InfuSystems Holdings, Inc.

Good day and welcome to the IMFU System third quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Joe Dorme of Witham Partners. Please go ahead.

Good morning, and thank you for joining us today to review INFUSYSTEM's third quarter 2025 financial results, ended September 30th, 2025. With us today on the call are Carrie LaChance, Chief Executive Officer, and Barry Steele, Chief Financial Officer. After the conclusion of today's prepared remarks, we'll open the call to questions. Before we begin with prepared remarks, I would like to remind everyone, certain statements made by the management team of InfuSystem during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under risk factors and documents filed by the company with the Securities and Exchange Commission including the annual report on Form 10-K for the year ended December 31st, 2024. Forward-looking statements speak only as of the dates the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. IMFU System does not undertake and specifically disclaims any obligation to update any forward-looking statements except as required by law. Now I'd like to turn the call over to Carrie Lachance, Chief Executive Officer of IMFU System. Carrie?

Thank you, Joe, and good morning, everyone. Welcome to NP Systems' third quarter fiscal year 2025 earnings call. Thank you all for joining us today. I will provide a third quarter overview, highlighting key successes, addressing notable challenges, and outlining our strategic priorities as we wrap up 2025 and look forward to 2026. Then, Barry will provide a detailed summary of our financial results. I will then come back to some closing comments before opening the line to questions. This morning, we published our third quarter earnings report, which illustrated another strong quarter of financial performance, marked by continued revenue growth, margin expansion, robust cash flow, debt reduction, and returning capital to our shareholders. In the report, we shared examples of the activities and initiatives we have underway that have contributed to these improved financial metrics. I'll take a few minutes now to walk through some of them. I'll start by discussing some very important projects driving our wound care initiatives. We see an opportunity to leverage strategic competencies present in our patient solution segment beyond our existing therapies of oncology and pain management. A key driver for long-term success in this initiative has been taking steps that will lower the processing costs for each patient referral. This is why we acquired Apollo in May of this year. Integrating this company and its systems not only brought us wound care customers, but more importantly, presented a quick and low-cost means to upgrade to a more streamlined billing software that will allow us to process upfront paperwork and insurance claims more quickly and efficiently. During the third quarter, we completed key integration tasks, including connecting the new RCM application to our insurance billing clearinghouse, which effectively plugs in our large portfolio of insurance payers. We are now focused on additional system and process improvements, particularly building out the AI and automation enhancements that that new tool allows, and completing the transition of our existing wound care volume into the new system. While it's still too early to measure the exact cost reduction benefit, we believe the new system will allow us to process the highly complex wound care claims on a cost-efficient basis. The ongoing progress also brings us a few steps closer to onboarding our oncology and pain management billing volume onto the application, further leveraging the investment and improving our overall RCM efficiency. Also in the third quarter, we began accepting patient referrals and booking revenue for pneumatic compression devices, or PCDs, through a new relationship with the device manufacturer. Although the amount of revenue was relatively small, The quickness to launch illustrates not only the strength of our payer portfolio when we bring it to bear on new products, but the significant improvements that the team has made to accelerate the speed at which we bring new products online. For now, we are classifying these revenues in wound care category with hopes they will grow large enough in the future to report them separately. Next, I'd like to note three developments positively impacting our business beyond wound care. First, in addition to the new billing system acquired and integrated via the Apollo acquisition during the third quarter, we went live with a machine learning tool focused on our front-end intake process, which is another complicated and time-consuming manual task. This was done even while continuing the implementation of our ERP-level software system upgrade that we began in 2024. Second, we secured a significant new contract with a large hospital system for our oncology business, Our sales team has had tremendous activity, and this win, along with others, increases our market share and will help us to continue to report oncology revenue growth at levels exceeding expectations, a challenge given our high market share. The contract win, resulting in higher volumes, will of course require us to spend capital on pumps, a fair trade given oncology is our most accretive revenue source. In addition, I'll note that oncology revenue for the third quarter reached an all-time record, which is a common accolade for the business. Finally, we secured a multi-year contract extension with one of our largest national insurance payers. This type of event is not normally newsworthy since we routinely extend existing contracts and add new payers to our very extensive portfolio. However, this one stands out as particularly exciting because it provides enhanced service coverage in product areas we are focused on, such as negative pressure wound therapy devices and PCVs. The extension also contains a much appreciated price increase. The accomplishment demonstrates the depth of our contract relationships as a whole and the value our payers see in our capabilities. Before I turn the call over to Barry, I need to provide an update on developments in our biomedical services business. As we mentioned in our last quarterly call, we've been working with our largest biomedical services customer, to modify the contract to reflect changes in market economics and developments in the relationship. During the third quarter, we signed a contract amendment that will improve pricing and shift the relationship to reduce device volume and lower service levels on most of the devices remaining on the contract. These changes will result in a reduction in revenue under the contract by an estimate $6 to $7 million annually starting in December of this year. It is important to note these changes will also result in an expansion of our operating income by reducing costs and expenses in an amount greater than the revenue decline. We are now focused on resizing and relocating our field-based biomedical technicians team to conform to the changes. While we are always disappointed by changes that reduce our revenue, we believe that profitability is a key driver of shareholder value. and that these strategic adjustments are essential to our continued progress and will leave us with a very solid core field-based biomedical service business from which to build upon. Now we'll turn it over to Barry for a detailed review of the third quarter financial results. Barry?

Thank you, Carrie, and thank you everyone on the call for joining us today. I'm going to focus on the main drivers for the current quarter's results, and I'll update you on our current financial position and how it changed during the quarter. Now let me start with our financial results for the period. During the third quarter of 0.25, our net revenue totaled 36.2 million. This was another record, and it represented a 1.2 million or 3.3% increase from the prior year third quarter. The improvement was applicable to increase net revenue for the patient services segment, partially offset by lower revenue from device solutions. Patient services net revenue increased by 1.6 million or 7.6%, and included increased patient treatment volumes in oncology and wound care. Oncology net revenue increased by nearly 700,000, or 3.6%, and wound care revenue was up by 116%, totaling 2 million, which was mainly driven by volume increases in negative pressure wound therapy treatments related to the Smith and Nephew Partnership, increased volume from the Apollo acquisition, and first-time revenue for pneumatic compression devices. device solutions net revenue decreased by $400,000, or 2.9%. This decrease was primarily attributable to about $400,000 in lower revenue volume in biomedical services and a standout large equipment sale during the prior year to a large rental customer that bought out $1 million in lost pumps from their contract. Partially offsetting these declines was a 600,000 non-recurring benefit to adjust the contract asset related to our largest biomedical services customer. The lower revenue from the biomedical services mainly relates to a remediation contract that benefited the prior year, but was nearly completed prior to the current year period. Gross profit for the third quarter of 2025 was 20.8 million, which was also a quarterly record. and a 1.8 million or 9.3% increase over the prior year third quarter. Our gross margin percentage at just over 57% increased by 3.1% from the prior year's amount, which was a significant improvement even without the one-time 1.7% boost it received from the contract asset adjustment. The remaining increase was mainly driven by improved labor efficiency and pricing in biomedical services, Improved revenue mix favoring higher margin revenue, such as ecology, lower procurement costs, and lower pump disposal expenses. Selling general and administrative expenses for the third quarter of 2025 totaled $17 million and was $1.2 million or 7.8% higher than the prior year third quarter amount. More than half of this increase was attributable to $773,000 in expenses associated with our project to upgrade our main enterprise resource planning software. Other increases were related to additional headcount and revenue cycle and other personnel needed to support the higher revenue volume and a higher accrual for short-term incentive compensation. Partially offsetting these increases was a lower sales commissions rate related to shifts and revenue mix. Adjusted EBITDA during the 2025 third quarter was 8.3 million, which represented an increase of just over 400,000, or 5.6%, from the prior year third quarter adjusted EBITDA. This represented 22.8% of net revenue for 2025, which was slightly above the prior year rate of 22.3%, despite a 500,000 increase in spending on the ERP project. On a 12-month basis, adjusted EBITDA totaled 30.2 million, representing a margin of 21.4%. This demonstrates that our focus on profitable revenue growth and operational efficiency is yielding meaningful results. Now a few points on our financial position and capital reserves. On a year-to-date basis, for the first nine months, we generated operating cash flow totaling over 17 million. This amount was 4.8 million higher than the amount realized during the prior year-to-date period. This increase was due to the higher adjusted EBITDA, which on a year-to-date basis was also up by 4.8 million. Our net capital expenditures were 3.1 million so far in 2025, which represented a significant decrease from 10 million spent during the first nine months of last year. The amount during the prior period was focused on infusion pumps needed to support increased volume in the device solutions rental business, which grew more significantly during that period. Although we anticipate an increased amount of medical equipment purchases during the next quarter to support some new customers in oncology, we continue to anticipate that our overall capital spending requirements will remain at moderate levels as compared to amounts in prior years, as the sources of our future revenue growth will continue to be more weighted towards less capital-intensive revenue sources. We continue to be positioned well to fund continued net revenue growth with the growing cash flow from operations backed by significant liquidity reserves available from our evolving line of credit and manageable leverage and debt service requirements. Our net debt decreased by $5.7 million during the third quarter. We are able to do this despite purchasing 2.2 million of our common stock during the quarter under our 20 million stock repurchase authorization. This brings total shareholder capital returned under the plan so far this year to 8.6 million. Our available liquidity continues to be strong and totals nearly 55 million as of September 30th, 2025. At that time, our ratio of net debt to adjusted EBITDA was modest at 0.66 times. Our debt consists of borrowings on a revolving line of credit with no term payment requirements. Early in the third quarter, we amended our credit agreement, extending the facility for two additional years. The facility now expires in July 2030. We continue to benefit from an outstanding interest rate swap, which fixes our interest rate on $20 million of the outstanding borrowings at a below market rate of 3.8% until April 2028.

I'll now turn the call back over to Carrie.

Thanks, Barry. As we close out the year with strong momentum, we are reaffirming our four-year outlook, targeting adjusted EBITDA margin to be 20% or greater and revenue growth between 6% to 8%. We are entering 2026 as a stronger and more focused company, well positioned to build on this progress. As I reflect back on the efforts we made during the third quarter, the updates that we've shared with you today, and what we are currently focusing on as we close out 2025, I hope you will agree that we've been diligent in pursuing the strategic priorities we laid out for you in early August when we reported the second quarter. Those priorities are to execute with discipline, deliver profitable growth, and drive long-term value creation for our shareholders.

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

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 the question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Kyle Bosser with Roth Capital Partners. Please go ahead.

Great. Thank you. Hi, Carrie and Barry. Glad to see the very nice progress around prioritizing profitable growth and sort of improving the processes to lower costs here. It sounds like you've made some nice strides across the business in relation to this, particularly in wound care and oncology. It seems like oncology is probably much more streamlined than kind of the growing wound care business. Can you maybe talk a little bit more, Carrie, about the additional enhancements you'll want to make in the wound care business kind of around AI and automation enhancements? Thank you.

Yeah, sure. Good morning, Kyle. You know, from an AI perspective or automation perspective, we have our new system that we implemented for the revenue cycle aspect, you know, over the past few months. That's working tremendously well. We have a good portion of our business that we're starting to put into that. Our older system didn't have any AI or automation technology, you know, that it allowed for. So we're looking forward to plugging even more of the business in, but we can see some efficiency starting already in those lines of business.

Okay, got it. And regarding the largest biomedical service contract changes, of course, it sounds like it will be, you know, much more profitable moving forward, which is great. Can you speak a little bit more about the level of reduction in this contract from a sales perspective? And then I think you mentioned kind of being able to recoup that in profit. So just in the more color that is appreciated.

Good morning, Kyle. I'll jump in on that. So it is a pretty significant adjustment for the amount of revenue we'll see from that contract. We're estimating between six and seven million for two reasons. One, although we increased our price, there are certain locations and certain areas that were just not working well for us or for the customer. And so our volume will go down about 40%. And the remaining volume will have a decrease in the service level. So we'll only be doing preventive maintenance services and not doing the stand-ready repairs. Although we do have an opportunity to get some of those repairs back into our building from a depot perspective. They'll ship them into us. We're not sure exactly how much revenue we'll see in that, but we expect that some of the devices we've been repairing in the field we'll see in our depots. The good thing, though, is that helps us adjust our cost structure significantly. And the economics on the program will now be, should be pretty good. So it's unfortunate that we have to give back a little revenue, but we'll definitely start from a very good base to build out from. In fact, we've already won some other business with other customers that allow us to start building it back at a much more favorable margin to us.

You got it. Appreciate that. Thanks, Barry. And maybe just lastly, kind of related to that, so the 6% to 8% sales growth rates, reiterated, which is great. How should we think about kind of the growth profile of, you know, patient services versus device solutions either for this year or going forward? I guess I'm trying to get at the device solutions. What sort of growth profile can we envision there kind of moving forward with the change in this big contract?

Yep. So I would say it's a pretty – big headwind for us for next year just from that one contract adjustment. As you're aware, we do see our growth continuing where we're focused on is in the wound care of the patient services side with a bunch of different potential therapies and things that we'll look at bringing online. And so I think that will be a little bit slower on the growth side for the device solution side where you'll see more growth being driven by the patient service site as we proceed through the year. The good thing is that the change that we're talking about don't take effect until December, and so there'll be a small impact on the current year for the adjustment to the large biomedical services contract.

Okay. Got it. That makes sense. Appreciate that. Cool. Thanks for taking my questions. Great updates. I think it's great to be prioritizing the profitable growth. I'll jump back in queue.

Thanks, Gail. Thanks, Gail.

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

Hello. This is Talafon from Matt. Given your focus on profitable growth, how do you balance margin improvement with maintaining revenue momentum across your key segments? Thank you.

Yeah, I'll jump in on that one. So clearly our business has a fairly sizable difference from one revenue source to the other in terms of how much margin we get and, more specifically, how much capital we have to spend to grow. So we have been focusing on correcting some of the areas where we're a little bit less cash flow or lower margins and making some improvements. And that's what we saw with the significant shift in the the large biomedical services contract, and focusing where we can grow with our core competencies in areas that we can be more profitable, and specifically where we don't have to spend as much capital to grow. So in order to be able to balance out those decisions about where we focus, we're thinking about return on invested capital. So we have a smaller requirement to get into a market or to grow an area, and we can see a good return and good cash flow from that. That's where we've been prioritizing ourselves. So it's not just about the margins we can see. It's about our ability to actually successfully operate in a particular product segment and the quickness to help us get a cash flow from it.

Okay. Thank you. And then are there any additional opportunities in oncology or other therapeutic areas to replicate the success of the hospital system partnership? Thank you.

Yeah, good morning, Tom. We mentioned the PCDs, which we were into PCDs a few years ago, and we struggled in that area a little bit. I think, again, the back-end systems that we're improving, automating some of those areas, being a little bit more streamlined there, has allowed us to continue that growth and get back into the PCD area. So that, along with wound care, are two areas that we're focused on, and we see a lot of opportunity there.

Thank you. Thank you.

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

Hi, good morning. Thanks for taking the questions. So, Barry, I think I heard you say that the ERP expenses in the quarter was about $733,000. Is that right?

$770,000. $770,000. Yeah, that's an increase from last year. Last year it was a couple hundred thousand, so we're $500,000 higher year over year.

Okay. And you think that'll be gone by 2026, right?

No, we'll have spend in the first quarter. We'll be going live during the first quarter, so it'll taper off after that. Keep in mind, though, our overall maintenance costs on the new system versus the old system is a little bit higher, so it doesn't all completely go away, but a very large portion of it goes away starting in the second quarter of next year. Okay.

And that's more than... than the gain you got from renegotiating the pricing, you know, on the contract then. Um, well, I think you're, you're, I thought we were talking about the ERP, um, and now that we're talking about the, uh, the, the, um, I'm just trying to figure out if it's 11 cents, you know, if it's a clean EPS number, but it sounds like the one-time benefit, uh, was offset by the one-time expense because of the ERP.

That's a good way to look at it. We also have some adjustments to our short-term compensation incentives. So one thing that I think I said in my remarks, and it's probably true, is if you back out the impact of the contract adjustment. So part of the price increase, we got to count for prior periods because it related to prior services we already completed. That was about $600,000. If you take that out, we still had growth in our gross margin. We still had growth in our EBITDA margin. But you're correct. There is offset expenses in there that you could – they're unrelated somewhat. But, yeah, there will be – if you took both things out, we'd be better.

Okay. All right. And then in terms of the new service agreement, so it sounds like that business went from around $11 million to about $67 million in terms of revenue. Is that right?

um well i um yeah we we we think we're giving back somewhere between six and seven million we don't know exactly because the volume on the repairs that we do in the in the building uh so that that the um the sort of the uh in the field uh biomedical services business or um whether as around a um 10 to 12 million dollar business it'll it'll be uh quite a bit lower but keep in mind that we have won some other business that will make up for some of it okay ed

On that one that was a $12 million business, can you give us a sense of what the operating profit was for that and what it will be on the smaller?

Sure. I think the way I want to illustrate that is clearly we were not making margins that we thought we needed to make under the contract. And with the new structure, with the higher price and the different – we're servicing in a way that we're more able to. there's going to be a distinctive improvement in our margins, even at, and I'm not talking about margin percentage, it's actual margin dollars under the new structure. So maybe going back to your first share, the impact of the change.

So the operating dollars under this new agreement, you know, what it stands to, maybe a $5 million level, you're saying that you'll have more operating profit than you had when you had that $12 million piece. That's correct. That's right. Okay.

Our top line will be negatively impacted, and yet the bottom line will be positively impacted.

And I assume now that some of that excess capacity, you'll try and use that for new customers? Yes.

I don't think that we'll look at it as excess capacity. We won't have regional team members. We'll be sending people out from, we'll be a little bit more concentrated as far as our footprint where we have team members closer to those devices. So some of our operating costs to get people on site will decrease. The nice thing, though, is that I think that as we build it, we'll probably not have a big concentration in one customer, right, that's kind of got the loss leader kind of contract. Since we're winning other contracts, we think that we're going to continue to build out in a smart way with smaller contracts that are much more favorable to us.

In terms of cash, you bought back a couple million in stock. You paid off, I think, about $20 million in debt this year. Do you think that's going to be the trend for uses of cash going forward?

I think so. I mean, there's other opportunities that from time to time we'll consider that are M&A possibilities, but you'll hear about those if we get something going. So we're kind of left with, since we have positive cash flow and the business is becoming less capital intensive, we're left with excess cash. And so we'll have to return that to investors in the way that we have or pay down our debt, which is getting pretty low. So, yeah, they'll probably be very similar. In the fourth quarter, we definitely have some new customers in oncology that we'll need to have pumps for. So we'll be increasing the capital spend in the fourth quarter.

But it sounds like, you know, with this new strategy that the operating cash flow is going to go up, not going to go down over the next couple of years.

That's a good problem, yes.

Yeah. Okay. All right, just making sure that was clear. All right, thank you.

Yep. Thanks, Mike, Dan.

Our next question comes from Ben Hainer with Lake Street Capital Markets.

Please go ahead.

Good morning, guys. Thanks for taking the questions. Just a couple for me. First off, on the biomedical services contract, are there going to be any sort of one-time expenses to kind of the transition here, moving team members around, anything related to that? Or does that just kind of get reallocated relatively easily and not any – real expenses associated with the change to the contract?

Yeah, there's definitely some costs. They're fairly low, both in some severance conditions and some relocations. But it'll be in the fourth quarter, very small, very manageable amount.

Okay. And even with that, you would expect the operating profit dollars to go up?

Yeah. Keep in mind the real impact to the revenue and the adjustment in the cost structure will be in the early part of next year because we're still servicing the contract at the current level through the end of November. And so there's just a small – and in December we don't usually have as much revenue anyway because of what we can prevent services that occur in the holiday timeframe. So really not a big impact in the current year. A small additional expense for some restructuring will improve. But again, it's more of the impact of next year where we see less revenue. but even more, a bigger number, reducing some of our costs.

Okay, makes sense. Thanks for the help there. And then secondly, and I guess lastly for me, on the multi-year extension within the National Insurer, you got the pricing improvement, obviously good there. You know, can you maybe characterize how much of a boost you got there? And then on the enhanced service coverage, you know, kind of what goes into that?

What's the opportunity on that front? Yeah, good morning.

Yeah, the price increase is important. We do see price increases in other contracts as well. This one will be good for us. Most of our contracts, there's no real concentration. So we'd have to get price increases in all of our contracts for it to be extremely visible.

But it is important for us to be able to indicate that we don't see price increases in these contracts.

Got it. Thank you very much for taking the questions. Thanks, Ben.

Our next question comes from Matt Hewitt with Craig Hallam Capital Group.

Please go ahead.

Hello. Is there any updates on the pricing negotiations with Kima Mouthpiece? Thank you.

Hey, good morning, Matt. So from ChemoMouthpiece, we do actually have some good news. We don't have anything back from CMP as far as their approval for a code, a rate for a code. So that should come by the end of this year. However, we have seen some increased placement in the market. So from a sales perspective, we have started to see the uptake into facilities for placement of the device, which has been a really great start. Again, that approval accreditation kind of code will come up by the end of the year. We're waiting for CMP to announce that, and then that rate for that code should be out mid-year next year.

Thank you very much. Yeah, thanks, Matt.

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

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

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