InfuSystem Holdings Inc (INFU) 2020 Q4 法說會逐字稿

Good day and welcome to the InfuSystem Holdings Fourth Quarter and Full Year 2020 Financial Results Conference Call. (Operator Instructions) Please note, today's event is being recorded.

I'd now like to turn the conference over to Joe Dorame with Lytham Partners. Please go ahead, sir.

Thanks, Rocco. Good morning and thank you for joining us today to review the financial results of InfuSystem Holdings, Inc. for the fourth quarter and full year 2020 ended December 31, 2020. With us on the call today 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 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 www.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 31, 2019.

Forward-looking statements speak only as of the date the statements were made. The company could 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 fourth quarter and full year 2020 earnings call. Thank you all for taking the time to join us this morning. I trust that you and your family are staying safe as we hopefully work through the final stages of this COVID-19 pandemic. Looking back, the year 2020 was an unprecedented time for all of us across every aspect of our lives. At InfuSystem, we focused on what's important to us, the well-being and safety of our patients and our team members. We adapted in countless ways to keep our team as safe as possible while maintaining the highest levels of service to ensure our devices are available to our patients for uninterrupted medical treatments.

I am extremely proud of our team and their ability to successfully adapt to so many changes and overcome so many challenges. It was their perseverance that makes it possible for us to report record results today. On this call, we will cover our financial results for the fourth quarter and full year 2020, reaffirm our 2021 annual guidance and provide an update on our business in 2021 and outlook for 2022 and beyond.

During 2020, we found that doing many things the old way had become impossible and that developing new ways of doing things would result in long-term advantages. Our team faced up to each challenge, adapted as necessary, often creating new efficiencies and continued to successfully execute on our growth strategy. The result of their outstanding efforts was evident by the record 2020 accomplishments that include the following: record net revenue for the year of $97.4 million, an increase of 20% over 2019; adjusted EBITDA of $26.4 million, an increase of 45% from the prior year, with this translating into net adjusted EBITDA margin for the year of 27.1%; operating income of $8.8 million, an increase of 150% over 2019.

Operating cash flow continued to grow, reaching $20 million, an increase of 44.4% over 2019. In the face of COVID-19, we grew our pain management therapy and treated a record number of patients despite limited access to medical facilities and the broad postponement of elective surgery during the year. We're also able to launch our partnership with Cardinal Health as we entered the $600 million wound care market with our Negative Pressure Wound Therapy service.

The COVID-19 pandemic has put a spotlight on the need to move patients out of the hospital environment and into their home to continue their treatment. The increasing movement toward home-based treatment benefits the patient, the provider and the payer. InfuSystem provides the services that make this possible. We bridge the gaps and enable the continuity of care for patients between the hospital and their home.

Our Integrated Therapy Services posted a record year, delivering growth of 18% over last year with strong gross margins of 65.1%, driven primarily by increased oncology therapy as we treated a record number of patients in 2020. Oncology remains the core of our ITS platform, and it is the strength of that offering that allows us to expand into new therapies and develop new growth drivers.

Our Durable Medical Equipment Services platform also delivered record results, with growth of 25% over last year and solid gross margin of 45.6%. Growth was driven by strong market demand for infusion pumps, partly due to COVID-19, resulting in significant pump sales and new rentals. Although pump sales are not likely to repeat at the same levels in 2020, we believe the new rental customers are here to stay, and 2021 should be another strong year.

Turning to our relatively new relationship with Cardinal Health. I am extremely pleased to report that despite the challenges of COVID, we've been able to accomplish a lot in a short period of time. Our sales teams are already working together, and each company is leveraging the capabilities and relationships of the other to successfully deliver patient services. We are gaining traction in Negative Pressure Wound Therapy, and I firmly believe we will capture 5% to 10% of the estimated $600 million negative pressure home health care market in the next 3 to 5 years.

Back to InfuSystem. Over the last 12 months, we were able to significantly strengthen and enhance the capabilities of our leadership team. This includes the appointment of Barry as our Chief Financial Officer last March and the recent promotion of Carrie as President, in addition to her COO role. Barry continues to strengthen the financial foundation of the company, with this perfectly evidenced by our new credit facility. InfuSystem has always generated strong operating cash flows, but our success in attracting a syndicate of premier banks to a $75 million credit facility shows how much progress we have made in the last few years. With the new and improved facility, we have the liquidity and financial flexibility to timely capitalize on a growing array of potential growth opportunities in each of our 2 operating platforms, ITS and DME.

In Carrie's expanded role, she will be leading the implementation of new therapies under both platforms and the integration of acquisitions. Now I'd like to take the opportunity for Carrie to introduce herself and provide some color around our acquisition of FilAMed.

Thanks, Rich, and good morning, everyone. I'm very happy to be on the call today and honored to serve the company as President and Chief Operating Officer. I've held numerous management roles during my time working at InfuSystem, with each new one giving me greater ability to contribute to the strategic objectives of the organization. In addition to helping drive new revenue opportunities, my role has the option to identify and execute on streamlining operations to improve efficiencies and increase margins and net cash flows. I look forward to working with Rich and the leadership team in growing our ITS and DME platforms and making InfuSystem a leading health care service provider for outpatient care across many markets.

Rich mentioned our synergistic acquisition of FilAMed in February 2021. This small acquisition was pursued primarily as a means to expand our DME service capabilities. This acquisition broadens and enhances our scope of biomedical services particularly in areas such as compression devices, defibrillators, electrosurgical units and patient monitors.

Adding FilAMed also provides us the opportunity to enter into the acute care market. We believe there is opportunity to expand our biomedical service offerings, with the potential impact being adding double-digit millions of dollars to our top line over the next few years. This year, the incremental revenue being contributed by biomedical services might be enough to push us to the higher end of our 2021 guidance, which Rich will discuss in a few minutes.

Thanks, Carrie. For the last several years, I've been firmly committed in building -- to building a strong leadership team with deep industry knowledge and proven execution abilities. I believe now we have the team in place to make InfuSystem a leading health care services company for years to come. Again, I'm extremely proud of the entire InfuSystem team and the way that they adapted and executed on our growth plan even during extreme conditions. The patient is at the center of everything we do in delivering patient wellness, and our team did an outstanding job meeting this commitment.

And with that, I'd like to turn it over to our CFO, Barry Steele, to provide a review of our financial results.

Thank you, Rich, and thank you to everyone joining the call today. As Rich mentioned, during the quarter, we met our revenue and profitability expectation while continuing to be cash flow positive and further reducing balance sheet leverage.

Net revenues for the fourth quarter of 2020 totaled $24.7 million and represented an increase of $3 million or nearly 14% over the fourth quarter of 2019. The DME Services segment led the way with net revenue growth of $1.7 million or 25%, while the net revenue of the larger ITS segment increased by $1.3 million or 9%.

Similar to the 2020 second and third quarters, the DME Services segment net revenue growth was favorably impacted by higher rental revenue, which increased by $1.1 million and higher equipment sales, which increased by about $0.5 million during the quarter. Much of the rental revenue growth was represented by an expansion in the market share with national home infusion service providers and the addition of new devices to our product portfolio stemming from new partnerships with device manufacturers, in addition to increasing -- increases -- increase resulting from the COVID-19-driven market demand, which currently shows no signs of moderating as the pandemic resides.

ITS growth continued to be driven by favorable market penetration in the oncology business resulting from an improved market competitive landscape. Pain management net revenues, which are part of the ITS segment, continued to recover during the quarter from COVID-19 shutdowns, growing by 22% compared to the prior year fourth quarter and 17% sequentially from the 2020 third quarter. The higher net revenues translated into higher adjusted EBITDA, which increased by $750,000 or 14% to $6.2 million during the 2020 fourth quarter as compared to the prior year. The adjusted EBITDA margin for the quarter of -- fourth quarter of 2020 was 24.9%, which was about the same as the prior year adjusted EBITDA margin. This represented a sequential decrease from the 2020 third quarter, mainly due to an increase in the annual bonus accrual and higher bad debt expenses during the fourth quarter. These expenses are expected to return to lower levels during the 2021 first quarter.

During the fourth quarter of 2020, the company recorded a tax benefit totaling $9.9 million. This included a benefit associated with a onetime reversal of a deferred tax valuation allowances totaling $11.2 million. The valuation allowance reversal was prompted by having generated significant pretax income on a 3-year cumulative basis. We now believe that the company will realize the benefits of a significant federal and state net deferred tax assets, including our significant net operating loss carryforwards.

Also, because of the -- the full valuation allowance reversal, we will be recording a more normal tax provision in future reporting periods. However, these provisions are likely to be largely deferred provisions, meaning that we do not expect to be a significant payer of cash taxes in the next few years.

Without the valuation loss reversal, the company would have recorded a provision for income taxes of $1.5 million, which would have represented an effective tax rate of 19.4%. This adjusted effective tax rate differed from the U.S. statutory rate, mainly due to permanent differences in the amounts of equity compensation expense recognized for book versus tax purposes. We estimate that our regular effective tax rate for future periods will be between 25% and 30%, although there are likely to be periods where this amount is lower due to significant windfall gains currently existing and outstanding employee equity awards.

During the 2020 fourth quarter, operating cash flow totaled $7.6 million, which exceeded our guidance and was 75% higher than operating cash flow in the fourth quarter of 2019. The improvement was both due to much higher net income, adjusted for noncash items, and due to a continued reduction in working capital, which returned to more normal levels after the COVID-19-related peak during the first half of the year.

Net capital expenditures, which totaled $3.2 million during the 2020 fourth quarter, also approached normal levels. This represented a significant reduction, however, from the fourth quarter of 2019, during which net capital expenditures were $5.6 million.

Finally, our outstanding debt increased by $4 million during the 2020 fourth quarter, due mainly to a $5.7 million drawdown on an open equipment line that was otherwise scheduled to close at the end of the year, offset partially by quarterly amortization payment of $1.5 million on our then outstanding term debt. The net result of all this activity, the strong operating cash flow, the normalized net capital expenditure level and the net borrowing our bank debt resulted in a $7.7 million increase in our cash balance during the quarter to $9.6 million at December 31.

As a result, our ratio of funded debt -- net debt to adjusted EBITDA as of December 31, 2020, decreased to 1.11x, down from 1.36x as of September 30, 2020, and 2.11x at the end of 2019. Our total available liquidity at the end of the quarter, which totaled $19.7 million, consisted of $10 million in availability on our revolving line of credit and $9.6 million in cash. This amount represented an increase in our available liquidity of $17.5 million at the end of this year's third quarter. As we announced in February this year, our available liquidity more than doubled from this amount as a result of the refinancing of our bank debt, which Rich mentioned.

In addition to the improved liquidity, this new all-revolver credit facility provides much improved flexibility to pursue our growth strategy and capital allocation priorities by eliminating amortization payment, raising our maximum leverage covenant, and by bringing in additional banking partners. With that, I'll turn it back over to Rich.

Thanks, Barry. Looking ahead, we expect 2021 will be another record year for InfuSystem, with strong double-digit growth in both net revenue and adjusted EBITDA, driven by strong growth in our ITS segment where pain management and Negative Pressure Wound Therapy will begin to present as growth drivers. Our focus in 2021 will be on the following: growing the 3 new therapies currently on our ITS platform, oncology, pain management and negative pressure; launching a new fourth therapy on our ITS platform in the first half of 2021; adding new products and services to our DME platform; successfully executing on a new cross-selling initiative to capitalize on our over 2,100 sites of care in oncology; developing a new strategic partnership to grow our platforms; and identifying small tuck-in acquisitions that will enhance and expand our current capabilities and offerings.

Based on the confidence in our business, I'm reaffirming our annual full year 2021 guidance. We are projecting: net revenues to be within the range of $107 million to $110 million; adjusted EBITDA to be within the range of $29 million to $30 million; operating cash flow to be within the range of $21 million to $23 million. We're also forecasting adjusted EBITDA margin to be 27%. Our 2021 guidance does not include any potential onetime large pump sales.

Driving growth in 2021 would be our pain management and negative pressure businesses, with net revenues to be in the range of $8 million to $10 million combined. When we exit 2021, we are projecting a $12 million run rate for net revenue in pain and negative pressure combined. We're at the beginning of the next phase of growth for the company, and these 2 therapies will allow us to sustain 15% growth, with solid gross margins for years to come.

We've seen some recent disruption in the wound care space regarding service levels from one of our competitors. While we're still evaluating the exact impact in the market, we plan on capitalizing on the opportunity, which we believe may allow us to accelerate our growth in that market if that disruption becomes significant.

We have a very strong and experienced team in place to continue to successfully execute on our strategic business plan. Our service platforms are device agnostic, and I believe we are in an -- operating in a position of strength as we leverage our 2 operating platforms, facilitating outpatient care. I am confident InfuSystem is uniquely positioned to meet the rising demand for in-home health care services as we successfully expand our 2 operating platforms with new therapies and products to improve patient outcomes. I'm very excited for the future of InfuSystem. And with that, I'm happy to answer any questions.

(Operator Instructions) Today's first question comes from Brooks O'Neil with Lake Street Capital Markets.

Congratulations, Carrie, and welcome to the call this morning. So I was going to put Carrie on the spot first and ask if you have kind of a current idea about your priorities for 2021. Are there big things you need to accomplish? Or is it kind of continuation of the current activities for the company?

Thanks for the question. I would say priorities are definitely operating efficiently. The integration of FilAMed is certainly a priority and kind of streamlining our workflows in negative pressure.

Great. Rich, you mentioned the disruption in the negative pressure market. Has your enthusiasm for the opportunity in that business increased in recent months?

So negative pressure in general, I still believe we're likely going to get to that 5% to 10% of the addressable market, which puts us in the $30 million to $60 million range. The disruption in the market, we're still trying to identify kind of the extent of it and the impact. I think the good news is regardless of what -- of how big that opportunity is, we're going to take advantage of it. And that's what the team is assessing right now.

Will it allow us to get over the 5% to 10%? I don't really know if that's the case, but what it might allow us to do is get to those numbers faster. So instead of being 3 to 5 years, maybe it's 2 or 3 years to get to the 5% or 10%. So it will just help us accelerate the growth.

So our response and execution of that response is really what's important. And I think we're still working out the details, but when we all talk again in a couple of months, most likely in May, with our first quarter numbers, we'll hopefully have some more information on kind of what's going on and exactly what our response is and what our expectations are. But any time you're in a market and there's an opportunity and there's disruption, and it benefits you as an organization with your service levels, that's a good thing, right? So we'll see to what extent, but yes, it's all good news.

Great. Can you talk a little bit -- you've sort of given us a sense that you see a $30 million to $60 million kind of opportunity in negative pressure. Can you give us a sense for the size of the opportunities you see in pain?

Yes. So pain is interesting. So the market we're going after right now is probably about $125 million roughly. What can our pain business do? It can -- well, it can certainly get into double digit millions, right? That's -- I think I said that in November that by the end of 2022, we should be at that point, so we should be $10 million plus. Where it goes from there, there's some reimbursement challenges for the physician that, hopefully, the government will change in the next couple of years. If that happens, it kind of blows the top up the addressable market for all of us in that market. So at that point, the potential doubles and triples. So could it be a $20 million, $30 million business? Sure. Do I expect that in the next couple of years? No. But over time, we could certainly get there.

Right. And if I remember correctly, your pain therapy essentially eliminates the need to prescribe opioids. Is that right? And isn't that something the government is going to want to promote?

Yes. You would think so, right? You would think that, that would help us get our -- get the reimbursement for the physicians. It doesn't always eliminate the need for opioids, but it greatly reduces it, in a lot of cases, eliminates it. So instead of -- our conversation with CMS is that instead of treating a patient after they become addicted, which cost over $0.5 million, that's roughly the number to treat a patient, for a few hundred dollars, you can reimburse the doctor to place a catheter and hopefully eliminate the addiction altogether, right? So financially, obviously, it makes total sense. And I think we'll get there eventually. And when we do, it will just -- it will grow the addressable market for everybody involved.

Absolutely. Okay. Can you give us any color on the size or the type of opportunities you're looking at for the fourth platform?

Sure. So the number of opportunities in front of us right now, I wouldn't go as far as saying they're unlimited, but I feel like that it's pretty close to that. There are dozens and dozens and dozens of products and therapies and devices that go home with patients. There's manufacturers approaching us. We're looking at markets that we want to get into. The trick is going to be and the art is to get into the right market at the right time with the right partner, where it makes sense from an economic standpoint.

There's addressable markets ranging from a few million dollars to a few billion dollars that we're looking at, and we're not afraid to get into either if it's the right time and right place. And depending on how much heavy lifting there is, a small addressable market, we'll obviously take advantage of if we think there's a good opportunity.

But I think the one that you'll see in the next few months is going to be $1 billion-plus addressable market. It's a big market that we're looking at. We've narrowed down to a couple of contenders for the next therapy. We're in the phase now where we're talking about what the agreements look like, what our licensing -- what licensing we need, what the rollout plan would be. So we're getting close, and the couple that we're getting close to are pretty sizable addressable markets for us.

And our next question today comes from Alex Nowak with Craig-Hallum Capital.

Great. I wanted to first follow up to Brooks' question here and maybe expand on the disruption in the wound care space. And maybe I missed it, but what specifically are you seeing? Is it around the shift of care temporarily to the physician office versus the wound care clinics? Is it an impact with your competitor? Just maybe some more color on exactly what the disruption levels you're seeing.

Yes. Sure. There's -- we're still in the phase of -- kind of the discovery phase of what's going on, but it's disruption at the customer level from a service piece. So relationships being disrupted, clinical standards are not being -- not where they were for this competitor. It's what -- negative pressure is just like our oncology business. It is 100% service, right? The device really doesn't matter as long as it does the job. It's all about the service piece, and whether that's the clinical team, the biomed team, the sales relationships, that's the core of the business. That's the art of what makes us so successful in oncology and what will make us successful in negative pressure. And those types of things are what, from a service level standpoint, are being reduced, which only benefits a company like InfuSystem that -- that's who we are, right? We're a service company at the end of the day, and we have perfected our service levels over 30-plus years. We're the best in the world with some of the things that we do. So I was already kind of bullish on what we could do in that market, but when a competitor service level is dropping, it's a perfect storm for us to go seize that opportunity and hopefully gain some share pretty quickly.

Okay. No, that makes sense. And maybe staying on that and actually switching over to the oncology business. There are some big competitive wins throughout 2020 that you were able to benefit through. How do you think about the competitive environment now in continuous chemo? Anything really changed there? Do you still expect more competitive wins? Is there anything that might reverse? Just any help there for 2021.

Yes. So nothing big that's new. It's kind of a status quo. I think we are still the dominant player in that market from a market share standpoint and service level. We don't really have a direct competitor anymore. They're all out of the market. So now we compete against home infusion companies that have been entrenched in the customer for a long time. So it will be -- we'll go back to old-fashioned selling, winning one account at a time and growing market share that way. And I have no doubt that, that market is going to grow. It's not going to grow at 20% like it has the last couple of years. But that team, I have 100% faith that we're going to continue to win customers.

We don't really lose customers in that market. I think our retention rate is 98%, 99% a year. So if anything, we're going to grow that market over time, just -- it will grow slow. It's a pretty established market, and we have a good percentage of the share.

All right. That's great. And I know InfuSystem was a legacy infusion service provider, DME route. And as you're starting to go into these other therapies, you're doing it in wound, but you're having to go beyond traditional infusion. And you made the FilAMed acquisition. That gets you into some more capabilities. So I guess the question is do you need to make more acquisitions to go into these new areas that you're looking at, which are beyond infusion.

Not necessarily. So there's kind of 2 ways that we're going to get into new therapies on the ITS side. It could be an acquisition for sure. If there's a therapy that we like and a product we like and a manufacturer that it makes sense to acquire to take on those skill sets, we'll go do that.

The kind of better option for us from an investment standpoint, at least upfront investment, is something similar to negative pressure in Cardinal, where we find a great partner with a great product that we can layer on our service and enter the market without a huge investment upfront but with a lot of cache in that market to go take market share. So that's kind of the ideal way of doing it. But we're not going to be shy. If there's a great market opportunity and there's a product out there, and we need to acquire it to get in, then we will do that as well.

Okay. Makes sense. And then just last question. And maybe I missed this or I got the interpretation wrong, but did you mention, with the acquisition that you made in February and you look at the guidance, that you're probably closer to the upper end of that guidance now? Is that the right way to think about it?

Yes. Yes. It's not a $10 million acquisition, right? It's relatively small. We think for this year, what we can get out of that -- those enhanced capabilities will push us to the top half of that guidance, if everything goes according to plan, right? But -- and that's why we're reiterating the number. We're not going over that number yet. It's still too early in the year. But for now, we're still comfortable with that number. And FilAMed hopefully will push us to the top end of that range.

And our next question today comes from Jim Sidoti with Sidoti & Company.

Can you hear me?

Yes.

Great. Great. So 2 questions for me. One, it seems to me like you got a boost last year for some of the businesses because of COVID and the trend to treat people at home. As COVID subsides, do you think that some of that sticks as doctors and patients see the benefit of home treatment?

Yes. So I think the push to treat patients at home has been going on for a while. This isn't a new kind of concept. I think COVID just gave it a little bit of a push, right? It was gas on the fire. So it's been a few years now, at least, that physicians understand patients recover better at home, patients' satisfaction goes through the roof when they're at home versus being in a hospital and the payers like it because it's less expensive to the health care system. So none of that's new news. But I think COVID gave it the push that it needed and really opened some people's eyes that, let's look at every -- all the potential we have to send patients home.

I also think that technology has caught up with that concept, where some of these devices now become small enough that you can actually take them home and they're portable, where before it was like an air conditioning unit next to your bed. Now you can actually carry something home. So I think all of that has kind of merged perfectly. And I think that's here to stay. I think it's going to just accelerate the move to the patient's home, and that's what COVID has really helped.

From a boost standpoint within our businesses, it was definitely felt more on the DME side in pump sales and rentals. The good news is the boost in pump rentals was from newer customers, and we really believe now that we're basically a year out that those customers are here to stay. So we might have won the customer because of COVID, but that rental revenue, for the most part, is here to stay, and it's part of our new kind of baseline and foundation of our revenue.

All right. And then similar question on the cost side. I'm sure that you guys reacted to COVID like everyone else, and you figured out ways to reduce costs when you weren't sure where the businesses were headed. Are some of those initiatives going to stick in 2021?

Sure. So yes, I think I mentioned earlier on that doing things pre-COVID and post-COVID are much different. Some of the things we used to do don't work anymore, and the good news is some of the adaptations we've made have allowed us to do business better and smarter and more efficiently. And absolutely, those are going to stay. So there's no need to change things back if they're working now, and we think they'll work kind of post-COVID as hopefully it loosens its grip on all of us here pretty soon. But yes -- and just like customers, it forced every company to adapt. Fortunately, for InfuSystem, we are extremely nimble as a company. And we were able to adapt really quickly and make some -- make a lot of really good decisions early on that I think are here to stay, which will just help us in the long term.

All right. And then the last one for me is regard to this -- the fourth therapy you think you'll enter in 2021. And it sounds like you have a pretty good idea where you're going. So the question is are you going to be able to use the same infrastructure you have in place already for reimbursing and to sell this therapy. Or do you think you're going to have to build out, add people, build out new infrastructure for this fourth therapy?

Yes. Great question. So the whole concept of adding new therapies, especially on the ITS platform, is that we're going to leverage the infrastructure we have. We're not going to have to build plants and buy machinery to make things. That's just not who we are. We're not a manufacturer. Our revenue cycle team, our clinical team, our biomed team, the core structures are already there, even the sales team in some cases. We'll supplement that as new revenue comes in and more paperwork gets processed and more customers are online, but it's an incremental add as opposed to kind of rebuilding or even building something from scratch. So we are absolutely going to leverage what we have in place, and that's part of the art of picking the next therapy. So it's not just about the right market, the right time, the right partner. A lot of it is how does it fit into our core competencies today. And the less we have to change or tweak, the better off we are and the more we can leverage. So absolutely, it's part of how we look at this moving forward.

(Operator Instructions) Today's next question comes from Aaron Warwick with ES Capital.

Carrie, congratulations on your promotion. I hope your families are well. Like you said, hopefully, we're on the backside of this pandemic. Yes, before this call, I went back to your dialogue, Rich, on the transcript from last May. That time, you would set your target or your guidance for $89 million in revenue, and I was doing the math and saying, it should be closer to $95 million. And you pushed back, and here we are, not quite a year later, you guys did $97 million. So congratulations on that.

But I kind of bring this up -- the second guy on the call as well mentioned this. Your target now is the upper end of it, $110 million. Obviously, a nice growth rate, but I'm kind of surprised you haven't raised that since November. Given everything that you've been saying on today's call, I don't know if you could provide a little more on why you're sticking with that rather than raising it.

Yes. So it's still early in the year, right? We're only halfway through March, we're not done with the first quarter yet. I think what people have learned about us over time is that when we put out a number, it's a number that we know we can hit, right? There's inherent risk in there. There's a little bit of upside in there, especially with the range this year, which is a newer kind of concept for us over the last 6 to 9 months.

Going outside of that guidance right now, I'm just not comfortable doing. That doesn't mean when we talk in May that we don't raise it. I think each of the last 2 or 3 years, we've raised our guidance throughout the year. I think you guys can be confident that we're comfortable that we're in the number that we gave out already, the $107 million to $110 million the top line, and that as we see opportunities and they start to crystallize for us that we'll give you guys visibility into that by raising the guidance, right? So we're not against moving the number as we get more clarity throughout the year. And I think over the last couple of years, we've raised it more than once during the year.

But for now it's still early enough that there's always inherent risks out there, just like there's opportunities. So I would say, for now, we're kind of a little bit more conservative. But we'll stick to it for now, and we'll see what happens in May and future calls.

Yes. And I give you guys credit for that. I mean you're very reliable as it relates to that. So I kind of used that as a bottom number in my own assessment.

Listening to you guys talk about the FilAMed acquisition that you announced back in February and even looking at that press release, it mentioned something about how it allows you the opportunity to enter the acute care market. You kind of pitched this and announced this as an acquisition on the DME side of your business. But I mean, it sounds to me like it presents what I would consider perhaps a materially relevant new therapy on the ITS side. Is that a fair way to think about it?

Yes. So we'd say new therapies, especially in the ITS, that's kind of a fitting way to describe it or to categorize it. On the DME side, it's usually more products and more services. It's just different language based on the platform itself. I think FilAMed fits into the DME side as effectively a new product or service. The biomed offering for us is a capability that we already have, right? We already work on our pump fleet of 100,000-plus pumps in addition to customer devices. With FilAMed, it allows us, you're right, to get into the acute care market, the hospital market with enhanced capabilities on existing pumps, pumps that we already fix as well as devices that we didn't currently have the skill set for.

In today's market, with everything going on with COVID and the crunch on hospitals financially, what we're going to see and what we expect to see is that hospitals are not going to have the capital to go out and buy new devices. They're going to want to keep their existing fleet and repair them, maintain them, inventory them. And the FilAMed acquisition allows us an entry into the acute care market to do that for them. So I think it's perfect timing for the acquisition. It was certainly opportunistic.

But I think Carrie mentioned it, it is, without a doubt, potentially $10 million, $20 million, $30 million in revenue over time, over time, meaning 3, 5, 6 years from now. And it's without a lot of -- there's no huge upfront investment, right? We're not buying devices. It's really just manpower to get out there and do the maintenance and service on the devices.

Great. And then final one for me. You mentioned -- you sounded very promising with the addressable market and so forth, this new therapy in the first half of 2021. And it sounds like, in your response to Brooks, you've got a promising pipeline there. And I'm just wondering if we should expect maybe in the back half of the year another therapy. Or are you kind of -- to be added to the ITS side? Are you looking kind of further down the road for that? What's the time line looking like there for you?

Yes. So we're not really forcing a time line on new therapies for a couple of reasons: number one, we could come up with a new therapy and a new device almost every month for the next few years, if we wanted to, but if we don't execute on it, what's the point, right? So I think what we're looking at is we're going to be methodical and deliberate on rolling out new therapies. We're not in any rush, especially if there's an opportunity in negative pressure here in the short term and that we have to focus some energy there.

But we want to roll out therapy. Carrie is going to make sure that on the back end, we are efficient, and we have everything in line so that we're really off and running during the rollout. Once we get to that point, then we're more willing to kind of roll the next therapy in. So it will depend on the next one, and that's kind of how it will be. The next one will depend on the one we just rolled out and how fast we get it up and running and how successful it is before we roll out future ones.

That being said, can we roll out one in the second half of the year? Sure. I mean if we think that it's something that really just kind of lays into our existing infrastructure and, to Jim's point, leverage our existing team and infrastructure that's in place, then it's easier to roll out. Yes, it's not crazy to think we'll have one in the second half of the year, but I don't want to put a timeline on it either. I want to make sure that negative pressure is off and running, pain continues their momentum, which is they're at a toward pace right now, and that the next therapy really gets up and running and integrated on the back end of our system. And then we'll talk about the next one.

Sounds like a good approach. So just a clarification. Cardinal approached you guys, and it sounds like, from what you said earlier that, that's kind of happening more and more now on this side of things, that you're being approached by others. Is that -- did I hear that correctly?

Yes. So it's both. There are some markets we want to get into that we think we're -- we have some real core competencies, and we can do some damage in that market. But there's a lot of manufacturers coming to us for help, whether it's on the logistics side, the sales team relationship side, our operational capabilities, our revenue cycle capabilities, it's any and all of the above. So like I mentioned earlier, I wouldn't say it's unlimited, but it kind of feels that way. Some days, there's a lot of opportunity out there. And now it's the trust and the team to pick the right one for the next one. And I have 100% faith that we're going to do that, and we're going to execute on the next therapy.

Well, you certainly have the track record to speak to that. So look forward to watching this play out and seeing what happens this year.

And our next question today comes from Douglas Weiss with DSW Investment.

I wondered if you could lay out a little bit more on the wound therapy side, how that $600 million addressable market breaks out in terms of third-party providers and doctors who are just buying devices directly, so in terms of what -- where you see the competition and what you see as directly addressable market.

Yes. So the $600 million is actually a piece of the overall wound care market. This is specific to negative pressure, and it's specific to patients going home. So leaving the hospital and going home. There's a -- it's probably about a $2 billion addressable market if you count patients at home, patients in the hospital, patients that stepped down in long-term care facilities as well. We are focusing 100% on just the patients that are being discharged from the hospital and going home with their device. And that's where the $600 million market comes in. So it's kind of a breakdown of the bigger wound care space.

In that space, it's -- because it's patients going home, there's 4 or 5 players. Obviously, us with Cardinal, we expect to take some share over the years. The biggest player in that market by far is KCI, which is now owned by 3M. They've owned this space for years. They are like we are in oncology in the negative pressure space. So that's really the big competitor.

The hospitals do buy their own devices, and they own them outright, but that's not really part of the market we're going after because that's inpatient acute -- in the inpatient acute care setting. We're really going after outpatient in the patient's home.

Okay. And what do you expect as far as capital investment to reach if you get to that 5% to 10% level?

Certainly, our capital investment will be less intensive than in the past as we have more revenue streams that are -- that don't require devices in that. That said, as we're growing in the 20% range, as we think we've said before, we're going to be a consumer of capital. We won't have quite enough cash flow to cover like needs for buying devices in that while we're growing at the current rate or we're in the mid-double-digit rate, where we definitely would generate cash. We don't need -- we'll -- we don't need to buy as many devices in those cases, if that helps.

Yes. Is it possible to speak directly to the wound care investment in terms of what it would cost to -- what it will cost to...

Yes. I think I can answer that. So the devices are a couple of thousand dollars. We've only been in that market for a year, so we don't know what the lifespan is going to be. Our infusion pumps, we depreciate them over 7 years. Some of them last 10 or 12 years. But for every new patient -- because we didn't have to go buy a whole bunch of them and stick them on the shelf, so as we get new customers and new patients, we go and buy new devices.

The way it works on the pump side is basically for every dollar you spend on a pump in the first year, that's what you're going to get back in revenue. And then obviously, the pump lasts another 6 to 10 years. So it's -- the economics get a lot better after year 1. I would say it's similar, if not even faster on the negative pressure side. Because the reimbursement is just more. So the device is a little bit more, but the reimbursement is better. So same kind of thing. For every dollar in negative pressure revenue roughly in the first year -- of new revenue, you're going to have to spend about $1 on a device.

Okay. And then in terms of the guidance, it looks like -- so you're guiding to similar margins on the incremental revenues that you're forecasting. On an EBITDA basis, it looks like your margin is going to be pretty flat and maybe up slightly. Can you just explain -- my understanding was a lot of these new revenues were leveraging your existing infrastructure and would be higher margin. So I guess if you could just talk to that.

Yes. So from a contribution margin perspective, the ITS segment is -- from a gross margin perspective, in the 60% range. However, we do need to add clinicians, revenue cycle, team members and other things, and there'll be commissions and things like that, that will add to our SG&A. That said, we see, as we add revenue, a higher contribution margin than the current EBITDA margin. We do have to make some investments in the infrastructure to grow to manage higher volumes that will happen over time. But generally speaking, we don't -- what we don't see is a need to make significant SG&A investments to add new therapy. That's where we get the leverage. So our expectation is that our EBITDA margin will grow steadily. If not double digits, but it will grow steadily and will improve as we add the new revenue.

Nice quarter.

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Rich DiIorio for closing remarks.

Thanks, Rocco. I'd like to thank everybody for participating on today's call. I hope everyone has a good day, and I look forward to talking to you again when we report our first quarter 2021 results. Please stay safe, and thank you.

And thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.