Good day and welcome to the InfuSystem Holdings Inc. reports Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Joe Dorame. Please go ahead, Sir.

Good morning and thanks for joining us today to review InfuSystem's fourth quarter and yearend 2023 financial results ended December 31, 2023. 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 will open the call for questions. Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of 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 31, 2022. 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 except as required by law. Now, I'd like to turn the call over to Rich DiIorio Chief Executive Officer of InfuSystem. Rich?

Thank you, Joe and good morning everyone. Welcome to InfuSystem's fourth quarter 2023 earnings call. Thank you all for joining us today. I'll get things started this morning with an overview of the past year. 2023 was a great year for InfuSystem. We delivered strong organic growth of more than 14%, finishing the year with revenue of $125.8 million. It was our fifth consecutive year of record revenue and easily beat our guidance. We said at the start of the year that it would be an execution year, and I couldn't be more proud of what the team accomplished in 2023. The sustained momentum reflects our ability to focus and successfully execute on our strategic priorities, while providing our patients and partners with the highest levels of service. With our 2023 results, I believe we validated both the continuing strength of our core businesses and the potential of the two big growth initiatives we announced or launched in 2022. First, in our core business, oncology had another record year in 2023 with the success coming from market share gains and continued improvements in our revenue cycle execution. These factors combined to grow the therapy by 8%. Our core equipment rental business continues to do what it has always been good at doing, while beginning to take advantage of new opportunities emerging for us in acute care. The solid strong performance and cash flows from our two core businesses support continued execution against our current two major growth initiatives, which are Biomed and Wound Care. First, Biomed, specifically around the Master Services Agreement with GE, delivered approximately $10 million of revenue in '23 and ended the year on a run rate of approximately $11.3 million. With the initial rollout nearly complete, our focus will now turn to driving efficiencies, a topic Carrie will address in a few minutes. Our second major growth initiative relates to the developing Wound Care opportunities under our joint venture with Sanara. Wound Care revenue is up materially, coming in at $3.9 million in 2023, beating our expectations for the year and providing a nice ramp for the larger contributions we expect to see moving forward. Most of the revenue in Wound Care to date has been related to our negative pressure device leases, but in the second half of the last year, we started distributing, albeit a very small amount, Sanara's advanced Wound Care products into the market. We expect a gradual but steady ramp of the Sanara products as facilities convert to InfuSystem as their Wound Care DME provider and begin ordering third party payout products and supplies through the JV. I'll talk to that more later on in the call, but I'd like to turn it over to Barry to discuss our Q4 and 2023 year-end results.

Thank you, Rich, and thank you everyone on the call for joining us today. I'm going to focus on four topics. First, I'll talk about a change we made in the classification of some expenses on our income statement. Second, I want to share a general observation regarding our financial trend, driven by additional biomedical services revenue. Third, I'll review the main drivers for the fourth quarter's results and finally, I'll update you on our current financial position and how it changed during the quarter. During fiscal year 2023, we reviewed our cost classifications primarily related to pump service parts, accessories and outside maintenance costs, that were previously classified within general and administrative expenses. Based upon this review, we concluded that certain of these costs were direct costs that were more appropriately classified as cost of revenues. As a result, we have reclassified these costs within the income statement beginning in fiscal year 2021. These costs are now presented within cost of revenues as opposed to general and administrative expenses. The reclassification did not impact revenues, operating income, net income or earnings per share. Additionally, the reclassification did not change any amount in our balance sheet or statement of cash flows. In conjunction with our annual audit, we are also reviewing our footnote disclosures relating to the application of accounting standards update number 2016-2, leases or topic 842, also known as ASC 842. We expect that this review will lead us to changing some of our revenue recognition disclosures for the years 2021 through the current year, but it's not expected to result in any changes to our previously released financial results. Due to the review, along with the reclassification of expenses I previously mentioned, we have requested additional time to file our annual report. Now, let me touch on…

Thanks Barry and good morning, everyone. I would like to cover two topics today. First, an update on our long running initiatives in revenue cycle management and second, I'll catch everyone up on the work under our GE MSA. Starting on revenue cycle, I hope there are some on today's call that remember back four or five years ago, when revenue cycle was a regular and important part of almost every earnings call. This is because within our patient services business unit, most of the revenue is third party payer. That is, we provide our equipment and services through a hospital or clinic and then submit for payment from the patient's insurance payer. Third party payer or TPP billing is not as straightforward as it sounds. First before you can bill a payer, you need a contract. To date, we have more than 800 contracts ranging from national big name insurers to small regional payers operating in remote parts of the country. Each payer requires compliance not only with the terms of the contract but also with their unique and particular billing procedures. Perfection is not always possible, particularly since the payers will work to find reasons why they don't have to pay. However, we have been working consistently on this and our years of investment and effort are really paying off, making a material difference during 2023 both to revenue and improved profitability in our oncology business. These improvements will reap benefits for years to come, not just in oncology but in all areas of third party billing we do, whether for products we introduce ourselves or for those where we partner with others such as wound care under our JV with Sanara. Turning to Biomed, we expect to complete the initial onboarding of devices under the GE MSA…

Thanks, Carrie. Before going to the Q&A, I'd like to specifically call out how InfuSystem is leveraging the skills we developed within our core businesses to empower new business opportunities. This evolution and diversification of our business started with the Cardinal relationship. Recall that it was Cardinal that approached us. They sought our help because they did not have the systems enabling the transition of wound care patients from the hospital to the home. So they came to InfuSystem with an opportunity to partner and try to win a share of a very large business opportunity. While Cardinal's plan did not achieve the level of success that they needed, it was our work with them that led directly to the current opportunity with Sanara and again, it was Sanara that came to us. They saw that we have the payer contracts, clinical team, national presence and TPP billing capabilities they require to execute on their wound care strategies, but even more than with Cardinal, Sanara is looking to leverage a whole platform of services InfuSystem can provide. The JV is a win for both partners. Sanara provides the advanced wound care products and business model, and InfuSystem provides its platform of specialty healthcare services that will handle much of the distribution and billing for those products. I've shared before that InfuSystem is regularly approached by other healthcare companies about opportunities to partner in ways where like Cardinal and Sanara, they hope to leverage our existing platform of services. This could involve our existing distribution channels into oncology for our expertise in infusion. It could be utilizing our 24/7 patient hotline, our payer contracts, or our highly skilled revenue cycle teams. It could be about leveraging our ISO certified Biomed services or our logistics capabilities. We continue to see and are…

[Operator instructions] Our first question will come from Alex Nowak with Craig-Hallum. Please go ahead.

Good morning, everyone. A lot of great commentary there and prepared remarks, but one piece that's been the core franchise for InfuSystem for years is the oncology franchise and when I look through the numbers, it looks like the core oncology business actually grew the most from a dollar term. I guess that shouldn't be too much of a surprise, but it still seems like there's a fair amount of growth still left in that business. So, just curious, how are you thinking about that for this year, next year? How much further can that go?

Yeah, good morning, Alex. That's a great question. So last year was, I would almost call it an exceptional year for that business, right? It was a good, perfect storm. As Carrie mentioned on the revenue cycle side, that team just continues to kind of overperform every year, and especially in 2023 with their efficiencies and how quick they're able to collect the dollars and then the team went out and added a bunch of new accounts, too. So it was a nice combination that drove that number. I think it was about 8% for the year, the combination of the twos. So do I expect to see that every year? No. Do I still kind of expect it to be more like 2% to 5% on an average year? Probably that's more realistic. If we open up a few big accounts this year or next year, maybe that pushes back up to that number, but it's tough to squeeze that kind of efficiency like we saw in 2023 kind of every year out of that business, but it's not impossible. I wouldn't expect it every year, but it's obviously nice when every percent in that business is a big contributor for the company, obviously.

Yeah, absolutely. Well, that makes sense and then going back to the guidance, candidly, it has been a choppy last couple of years, and the guidance has obviously been a variety of factors that have led to that. Just the confidence in the guide and maybe the question is really more of what is not included in the guidance? If by the end of the year, if XYZ gets added to it, we're going to reach a different level of growth performance.

Well, we're just not, we're kind of -- we're not being aggressive in any one spot or any spot at all. I think, whether it's oncology or our core business is in oncology or device sales and rentals or even the new businesses, we're not looking down into the future in the next few quarters and saying, okay, we think that's going to happen. We're going to stick that in our guidance. We're just not putting that in there. So it's not any one specific thing, Alex. It's more like, hey, if wound care really takes off and we get a couple more big customers and it’s a couple million dollars more, that'll obviously push the guidance up and we'll go out and beat and raise at some point. If we continue with the efficiencies in oncology, we could raise. Pain we didn't really mention on the call, but they're going to add a good amount of growth this year, probably solid double digits. If they hit everything in their forecast, that'll help us grow the business faster. So all those factors are kind of on the back burner. We just want to -- and we've talked about this a lot over the last couple of years, right? We, overextended expectations in '21 and '22. We're not going to make that mistake again. My hope is you see more of a '23 year from now on, which is we're conservative up front as the year goes and we get more and more visibility and more runway behind us. We can get more specific and we hit our number every year. So I'd rather be a little more conservative coming out of the gate. It's only the middle of March. We only have January numbers in. So it's not like we have a lot to look at yet, but we're just being kind of conservative across the board. It doesn't mean that we're going to go out -- that we don't have to get up and work hard every day to get to the high single digit in revenue numbers, but there's always going to be upside there, but I'm certainly not going to put it in the guidance anymore because if it doesn't happen, I want to make sure you guys have the right expectations and we can go execute on what we tell you guys.

Makes total sense. A question on pain actually, there's a good segue there. And we didn't talk about it much in the prepared remarks, but the no pain act goes into effect in 2025 expands access to non-opioids for pain care. How do you think about that benefiting the business? Maybe in 2025, certainly, but is there going to be an earlier effect because people need to get devices essentially and need to be ready for when that bill goes into effect?

Yeah, that's a great question. So having been around the reimbursement world, collectively for probably 100 years as a leadership team, we're going to see two effects. We will see that. We will see some people that are going to get ahead of the reimbursement and want to kind of open up as a new account sooner. That doesn't mean we'll see kind of significant revenue they're not going to call us today, they'll call us at the end of the year and say hey we want to prepare for the new reimbursement. The other side of that coin is that when the reimbursement comes, the floodgates don't necessarily open, it takes accounts a while to get used to the billing process to understand what they have to build, how they have to build, what the reimbursement looks like, the actual dollar value of the reimbursement isn't out yet. So that will be a driver to. So, some, it's like any other bell curve, right. We're going to have some early adopters at the end of this year. We'll have some late adopters that might wait till mid to end of 2025 or even in '26 right and until they see the reimbursement, not just see the number but actually see the dollars come in. So, obviously its great news for the market, it's great news for patients and families right. The government's finally putting something behind eliminating opioid use up front. So that's all great news. It will definitely help infuse system that will help all of us in the market. Yeah, we would -- our hope is we see something at the end of the year and people start to get ahead of this because they should and not just because of reimbursement but obviously that'll drive behavior. So it's good news. As we get towards the end of the year if we start to see that coming in, well obviously give you guys line of sight into that if we see it.

Okay, makes sense and then just last question is a kind of a clarification around the 10-K delay. So is there going to be, I got a couple questions in here but is it going to be a restatement of prior periods, is there going to be a material weakness notice that shows up once the 10-K is filed and is there any issues with debt, debt covenants with this delay?

There should not be any issues with the covenants or we'll be able to make that all of our reporting requirements we're meeting our financial covenants for sure. As far as the other point, until we actually have the audit done, I don't really have the ability to say anything. Obviously, the reclassification is a change we already made and share with you, but we still have to finish the audit to, to know clarity on the other issues.

The next question will come from Jim Sidoti with Sidoti & Company. Please go ahead.

Hi, good morning and thanks for taking the questions. With respect to GE, do you have sufficient staff now to implement that contract fully or are you still bringing people on?

I think we're pretty much staffed up. There's always ebbs and flows of the team, but we're in pretty good shape. Carrie, we're probably at 90% plus of the way there right.

Yep, that's correct.

Okay, and can you give us a little more color on how you think the revenue build will be with Sanara? Do you think this, something that starts in the second, third quarter and how fast do you think that ramps up?

So we're going to see, we're already seeing some revenue come in for their products. I think that the challenge will be the comps last year, kind of in wound care, specifically had the leases in last year, right, which was almost $4 million just south of $404 million. So, the scenario products are going out the door today. That ramp will happen, probably in a very, very steady kind of gradual pace. By the end of this year we should really be, it should really be kicking in as it starts to build on itself. It'll just be -- we'll give you guys clarity on future calls because it'll be hard from a comp standpoint with the leases in there for '23, because those aren't going to repeat to the level that we saw last year. So the ramp is coming. It's already here. It will accelerate, as we come out of this year and certainly into 2025.

But if you're forecasting high single digit growth, I assume you're thinking that you'll get some leases in 2024 as well.

Yeah, leases will always be part of that business. We had one really big customer last year that drove the majority of the lease revenue. So we don't expect that to repeat, but they'll always be some growth and some revenue coming in from leases every year, that hopefully is always the case. Replacing that one big customer, makes it a little bit tough from a comp standpoint, but we do expect the business to grow year-over-year versus '23. So even with the leases in the comp, we still expect growth in that business.

And that includes, the June and September quarters, which were particularly strong for you. You think you'll have year-over-year growth in those quarters as well?

I haven't looked at it quarter-to-quarter. It'd be hard to say right now, Jim, if that's the case, I'd have to go back and look at how many. I know the leases were heavy in those two quarters, second and third quarter. So I don't know if the year-over-year comparison will look great, but there should be sequential growth in that core scenario of business every quarter. It's going to be hard when you lump the leases in 2023.

When you look at our equipment sales and the leases, you really got to look at it on a trailing 12 basis because we've always traditionally had large deliveries that made the quarters lumpy. So that won't change going forward.

[Operator instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Richard DiIorio for any closing remarks. Please go ahead, Sir.

Thanks, Chuck. I want to thank everyone for participating on today's call, and we look forward to our first quarter call when we will update on our results and the progress with this year's strategic priorities. Have a great day.

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