700,000 each. Increases for biomedical services and pain management represented growth rates of 50% and 45%, respectively. Negative pressure wound therapy revenue partially offset these increases, with a decrease of $302,000, mainly due to a difficult comparison to 2021, which included equipment sales that were not repeated in 2022 due to the supply chain issue previously mentioned by Rich. The biomedical services revenue included over $600,000 in revenue for the GE Master Services Agreement, which was launched in April 2022. During the fourth quarter, we continued the process of onboarding covered devices as part of a ramp-up period originally expected to span the first 15 months of the contract and achieve a run rate totaling $10 to $12 million annually. The actual onboarding pace realized during 2022 was slower than originally expected. However, during 2023, the monthly onboarding rate is expected to accelerate. We now anticipate reaching an annualized run rate of $10 million by September 2023, 18 months after the initial launch, and $12 million by December 2023. Onboarding activities are expected to level off during the first quarter of 2024 to bring total annualized revenue under the contract to an amount slightly above the original expected range. The strong fourth quarter revenue led us to annual revenue for 2022 of $110 million, which is our fourth straight annual revenue record, and an improvement of 7.4% from 2021. Higher amounts of revenue led to an increase in gross profit of nearly $800,000 during the fourth quarter of 2022, despite a 2% decline in a gross margin percentage. The decline in gross profit margin percentage was attributable to a different mix of product volume favoring lower margin revenue, such as medical equipment sales and the biomedical services revenue, a change in the impact from adjustments in our missing pump reserve, which was a benefit in the prior year, and higher pump maintenance expense on our pump rental fleet. The lower biomedical services gross margin was partially attributable to temporary expenses associated with building a larger team, such as training costs and other startup expenses for the project. Selling general and administrative expenses were higher in the fourth quarter of 2022 by about $2 million as compared to the prior year. This increase included a higher expense accrual for our short-term incentive bonus totaling approximately $1.5 million and severance and other termination costs associated with a reorganization of certain management positions totaling approximately $600,000. Other increases were offset by a decrease in stock-based compensation expense of $900,000 and include investments in business applications for the biomedical services revenue, additional headcount to support higher sales volume, and inflationary increases in wages and salaries. Adjusted EBITDA for the fourth quarter was $5.5 million, or 19% of revenue, representing an approximate $1.1 million decrease from the fourth quarter of 2021. However, adjusted EBITDA for the fourth quarter of 2021 included a $2.2 million benefit related to the fourth quarter adjustment in our short-term incentive accrual in that year. Turning to a few points on our financial position and capital reserves. We continue to be positioned well to fund net revenue growth with strong 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 $1.1 million to $33 million and our available liquidity to over $41 million at the end of the quarter. Our net debt to adjusted EBITDA continues to be a modest 1.59 times. Our debt consists of borrowing on our evolving ladder credit with no term payment requirement, just under three years remaining on its term, and $20 million of which is protected from increasing interest rates through an interest rate swap having the same tenor. And with that, I'd like to turn it back over to Mr. Di Iorio.
spk02: Thanks, Barry. Despite some challenges, 2022 was a year filled with significant strategic accomplishments. In the first half, we signed and were able to announce our master services agreement with GE Healthcare. We believe that relationship will serve as a springboard for significant growth in our biomedical business, and more broadly, our entry into acute care. In the second half, we signed and announced what we believe will be a material joint venture with Sonara MedTech to distribute its advanced wound care products. I am absolute in my belief that InfuSystems long-term prospects are stronger than ever. The shift in timing of the negative pressure pump deliveries to this quarter, coupled with our improving GE ramp, gives us confidence that we will be ahead of our internal budget for the first quarter, giving us a strong start for the year. That said, I fully appreciate that the delays we have experienced in delivering on some of our major growth initiatives warrant appropriate adjustments going forward. This presents in two ways. First, as discussed last year, We're going to be very conservative around our longer-term guidance. We're only going to talk about business we can clearly see, predict, and deliver. Second, respecting the length of time it is taking for some of our growth initiatives to launch, our plan is to trim some investments and hold back on some spending to more closely align our growth-related cash outflows with more cautious expectations around the timing for our revenue ramp. In wound care, this means being conservative with some planned investments as we take into account the need to find a secondary supplier of negative pressure devices and the time it will take to get all of the regulatory approvals necessary to begin distributing and billing scenario products under the new joint venture. We believe we will be going at full strength in our expanded wound care initiative as we enter the second half of the year. We will be making similar adjustments to reduce our spending and investments related to some lower priority growth initiatives. Pain management is one area of focus here. We have a great offering in pain, and there has always been a lot of interest in the program. While it is growing, it is behind our expectations as it has been confronted by one challenge after another, including supply chain shortages and the impact of COVID. Given the much larger opportunities that have emerged in recent years, particularly our new growth initiatives with GE and Sonara, we are taking steps to retool that initiative, and at least for 2023, there will be less of a growth focus and more of a focus on ROI in this pain business. That leads us nicely into a higher level review of our business and strategic priorities for 2023. As an introduction, it has been a couple of years since we first launched what we called our INFUSYSTEM 2.0 initiatives. Recall that just a few years ago, INFUSYSTEM was generally understood to be an oncology pump rental business with strong operating cash flows but limited growth prospects. We've been very busy changing that. And this results from the recognition that over its three plus decades of operations, INFUSYSTEM has developed some very significant capabilities. And a few years back when we began looking outside the scope of our core business, we quickly discovered that there is a lot of demand within the healthcare community for the unique and powerful solutions that we can deliver. Today, it takes time to review all the opportunities that are or could be pursued under each of our two operating units. In our integrated therapy services or ITS business, the strategic objective is to leverage the platform we've built for oncology into additional therapies, pain management and wound care currently being the two primary examples. Our second business unit, DME Services, has historically operated primarily in a support function to ITS. But that changed when we did an ROI study and identified the incredible potential inherent within our biomed services group. In addition to servicing our own pump fleet, our highly skilled biomed teams can be deployed to service customer-owned devices. While biomed starts with lower gross margins, it has minimal capex requirements and leverages the capabilities we have spent decades perfecting. The new Biomed revenue opportunities balance our ITS and pump rental efforts by delivering growth with a low CapEx model. The emphasis on biomedical services is relatively new, but I've said before that I expect Biomed to be the first of our various growth initiatives to scale to the point of exceeding the size of our core oncology business. And as we increase the reach of our Biomed services, this will create new opportunities in acute care for our core DME service business, which includes pump rentals and the sales of both medical equipment and consumables. Over the last couple years, we've made substantial progress in repositioning the company. Infosystem is now a multifaceted business with significant growth opportunities. And as word gets out within the healthcare marketplace, these opportunities keep expanding. Here are the highlights. In 2019, we worked with McKesson to onboard their oncology patients. In 2020, Cardinal approached us to help provide a last-mile solution for their negative pressure wound therapy pumps. In 2021, our new biomed offerings captured the attention of GE Healthcare which led to the multi-year master services agreement. And in 2022, our partnership with Sonara was formed through a joint venture relating to wound care and the opportunity to combine their best-in-class products with our industry-leading services and payer network to change the way wounds are treated. InfuSystem is increasingly well-known for its exceptional levels of service and our culture that is committed to exceptional patient care. We solve problems for device manufacturers, hospitals, clinics, patients, and payers. We are experts in the last mile and every year handle the logistics for hundreds of thousands of pumps and the paperwork and revenue cycle for even more medical procedures and service calls. We've seen that these capabilities are sought after by many leading healthcare companies and that there is no shortage of opportunities for expanding the business and delivering significant long-term growth. Going into 2023, it is clear that to effectively execute against our potential, it is necessary to apply focus to the most important of the current opportunities and those with the greatest long-term potential. What this means in our DME services unit is easy. Focus on executing and ramping the relationship under the GE agreement. To give additional color to this, I'd like to have Carrie Lachance, our president and COO, discuss our partnership with GE and the progress we have made at the end of 2022 and the acceleration of our ramp up as we start the year.
spk08: Thanks, Rich, and good morning, everyone. When we announced the GE master services agreement in April of 2022, we were very excited to get things rolling. We had several months to prepare and had hired and trained the appropriate number of biomedical technicians to begin the onboarding process. As we reported later in the year, however, the onboarding was slower than expected during the early stages. I think it's important to explain that the delays were not caused by problems with the early rollout, just the reverse. Our white glove approach and services were received very favorably, however, We needed to slow down in an effort to align expectations and gain efficiencies. Since then, we have worked hard with our partner to better align the communication channels, further streamlining onboarding processes, and to develop and implement software tools shared between our companies. As intended, these process improvements are paying dividends now, allowing us to significantly accelerate the onboarding process. I am confident that the careful and measured approach we took in 2022 will greatly enhance the long-term success of the strategic relationship. Our visibility to the work ahead continues to improve every month, and we now have a clear schedule of upcoming locations, number of devices to be serviced, and appropriate staffing needs. Our pace with the GE contract is accelerating. Each month, we are onboarding more devices than the prior month. and we have already onboarded more devices in the first quarter of this year than we did in all of 2022. At our current pace, we will be well ahead of our Q1 forecasted ramp-up. As Barry mentioned earlier, these initial indicators should allow us to get to the $12 million run rate by the end of this year. We are extremely proud of the quality of work our teams are performing. We will continue to onboard more technicians as we scale into larger hospital systems throughout the U.S., I'm happy to report that the feedback coming from GE customers on the work we have completed has been phenomenal. This is further proof of what we believed early on, which is that our biomedical services capabilities are a core competency that we have perfected over the last couple of decades. At this point, I would like to turn the call back over to Rich.
spk02: Thanks, Carrie. So in 2023, focus and execution in our DME services business means, one, protecting and expanding our core pump rentals and sales and consumables business. And two, absolute obsessive attention to executing above and beyond under the GE Master Services Agreement as the planned rollout continues and opportunities emerge to expand the relationship and services, thereby deepening our move into the acute care setting. In our ITS business unit, we are moving to apply a similar focus that will result in improved execution against the potential demonstrated in our business. In 2023, this means our priorities will be first on our core business in oncology, providing excellent patient and customer service, and continued expansion of our already dominant market position, generating more revenue and continuing our strong and steady cash flows. And second, our most important incremental therapy this year will be the new Senara joint venture. This doesn't mean we've lost interest in our other ITS therapies, including pain and lymphedema. Instead, it means that current circumstances warrant that we prioritize and focus on executing against our largest and most compelling current growth opportunities. Our lymphedema opportunity is still present, It was, of course, sidelined when we shifted attention to the more urgent and compelling GE opportunity when it emerged in 2021. And pain in 2023 will have an increased focus on improving ROI and less on the pursuit of growth as we shift resources to the more urgent and compelling Cenara opportunities. As we discussed during our last earnings call, the Cenara opportunity incorporates and greatly expands upon our prior negative pressure efforts with Cardinal. Our Cenara wound care initiative gives us a complete product portfolio. and is a more compelling offering to take to healthcare providers. It also targets a much broader addressable market. Our relationship with Cardinal excluded us from the largest segment of the wound care market located in long-term care and skilled nursing facilities. And this is our initial focus in our joint venture with Sonara. So our key objectives in 2023 in our ITS business are one, to develop a more robust device agnostic supply of negative pressure manufacturer and suppliers. Two, obtain all necessary accreditations and approval for devices and products. Three, as devices and approvals come through, work with Sonara to continue to develop best practices and build our pipeline. And four, ramp business into 2024 in an effective and efficient way. And stepping back, the strategy for all of Infosystem in 2023 is focus and execution. In DME services, this means our core business and successful ramping of GE through the year. And in ITS, it means advancing the core business and launching this in our wound care joint venture, getting all the pieces in place during the first half, and then gaining momentum in the second half in order to be able to deliver in 2024 the kind of growth we are seeing in 23 from GE. Before commenting on guidance, I want to announce some branding changes that you will be seeing as we refresh our IR deck. Over the last few years, we've been referring to our two operating units, most often by their acronyms, ITS and DME. Moving forward, what was ITS will now be known as patient services, and what was DME services will now be known as device solutions. In short, patient services focuses directly on improving the quality of life for our patients by enabling continuity of care, while device solutions focuses on allowing our customers to do the same, utilizing the devices we support. Now moving to our 2023 guidance, I would like to first reiterate the point I emphasized earlier. that Infosystem is a company surrounded by opportunities creating truly significant growth potential. I believe we have so much opportunity that the key to our success in 23 will be to prioritize and focus on executing against our most significant opportunities. The first of these is our master services agreement with GE Healthcare and the adjacent projects that are already beginning to develop for us in acute care. As Barry and Kerry mentioned earlier, our biomedical services business with GE is now ramping and will have a material impact on our results in 23. Our second priority this year will be developing the Sonara Wound Care Joint Venture and preparing it to begin building momentum later this year to deliver significant revenue next year. As discussed last year, we intend to be much more conservative with our guidance going forward. This acknowledges the difficulties we've had in accurately predicting when material events will occur. I hope everyone will agree that we've generally been pretty good in describing where our business is going. For example, the strategic initiative in biomed that began with a couple of small acquisitions in 2021 and led directly into the current master services agreement with GE. The difficulties have been in accurately predicting the timing of things. For example, we were very confident in closing on some material negative pressure wound therapy placements in December of 22, only to see that that business pushed unexpectedly into 23 due to an unpredictable circuit board problem with our device supplier. Turning to our outlook for 23, we are taking a conservative approach to our guidance. We are estimating full year 2023 revenue growth, to be in the range of 8% to 10%, or approximately $118 million to $121 million in net revenue. We are forecasting adjusted EBITDA margin to be greater than 19%, or more than $22 million for the year. It's important to note the guidance for 2023 does not include any material revenue from the Sonara Wound Care Initiative and reflects a modest growth forecast for pain management, making this outlook more achievable. And now we are happy to answer any questions.
spk03: We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Brooks O'Neill with Lake Street Capital Markets. Please go ahead.
spk06: Good morning, everyone. I have a few questions. I guess I'll start on the DME side. I appreciate the comments, particularly that Kerry made, but can you talk about how satisfied GE is with your performance in the execution with them?
spk02: I think I don't want to speak too much for them, but, you know, between GE and the customers, I think they're very satisfied. I think that that's why we're... You know, the governor kind of came off the program and the ramp up kind of late in the fourth quarter and certainly into this year, and we're starting to see the ramp really accelerate. I think it's a combination of GE just kind of getting to know us and seeing our performance and also them getting feedback from their customers, not just us. So, you know, if I had to speak for them, I'd say they're very pleased with the performance so far.
spk06: Great, Rich. Could you just amplify a little bit on what you mean when you speak about the broadening opportunity in acute care? And is that arrangement similar to what you do with GE, or do you anticipate different but related opportunities?
spk02: Yeah, that's a great question. You know, historically as a company, we've been in acute care a little bit on the oncology side when our customers are hospital-based. But for the most part, we've been more in the alternate site market. So private practices, ambulatory surgery centers in pain, even the home infusion space on our DME side. It's really tough to kind of break into the acute care space. And what's going to broaden for us and change for us is with GE and us, you know, all of their businesses in the hospital space, So once we're in the hospital, we have a presence and the customer's happy with our performance on the biomed side, you know, does that open up opportunities for us to rent pumps, to bring our negative pressure program in, to do some other things within the acute care space that we didn't have entree into before? So this kind of opens up a whole new world. Some of that hopefully will be with GE and other programs beyond just repairing and servicing devices. But some of that will just be our sales team having an opportunity to now call in a customer that they didn't have access to before. You know, there's no number to put on it, but having access to the biggest space in healthcare that we didn't have before certainly will create opportunities over time for us.
spk06: Right. And then just a third question on that side of the business. Could you just say whether you see opportunities with other clients beyond GE on the DME services business?
spk02: Yeah, so we don't see anything the size or scale of GE kind of that's imminent. But there's certainly, you know, at the customer level hospitals that we're doing service with today, we're trying to focus mostly on the GE piece and in some cases even walking away from kind of one-off deals just to focus and get the GE contract up and running. But there's definitely one-off hospital deals and there's manufacturers that approach us all the time to help them with service in the field, recalls, issues that they have. So over time, that's why I think it's going to be the, you know, the first program to catch oncology is GE is not going to do that on its own. It's going to be a nice cornerstone for us to launch off of. But the opportunities outside of GE are all over the place. It's just we want to get this contract and execute on it and then move on to the other opportunities.
spk04: Hey, Brooks, this is Barry. What I want to add to that is when we're done launching all the GE business, we're going to have a geographic breadth and capabilities that will be enhanced to a point where we'll be able to serve the market very, very well. So I think you should look forward to that benefit that will come from that.
spk06: Great. That's perfect. Let me switch and ask you a little bit more about negative pressure and the wound treatment business. Obviously, you know, to get bit by a second bug in that area is disappointing. But I know you staffed up considerably to prepare for growth in that business. Could you give us a sense for your staffing today and whether you feel that'll be fully utilized during 2023 as you ramp this in our partnership?
spk02: Yeah, so we made the initial ramp in the team, I guess it was in the summer or fall of 21, to really make a big push on the negative pressure space with Cardinal. That team, I think we bounced up to like 15 people from two or three at that point in time. It was a pretty considerable investment. We're down to about eight now. So we've cut back. Some of the people that we hired weren't what we thought they were. And with Cardinal kind of pulling out of the market in the summer, we peeled back that team a little bit to just keep the core team in place so that they can help us launch the scenario opportunity. So the investment's been cut considerably. There's still an investment there for sure, but it's about eight salespeople, give or take, maybe one. So the good news is that team is in place. They are currently working on opportunities, starting to build a pipeline with Sonara that should gain momentum in this year and really start to return results next year. That's the plan.
spk06: Okay, and I'll ask just one last one. I think you said and wrote in the release that you don't expect a contribution from Sonara in 23. It sounds like you think it's going to begin to ramp up in the back half. Do you really think we'll see a meaningful contribution in 2024? Obviously, that's a long time down the road, but is that what you're thinking?
spk02: Yes. So in 2023, nothing from Sonara is in the guidance. You know, we're hopeful that some revenue will come in in the back half of the year, but again, the timing of that is a really tough thing to predict. But rolling into 2024, we absolutely expect some meaningful revenue coming from that Sonara partnership.
spk06: Okay, great. Thank you for taking my questions. Thanks, Brooks.
spk03: The next question will come from Alex Nowak with Craig Hallam. Please go ahead.
spk05: Okay, great. Good morning, everyone. So I want to ask kind of a high-level overview question to start here. So there's a lot of moving pieces on the call here. Is it fair to say you're deprioritizing the ITF segment and really focusing on biomed in the near term? And that's really because you just have more line of sight there. And then when you look back, what do you think ultimately made ITS, whether it be pain or wound, so difficult to tackle in these new therapies? That's all despite the market share leadership you have in oncology. Why did the oncology piece and your strength there, why did that not translate into these other therapies?
spk02: Yeah, so Alex, thanks for the question. There's a lot to unpack there. So let me start with the prioritization of ITS and DME. I wouldn't say we're deprioritizing ITS. I think we're deprioritizing pain within ITS. And the reason is, you know, the opportunity set with the Sonara and wound care piece is just too great long-term for us to not put resources and time into that versus pain. It doesn't mean we actually expect pain not to grow. We actually have a pretty modest growth number in there, but we expect some growth from pain. It's just, you know, this executive team, our company's time, marketing resources, IT resources, that's going to largely be shifted into the Sonara relationship and partnership. So it's not that we're deprioritizing ITS. Just within ITS, pain is kind of moving second in line behind Sonara in wound care. The GE opportunity, obviously that's a major focus because it's here, right? It's arrived. It's in our hands. It's ramping today. It's not something that's here in three months, six months, or 12 months. So that's certainly a priority. But I would say that that and Sonara, like if I could write on the board what are our company priorities to focus and execute on, it's the GE relationship on the DME side and the Sonara preparation for 24 on the ITS side. I would say that that's how we're prioritizing things internally. As far as the challenges with pain and wound, it's been different. Pain has been hit with a lot of things kind of out of our control from drug shortages and bag shortages three or four years ago to COVID multiple times. Supply chain issues last year for almost the whole first half of the year. It's just things outside of its control. It's not that the program's not great. The program is as strong as it's ever been and people love it. I just think that it's been hit with some things outside of its control. And I think that's a market thing with pain. I think in pain it's You know, the market is driven by opioids, and it's easy for people to drop back to that versus just, you know, saying, hey, we're going to push through issues and continue to use a continuous peripheral nerve block. In wound care, I think that's different. I think in wound care, it's a need in the market. It's not something that's nice to have or we don't have to shift people's paradigm. It's a product and a service group that people are going to need. You know, just to kind of pile on the wound piece, What we launched three years ago with Cardinal is not what we have today. And I want to be kind of clear about that. You know, we launched Cardinal. We thought they were going to be a great partner. It was right in the face of COVID. It was like two weeks before. And we had one product. And we had one product in a very limited market. We were only allowed in the kind of post-acute space or patient to home, I think is a better way to say it. But we were kept out of the skilled nursing facilities and long-term facilities in that agreement. And that's where the majority of the revenue is in the patients. With the Sonara relationship and the cork relationship, it's totally different. We have full access to the full breadth of the market with a full product suite. It's a totally different service than what we launched three years ago. Three years ago, it was an entree into the market. It was a way to get in, see if we were interested in it, see if we could perform. It wasn't a great relationship with Cardinal, and ultimately, they ended up pulling their device from the market. What we launched in November with Sonara and we're currently rolling out now, totally different offering. totally different market space, totally different addressable market. It's as if we started over in November, and I think that's a great thing, because where we were prior to that wasn't, it was something we probably wouldn't have continued with if that's all we had.
spk05: Okay, that's extremely helpful just to give us kind of a high-level overview on the shifts, and it makes a lot more sense when you laid it out like that. But, you know, pushback on the pain piece, you did see something like, what, 40% growth in pain this quarter in Is there a concern by you or internal to the team that maybe you're letting off the gas on pain just as it's starting to ramp? Or does it really kind of come down to the ROI where we could allocate those resources to GE or the wound piece and we could see a greater return on our investment in a shorter amount of time? And it's simple as that.
spk02: Yeah, I think it's a little bit of that. So we made a lot of investments in pain last year. That was on the priority list because Sonara wasn't kind of – know there until the end of the year so pain was one of the priorities with ge so we made a lot of those investments in time energy and and financial resources last year which started to prove itself out in the back half of the year like you said with the 40 plus percent growth in the fourth quarter those investments are going to continue to pay off we still expect strong double-digit growth from pain it's not like we expect it to be flat this year at all i i think we're you know we're looking at 30 40 growth this year so we expect it to continue we just don't need to pour a lot of the resources we put into that last year back into pain, we'd rather put that in a scenario because the opportunity is just too big, specifically on the ITS side. Obviously, we're going to continue with the GE priority. But yeah, we invested in it last year. It started to prove itself out at the end of the year. We're not taking our foot off the gas. We just don't need to put additional resources in. And actually, we can take some of those off of that program and now redeploy them into the scenario and wound care piece. We're like any company, right? There's finite resources and where do you put them? Long term, the opportunity set with wound care is just so great. We have to start putting a push behind that to get it going.
spk05: Okay, makes sense. And then, Rich, you did start to call off talking about a few deals that didn't materialize. And, you know, this led into the conversation about setting guidance conservative. And we've heard, you know, we've heard that over the last year here in 2022, talking about conservative guidance. So as you're entering 2023 with the 8% to 10% growth that you have outlined, How can you give us confidence that that is actually a conservative view, that there couldn't potentially be a slip up here, GE delays? Sonara is not included, but perhaps pain comes in more around that 20 percent versus the 30 to 40 that you just mentioned. Just how to help investors around that conservatism we're thinking about for 2023.
spk02: Yeah, I think to start, you know, we did talk about this in November and being more conservative. I think last year it was a little bit more of a challenge because we were a little hamstrung on what was already out there. This year it's a clean slate, right? So we can start being conservative. We can start with the 8% to 10% and hopefully build from there. I think there's a couple of things. GE is not a glimmer in our eye anymore and a hopeful ramp. We're seeing the ramp now. I think maybe Kerry mentioned it earlier that You know, in Q1, we're going to onboard more devices than we did all of last year within the GE relationship. So that's already arrived. That's not like we're not hopeful that it continues to ramp or that it ramps. It's already here. The pain conservatism is already in the budget. So we didn't go and ask for 50, 75% growth from those guys. We asked from a number that we have clear sight into, accounts that are already onboard at the end of the year, that revenue will show up this year. or accounts that we've onboarded or had clear sight into the onboarding date and will generate revenue and nothing kind of outside of that. And like you mentioned, Sonara and the wound care piece, there's nothing in here other than what we already rolled forward from 2022. So it is conservative. Our hope is that this is just the baseline at the beginning of the year, and as the year progresses, And we have a better line of sight into the specific timing of paying accounts or the continued ramp in GEE that we can give you guys line of sight into that as we move forward. But I think this was a good way to start conservative with a really solid baseline that we can see and touch and feel with a clean slate this year and then build off of that as things progress. But Q1 has been a very good indicator for us. And, you know, we're almost through the whole quarter. I don't have visibility into every dollar that's going to come in, but the first couple months between GE and some of the other parts of our business is a very positive sign for this quarter, which obviously is a good indicator for the rest of the year.
spk05: Okay, that's extremely helpful. And then just last question, just given the internal control issues that you outlined here, just quick questions. When would you expect to release the 10K? What's the timeline to fix those internal control issues? And then... Are there any covenants or stipulations in the debt regarding the delay to the 10K or internal control problems?
spk04: So the 10K is due tomorrow. We expect to file tomorrow. The deficiencies that we have are not unusual for companies just, you know, first reporting stocks and given our size and breadth. For example, segregation duties, typically an area you have issues when you don't have a huge team. So they're pretty easy to fix. As I said in my remarks, Not without a lot of cost, which also implies it shouldn't take us very long to fix it. As far as covenants go, don't see any problems with covenants. There's nothing in our bank agreements that indicate that having a mature weakness is an issue for our banks. So no problem there.
spk05: Okay. All right. Very helpful. Thank you. Appreciate it. Thanks, Alex.
spk03: Again, if you have a question, please press star, then 1. Our next question will come from Jim Sidoti with Sidoti & Company. Please go ahead.
spk07: Hi, good morning. Thanks for taking the question. I just want to be clear with the situation with the negative pressure wound therapy. So you started with Cardinal. They discontinued the product. You went to Cork. You've had production problems. So are you saying you're going to have a third supplier over the course of 2023?
spk02: Yeah, the hope is that over time we have a third and fourth and fifth supplier. So what we want to emulate is what we do in oncology, which is we're completely device agnostic. We carry every pump on the market for the oncology patients. We'd like to get to that point or as close to that point in wound care as well. Cork was coming in as our second device before we heard from Cardinal that they were pulling theirs. So our number two device moved up to number one on the list. Uh, you can't get new devices in overnight. It takes, it takes months. It doesn't take years, but you have to go find the right product. You have to, we have to make sure it's safe clinically. We have to have signed the right agreement for the company. Um, so we'll have a second device this year. Um, you know, probably in a matter of a few months, we'll have some, a secondary supplier. And then the hope is not to stop there, right. To continue to look at a third and fourth, um, as we progress. So yeah, we, we have to solve that problem. We thought cork was a solution in case something happened with Cardinal. Now we need something in place in case something else happens with cork and continue down that path.
spk07: So how long do you think it'll take before you have another pump on the shelf?
spk02: Yeah, good question. I think we're talking to three or four companies now. They're all in various phases. But I would say, you know, within the probably next quarter, you know, it's imminent that we're going to have a second device. So it's not too far off. Okay.
spk07: Okay, and then you gave an annual revenue number, but if you look at, you know, the quarters in 2022, you're basically, you know, $27 million every quarter until the fourth quarter, then it popped up to $29. Do you think in 2023 you'll see, you know, more gradual growth quarter over quarter?
spk04: Yeah, the main reason for that is the GE growth. contract is a lion's share of the growth we're seeing. And as we add pumps continuously every month, it'll gradually grow as you get through the year. And those are very easy comps because we had nothing in the first quarter last year. We had just a very small, actually nothing in the second quarter. So yes, it'll be much more gradual as you see the sequential increases in each quarter.
spk07: And do you think you'll generate free cash flow in the year? And if you do, what do you think you'll do with it? Will it be another stock buyback? Will you be paying down debt?
spk04: Yeah, clearly no question that we'd be generating free cash flow. We have consistently for three or four years. There's no reason this year will be any different. Keep in mind that the growth is in not capital-intensive type businesses, particularly the biomedical services. And what will we do with it? I think that our capital allocation priorities haven't changed. They're primarily investing in the company and our growth opportunities generally and return capital to shareholders when it makes sense. And that will most likely be through buybacks and that sort of thing.
spk07: Okay. And then the last one, Barrett, do you think you have an adequate team in place now with these new accounting regulations or do you think you'll have to add?
spk04: Yeah, we already have, yes, we'll add one or two people. As I said, though, the control deficiencies that we will have to overcome are not huge cost type of items. They're pretty simple things to fix. If we had earlier, had seen some of these things earlier in the year, we would have had them fixed before the end of the year. So we don't see a major issue here in resolving the issues. Yeah, we would couch it up as more normal things that companies going through what we're going through would have to encounter. Okay. All right.
spk03: Thank you. Thanks, Chip. This concludes our question and answer session. I would like to turn the conference back over to Mr. Richard DiOrio for any closing remarks. Please go ahead, sir.
spk02: 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 first quarter call. Please stay safe, and thank you.
spk03: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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