InfuSystem Holdings, Inc. (INFU) Q3 2017 Earnings Report, Transcript and Summary

Good day and welcome to the InfuSystem Holdings Third Quarter of Fiscal Year 2017 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead, sir.

Thank you, Denise. Good morning and thank you for joining us today to review the financial results of InfuSystem Holdings for the third quarter of 2017, which ended on September 30, 2017. As Denise indicated, my name is Joe Dorame. I'm with Lytham Partners and we are the Investor Relations consulting firm for InfuSystem. With us today representing the Company are Gregg Lehman, Executive Chairman, and Chris Downs, Interim CFO. After the conclusion of today's prepared remarks, we will open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the press release, you can retrieve it from the Company's Web-site at www.infusystem.com or numerous other financial Web-sites. 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 statements of historical fact, this conference call may contain forward-looking statements that involve risk and uncertainties, some of which are detailed under Risk Factors in documents filed by the Company with United States Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2016. Forward-looking statements speak only as of the date the statements were made. The Company can give no assurance that such forward-looking statements will prove to be correct. InfuSystem does not undertake and specifically disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Now I'd like to turn the call over to Gregg Lehman, Executive Chairman of InfuSystem. Gregg?

Thank you, Joe, and good morning everyone. I appreciate you participating in today's earnings call. I'm joined today on the call by Chris Downs, our Interim Chief Financial Officer; Jan Skonieczny, our Executive Vice President of Operations; and Rich DiIorio, our Executive VP and General Manager of Oncology Sales. Rich and Jan will join us for the Q&A section of the call. Chris, Jan, and Rich, are all members of the InfuSystem's Office of the President. The third quarter was our first full operating quarter under the guidance of the Office of the President, which was established in May 2017. In conjunction with the Board, we have been working on recalibrating the business to strategically address the issues that emerged following the CMS reimbursement change in April of 2016. We have redirected InfuSystem's strategic emphasis away from expanding our pump fleet to drive increased gross billings toward best practices to increase our effectiveness and collecting on the revenue generated by our infusion pumps. This means we have been highly focused on the basic blocking and tackling of running a successful business. This includes pursuing and winning new customers of course, but it also means making sure to pursue opportunities that are creating value, and most importantly, making sure InfuSystem gets paid for the services it provides. On our last quarterly call, we discussed the importance of doing a better job in collecting on receivables in our third-party payor oncology business. We also reviewed our ongoing efforts to reduce operating expenses and managing our CapEx more efficiently. Improving on all of these important actions will help the Company pay down its debt, eliminate future issues with our bank covenants, and return the Company to profitability. We are pleased that our efforts to improve on these strategic initiatives are showing success. It's important to note, we are making solid progress in our collection efforts. I am pleased we continue to win new business and grow our market share in a responsible manner. As part of our progress, we are reviewing customers and lines of business, and increasing prices where appropriate. Additionally, we have reduced operating expenses, particularly in IT, and we are being much more careful with CapEx. The improvement in collections enabled us to reduce debt by an additional $2.9 million during the third quarter, with new debt below $30 million at September 30, 2017. On a year-to-date basis, we have reduced our net debt by $4.7 million. The InfuSystem team has accomplished much in a short period of time, but the job of managing a successful business is never done, which leads me to pre-empting the question of how much longer will the Company plan to operate under the Office of the President. I can report that the Board of Directors is actively engaged on that question, but no decision has been made by the Board. As I've said many times before, we are very happy with how the Office of the President is working, which is demonstrated by the improvement in our third quarter 2017 financial results. Our initial plan was to operate under the structure through the end of the year. When we do announce a change in the management structure, shareholders should not expect to see much in the way of significant change from the Company's current operating agenda. At this point, the Board has no interest in trying to find someone to come in and transform InfuSystem's business. The basics of our operations are fairly simple. We run infusion pumps used in medical procedures and bill either the medical facilities or the patient's third-party insurance provider. We have a very large number of pumps in the field and we are highly focused on improving our processes to collect the revenue generated by those pumps. For the foreseeable future, the task is to continue to focus on InfuSystem's existing business and managing it as well as possible. Our efforts will be highly focused on; one, providing the highest level of service to our third-party payor oncology customers and making sure we get paid on a timely basis; two, pursuing new opportunities in our infusion products division while ensuring that our existing business provides InfuSystem with an appropriate rate of return; and three and lastly, growing our business in pain management. In a moment, I will turn the call over to Chris to go through a review of the financials. It is gratifying that revenue in the third quarter increased from the prior year and sequentially. This happened despite the interruptions in business in some of our important territories due to the hurricanes that hit Texas and Florida. I am pleased that we were able to reduce cost during the quarter as well. As a result, gross margin improved by 2.5% to 62.8% for the third quarter. Additionally, sales and marketing expenses were down $228,000 from the prior year. That was accomplished through the hard work of Rich DiIorio and his team. When you turn to the cash flow statement, you will see that we are generating cash from operations, we minimized our CapEx, and we are paying down debt. Cash provided by operations increased 10% for the nine-month period. Our goal is to continue to improve on our procedures and every incremental dollar we collect will increase the Company's cash flow profits and EBITDA. I will now turn the call over to Chris Downs to discuss our third quarter financial results. Chris, take it away.

Thank you, Gregg. For the third quarter of 2017, total net revenues were up 2.1% or approximately $0.4 million, to $17.6 million, versus the prior year period. This increase is largely attributable to increases in rental volume and positive pricing and collection impacts. Total net rental revenues were up 4.7% versus prior year to $15.3 million. Total product sales decreased $0.3 million, to $2.3 million, a decrease of 12.4% compared to the prior year period. Gross profit was up 6.3% or $0.6 million versus the prior year, to $11.0 million, resulting in gross margin of 62.8% versus 60.3% in the prior year period. G&A expenses increased 5.6% to $5.6 million compared to the prior year period. Operating profit was $0.6 million, which was consistent with the same prior year period. Net loss was $0.1 million or a loss of $0.01 per diluted share versus income of $0.1 million or $0.00 in the prior year period. Adjusted EBITDA, a non-GAAP financial measure, was up 13.2% to $3.9 million versus $3.4 million in the prior year period, and was also up 26.2% compared to the second quarter of 2017. Adjusted EBITDA margin increased from 19.8% in the prior year period to 22.0% in the current quarter, and up 3.9% from 18.1% in the second quarter of 2017. Adjusted net loss, a non-GAAP financial measure, was $0.2 million, or a loss of $0.01 per diluted share. Net debt, total debt net of cash, decreased $2.9 million to $29.3 million in the quarter. Liquidity at September 30, 2017 was $9.8 million, consisting of $0.8 million of cash and $9.0 million of net availability under our revolver. This was compared to liquidity at June 30, 2017, which was $8.6 million. With that, I'll return the call to Gregg.

Thanks Chris. I would like to end the prepared remarks today by thanking the InfuSystem employees for all their hard work and dedication over the last several months. The work they have been doing is setting the stage for a new chapter in the Company's history. Going forward, InfuSystem will be a more efficient company with strategic and operating decisions driven by both a deep understanding of the infusion business and a careful financial analytics, ensuring that our efforts are providing a compelling return on our investment. I would like to acknowledge the two leaders helping the Company collect and analyze the relevant data, and those two are, Jean Pfeiffer, our Senior VP of Business Process and head of the data and metrics team, and Trent Smith, our Chief Accounting Officer and Corporate Controller. Now I'd like to ask Denise if she would open the lines and we'd be happy to answer your questions.

[Operator Instructions] Your first question will come from Michael Potter of Monarch Capital Group. Please go ahead.

Congratulations with a very strong quarter, and it looks like the Company is back on strong footing again. Gregg, I want to get back to I guess the CEO and CFO search and this Office of the Presidency. I understand that it's certainly working as of now and it has worked to help stabilize the Company, but it's very difficult to put any sort of medium-term or long-term strategy together for a company when we are operating in this manner. When will the Company start a search to rebuild its C-suite?

Thanks, Michael, and good question. So, as I mentioned in my remarks, the Board has been actively in discussions about this since May of last year, and more importantly just towards the end of Q3. From a short and medium-term strategic plan, I think the things that we mentioned in our prepared remarks are really where our laser-focus needs to be. Beyond that, as I mentioned also, we're concerned that the Company not overextend its reach by trying to do too much and have a dilutive effect on some of the progress we've been making. So, as has been our intent, we do not plan to run the Office of the President beyond the end of this fiscal year. So, you'll just need to wait and see, but we should be forthcoming – as we continue to discuss with some of the Board, we should be forthcoming with an announcement. So, stay tuned.

Okay, thank you.

[Operator Instructions] I'm showing no additional questions. We will conclude the question-and-answer session. I would like to turn the conference back over to Gregg Lehman for his closing remarks.

Thank you, Denise. Thanks everyone for your interest in our Company. We really appreciate you taking the time today to learn more about the Company. We really look forward to speaking with you after the conclusion of the next quarter. Have a great day, and again, thanks for joining the conference.

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.