InfuSystem Holdings Inc (INFU) 2017 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the InfuSystem Holdings Fourth Quarter and Fiscal Year 2017 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

At this time, I would 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 Inc. for the fourth quarter and fiscal year 2017, which ended December 31, 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 Rich Dilorio, President and Chief Executive Officer; and Chris Downs, Interim Chief Financial Officer.

After the conclusion of today's prepared remarks, we'll 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 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 InfuSystem with the 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 Rich Dilorio, President and Chief Executive Officer of InfuSystem. Rich?

Good morning, everyone, and thank you for participating in today's earnings call. I'm joined today on today's call by Gregg Lehman, Executive Chairman of the Board; Chris Downs, our Interim CFO; Jan Skonieczny, our Chief Operating Officer; and Trent Smith, our Chief Accounting Officer.

During the second half of 2017, management team made considerable progress in improving our operational efficiencies, reducing costs and reducing debt. I have absolute confidence in our leadership and the team to maintain this focus and continue to drive strong cash flow.

The improvement in collections and focus on our operational improvements enabled us to reduce net debt, a non-GAAP financial measure, by an additional $3.8 million during the fourth quarter, with net debt at $25.5 million at December 31, 2017. On a year-to-date basis, we've reduced our net debt by $8.5 million. Including in our recent earnings release from this morning, we also included that the company's board approved 1 million share repurchase program. This is a significant step for InfuSystem, and I believe, it reflects management's confidence in our continued strong cash flow. This repurchase program also gives us an additional option to apply our cash flow in addition to continue investing in our pump fleet when required as well as reduce additional indebtedness.

In 2018, the task again is clear. Focus on our existing business and operate it as efficiently as possible, while continuing to win new business when it creates value. I believe this will be accomplished by focusing on 4 key areas. First, providing the highest level of service to our oncology infusion products and pain management customers and, more importantly, our patients. Second, billing get paid in a timely manner for the services we provide. Third, manage our pump fleet as effectively as possible to minimize CapEx. And fourth, to continue to grow our peripheral nerve block business.

Before I turn the call over to Chris to go through a review of the financials, I'd like to comment on a couple of financial highlights for our recent press release. Revenue growth for the fourth quarter increased 12% versus prior year. This increase growth resulted from strong pump sales in our IPD business and an increased focus with our TPP business on collections, which also resulted in a decline of our bad debt expense from 10% of revenues to 6% of revenues during the fourth quarter of 2017. Finally, we increased our third-party payer networks to 520, a 15% increase compared to all of 2016.

I will now turn the call over to Chris to discuss our fourth quarter and fiscal year-end financial results.

For the fourth quarter of 2017, total net revenues were up 12% or approximately $2.0 million to $18.9 million versus the prior year period. This increase is largely attributable to increases in product sales of $1.0 million or 51% and an increase in rentals of $1.0 million or 7%. Gross profit was up 6% or $0.7 million versus prior year to $11.0 million (sic) [$11.3 million], resulting in gross margin of 60% versus 63% in the prior year period. Provision for doubtful accounts decreased 31% to $1.2 million compared to the prior year period. Intangible asset impairment charges that were related to internally develop internal use software projects, were determined by management to be obsolete and no longer in use, totaled $1.0 million for the quarter and year. There were no such charges in 2016.

Income tax expense for the quarter was $16.4 million compared to an income tax benefit of $0.3 million for the prior year period. This change is largely attributable to the company booking: an $11.4 million valuation allowance and a $5.6 million cumulative effect of changes in the federal tax rates from 34% to 21%, in determining deferred tax assets and liabilities recorded in connection with the 2017 Tax Act.

Net loss was $18.0 million, or a loss of $0.79 per diluted share versus a loss of $0.5 million or a loss of $0.02 per diluted share in the prior year.

Liquidity at December 31, 2017 was $12.7 million, consisting of $3.5 million of cash and $9.2 million of net availability under our revolver compared to liquidity at September 30, 2017, which was $9.8 million.

The following are definitions that are non-GAAP financial measures that the company utilizes to understand and compare the company's operating results in a more consistent manner. Adjusted EBITDA was up 14% to $3.3 million versus the same 2016 fourth quarter period. Adjusted EBITDA margin increased slightly from 17.3% in the 2016 prior year period to 17.6% in a comparable 2017 fourth quarter.

Net debt as -- defined as total debt, less cash and cash equivalents decreased $3.8 million during the fourth quarter of 2017 to end the year at $25.5 million and $8.5 million reduction compared to $34 million at the end of 2016.

For the fiscal year-end 2017, total net revenues were up 1% or approximately $0.6 million to $71.1 million versus the prior year. This increase is largely attributable to increases in product sales of $1.7 million or 21%, which were partially offset by a decrease in rentals of $1.1 million or 2%.

Gross profit was down 3% or $1.4 million versus prior year to $43.4 million, resulting in gross margin of 61% versus 63% in the prior year.

Net loss was $20.7 million or a loss of $0.91 per diluted share versus a net loss of $0.2 million or a loss of $0.01 in the prior year period.

With that, I will turn the call to Rich.

Thanks, Chris. I would like to end the prepared remarks by thanking the InfuSystem team for all their hard work and dedication over the last several months. Their unyielding commitment to our customers, our patients and to each other will enable us to continue building on the momentum we generated at the end of 2017. 2018 will continue to improve our efficiencies and make fiscally responsible strategic and operating decisions that will ensure that we continue to generate the strong cash flow.

I would like to personally thank Chris Downs for his service and commitment to InfuSystem during the last 6 years. I'm grateful to have had the opportunity to work closely with Chris and wish him and his family the best. In the meantime, our CFO search is going well. We've had a great response, and I'm confident we will find the right candidate that fits both the job description and our culture.

We would now be happy to answer any questions.

(Operator Instructions) And our first question will be from Beth Lilly of Crocus Hill Partners.

I wanted to just spend a minute and talk about the terrific improvements you've made. And just talk about now that the business is, in essence, cleaned up, and you've come in and really, operationally put the company back on track. As you look out in terms of where you think you can drive the top line in terms of revenue growth? And then what type of EBITDA margins do you think this company could generate in, let's call, 2 to 3 years?

Well, this is Trent. I think the EBITDA margins, we've had them, in the past, somewhere between 15%, 17%. Sometimes, I think there's been discussions of 20%. But I think where we're at now, in the 17% range. Depending on what happens in the future, we obviously don't know what's going to happen in the future, but I feel comfortable where we are right now. But again, as a future-looking statement, I wouldn't know what -- how we're going to predict that.

Okay. And then, can you just spend a minute and talk about the top line and traction that you're making there?

Sure. So from a top line standpoint on the oncology side, we're going to continue to grow and gain market share where it make sense and where there's value to the company. On the pain management side, I think, is where we can see some growth. With the opioid crisis in this country, we're starting to gain some traction. We've signed on some major teaching institutions in the U.S. now. We're starting to get there, and hopefully, that starts to take off. So I think we'll see some growth on that side as well.

So is this -- as you look out in terms of what your expectations for the top line growth rate, do you expect the top line to grow 3% a year? 2% a year? 5% a year? What's your target?

I think we're in the single digits, still. I don't think we're -- we're not a growth company. We've been around for 30 years and we're a $70 million business. We're not going to grow 30% a year. We continue to gain market share. And like I said, on the pain side, we will grow. It's a small part of our business, so it's incremental. But I think the numbers you see now are kind of where we'll be in the future, I think.

Okay. So maybe mid-single digits?

In that ballpark.

Yes. Okay. And the majority of it then will come from the pain management side, is that correct?

Majority stuff, because it's a small piece of our business, is a percentage though overall quite a bit on their own. But oncology is still the workhorse of the business and even small growth there contributes much more significantly than the pain side does.

(Operator Instructions) And the next question will come from Michael Potter of Monarch Capital Group.

Congratulations on a great turnaround and stabilizing the company. Couple of quick questions for you. Perhaps, I know a lot of investors have been looking for more information out of the company on what you are using internally to track the business to particular KPIs, utilization rates, things along those lines. And I know that's always been a criticism of the prior management is the lack of transparency. Can you give us some more information of some of the areas that we -- where we should be focusing?

Yes. So utilization is certainly a driver. And Michael, we discussed this, right? It's a huge efficiency for us, right? Every decimal point in utilization is a huge pickup for us financially on a CapEx side. So the sales team is hyper-focused on it. We've actually moved a lot of their compensation to that side for that purpose. They drive a lot of it because they're in the field physically touching the pumps every day. So as we improve utilization, it saves us a lot on the CapEx, piece of the pie. We've also focused quite a bit on the cash collections side. Jan and her team have done wonders in the last 9 months to get us back on track. That's from a KPI side. Most of our KPIs are tied to the cash and collections piece. Unfortunately, for Jan, she gets to see all that. But that's getting paid for the business we have is, it's critical for us. So using the pumps we have and getting paid for the pumps that are out there, most of our KPIs are centered around those 2 metrics.

So do we have utilization targets for -- I mean, where was our utilization for around 2017? And what are you targeting? And the same thing, I guess, with DSOs, where should our DSOs fall for -- going forward?

DSOs. So utilization target, I don't think we've gone through those numbers. We have incremental pickups. So we've been around a while. We're pretty good at it. We're not -- we're never as good as we want to be. But 1% pickup on that is hundreds of thousands of dollars. So typically, we target a few percent increase every year on the utilization side. We achieved in last year, which was a huge help from a cost reduction standpoint. We didn't have to go buy a bunch of pumps to support our growth. And that's really the focus this year as well as improve the utilization, and reduce our CapEx for the -- to fund the growth that we need.

Yes, and I think -- This is Trent. I think on the DSO question you asked, if you look at what we had last year, and it was around 60, almost 62 days and now we're down to like 54.

I was going to say 54 days, too.

And I think at the end of last quarter, September 30, we're around 59 days. So the cash collections like Rich said is just critical. And the emphasis that we start putting on to that in the second half of the year is really paying dividends.

So going forward, should we expect that the DSO should continue to run around the low-50 mark?

This is Jan. I would say that we should expect the DSO to stay right around where it is. It certainly though is our main focus operationally in the billing and collections department. Because as you know, our billing model is a little unique and so we're always coming up with ways to address those claims more quickly and deal with the authorizations that are needed. So I think we're probably right in our sweet spot right now.

Okay, perfect. And then, on the adjusted EBITDA targets. Again, I've been an investor, who's been around this company for a long time and certainly remember the days when adjusted EBITDA was in the high 20s, almost approaching 30%. We're at 17% right now, I believe, is that correct, Rich?

Yes. 17.6%.

17.6%. I would assume there's greater efficiencies that can be garnered certainly as revenues increase, and as you get deeper into this -- into the company, I mean, should we expect that we can approach, at least, the low 20s on an adjusted EBITDA basis? Or those days behind us?

No. I think in the past, we've tried to make this a 20% or higher adjusted EBITDA business. We did have a lot of amortization from IT in there. We did have the IT impairment, which also is going to reduce some of the amortization in the future years. But I think in the 17.5% to maybe -- in that range, may be a little bit higher, but I wouldn't say anything into the mid-20s or 22% or anything of that nature. I think 17.5% in that range maybe a couple of points higher might be good as we gain more efficiencies with cash collections and revenue growth in the future.

Okay. All right. And then just one other question. The pain management revenue. Can -- how much revenue we're generating from the pain management business at this point?

So we don't break out pain yet. It's still a very kind of small number. It's not significant enough. The hope is some day if it's significant enough, we can break those out for you.

(Operator Instructions) And I'm showing no additional questions at this time. I would like to hand the conference back to Rich DiIorio for his closing remarks.

Thank you for your interest in InfuSystem. We appreciate you taking the time to learn more about the company, and we look forward to speaking with you after the conclusion of the next quarter. Have a great day.

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