InfuSystem Holdings Inc (INFU) 2012 Q2 法說會逐字稿

Welcome to Q2 earnings call. My name is John, and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Jonathan Foster. Mr. Foster, you may begin.

Good morning, everyone, and welcome to InfuSystem Holdings' second-quarter 2012 conference call. This is Jonathan Foster, Chief Financial Officer. With me on the call today is Mr. Dilip Singh, our interim CEO.

The Company issued a press release yesterday evening which is posted on the Company's website at www.InfuSystems.com. The release is also available on most financial websites. Additionally, a Web replay of this call will be available on the Company's website for 30 days.

Except for the historical information contained herein, the matters discussed in this conference call are forward-looking statements that involve risks and uncertainties that would (sic - see press release, "could") cause actual results to differ materially from those predicted by such forward-looking statements.

These risks and uncertainties include general economic conditions, as well as other risks detailed from time to time in InfuSystems' publicly filed documents. The Company has no obligation to update the forward-looking information contained in this conference call.

While discussing our performance we will refer to certain non-GAAP measures, such as EBITDA, which is not considered a measure of financial performance under generally accepted accounting principles.

With that, I'd like to turn the call over to Dilip.

Thank you, Jon, and good morning, everyone. As I stated last quarter, our management team has placed a high priority on developing operating plans focused on improving our performance in our core areas of business, while further integrating and realizing business synergies. The trajectory of second-quarter 2012 results confirms the appropriateness of this strategy as reflected by continuing revenue growth, combined with meaningful initial cost savings.

We have stabilized the Company's financial position by maximizing cash generation. This will further strengthen the sound foundation required to sustain and grow the Company over the long term. Our management team and employees continue to concentrate efforts on maximizing cash generation for sustained financial stability.

Eliminating redundant management positions and restructuring the compensation structure of our Board of Directors from cash and stock to almost all stock options were our first steps. Together, these actions produced annual savings of over $1 million. I look forward to announcing additional cost savings at the end of the third quarter.

We operate in a vibrant yet competitive marketplace where a deep understanding of patient needs is a must-have. At the end of the day, we want to be the supplier of choice in our markets. We have built a uniquely qualified team of specialists whose intellect and services are demanded rather than simply tolerated. We excel in providing infusion pumps as a service.

Most important, feedback from our customers, channels and partners has been very positive. They appreciate our commitment to further enhance customer service solutions that make their jobs easier. Our compelling value proposition is we make it easy for care providers, payers and patients, which was well-reflected in the feedback we received.

In summary, we reported a quarter of solid revenue growth, up 7% over the period in 2011. Our 2012 first-half topline grew 9% versus 2011. As mentioned in our release, excluding the one-time charges, EBITDA for the first six months of 2012 was $6.4 million, an increase of 14% from 2011's $5.6 million.

I am delighted by our employees' enthusiasm and success to date in achieving topline revenue growth. Our goal was to continue to deliver topline while initiating operations improvements that will yield additional cost savings. We did exactly that. We grew the topline while making decisions that improved EBITDA and ultimately the bottom line.

With that, I will now turn the call over to Jon Foster, who will discuss our financial results in more detail, after which we will open the call to questions. Jon?

The 7% increase in revenues compared to the second quarter of 2011 and the 9% increase for the six months ended June 30, 2012 that Dilip just mentioned are primarily related to the addition of new customers with larger patient bases, increased penetration into our existing customer accounts, and the resolution of the oncology drug shortage in 2011 affecting certain products.

Total revenues for the quarter ended June 30, 2012 were $14.1 million compared to $13.1 million in the second quarter of 2011. For the six months ended June 30, 2012 revenues were $28.4 million, up from $26.1 million in the 2011 period.

The gross profit for the three months ended June 30, 2012 was $10.3 million, up 14% from $9 million in the second quarter of last year. Gross profit for the first six months of 2012 was $20.7 million, an increase of 15% compared to $18 million for the first six months of 2011.

Gross margin percentage for the second quarter and year-to-date in 2012 was 73%. This compared to the second quarter in 2011 of 68% and 69% year-to-date as of June 30, 2011. This slight increase was due to two reasons. The first is that pump appreciation is gradually decreasing as our actual pump lives in our rental fleet are averaging longer than the five-year depreciable life we used. The second is that we had a higher mix of rentals compared to sales. Rentals, by the way, have a higher margin than our sales do.

Turning to selling, general and administrative expense, SG&A for the second quarter of fiscal 2012 was $10.2 million, significantly lower than the prior-year period's $52.4 million. For the six months ended June 30, 2012 SG&A was $21.2 million compared with $61.2 million for the same period last year. Now, prior-year numbers contain a charge for asset impairment of $44.2 million. Excluding non-cash impairment charges, SG&A increased $2.1 million for the quarter and $4.2 million for the six months ended June 30, 2012.

For the quarter these costs were associated with a concerned shareholder group, and they continued as expected. The increase in SG&A included expenses of $1.4 million, which related primarily to legal fees, $1 million of severance costs associated with a settlement agreement, and going the opposite way, we recorded an offset by the reversal of previously recognized stock compensation expense of $1.3 million. This also was associated with a settlement agreement mentioned in our release.

With regard to the first half of 2012, the increase in SG&A related primarily to $2.3 million in legal expenses, the aforementioned $1 million in severance costs and $600,000 of retention payments to key employees. This was all net of the aforementioned $1.3 million reversal of stock compensation expense. Outside of these charges, SG&A experienced an increase primarily compared to the prior periods in selling, compensation and travel costs, and an increase in our finance and accounting staff. The settlement agreement is described in the 8-K the Company filed on April 26.

During the second quarter of fiscal 2012 the Company entered into the fifth amendment to its credit facility. This was also related to the settlement agreement. We recorded a one-time charge for extinguishment of debt of $600,000, representing the previously capitalized debt issuance costs and lender payments made to secure the fifth amendment. And these are shown as an extinguishment of debt for the period. This resulted due to the change in future principal payments.

The second-quarter net loss was $0.8 million compared -- equal to a $0.04 loss per diluted share compared to the $27.9 million net loss, equal to $1.32 loss per diluted share in the prior period.

For the six months ended June 30, 2012 the Company's net loss was $1.7 million or $0.08 per diluted share versus a net loss of $28.1 million or $1.33 per diluted share for the year-ago period. One-time net expenses, as discussed above, related to the settlement agreement and the fifth amendment of $1.7 million and $3.2 million for the three and six months ended June 30, 2012, respectively, hampered these results.

EBITDA for the second quarter of fiscal 2012 was $1.6 million compared to the $3.2 million a year ago, excluding asset impairment charges. For the six months ended June 30, 2012 EBITDA was $3.2 million compared to $5.6 million for the same period in 2011, and again excluding asset impairment charges. Excluding the one-time fees associated with the settlement agreement and the fifth amendment described previously, EBITDA for 2012 would have been $3.3 million and $6.4 million, respectively.

We use EBITDA as a means to measure the Company's operating performance. We have a full reconciliation of EBITDA, a non-GAAP measure, to net income in a press release issued yesterday evening. The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization.

Net cash provided by operations for the six months ended June 30, 2012 was $3.7 million compared to $2.9 million in the prior-year period. The latest quarter results reflect increased professional fees associated with the concerned stockholder group and employee compensation costs. In addition, the Company reported capital expenditures of $1.7 million, a decrease of $700,000 compared to the prior-year period.

The Company had available approximately $3 million on its $5 million revolving credit facility. During the quarter the Company reduced its draw under its revolving credit facility by $600,000, in addition to its normally quarterly payment on its term debt. The Company ended the quarter with about $800,000 of cash compared to none in the previous quarter.

We are focused on refinancing our indebtedness prior to maturity in order for us to maintain sufficient funds for operations to alleviate the burden of additional costs generated by the settlement agreement and the fifth amendment. In addition, we believe the combination of our normal cash and revolving credit facility is sufficient to fund our current operation and the working capital needs for the next 12 months.

We ended the quarter with accounts receivable days outstanding, or DSO, of 50 days, which increased over this time last year due to the increase in revenue coming late in this quarter. Our days still in inventory, or DSI, increased to 24 days due to opportunistic use of pump purchases. Day sales in AP increased to 30 days, and this is mainly due to the expenses related to the settlement agreement.

In summary, as Dilip stated earlier, the latest quarter continued our growth in revenues and, excluding the one-time charges previously mentioned, EBITDA as well. Dilip?

Thank you, Jon. To recap second-quarter results, we met or exceeded our goals. We like what we see for the rest of the year. We have a team that is committed to our mission and enthusiastic about how we are doing it. Now let's open it for questions.

(Operator instructions) Joe Munda from Sidoti & Company.

Real quick, Dilip, any plans to take off the interim tag and stay on as permanent CEO?

The Board is really exploring the potential in terms of the long-term options. My job here is to stabilize the business, formulate improvement plans and improve the balance sheet. I believe that our second-quarter results show that myself and my management team are doing just that.

As I stated earlier, the interim is at this point in time and at the request of the Board. When they consider these options, if I'm required to stay here a little longer, then I'm prepared to do so.

And by those options, you mean strategic alternatives? Are you guys still in talks with Houlihan Lokey? Are they still acting as an advisor for you?

So, Joe, the Board is totally focused on maximizing the shareholder value. Houlihan Lokey continues -- on the question of Houlihan Lokey, they continue to be our advisors, and they are looking at the strategic alternatives in this regard.

I'll tell you that no definite conclusions have been drawn at this time. To the extent that there is any change in the Company's strategic voice share or in Houlihan Lokey's role, we will make that announcement.

I guess the same goes for Jonathon. Right? I think his employment contract is up in September; is that correct?

That is correct. And I will stay at the Company's request, and I expect that to happen. And from the standpoint of working here with Dilip, I enjoy it very, very much.

Okay. The other thing is, is the former CEO -- I thought I read somewhere -- is he staying on as an advisor as well, to you guys?

No. From the standpoint in the settlement agreement, Sean McDevitt is no longer associated with the Company.

Okay. And Jonathon, you spoke about paying down debt or refinancing the debt. What kind of -- what have you seen so far, as far as exploring that opportunity to refinance the debt? And how soon and at what interest rate do you think you will be able to refinance it?

Well, I guess, let me overall state that our continued financial performance will only make financing easier. If you noticed in the Q we state we must refinance our debt. I think it would be a fair assumption of anyone that that's what a good CFO is looking at doing, and preoccupies a lot of my time.

As far as interest rates, it's tough to speculate in this market, but we will do our best to get the best deal possible for the shareholders.

Okay, next question is regards what's the total size of the pump fleet? Is it still around 23,000, the size of the pump --?

Yes, that's a fair number to say.

And the number of oncology clinics, roughly 1,400, is that still the same?

The number -- well, in our business it's very tough to define what's a clinic, what is a customer, but we measure it as customer relationships. We've increased with our revenues, as mentioned, as one of the reasons with our increase is increased penetration into our existing customers with the number of clinics that they have, plus adding customers.

Okay, so what is the total customer count, if you had to ballpark it?

North of 1,500.

The other thing -- I'll ask one more question and then I'll jump back in the queue. It seems like growth -- the revenue growth traditionally has always seemed to be double digits. It seems to be slowing here. I know that you guys are going under a lot of cost savings and trying to clean up the balance sheet and clean up the business, but what are your plans to get that growth north of single-digits going forward, or are you guys more in the end phase?

One of the things to look at is some of that double-digit revenue growth was caused by our acquisition of FDI. What you are seeing in the growth that we have announced this quarter is pure organic growth, which we like -- especially as we increased our pump utilization it makes it for very profitable growth.

And so our intention is to continue along the lines of the organic growth route. And we feel very comfortable with that growth rate of 7% to 9%. It's a healthy one that our balance sheet can concurrently sustained.

And we -- I am sorry, one more question, regarding gross margin. Is this kind of a normalized rate we are seeing here, 70.7% in the quarter before, 73% this quarter, is that the runrate that we should expect going forward?

You know, in this market it's tough to always determine what's going to happen going forward, being in the healthcare industry. But from the standpoint of our cost basis we don't see any increase in our cost. And we are focused on improving operational performance, which includes our utilization of our pumps. And so I feel that that gross margin is a very strong one and one that we can continue.

(Operator instructions) Dennis Van Zelfden from Brazos Reasearch.

Do you anticipate any more legal financing, severance, retention or any other special charges in the third and fourth quarters?

Thankfully, no. I think we are done with all the charges related to the settlement agreement and the concerned shareholders agreement.

Okay, will there be any abnormal -- normal but one-time charges going forward?

We think, going forward, as mentioned in the the debt modification agreement, we do have a monthly kick-in fee beginning -- that started this past August with our bank.

(Operator instructions) Joe Munda from Sidoti & Company.

Hey, guys, just a quick follow-up. In regards to the strategic alternatives, I know you guys can't put comments on it, but what -- who would be interested in a business that you guys have -- I mean, pump leasing business? Who would be interested in acquiring that?

Look, as I have stated earlier, Houlihan Lokey continues to advise the Company. We are in dialogue with them in terms of strategic alternatives.

Again, the Company has value for sure -- the enterprise value is there. And our responsibility at the Board and the management team level is continue increasing the value of the shareholders and stakeholders.

And a general answer for when you are -- first of all, as I said, that if there is a change in our strategic [vote] share or in Houlihan Lokey's role, we will make that announcement.

But we are in healthcare; that's our vertical. We provide pumps as a service. We surround our service around the pumps with -- we know how to source the technology, our pumps. We know how to do third-party payer billing. We are in excellent service of customer care. We have nursing -- qualified nurses supporting the pumps as a service. And we have a very good service engineering group who excels in servicing the pumps. So we are in the healthcare market. And you are from the analysts side; I'm sure you know in terms of the kind of (multiple speakers).

Yes, I mean, to me it looks like a private equity play because the trading has dropped off. But you guys do generate cash. Historically, it has been a good cash generating business. Am I right in making that assumption?

This is Jon Foster. I think you can make a number of assumptions. The reason that Dilip came here and I'm here is that we saw beyond the noise a strong case for a high percentage of revenue -- a high percentage of EBITDA on the revenue.

Okay. All right, thanks guys.

One more question, operator?

Zack Buckley from Buckley Capital.

Hey, guys, congrats on a nice quarter. So I was curious to know if there are any progress in new verticals?

From the organic growth side we are focusing in one specific area. I cannot specify that area due to competitive reasons. We have made progress into, I call it, moving from stage one to two, where we are going through some trials. And we are expecting towards the second-half of next year that we will be able to come back to you all as our valuable shareholders and talk about that a little bit more. But I'd like to discuss this on this earnings call here because what we are trying to do here is really very highly competitive in nature.

That's fine. And I was also curious, is there further cost cutting available for the rest of the year?

The cost-cutting initiatives we took so far, which we have already announced to the tune of $1 million, we will continue looking back on the cost-saving opportunities. I can assure you that that will be an ongoing progress, both in terms of focusing on our revenue growth and profitability, which the cost savings will help there.

I think, as we move along in terms of top-level operations, then the non-employee-related cost savings opportunities would be there. And I can -- the end of the third quarter, again, I would like to update you all in terms of the initiatives we took and what kind of savings we derive there.

And this is Jon. I would classify the next round of what we are looking at will be non-employee-related and more operationally focused.

Okay, great. Thank you.

Operator, we are ready to do the wrap-up.

Okay. Do you have any closing remarks at this time, or should I go ahead and conclude the call?

I have. This is Dilip. Thank you very much for joining us today. Much progress has been made during the first-half of 2012. We look forward to sharing the third quarter in our next call. Thank you and have a great day.

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