InfuSystems Holdings, Inc.

Good day, and welcome to the Infuse System Holdings, Inc. Report's fourth quarter and full year 2024 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 a touch-tone phone. 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 Joe Dorme of Lesson Partners. Please go ahead.

Good morning and thank you for joining us today to review InfuSystems' fourth quarter and full year 2024 financial results ended December 31st, 2024. With us today on the call are Rich DiIorio, Chief Executive Officer, Barry Steele, Chief Financial Officer, and Carrie LaChance, President and Chief Operating Officer. After the conclusion of today's prepared remarks, we'll open the call for questions. Before we begin with prepared remarks, I would like to remind everyone, certain statements made by the management team of MPU System 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, 2023. 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 statement except as required by law. Now I'd like to turn the call over to Rich DiIorio, Chief Executive Officer of INFUSYSTEM. Rich?

Thank you, Joe, and good morning, everyone. Welcome to INFUSYSTEM's fourth quarter and fiscal 2024 year-end earnings call. Thank you all for joining us today. I'll begin the call with an overview of the fourth quarter of the year. After that, Barry will provide a detailed summary of our financial results. Carol will give an update on our launch of ChemoMouthpiece, and then I'll have some additional comments before opening the line to questions. At the start of last year, we announced that 2024 would be an accretion year. After growing 14.4% in 2023, in part due to the rollout of the National Service Agreement with GE Healthcare, we communicated that our focus would be on continuous process improvements designed to deliver greater efficiencies and higher recurring and long-term profits. Our financial targets for the year were high single-digit revenue growth and adjusted EBITDA margin in the high teens, improving on the 17.8% result delivered in 2023. The year started out slowly, but as is common for our business, momentum grew as we progressed through the year, with the third quarter showing us tracking towards our targets. Our business momentum continued into the fourth quarter, and we delivered on our objective of making 2024 an accretion year. Gross margins increased year over year by a full 2% to 52.2%. Operating income increased 69% from last year to $6.9 million. And adjusted EBITDA increased 13% to $25.3 million. Our adjusted EBITDA margin in the third and fourth quarters exceeded 22%. And for the full year, it came in at 18.8%, a full percentage point increase over 2023. This result is after $735,000 of technology systems upgrade costs that were not included in our original forecast for the year. Our revenue growth in 2024 also built up as we worked through the year, as we added new projects and scaled existing business lines. We ended the year with revenues up 7.2% versus the prior year. This step up was a result of growth in almost every business line, including oncology and pain management, which were up 6.1% and 14.7% respectively. In device solutions, equipment rentals grew by 13.6%, equipment sales by 20.6%, driven by a large one-time transaction in the third quarter, and biomed grew by 6.7%. The one business line that came in below our expectations for the year was wound care, and this was not due to a lack of business opportunity, but rather due to our decision to pause the onboarding of some new initiatives at the end of the year to ensure that the quality of the referrals align with existing resources and expectations as we prepare to ramp this initiative in 2025. Much of our recent focus in wound care involves partnering with regional wound care DME companies to leverage our extensive payer contracts and expand upon our historic revenue cycle capabilities. We see a significant amount of opportunity for revenue cycle in the wound care space, and because of its long-term importance, we are taking a conservative approach, taking time to test our processes and improve the ways we are receiving the referrals so we can scale effectively. This new business is in addition to the Smith and Nephew negative pressure partnership, which continues to scale up as expected. As we've highlighted in the past, our core businesses, specifically in oncology and pump rentals, are capital intensive. That is, growth requires investments in pumps to enable incremental growth. Our newer initiatives in wound care and biomed are far less capital intensive, and accordingly, will generally result in greater free cash flow. We can see the growing impact of this changing business in our 2024 financial statements. our debt balance at year-end was down to a little more than $23 million. And remember, we still have a long-term interest rate swap on the first $20 million of debt at favorable below-market rates. We paid down debt in 2024 at a historic rate, and we did that after some larger-than-expected pump purchases during the year and $1.2 million of stock repurchases. Also, as reported in the press release, we have repurchased an additional $2.4 million in the first quarter of 2025. I'll stop here and turn the call over to Barry to discuss our financial results in more detail.

Barry. Thank you, Rich. And thank you everyone on the call for joining us today. I'm going to focus on three topics, including the main drivers for the current quarter's results. I'll then talk about the high tax rate we show for the quarter. And finally, I'll update you on our current financial position and how it changed during the quarter. Now let me start with our financial results for the period. During the fourth quarter of 2024, our net revenue totaled $33.8 million, representing a 2 million, or 7%, increase from the prior year fourth quarter. That included growth in both of our operating segments, with the patient services segment leading the way, reporting a year-over-year quarterly increase in net revenues totaling $1.6 million, or 8%. And the device solutions segment having increased net revenue of $475,000, or 4%. Higher net revenue for the patient services segment included increases due to higher treatment volumes in all three therapies. Oncology net revenue increased by nearly $1 million, or 6%. Advanced wound care revenue totaling $700,000 was up by 342%, and pain management increased by 23%. These increases were partially offset by lower negative pressure wound therapy equipment sales due to a difficult comparison that included a surge in equipment leases in the prior year. The growth in device solutions was primarily attributable to higher rental revenues coming from new customers and was partially offset by lower biomedical services revenue related to a greater amount of seasonal downtime and large project timing impacts. Gross profit for the fourth quarter of 2024 was $18.2 million, which was 1.5 million or 16% higher than the prior year fourth quarter. Our gross margin percentage was 53.8%, representing a 1.2% improvement over the prior year fourth quarter amount of 52.6%. This improvement was mainly driven by favorable revenue mix favoring high margin revenue such as oncology and rentals and lower negative pressure wound therapy equipment sales. Selling general and administrative expenses for the fourth quarter of 2024, totaling $15.6 million, was about the same as the prior year, despite including approximately $500,000 in expenses during the quarter associated with our business application upgrade project and a higher short-term incentive expense accrual, which was approximately $500,000 higher. These increases were offset by lower selling expenses, including commissions associated with a lower rate of revenue growth during the current year period as compared with the 2023 fourth quarter. Adjusted EBITDA during the 2024 fourth quarter was 7.5 million or 22% of net revenue, which represented an increase of over 1.3 million or 22% from the prior year fourth quarter. Our effective tax rate for the 2024 fourth quarter was 59% and was 54% for the full year. About 10% of this amount reflects tax deduction shortages on equity compensation. That is, the amount of actual tax benefits or deductions related to equity compensation realized by our employees was lower than the amount of expense for book purposes. This is because of the reduced value of equity awards related to the lower market price of our stock over the last few years. We expect this effect to continue in 2025. However, we can't predict to what extent. Other contributors to the higher rate include limitations on the deductibility of reimbursed meals for our travel teams and officers' compensation, and impacts for local and foreign income taxes for jurisdictions where we do business. Our tax expense continues to be mostly non-cash due to the utilization of net operating loss carry-forwards. Turning to a few points on our financial position and capital reserves. Our operating cash flow for the fourth quarter totaled $7.9 million. This amount was 70% higher than the amount for the prior year fourth quarter. This increase was due to higher operating income, net of non-cash expenses, and a reduction in our working capital levels as compared to the prior year when our working capital increased. The increase for the prior year, you may recall, was partly due to high amount of sales type lease revenue for negative pressure equipment and due to the growth of a contract asset associated with a GE healthcare contract during the prior year's onboarding period. The increase contributed to the 2024 full-year amount of operating cash flow, which totaled $20.5 million, representing an all-time annual record, topping the previous record set in 2020 during COVID. Our net capital expenditures were $3.3 million during the 2024 period. fourth quarter, which was higher than the $1.4 million we spent during the fourth quarter in 2023. The amount during the current period was focused on infusion pumps needed to support increased volume in oncology and the device solutions rental business, both of which are expected to contribute to 2025 revenue growth. We continue to anticipate that our overall capital spending requirements will moderate as compared to amounts in prior years as the sources for our revenue revenue growth will continue to be more weighted towards less capital-intensive revenue sources, such as biomedical services and advanced wound care supplies. We continue to be positioned well to fund continued net revenue growth, with the growing cash flow from operations backed by significant liquidity reserves available from a revolving line of credit and manageable leverage and debt service requirements. Our net debt decreased by 4.3 million during the fourth quarter and by 5.3 million for the full year to 23.3 million. This despite having spent nearly 1.2 million during the year under our stock repurchase plan. Our available liquidity continued to be strong and totaled more than 51 million as of December 31st, 2024. Our ratio of total debt to adjusted EBITDA was a modest 0.92 times. Our debt consists of borrowing on a revolving line of credit with no term payment requirements, more than three years in the remaining term, and with $20 million of the outstanding balance locked in at a below market rate by an interest rate swap having the same expiration. Now I'll turn it over to Carrie.

Thanks, Barry. I'd like to provide an update on chemo mouthpiece. You will recall that in September, SI Healthcare Technologies announced our joint venture with Sonera MedTech, signed an exclusive distribution agreement for ChemoMouthpiece. This product is used to reduce the incidence and severity of oral mucositis in patients undergoing chemotherapy. The device received 510K clearance in the first half of 2024 and then received an initial CPT code for reimbursement in July of 2024. Sonera helped identify the opportunity and NP system with our deep relationships into more than 2,000 oncology centers is well positioned to distribute and support the product. We are providing the tip of the spear for distributions for our existing oncology sales force, aided by additional sales personnel from other parts of our business. We've made broad initial contact with our customers to educate on the availability of this new treatment opportunity and the reimbursement to hospitals provided by the CPT code. We have received a few small orders and are starting to see interest and momentum built. We are working with our partners at ChemoMouthpiece and are impressed by their clinical and marketing investment and capabilities. Currently, we are awaiting the publication of two clinical papers, the first on the medical efficacy of cryotherapy treatment and the second on the economics to hospitals of reducing the incidence of oral mucositis and the costs associated with treating patients with severe cases. Precisely when the papers will be published is still unknown, but we, Do believe once providers understand the health benefits, chemo mouthpiece will see broad adoption, and oral cryotherapy utilizing the product will become common for cancer patients receiving chemotherapy. Now I'll turn it back to Rich.

Thanks, Keri. Moving to guidance. We're expecting revenue growth for the full year 2025 to come in between 8% and 10%, and our adjusted EBITDA to again demonstrate the leverage in our business by increasing at a faster rate taking our adjusted EBITDA margin above the 18.8% delivered in 2024. This improved adjusted EBITDA is after the impact of costs related to our ongoing technology systems upgrade, which expenses are expected to be approximately $2.5 million in 2025. Without the impact of this upgrade program, which is expected to be largely completed this year, our outlook for the full year 2025 would be for adjusted EBITDA margins above 20%. As we have seen over the last couple of years, the first quarter adjusted EBITDA margin is expected to be lower in the first quarter than the rest of the year. We expect to have adjusted EBITDA margins in the mid-teens in the first quarter, offset by significantly higher adjusted EBITDA margins in the second half of the year, as we saw in both 2023 and 2024. This is a result of having higher expenses in the first quarter, such as a large portion of our audit expense, marketing expenses that occur earlier in the year, and higher patient financial responsibility before they start reaching their copay and deductible requirements. Revenue should also ramp sequentially as we work throughout the year, scaling new projects including our program of Smith and Nephew, the new wound care initiatives, and increased chemo mouthpiece adoption.

Operator, we are ready for the Q&A portion of the call.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two.

At this time, we will pause momentarily to assemble our roster. The first question today comes from Brooks O'Neill with Lake Street Capital Markets. Please go ahead.

Hey, good morning, guys. This is Aaron on the line for Brooks. Are you able to hear me okay? Loud and clear. Good morning.

Good morning. Thanks for taking our question. So, you know, you expect advanced wound care products should continue to grow in 2025 and beyond. You know, as we understand that, that should be a good amount of the growth this year. Maybe can you just give us some additional color on what you're seeing in both wound care and biomed? You know, you called out some specifics in your prepared remarks, but, you know, we just see both seem ripe with opportunity, and I'm just kind of curious on the traction you're getting with some potential new customers in both those areas, you know, realizing those are less capital intensive for the company.

Sure. So I think the good news in 25, similar to what we saw in 24 is we're going to grow probably in all of our business lines. Aaron, you're definitely right. Like advanced wound care is going to drive most of the growth. Biomed will contribute as well. And I think both of those opportunities or both of those lines have plenty of opportunities. So on the advanced wound care side, There's plenty of DME partners that are coming to us and need help with referrals. That's what I mentioned about the end of last year. We saw a lot of that coming to us. We wanted to make sure we had our systems and processes and people in place so we can scale it in 25. And on the biomed side, you know, obviously we have GE. They've given us a couple smaller opportunities that we've continued to add. We added Dignitana at the end of the year, so that should roll out this year. And then there's other opportunities in the pipeline. So both of those businesses will grow for sure. I would say most of the growth will be driven by advanced wound care, biomed, and then we'll see, you know, what chemo mouthpiece can do this year. But those are definitely contributors.

And all three of those are very, very light from a capital cost standpoint.

Understood. Yeah, that's helpful. And then maybe just picking back on, uh, from what you just said on, on chemo mouthpiece, you know, I'm curious, maybe just any feedback that you've received from oncology centers and or patients, you know, I know Carrie called out, um, we should be able to look out for those papers, but you know, obviously real, no, no real competition out there. Uh, are you just beginning to see a real opportunity emerging from that? And do you think, you know, that will be a, uh, a material contributor here this year? Thanks guys.

Yeah, so we are definitely seeing momentum building for sure. You know, the sales cycle will start to pop in the next few months. We'll know a lot in the next few months as far as how many orders start to come through. But definitely a lot of interest from customers. There's some customers that knew it was coming and were waiting for it. So as Kerry mentioned, we had some small orders come in. We have some good-sized customers from a sales cycle standpoint that are pretty far down the process. we just have to see when they close. Is it, you know, this month? Is it in a few months? Time will tell in that respect. And then when the clinical trials come out and those get published, that'll definitely have a big impact in the market. There's a lot of physicians that just won't write it until they see that. So, yeah, we're very happy with where ChemoMouthpiece is today. Awesome partner, as Carrie mentioned, and a great product that fits an unmet need in the marketplace. So we think we can help a lot of patients, which will make all of us very successful if that's the case.

Absolutely. I totally agree. We see that as a pretty big opportunity for you guys. So I appreciate you taking the questions. I'll hop back in queue.

Thanks, Aaron.

The next question comes from Matt Hewitt with Craig Hallam Capital Group. Please go ahead.

Good morning. Thanks for providing the update and taking the questions. Maybe first up, regarding the referral process, could you kind of just walk through what changes or how you're improving that process and kind of where you are In that, is it something where you're largely complete and you expect to see the benefits of that starting here in Q1? Or does it take a little bit longer and so the real benefit will come in the second half of the year?

So I think we'll see a ramp throughout the year for sure. We should see some benefit in Q1. But really what it is, Matt, when we're talking about different DME suppliers coming to us with opportunities, they all have different systems. They all feed us information differently. We want to make sure we get the right information, that it comes in at the right time so that we're compliant, and it comes in a form that we can then process it into our system. And depending on the partner, you know, some partners, it's going to come in really clean early, and it's very easy to integrate with them. And some of them are a little more difficult, and we had a couple more of the difficult ones at the end of the year. But we're working through those. The good news is, you know, both sides kind of want to be successful and want to help the patients out. So we'll get through there. We'll see some impact in Q1, but as we go through the year, it'll get better and better. But it's not a one-time thing. It's a continual process every time we start with a new partner. So we will see some revenue this quarter from it and build throughout the year and hopefully for years to come.

That's great. And maybe a separate question regarding chemo mouthpiece. Thank you for the update there. Obviously a nice potential driver. As we look at that, if I'm not mistaken, that should carry above corporate average margins, particularly on the gross margin side. So as we exit this year and get into next year, I would anticipate, or correct me if I'm wrong, but anticipate a nice lift in gross margins as you see broader adoption of that platform. Thank you.

That's not exactly correct. We do have good EBITDA margins on that product, but we are sharing with our partner, and so the profits will come through the equity line for us, and gross margin will be a little bit lower because of that. But it will be accretive to our overall EBITDA margin. Lengthily accretive to our EBITDA margin.

Okay. Thank you for the clarification.

Thank you. Thanks, Matt.

As a reminder, if you would like to ask a question, please press star then 1 to join the question queue. The next question comes from Kyle Bowser with B. Reilly Securities. Please go ahead.

Hi, good morning. Thanks for taking my questions and great update here. Just following up on chemo maltese and dignitana, can you just give us a sense as to how material these businesses could be or maybe talk about the addressable market, just kind of sizing up those opportunities to get a better sense of what a sales number would be at scale?

Sure. So Digniton is in the hundreds of thousands of dollars. It's not a huge contract, but it was a nice one to get because it was the first good-sized one outside of GE that we leveraged our GE team, our on-site team, or not our on-site team, our regional technician team. Hopefully it's the first of many that are kind of in the hundreds of thousands, low millions. Those are very easy to integrate, tend to be more profitable than the bigger ones. So Digniton is not a tremendous opportunity other than it shows – us being able to use our capabilities and scalability of our team. ChemoMouthpiece is a totally different product line. ChemoMouthpiece, the addressable market is in the hundreds of millions. I think it's around 500 or 600 million if you've got kind of wide adoption. I don't expect it to be that big necessarily, but that's the market. The fact is it's a product that, you know, right now when it comes to oral mucositis, there's no real product that helps reduce incidence and severity of it. And the standard of care today is ice chips. So if you've ever been in a cancer center and the patient has ice in their mouth, that's why they're doing it. They're trying to cool their mouth down and shut down the uptake of the chemo in their oral cavity. So it's certainly an unmet need. There's really no product like it. The reimbursement certainly helps. We'll see how the reimbursement adoption happens over the next year or so. But between reimbursement for the hospital, an unmet need for the patient, and you know, it could be a revenue generator depending on reimbursement for the hospital. It's really, the opportunity is huge. We don't, you know, we have to wait for the studies to come out, which will be a big lift for us. But right now, what we've seen in the market is people are excited about having an opportunity and a new product that can help their patients that there really is nothing to help them today. So that's why we're seeing that excitement. Everything from small private practices to huge hospital and teaching institutions are excited about it. So We'll have to watch how the sales cycle plays out over the next few months, but we'll know a lot pretty soon as the sales cycle starts to hit.

Got it. I appreciate that. That's exciting. Looking forward to seeing that play out. And then just on the guidance from an EBITDA margin standpoint, can you just help me understand what are the key factors that will be big contributors to the earning leverage this year going north of 18.8%? Obviously, top-line sales growth will be nice, but just help remind me what other factors are the most important in being able to achieve the improvement in operating language. Thank you.

Yeah, so I think it's the continued efficiencies and improvement in the biomed. We've seen some improvements. We're getting back. We expect more for next year, so just continuing to hone that additional new business that we have into something that's much better than it has been. You're adding things like Dignitana help, leveraging that team and covering fixed costs. And then it's just the growth in the other areas. As we just mentioned, QM mouthpieces are creative to EBITDA margins. We had some unusual expenses last year that has held us back a little bit. Those will disappear. The only thing kind of working against us this year is that we are spending on the ERP But we expect even with that expenditure, as Rich mentioned, will be better than the prior year in terms of profitability.

Yeah, what's nice to see is if you kind of put that to the side, because it's largely this year, the cost of that, our underlying EBITDA margin, we believe, is over 20%, which is kind of what our target has been the last couple of years to get back to that threshold. It looks like we're there.

Yeah, that's great. Excellent. Super helpful. Thanks so much. I'll jump back in queue.

Thanks, Kyle.

The next question comes from Jim Sidoti with Sidoti & Co. Please go ahead.

Hi, good morning. Thanks for taking the questions. The ecology business, your biggest business, is up mid-single digits again in the quarter, which seems to be a pretty steady grower. Do you see any changes for that going forward, or do you think that will continue to grow in that mid-single digit level?

Yeah, good morning, Jim. I think that's a good question. It's beaten our expectations in the last couple of years. I think it's grown in two ways. Number one, our team has done a good job just adding volume, new customers, new sites, new locations. Our revenue cycle has also done a really good job at collecting more per dollar than we ever used to. And that's been the case for the last few years. They've been improving that. So it's a combination of those two things. I'd love to see every year be 6% to 8% like it has been the last couple of years. I don't know how much more we can squeeze out of the revenue cycle side. I think we're getting about as good as we can get, but we're going to continue to add volume. So, you know, low to mid single digits is probably a good place to be. I don't expect it to be more than six this year, but it shouldn't be less than three or four either. So it's probably in that range. Okay.

All right. And the 2.5 million you're spending on the ERP upgrade, I think you said that that should be done by the end of this year. So by 2026, you think, those costs are much lower?

Yeah, I think the cost on 26 should be lower. This year, you know, we'll have it ready to go, and then it's more of a timing of when do we implement and do the cutover from our existing system and newer system. And that'll be early next year. We've got to make sure it doesn't, you know, interact and interrupt the closing of the year for 25. So most of the costs will be in this year for sure.

All right. And then, you know, Barry did a nice job going over the – the reason why the tax rate went up so much because of the option deductibility. But you mentioned the NOLs. Can you remind me how much NOLs you have and when do you think you start paying cash taxes?

Yeah. So after this year, we're down to around 20 million in NOLs remaining. So But we do have some other timing differences that we'll be able to take some deductions for bad debts, for example. We haven't been writing off some bad debts. So I would expect that at the current rate of our profitability, we have a few years left before we'll be a cash taxpayer. However, we'll probably be improving on our pre-tax income, and so it'll go a little faster than that.

Okay. All right. Thank you. Thanks, Jim.

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

Thank you, Betsy. I want to thank everyone for participating on today's call and we look forward to our next call to discuss our first quarter results. Thank you and have a great day.

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