Good morning everyone, and welcome to the InfuSystem Holdings' Second Quarter 2016 Conference Call. This is your operator, Ellen. Let me first give you Mr. Christopher Downs, Interim Chief Financial Officer.

Good morning. First of all, let me get some administrative matters out of the way. The company issued a press release this morning. The release is available on most financial Web sites. Additionally, a web replay will be available on the company's Web site for 30 days. Both the press release and Form 8-K, and the company's Form 10-K for the second quarter of 2016 were filed with the SEC as well. Except for the historical information contained herein, the matters discussed on the conference call are forward-looking statements that involve risks and uncertainties. Such risks and uncertainties could cause actual results to differ materially from those predicted by such forward-looking statements. The words believe, expect, anticipate, and estimate or other similar statements or expectations identify forward-looking statements. These risks and uncertainties include general, economic conditions, as well as other risks detailed from time-to-time in InfuSystem's publicly filed documents with the Securities and Exchange Commission. Specifically, information about risks and uncertainties that could cause the company's actual results and financial conditions to differ from those predicted by forward-looking statements are disclosed in the company's yearend report on Form 10-K for the year ended December 31, 2015 under the heading Risk Factors, and elsewhere in the report, and in other filings made by the company from time-to-time with the Securities and Exchange Commission, including subsequent quarterly reports on our Form 10-Q, including the most recent Form 10-Q. Forward-looking statements reflect management's analysis only as of today. The company has no obligation to update the forward-looking information contained in this conference call. While discussing the company's performance, the company will refer to certain non-GAAP measures, such as adjusted EBITDA and adjusted net income, which are not considered measures of financial performance under Generally Accepted Accounting Principles or GAAP. A reconciliation of the differences between non-GAAP financial measures and those measures such as adjusted EBITDA, and adjusted net income, and the most comparable GAAP measures are contained in today's press release. With that, I would like to turn you over to Mr. Eric Steen, Chief Executive Officer.

Good morning everyone, and thank you for joining the InfuSystem Holdings Inc. second quarter of 2016 earnings call. Joining me today are Jan Skonieczny, Chief Operating Officer; Chris Downs, Interim Chief Financial Officer, Trent Smith, Chief Accounting Officer; and Jon Foster, our outgoing Chief Financial Officer. There are three things that I want to talk about today, an update on the CMS announcement regarding changes to ambulatory pump reimbursement, and our progress on adapting our business model to those changes, the completion of the rollout of our InfuExpress IT system, and progress on our growth initiatives to further grow and diversify our revenue streams. But first, let's go to the numbers. Now, our second quarter of 2016 results and their comparison to the second quarter of 2015. Total revenue was $19.1 million, up 11%. Net collected revenue was $18 million, up 12%. Rentals of infusion pumps to all sites of care grew at 10%. Gross profit was $12.1 million, up 2%; net income was $720,000, a decrease of 8% compared to the second quarter of the prior year. Adjusted EBITDA was $4.35 million, an increase of 10%. Adjusted earnings per share was $0.04 per diluted share as compared to $0.05 per share in the second quarter of 2015. As we look at the 2016 year-to-date financial results through June, and their comparison to prior year, total revenue was $38.1 million, and net collected revenue was $35.3 million, both up 12%. Rental revenues were $34.4 million, also an increase of 12%. Our rentals of primarily oncology patient [technical difficulty] to third-party payer insurance was up 8%, and our direct rental business of infusion pumps for a variety of therapies and market segments, including hospitals, home infusion, and long-term care has grown 29% compared to the same six months of 2015. Direct…

Thank you, Eric. I've been with the InfuSystem now for almost five years. Then at time we've made many improvements and changes to our business whether it be staffing appropriately, improving our financial results, implementing our IT connectivity projects, or in this most recent case changing our business model for Medicare billing. I can honestly say the first six months of 2016 have been some of the most challenging and rewarding times for the company to be able to changed our business model so quickly. Basically in less than three months and be at the forefront of the significant change in our industry is a testament of the great team work and ability we have here at InfuSystem. With that you probably had a chance to review our financial numbers and recent earnings release and 10-Q filings made this morning on several investment sites and with the SEC. So I'd really like to focus on just a few areas. Revenues both to the quarter and six months ended June 30, 2016 exceeded prior year periods by double digits. This is good news considering the significant changes Eric discussed already the CMS and our EXPRESS roll out during 2016. Gross profits for the quarter and for six months of 2016 are above prior year periods, this, in spite of approximately $1 million in additional costs during the six months period of 2016 due to depreciation and supply cost as aforementioned record pump deployments. As we've discussed previously in our earnings call the time lag between the actual spends of opening new account and recognizing the corresponding revenues is meaningful when we are deploying as many new pumps as we have in the first six months of the 2016. I believe Chris will go into little more detail in his area. Bad…

Thank you, Trent. Chris Downs, our Interim CFO will now provide additional color on balance sheet, liquidity and our record pump deployments.

Thanks, Eric. I first wanted to reiterate what Eric said earlier about our pump deployments in the oncology market year to date. Thus far this year we have deployed 2,500 pumps in the oncology space. Now we frequently use the term deployment, so I wanted to clarify what we are saying when we use the term. In our language the deployment is an increasing number of pumps that have been send to our customer facility to be used for billable treatment. We always report of the net number meaning that our 2,500 pumps is net of any loss accounts [indiscernible] return to us for future use elsewhere. This is a slightly different number from another pumps purchase due to timing as well as some maintenance CapEx purchases to replace retired pumps. This net deployment number is the most useful metric for us to measure the underlying business activity potential. So, net deployments are very good thing, so long as we are deploying them where they are truly needed, and almost exclusively we are deploying them to new customer wins, with the remaining small amounts going to the same customers who are experiencing growth in our patient volumes. The other things to mention is that we will strive for only purchased pumps when we have identified the new customer and the start day for the facility, in order to avoid having large quantities of pump sitting unused on our shelves. Now having explained what we mean by pump deployments let's review the history one more time in for getting context. During the first six months of 2010 through 2013 we had net deployments of about 700 in the first half of 2010, 8211 through 1512 and 913. During 2014, we were basically flat as we lost the large account and had…

Thank you, Chris. In conclusion, InfuSystem has properly adapted to changes in the reimbursement of ambulatory pumps. This sudden reimbursement change coming in the midst of a computer roll out has had a negative impact on our short term results. However, when I consider the efforts in the quarter that completed the EXPRESS system rollout, added a record number of new customers in ambulatory pump placements on oncology, completed the seamless integration of another asset acquisition, grew our direct-to-provider rental business by 29% and continue the uptake on our pain management services, all while moving nearly 1,800 oncology practice sites to a new billing mechanism for Medicare patients. I am satisfied with the results and proud that the teams responded so rapidly and professionally, given the situation. We continue with our guidance of high single-digit revenue growth for 2016. I would now like to open up the phone lines and address any questions that you may have.

Thank you. [Operator Instructions] Our first question is from Andrew Walker with Brinkley Capital.

Hi guys thanks for taking the question and congrats on a pretty nice quarter and first of all uncertainty.

Thank you.

Let's see. So just quickly, on the accounts receivable increase, so based on your commentary, should we assume that it's going to come down in Q3 and has it already started to come down?

I would expect to see it come down, offset by the fact that we do have a lot of new pump deployments in first quarter that are going to continue to get implemented and we put on patients and that paper is going to be coming through. And that is going to increase the billings and the revenue.

Okay. So I guess it might be elevated for one more quarter in Q3 and then coming down starting in Q4?

That's a reasonable estimate.

Okay and then the pending you mentioned that's not in the accounts receivable, where can you see that on the balance sheet?

It's not on the balance sheet, because it has not been built.

So what you see for pending, you see it in the P&L, you see expenses in our P&L without revenue. That's where we see it.

Okay, got you. And just in terms of increasing liquidity, is this just increasing the revolver or would you redo your term lines?

As I said, we're exploring our options and we have a great relationship with Chase, our current bank, and they remained very supportive with the company and management, but as I said, we're exploring options.

Okay. Just as a shareholder, with the shares at this level, I think, the one thing that would scare me is doing any type of equity offering or anything, so are you just encourage, don't dilute shareholders at these levels?

There's certainly no dilution of shareholders expected.

Okay. That's really reassuring. Turning to the CMS payments, obviously, I think, you guys have handled it really well. And you mentioned it a little bit on your -- in your commentary, but a lot of times, I know where Medicare leads kind of commercial plans follow, but just to confirm, you're not seeing commercial plans looking to follow what Medicare has done here?

We have 46 new payer contracts signed this year and only 1 lost CMS. CMS was already the industry laggard for home infusion. And I can get on my [indiscernible] box and start talking about how senior citizens have to go to a nursing home to get something as simple as pulling the electrolyte imbalance with a bag of saline, a procedure so simple, they do it on the bench at halftime of a football game. So at this point, CMS has been a laggard and they seem to be going in the other direction and we continue to add private commercial payer contracts.

That's really good to hear. And then just looking at kind of net collected revenue is up double digits here today, and the commentary had a lot of acceleration as all the pumps that you deployed kind of start recognizing revenue in the back half of the year. So can you help me reconcile all of that with maintaining guidance for high single-digit growth?

From the guidance, I want to be conservative for guidance. The brief tenure as a public company CEO and I've never had to revise the guidance. And one of the things in our numbers that sometimes make it difficult is our core business is all recurring. Rental business and now we are selling more disposables, but we also sell pumps. As people who sell capital equipment know, every once in a while, you hit the big home run, and everybody says what have you done today. So because we do have in our numbers from last year, some big capital equipment sales that we have, had this year, we're certainly going to be in the hunt for more capital equipment sales, but that's another thing when we look at year-over-year, some of the big capital equipment sales that we have in the second half of last year, we just don't know what capital sales we're going to have in the second half of 2016.

Great, really great color. The last one for me and then I'll jump back in the queue. I think, all the acquisitions you've done to date have been kind of home runs. Are you still on the prowl there or seeing anything there or right now, are you just more focused on getting the Medicare issues just taken care of?

We're always looking at things. And I think we're always looking at things that are going to increase shareholder value. I will say the current situation has occupied all of our time to focus on the job at hand. However, there are, opportunities out there in the marketplace and we'll continue to investigate them. As I have said publicly before, I'm more of an organic growth guy, because sometimes for me, it's easier to start a business yourself like our pain management service then go out and acquire somebody and have to find synergies and clash of culture and IT system. So I would say I'd like to do things myself first, but we have had two nice asset acquisitions that we found accretive and just fit right in, and if there's more things that will work as smoothly as those have, we will investigate and take a good hard look at them.

Great, well hey thanks for taking the questions. I think you guys did a fantastic job and [indiscernible] all the headwinds and looking for to continued to see some great numbers from you.

Thank you.

The next question is from Doug Weiss with DWS Investment.

Hi, good morning.

Hi, Doug.

I just want to say congrats to John and best of luck on your future endeavors.

Thanks, Doug. I appreciate it.

I guess I wanted to just clarify a little under gross margin. Eric, you mentioned in your remarks about $250,000 of unbilled insurance that I think, is in that service and supply line, is that accurate?

Yes. We had costs that we recognized and when a claim goes beyond finalizing limit, we are not going to get that money, but we have the -- we have all the expenses associated with the treatment, but unfortunately, we missed the revenue.

And how much was that?

But we've got a bridge with all these [indiscernible] about 300,000 there.

Okay. Comparing the first part of the second quarter, and revenues are similar, but services supply went up $1.3 million. So that would I think explain $300,000 of that $1.3 million. Could you just talk to where the other $1 million is -- how that breaks out?

So we've had, as I look at our bridge here, we had a $639,000 -- I'm working from prior year, $639,000 increase in pending, we had $300,000 of [technical difficulty]. We had depreciation in supply crafts for new accounts of $600,000, where we ship that to new accounts. And then those are the major movers.

And the pending is where you talked about not getting the billing by quarter-end, but that will still…

There's two things, Doug, I want to make clear on that. That pending, we still have a chance for it. It's $639,000 over prior year that sits there waiting for an electronic signature. So I hope, as we're speaking, one of our reps has tracked down Dr. Someone, and he or she has signed our electronic signature pad releasing all the patients that these busy doctors have. And it's kind of a 80/20, where some of the busiest doctors have the most patients, and those are the ones hardest to tackle for a signature. And they don't prioritize the InfuSystem rep; they prioritize saving peoples' lives with oncology treatment. So we're working on that pending and we'll get it down. Now beyond filing limits, or no paperwork, which was a -- we had a bad quarter on that. And we had a bad quarter because when you're in the midst of training people on the computer system, and then you have to tell them that they're going to pay for pumps they previously got for free, the doctor or anybody else isn't interested in signing anything. So I wouldn't call it a goat rodeo but it will certainly suffice until the goat rodeo comes to town. And it was not business as normal at InfuSystem that quarter. So pending is still out there. We can still try to bring it in beyond filing limit, and no paperwork. Unfortunately that's lost money for us this quarter.

Right. Is that still -- I mean, you're describing something of an operational issue in terms of doctors not signing forms. Is that something that you think you've completely tackled or is that something that still needs to be improved?

It still needs to be improved. That once the physician signs in our new system they're in there. And so the -- one of the things is we had a lot of physician signatures in our old system, but now everything is new, and we're having them sign into our new system. And then once we have the physician's sign, there're in there. And then when we see their treatments that they've improved, we've got their signature. So we're working it our way down, but again, at the first quarter we had $800,000 in pending, we had sort of more accounts that hadn't been completed with InfuSystem Express, our new IT system. And now second quarter we've got it down, down to $639,000 over prior year. But there's still $639,000 more sitting in pending, waiting for things like a physician's signature because we can release those claims and send them on to the insurance providers. And I guess the other thing I will comment is, now with the CMS changes, and I'm operating as if CMS is not going to change their mind, and this is forever now. If it does change, we can immediately go back to the old way, but I'm operating like the CMS changes forever. So now an interesting thing for us is all those Medicare patients, they're on a direct bill. There is no pending. There is no six-month lag time. You ship a pump, you ship a supply, the patient goes on that pump and supply, and you bill them just like we do for our direct pay rental business. And so I think that will, having almost 30% of our third-party payer business now go on a direct basis, that will increase our pending as well, but not immediately because we still got all these treatments that we've done previously that we're still hustling signature, and doing things to get that out of our number. So there's a number of moving parts on this.

So just to make sure I understand, you just need the physicians' signature once. After that you can, as you submit new bills for that physician, you can reuse that signature. But the problem you ran into is when you went from your old system to your new system you had to get everyone to provide a new signature. Is that accurate? And you're still in the process of doing that?

Doug, this is Jan. I just want to -- let me clarify a little bit here. First of all, it's important to note that every patient, every new patient that goes on one of our pumps [indiscernible] for some length of time, because it's a process to obtain all of the documentation. And in times of heavy growth we see a spike in our pending because all of those patients going out of pump are brand new. So that's part of the issue. Then the other piece is what Eric has mentioned with respect to the new system, it's just a different way of collecting physicians' signatures. And we need a physicians' signature for every new order for every new patient. And then when that order expires, if the patient is still on a pump, then we have to collect the physician's signature again.

And that's different from the way it used to be or it's…

No. It's the same way it used to be, it's just the new system creates a new workflow and a new process for physicians in the clinic. So therefore there's some stumbling on that end in getting things collected in a timely fashion. And plus, don't forget, we just talked about we supplied a record number of pumps, meaning that many more new patients going on our pumps, as well as the Ciscura acquisition and [indiscernible] acquisition, or asset purchase where both patients are all brand new to [indiscernible].

Right, right.

So there's a lot of moving parts here.

No, I understand. I guess but what the question is for me is I mean you're sort of footing the bill for a physician who doesn't sign his forms. And you're providing him with the pump. I mean is there is a certain -- I would think you had some leverage in this situation where you say, we need you to sign this or we're not going to keep providing you with a pump. I mean, how is that negotiation -- am I right on that or is that -

You're right. I mean, we do have some leverage. And it's changed for us and changed for them. And we want to be a customer service. You know, you go to Nordstrom [ph] and you -- something happened with your [indiscernible] and they're very nice or being accommodating, and you come back there all the time. There are other choices in the marketplace. And so we have leverage, but we want our customers to come away from their interactions with us knowing that they've been treated very nicely.

Okay, I see this is a busy time and complicated time for everyone. So is the way to think about it that this is sort of something that by the end of this year probably is a non-issue or is it going to take longer than that?

Pending is an ongoing issue for the company, it isn't just physicians' signature that cause documents to pend. We have to have to collect patient signature, we have to collect insurance information, we have to verify, we have to get authorizations. There's many steps that go into generating a claim. So as we continue to grow, I expect pending to continue to at least stay at a higher level. It's a good problem to have, in all honesty, because that's revenue that we're working on. And we will realize it at some point in time.

But as a percentage of total billings, one of the things that we have today is people do manual order entry into two systems of facts. And if they make one fact sum keypunch error and get the birth date off by one digit or the insurance number off by one digit, then that's going to pend, and we've got to go get the correct information. So there are plans -- the plan for our new electronic connectivity solutions is to get this information not being manually keyed. And we hope that some of these things will help us reduce pending us reduce pending as a percentage of all of our billings.

All right, okay. So I mean maybe -- I don't know if you can help me on this, but how do you expect gross margin to slow over the next couple of quarters? I mean, you're down a lot this quarter, will it start to bounce back to the historical levels or do you have any sense of…

Yes, everything about our gross margin for this quarter, none of it was due to pricing. And just to be clear, all these CMS changes didn't go into effect in the quarter, so all of our pricing was the same for this quarter. So the short-term impact to gross profit had nothing to do with pricing. It was primarily a result of these paperwork issues, which was a new computer rollout, which we expected. The problem was tremendously compounded by inserting these new contract discussions through CMS into the middle of it. And one of the things we have planned is that our new Express system is going to help us be more efficient to help us drive cost out of the system. And so there is a big change as we go to our direct billing margin. And I would have to say that the goal is to keep margins where they are, but we've got to recognize that we've got a different billing model at different rates in a different cost structure. And we can provide further color on that as we get more information on it.

So in other words, your goal is to keep margins where they were last quarter, but then you have to make some adjustments for changes in the business structure. Is that…

Yes, there are going to be changes in the business structure. We're changing our pricing for 30% of our third-party payer, and we're also changing our cost structure for those patients as well. And then another thing, it's still businesses, but as we sell consumable products in our direct sales, those margins are not the same as our 70% third-party payer margins. Although it's not big enough to impact the business, but it's a way for us to [technical difficulty] higher revenue streams right in the sweet spot of where we have customer relationships, and where we have products and services to funnel into those customer relationships.

Okay, all right. Well, thanks for the answers, and talk to you next quarter.

Okay, thank you, Doug.

The next question is from Joshua Horowitz [ph] with [indiscernible] Global.

Hi, thank you for taking my question. Personally, they've all been answered by previous callers mainly focused on what you're going to do to increase liquidity, and the idea of a potential share issuance, which we agree with the previous caller would not be a great idea at these levels. But in any event, congrats on a very strong quarter amidst all the changes that are happening in the business.

Thank you.

Thank you.

[Operator Instructions] The next question is from Richard Dearnley with Longport Partners.

Good morning. I'm relatively new to your company. The way the pending discussions, you need a new signature from both the clients and the doctor at the end of pump contract, is that correct? Even if it just renews?

Every patient must sign an assignment of benefit. And for every patient treatment we must have a physician written order as well, and our -- so our new system, we may have had a patient that signed the assignment of benefit on our old iPad system, and now we are having him on our new system. And I would say, even more complicated was patients are in a chair. They've got time to sign things. I think it's tracking down the physicians who sometimes aren't at the treatment facilities very often to get them to sign things. So that's what that discussion was about.

Right.

But as Jan says, every treatment pends. Every time someone sits in a chair and gets on a infuse system pump, until we send that claim to the insurance company with both the patient's assignment of benefit, the physician-written order, all of the insurance information, patient demographics, treatment, we need all those things before we send a claim to the insurance company. And all those treatments that are waiting completion of all the information we need we call pending.

Right. And how long is your normal pump contract?

In terms of the order, is that what you're asking?

Yes, well how long does that patient have it before someone has to resign?

Well, that's up to the physician. The physician makes the call on how long…

And, well, on average how long is that?

I would say somewhere between six months and a year, but it varies patient to patient. But yes, it's a case of them -- if the doctor chooses to continue a patient on treatment then we would have to obtain a renewal order, and the doctor would sign it.

Okay. And then what -- you gave the first quarter and the second quarter pending, and you're expecting it to be normal in the third quarter. What's normal?

[Technical difficulty]

It's really a percentage of gross billings, really, that you're looking at, because as I said, patient [indiscernible]. So our issue right now is timing, getting the number of new patients that we have going on service, keeping that percentage within the normal range of the cycle.

And looking back over history, what was that percentage range that's normal?

[Indiscernible]

Excuse me?

I don't think that we have it, but we can find that information as far as how it's been historically.

Okay.

Chris, do you know?

I mean, we haven't publicly stated what our total pending is. What we've referenced in this call and first quarter as well, was the increase from year end, which at first quarter was about $800,000 over year-end. And then we lowered that $800,000 down to about $630,000 currently at the end of the second quarter.

Yes, so as pending -- as your business grows pending grows, all --

Yes, I understand that. And I guess when a doctor signs a new client up do you get his signature at that time? In other words, no pump if the doctor doesn't sign for a new signup?

Well, that is how the process works. But sometimes a patient comes to the clinic, and the doctor is not right there in the clinic. And they -- some physicians sign in advance. If we don't get a signature in advance, then we have to have the physician call to give us a heads-up that they're going to be using the pump. But the pumps are already located in the clinic. So it's kind of a consignment-type scenario where they take the pump off the shelf. So we don't exactly have that leverage where we can say, no, I'm not shipping the pump till I get the order. And many provide us with a verbal order prior to submitting the written order. But we need to written order in our file to put into claims.

Right. And then could you describe what you're -- you referenced your direct product sales were up -- were $3.7 million in the year-to-date, and up 18%. And then direct was up 29%. What else is there that is direct or could you just describe direct?

Yes.

You know, I'm new to you all so…

Sure, sure, you know, you might, one thing I would suggest because this is a -- it's a great question. And it's, I'll describe it for you but I would also say we file investor presentations with the FCC and if you want to look at our most recent investor presentation one of the interesting slides its up front talks about our four revenue streams. And about four revenue streams three are what we call direct where in the direct we are a supplier. I would say direct is we're a supplier to other providers. And then in the other stream where we call our third party payer it's the insurance companies that are paying the bills. And so in both of our oncology business and in our pain service we submit claims to insurance companies and we get the big private insurers and used to be CMS for oncology but now our oncology business looks like our pain business for pain we've never been reimbursed for CMS. So if patients have private insurance we can send claims but if they don't we build the provider direct and so in oncology it's a physician owned practice. It could be a large hospital network. We build the provider for the service. So in our direct business we rent pumps, both ambulatory pumps, pull mounted pumps, enteral pumps, patient controlled analgesic pumps, syringe pumps. We rent pumps to a variety of different providers. These could be hospitals, home infusion companies, long-term care companies, and we're renting them a pump and they're paying us and then they're billing the insurance company. We also sell products to those providers. We sell pumps and we sell consumable, disposable supplies that are used in infusion treatments to oncology clinics and hospitals and home cares. And then our fourth revenue stream which is also direct is we provide biomedical services. We repair pumps. We provide preventative maintenance for pumps. Sometimes I tell people if we were in the car business we we'd be Hertz, we'd be Mr. Good wrench. We'd also be Car Max because we buy and sell used equipment. So when we think of our direct business work we're renting, we're repairing, we're selling and then in our third party business which is really only for oncology and for pain for post orthopedic surgery non-narcotic pain pump program. In that case we're billing the insurance company for private commercial insurance or state medicated plans for the insurance reimbursement.

Thanks, okay. Thank you very much, good explanation.

Thank you for your interest.

We have no further questions at this time. I will turn the call back to Eric Steen for closing remarks.

This concludes the call, and in closing I want to take a moment to thank Jon Foster our outgoing CFO for his contributions to the organization and to wish him well in his new opportunity. Goodbye everybody and we'll talk to you next quarter.

Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.