InfuSystem Holdings, Inc. (INFU) Q2 2022 Earnings Report, Transcript and Summary

Good day and welcome to the InfuSystem Holdings Incorporated Reports Second Quarter Fiscal Year 2022 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 managing partner with Mr. Joe Dorame. Please go ahead.

Thank you, Ian. Good morning and thank you for joining us today to review InfuSystem Holdings, Inc. financial results for the second quarter of 2022 ended June 30th, 2022. 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. 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 website at infusystem.com or numerous other financial websites. 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 in documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31st, 2021. Forward-looking statements speak only as of the date of the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. InfuSystem does not undertake and specifically disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Now, I'd like to turn the call over to Rich DiIorio, Chief Executive Officer of InfuSystem. Rich?

Thanks Joe and good morning everyone and welcome to our second quarter 2022 earnings call. Thank you all for taking the time to join us today. As communicated in this morning's press release, InfuSystem's core business segments delivered very solid second quarter results. Our ITS business, led by continuing strength in oncology, grew revenue by 6% over the prior year. Our DME business, which includes rentals and related pump, and consumable product sales experienced topline growth of 15%. Together, our two business units grew in the second quarter by 9% on a year-over-year basis. Operating cash flow in the first half of the year increased 8% to $9.5 million, with sequential quarterly cash flow increasing by 33% compared to the first quarter. If we were still the InfuSystem of a couple of years ago, the second quarter would likely be viewed as a tremendous success. But of course, we're not that company anymore. We now consider ourselves a growth story with several exciting high TAM initiatives including those in Pain Management, Wound Care, and biomedical services. So, while 9% growth in the second quarter was solid, it is below the pace we were expecting to be at halfway through this year. Having successfully repositioned InfuSystem its long history as a niche oncology company to its new model as a specialist in providing last-mile solutions for Durable Medical Equipment. We find ourselves with no shortage of exciting growth opportunities. This includes an increasing number of large and successful healthcare companies that have recognized InfuSystem's unique capabilities and our commitment to quality, resulting in a steady stream of industry leaders approaching us and proposing significant opportunities for us to grow our business. We continue to analyze and assess these opportunities, passing on high risk and flash in the pan ideas in favor of those that we believe play to our core strengths, and present the best opportunities for sustainable and profitable long-term growth. As pleased as we are by our new positioning and the opportunities that is presenting, our business transition in the increasing work with much industry-leading -- with larger industry leading players does present a particular challenge. Few things in healthcare happen quickly. InfuSystem is a relatively small company that provides itself on being nimble, but many of our new partners and customers are massive diversified organizations. The result for us is frequently a hurry up and wait cycle where we stand ready to execute, but have to wait for our partners to work through their longer and more complex internal processes. Now, being patient in waiting for revenue to work its way forward is nothing new to InfuSystem. We've always explained that investments in new business must be made quarters in advance of significant new revenue appearing on our income statement. What has changed is the anticipated scale of our new business initiatives. Until recently, a new customer win meant being patient while maybe tens of thousands of dollars per quarter work its way through the revenue cycle process, but this year, we announced a single contract with GE, the impact of which is expected to ramp to more than $10 million annually. That's a single contract that by itself could add more than 10% to our topline. It is hard to be patient with opportunities like that and we are going through some growing pains as we adjust the scale of our new business opportunities. Last year when we began making material investments in order to be ready to execute under the large pending biomed services contract, we follow the example we set a few years earlier, when a major competitor exited the third-party payer oncology market, and we assume much of their business. We tried to be as transparent as possible explain that increasing expenses were being driven by anticipated material revenue growth that would ramp over a period of a year or more. That was when InfuSystem first started providing annual guidance. We followed this template in 2021 and it didn't work out as well as the last time. We knew a lot of the new work was coming that we needed to invest to be ready and then investors want an explanation. So, we were as transparent as we believe we could be while waiting for the contracting process to be completed. And that process took much longer than we expected taking until April of this year to be finalized. It is now August of 2022 and we're happy to report that the work began under the large biomed services contractor in the second quarter. But as discussed in this morning's press release, the ramp has been much lower than expected. In the mid to long-term, the reasons for the delay are good news is our white glove approach identified the need for significantly more device repair work as part of the onboarding process. With the potential of touching upwards of 300,000 devices as part of this first contract under the master services agreement, more work and more trust directed towards InfuSystem is something we should view as extremely positive. But getting through the process with such a large diversified company as GE took significant time. The good news is we believe there could be more revenue than originally forecast. The bad news is that less of that revenue came through during the second quarter and as Barry will explain shortly, this has the effect of pushing back revenue under the contract and forcing a change in our guidance for the remainder of 2022. Stepping back from this one contract of broader view, InfuSystem is seeing a lot of opportunities. And we have no doubt that we are now a growth company that is capable of generating average long-term growth of around 20% per year. We can control which opportunities are pursued and the amount and timing of the investments we make into those opportunities. Unfortunately, when working with much larger and more complex national and global healthcare companies, we are sometimes placed in a position of accepting and not dictating the timing of the contract process and the ramp up of the new revenue emerging out of these opportunities. The result is that while the average rate of our future growth might be in the range of 20%, that growth will be lumpy and with some years coming in above and others below based on when the new business initiatives begin and ramp towards the potential. I've said that our repositioning as a services company as a specialist providing last-mile solutions for patients has resulted in no shortage of exciting growth opportunities, with many involving large healthcare companies approaching us. As these opportunities -- as these are opportunities that we will continue to pursue and as it has become clear that pandemic supply chains and extended negotiating periods make it very difficult to pin down when these initiatives will start and ramp, we have determined that we need to change the way InfuSystem provides its financial guidance. Starting today, our annual revenue guidance will include only revenue where the associated work has already been done and with respect to growth, where we have very good visibility and extremely high confidence in the revenue ramp. We hope this will free us up to talk about strategies and developments in our business without having to predict the precise timing and revenue impact of new initiatives. We believe that as we move forward, this change will allow us to get back to the beaten race paradigm that characterize InfuSystem prior 2021. Turning to the discussion on the second quarter, we see that it provides one example after another of the challenges we have faced providing guidance related to a new class of significant larger growth initiatives for InfuSystem. Recall that after the first quarter, we discussed our full year guidance included provision for all types of possible risks, but even then the second quarter had some surprises. Before reviewing the details, let's remember that the second quarter was still a very solid quarter with 9% year-over-year growth despite the various challenges we were presented with. I've already provided some detail of the first few months of our big new biomed services contract with GE Healthcare. During our team's initial on-site visits, we determined it was more than expected amount of repair work required in addition to the routine preventative maintenance. This led to a pause as we work with GE to achieve alignment on the scope of the work required. As of August, we are back to onboarding facilities and pumps and we are doing this at an elevated pace. Given the size of the project, we expect it to take approximately 15 months to ramp to onboard all of the work and sites anticipated with the potential of additional work under the master services agreement as the relationship continues to develop. In terms of guidance for the year, we are modeling cautiously, including making no assumptions regarding incremental revenue relating to the higher service levels due to increase pump repair work. Moving next to our Pain Management business, we remain very positive and excited about the program and its near-term prospects. In the second quarter, we had some supply chain issues which didn't allow us to onboard all of our growing backlog in new accounts, the issue is resolved, and we were still able to end the quarter with record patient treatments and expect this ramp to continue. In fact, patient treatments in June were up over 50% versus June of 2021. In terms of guidance for the year, we have adjusted our numbers to reflect the first half interruptions, but continue to forecast strong growth in our core pain management program through the balance of the year. In our Wound Care business, we also experienced material supply issues. Here we are taking a different path, one consistent with our long-term plan to expand our service offerings in both pain and wound care by among other things, diversifying our OEM equipment partners. We plan on adding multiple best-in-class products to our offering in order to win market share. We've made significant progress in this area and hope to soon be issuing a press release announcing a new partnership. In the meantime, we have put our two large lease opportunities on hold and removed the forecasted revenues relating to these deals from our guidance. In anticipation of our new supplier relationship, we've already begun customer assessment of the alternative devices. The net effect of the new approach to providing guidance together with the supply and other impacts discussed above is to revise our full year 2022 revenue growth guidance to be in the range of 10% to 13% and adjusted EBITDA to be in the range of 20% to 21%. These figures are based upon the current trends in our core services and newer businesses that are currently producing revenue. New initiatives with less visibility regarding ramp and timing are largely taken out of the forecast and will be updated when the timing is clear and we can precisely calculate the timing and the rate of ramp. While we were taking revenue out of our guidance, but is uncertain as the timing, we can now take out the expenses that will be realized in anticipation of that revenue. Respecting this, we will seek to remain transparent with respect to where and why we are investing, speaking to the potential of our new business initiatives, but not including revenue forecasts in our guidance until it is well-defined and we have high confidence in its rate of [indiscernible]. Now, I would like to call -- turn the call over to our CFO, Barry Steele, who will provide a review of our second quarter financial results.

Thank you, Rich and thank you everyone on the call for joining us today. I'm going to focus on three topics, the main drivers for the current quarter results, some details related to the change in our revenue and financial guidance for the rest of 2022, and the status of our financial resource reserves. First, let me touch on our financial results for the second quarter, which included both year-over-year and sequential improvements on various metrics. Net revenues for the second quarter of 2022 totaled $27 million, representing a 9% increase from the prior year and setting a new revenue record for the second quarter in a row. The year-over-year growth came from both of our operating segments with Oncology and Pain Management increases leading the way in ITS segments and with equipment rentals and biomed services pushing us forward in the DME segment. On a product-by-product basis, the highest percentage growth contributors were biomed services at 36% and pain management, which grew by 26%. The biomedical services revenue included initial amounts of the revenue from that new master services agreement with a leading global healthcare technology diagnostic company that was launched in April 2022. Revenue under this agreement, which was not yet significant during this second quarter, is expected to grow to approximately $10 million to $12 million annually after our initial ramp-up period of approximate 15 months. Preparations for this large biomedical services agreement, along with other anticipated biomedical service volume, continue to create additional cost during the quarter in both cost of sales and general administrative expenses. These slightly diminished the gross profit margin percentage for the DME services segment and increased our G&A expenses. These higher expenses which include both an increase in our biomed workforce and other expenses were partially offset by the higher biomed revenue during the quarter and are expected to be further absorbed as we continue to grow these revenues. Said another way, in the short-term, additional revenue will be highly accretive, given that the cost basis for higher revenue is essentially fixed in the short-term. Three additional factors that unfavorably impacted profit margins include the following. First, we increased our estimated reserve for missing pumps by $721,000 during the quarter. The adjustment was partially related to recent physical inventory has taken various customers, but also due to a change in assumption use to calculate the estimated amount of the reserve. Second, equipment maintenance expenses for the ITS segment, which can fluctuate from quarter-to-quarter depending on the timing of the repairs, were slightly elevated to the current -- during the current second quarter. Without the pump reserve adjustment and a slightly higher equipment maintenance expenses, the gross margin for the ITS segment would have been slightly higher comparatively during the current quarter on both a year-over-year and sequential basis. Third, we incurred additional costs totaling $400,000 relating to the increase sales team for Negative Pressure Wound Therapy and Pain Management, which started during the second quarter of 2021 and related marketing program expenses. This increase was evenly split between selling expense and G&A expense. Partially offsetting these were a decrease in our stock-based compensation expense due to lower stock valuations on new awards. Reflecting lower selling expenses were to timing marketing activities, which now being conducted in-person are typically higher during the first quarter of each year, and a decrease in accrued short-term incentive plan expenses related to the lower 2022 outlook. As the results of these impacts, particularly the added investment in our ITS salesforce and our investments in the biomed teams, our adjusted EBITDA was $5.4 million, or 20.6% of net revenue during the 2022 second quarter. This amount was $300,000 lower than the second quarter of 2021, but represented a $1.4 million or 34% increase sequentially from 2022 first quarter. That takes me to the subject of outlook for the rest of the year. As Rich mentioned, we are now forecasting 2022 net revenue to be between $113 million and $116 million, which represents an increase over net revenue during the prior year of 10% to 13%. That is approximately $5 million to $7 million lower than our previous estimate. This reduction is very large, but are driven by only a handful of developments. The most important of these are the equipment leases that have been put on hold due to a supply disruption. We have now moved all leasing revenue out of our forecast model and into our opportunities list, with a resulting revenue reduction of $3 million to $4 million for 2022 from the prior guidance level. Second, as Rich mentioned, we lowered the amount of current year onboarding ramp related to the large biomed contract that commenced work in early May. Our previous assumption had more pumps coming online during earlier parts of the estimated 15-month ramp period. This change reduced the revenue estimate for 2022 by $1 million to $2 million. Third, we moved back the starting date, but did not change the confidence level for two other biomed contracts. The impact was approximately $1 million in lower revenue outlook. Finally, our previous estimates included too low of an impact related to the supply chain headwinds. The impact of the pain management new customer pipeline. While largely resolved in the final weeks of the second quarter, the higher than anticipated delay resulted in about $1 million reduction in the 2022 revenue. Partially offsetting these reductions is an increase in our outlook for equipment rental revenue, which outperformed our expectations for the quarter and resulted in a $1 million increase in our full year revenue expectation. Ironically, a part of this improvement resulted from the same market wide supply disruption that hurt us in pain management. As a result of these decreases in revenue, expected adjusted EBITDA for 2022 to be within the range of $23 million to $24 million, adjusted EBITDA margin is expected to be between 20% and 21%. Turning to a few point in our financial position and capital reserves, we continue to be well-positioned to fund net revenue growth with strong 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 $1.2 million during the quarter to $33.4 million and our available liquidity increased by that same amount to $41 million at the end of the quarter. The reduction in total debt offset partially by the lower 2022 EBITDA caused our ratio of total debt to adjusted EBITDA for the last 12 months to increase modestly to 1.54 times at the end of the quarter as compared to 1.37 times at the end of the 2021 fourth quarter. Most of this increase is attributable to the 4 million stock repurchase without -- repurchases without these funds -- without which these funds would have gone to paying down the revolver and reducing the debt ratio to only 1.31 times. Our debt consist of borrowings on a revolving line of credit, with no term payments requirements, almost three and a half years remaining on a term and $20 million of which is protected from increasing interest rates through an interest rate swap having the same tenure. And with that, I'd like to turn it back over to Mr. DiIorio.

Thanks Barry. In closing our motto is safe, smart, and trusted and for more than 30 years, we have worked hard to build a culture that embodies the patient at the center of everything we do. The foundation of the company has never been stronger and we are confident our growth plans to build a bigger and better InfuSystem. We're making progress in transforming InfuSystem into a leading healthcare service provider, improving the quality of care by enabling continuity of care for clinic to home, and acute care markets. We're well-positioned for multiple growth opportunities and we are highly focused on executing on our plans and driving operational excellence for long-term success. I want to thank the entire InfuSystem team for their hard work and dedication in ensuring our customers, partners, and patients receive our industry-leading service. Before we take questions, I would like to let everybody know that as part of our compensation, some members of the executive team, including myself, were awarded stock options in the fall of 2017 that are now coming up on their fifth-year anniversary and are set to expire. We will likely see some Form 4 filings as the team needs to execute some type of transaction with respect to those options before they expire. It is an absolutely no way a reflection of our confidence in the business or the future of this great company. And now, we're happy to answer any questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question is going to come from Alex Nowak of Craig-Hallum Capital Group. Please go ahead.

Good morning, everyone. This is Jason [ph] for Alex. So, just starting out, just wanted to dig in a little bit more on the full year guidance. So, just for what's included in that biomed contract, so is that $1 million $2.5 million we're expecting for the year now? And then if we could get a bit more linear on growth assumptions for ITS and DME, growth assumptions for each business? And then where do you think end of the year run rate is for Pain and Wound, just kind of some outdated assumptions there would be helpful to know. Thanks.

So, taking the question on the biomed contract, we had in our old guidance $3 million to $4.5 or I think it was may have been for $4.8 million. We took that down now -- we took a couple million out of that, it's about $2 million, $2.5 million now.

Yes, and on the run rate on the Pain and DME side, coming out of the fourth quarter, Pain is probably pushing $10 million on its own, right, it might be $8 million or $9 million, but it's somewhere in that range. We can, kind of, -- when we look at the forecast for the Pain business and the customers we have in the pipeline, the ones where we've already in service over the last couple of months, the ones we're about to in service, this is the most optimistic we've ever been on the Pain business and we've been pretty optimistic on it. But without really a big COVID impact that we can see, with the supply issues largely resolved with a pipeline that this new team that we hired last summer has built, we expect it to be an $8 million to $10 million business coming out of the fourth quarter from a run rate perspective.

No, it's helpful. And then just kind of digging in a little bit more on that point. Could you kind of expand on where Pain and Wound had been through July and now into August here? It sounds like obviously things have recovered. But just trying to pair that with what was taken out of guidance, kind of, what are you seeing what's -- what are the dynamics there? And it certainly sounds like you guys are excited. And so just some commentary there would be helpful.

Yes, I think Barry can give you the numbers. But on the Wound Care side, largely what's been taken out of guidance is the leases. We in a supply chain issue where we just can't get the devices we need. It's kind of fortuitous that we're already looking at another manufacturer to have a second device. So, the leases, although we're still hopeful, we're going to get them, we don't know if they're going to come in the third quarter or the fourth quarter next year. So, we pull that out of the Wound Care and that's largely what we pulled out of that segment or out of that business. On the pain side, it was really the delay with COVID at the beginning of the year and then the supply chain issue mostly in April and May. We just had to push that revenue out. And Barry I don't know if you have the number on Pain, I think we pulled a $1 million or $2 million out of Pain?

Yes, we took about $1 million out of Pain.

Yes.

The leases was $2 million to $3 million range.

And just lastly from me, it'd be great to get your guys thoughts on the reimbursement changes we've seen within home health recently. Do they have any impact on your business? And how does it impact the move to more care in the home that you guys are enabling?

Yes, so the changes themselves have had no impact on us. We build different codes. We're licensed differently than home health agencies. So, we've seen zero impact and shouldn't see any. The fact is people are still trying to get patients out of the hospital. It's better for the patient from a recovery standpoint, it's cheaper to the system overall. So, that move hasn't changed. So, I don't think these will impact us really in any way.

Awesome. Thanks guys. I'll hop back in the queue.

Thank you.

Our second question will come from Brooks O'Neil of Lake Street Capital. Please go ahead.

Good morning, guys. Thanks for all the color. Really appreciate that. I guess I'd start off Rich by just asking you obviously got a lot on your plate and you're managing through it very well. But how do you think about adding additional new business opportunities maybe beyond the three or four silos you have today? And how important is taking advantage of those opportunities right now versus perhaps solidifying your position and your existing areas of focus before you move forward with new ones.

Thanks Brooks. That's a great question. So, I guess I can answer with a couple different couple different things. I don't see us going out and blazing a new trail with a new therapy anytime soon, getting into a market that we're not familiar with, or really have any kind of market penetration in already. That doesn't mean that we won't expand our products and our lines within the therapies we're in, so, Pain, Wound Care and Oncology. So, you might see a 'new therapy' in one of those businesses or new product, but it's something where we already can leverage our sales team, we already have relationships with customers, it's not something we have to go start from scratch. I just don't think -- and you said it perfectly, we want to go solidify the position we're in, the markets we're in with the products we're in first. I think the opportunities are just are too big in the in biomed and Pain and Wound Care for us to go distract the team with something new and different just for the sake of having something new and different. So, I think we're going to buckle down focus on what we have, but you will see some new products for sure going into those three markets over the next six to 12 months.

Cool. And just curious, have you moved away from your thought of moving into the lymphedema space? Or is that just something that's pushed out into the future a little bit?

I think it got pushed out a little bit. We still have some resources dedicated in the background to working through the program. But I think with GE and the biomed opportunity, kind of, coming front and center with the Pain expansion we're seeing and with what we'll talk about hopefully soon on the Wound Care side, we don't need to rush lymphedema, there's just no reason to. I think the TAM in the businesses we're in and the potential that we have to go get a good chunk of it, is plenty for us in the short-term. But lymphedema is still out there. And when we're ready, we'll go attack that market. My thoughts on the market itself haven't changed at all and our ability to go after it. I just don't want to spread this team too thin.

Sure. That makes total sense to me. Sounds like you've got plenty of opportunity in the core areas now and that's probably the right way to use your resources. One last question for me. I'm curious you've alluded to new relationship in Wound Care. Do you foresee that having any impact on your Cardinal relationship? Or how -- talk just a little bit about how things are going in general with Cardinal? Yeah, so

Yes, so -- I don't think a new relationship will affect Cardinal and that's true kind of across the board for us, right? We cover -- we carry every pump manufacturers product in the market. It's just kind of who we've always been. We try to be device agnostic so that we can meet patient and customer demand and not be tied into one product. And that's true with Cardinal, we don't have an exclusive with them at all. So, we've always been able to look at other products and we have been for quite some time. The relationship with Cardinal has been interesting in the last month or so. We just can't get their devices and I don't even know exactly why. We have our thoughts, but I don't -- certainly don't want to speculate on what they're doing. But that's why we had to pull the leases out. We were pretty close to closing them and had to pull them because we couldn't get the devices. So, now the customer is going back and looking at another device that -- from a manufacturer, I think we're going to be we're going to be partnering with soon. So, it's a little bit strained in that respect, because we were really not clear on exactly what's going on with them other than we just can't get their devices. We can still get their suppliers to support the patients we have, but we can't get additional devices right now. And that's why we had to pull the leases out of the forecast. I think well we'll have a solution shortly and the leases will come back online. But it's not something we want to guess add on the timing whether it's third quarter, fourth quarter, next year, it's just not -- it doesn't make any sense for us to do that.

Sure. Makes total sense. And then maybe just for Barry quickly, obviously, you went through the status of the balance sheet, the cash flows. But in general, how do you feel about capital allocation and your ability to manage through all the great opportunities you have in front of you?

I think we have a wealth of dry powder to the investment business. We're very well set to take on anything that comes our way as far as beyond finance. So, we're very comfortable.

Great. Thank you very much. Congratulations.

Thanks Brooks.

[Operator Instructions] Our next question will come from Jim Sidoti of Sidoti & Company. Please go ahead.

Good morning. Thanks for taking the questions. So, it sounds like the major factor that caused the guidance reduction was the ramp of revenue from GE, can you just go over again why those initial homes needed a little more service than you thought resulted in the delay in the ramp -- the revenue ramp?

Yes, so we walked into the first big hospital, it was a pretty good sized place, they had, I don't know, 4,000 or 5,000 devices, and they were a mess. There were devices everywhere, they were broken and really the program itself is to repair kind of some devices and maintain the rest. We ended up repairing a lot of devices. And we get to charge for that, right and that's the good news part of that story. The bad news is GE was a little caught off guard at how messy their customer was. So, they -- we sat down together and kind of, worked through what we did, why we did it, make sure our systems are talking and those sorts of things. So, just -- it pauses the rollout by, call it, 30 or 45 days, the good news is all that's ironed out. In this month alone, I think we're going to onboard probably twice as many devices as we did in June and July combined. So, it's all been worked through, just, kind of, pause the program for a little bit until we all get our feet under us and could assess what was going on. We don't expect that to be at every hospital. But there'll be some that will be messy, some that will be cleaner than others. I think it caught them probably off guard more than it even did us. But the good news is the customer is happy to get all their devices fixed, repaired, maintained. Now, they can redeploy them back up on patient floors and do what they need to do, which is treat patients.

So, although the initial revenue from the contract is going to be a little lower than you thought, it sounds like the potential for revenue over the next three or four years is a little bit higher than you think? It could have been -- you thought initially, is that right?

I wouldn't say that it's -- that the initial revenue -- the revenue from the initial contract is going to be lower. It's just going to be delayed by a few months, but we're still looking at $10 million to $12 million in revenue from that initial contract with upside from there.

I think one way, Jim, you could think about it is -- it's the front half of the tail, and it just got pushed, the tails a little bit shorter in this year, it's just a matter of where it cuts off for 2022 about how quickly in the first few months it ramps up. So, certainly outlook is actually as good or better and the upfront revenue, which is kind of a one-timer is actually better over time too. We just need to get the pumps on board in order to get the revenue.

And then looking at the balance sheet, it looks like inventory is up about 20% since the beginning of the year, is that finished goods, components and is that something you do with the hedge against the some of the supply chain issues?

Yes, it's mostly our supplies that we use in both businesses and components and parts that we use to repair devices. So, it actually for us has a pretty small number generally, so a little bit of a change can be a high percentage. But yes, just building our stock up in order to be prepared for any potential future supply issues.

All right. That was it for me. Thank you.

Thanks Jim.

This concludes our question-and-answer session. At this time, I'd now like to turn the conference back over to Mr. Rich DiIorio, for any closing remarks. Please go ahead.

Thanks Ian. I want to thank everyone for participating on today's call. I hope everyone has a good day and I look forward to talking with you again when we host our third quarter call. Please stay safe and have a great day.

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