InfuSystem Holdings Inc (INFU) 2024 Q4 法說會逐字稿

Good day, and welcome to the InfuSystem Holdings, Inc. reports fourth-quarter and full year 2024 financial results conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead.

Good morning, and thank you for joining us today to review InfuSystem's fourth-quarter and full year 2024 financial results ended December 31, 2024. 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 the 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, 2023.

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 and Fiscal 2024 year-end earnings call. Thank you all for joining us today. I'll begin the call with an overview of the fourth quarter and the year. After that, Barry will provide a detailed summary of our financial results. Carrie will give an update on our launch of ChemoMouthpiece, and then I'll have some additional comments before opening the line to questions.

At the start of last year, we announced that 2024 would be an accretion year. After growing 14.4% in 2023, in part due to the rollout of the national service agreement with GE Healthcare, we communicated that our focus would be on continuous process improvements designed to deliver greater efficiencies and higher recurring and long-term profits. Our financial targets for the year were high-single-digit revenue growth and adjusted EBITDA margin in the high teens, improving on the 17.8% result delivered in 2023.

The year started out slowly, but as is common for our business, momentum grew as we progress through the year with the third quarter showing us tracking towards our targets. Our business momentum continued into the fourth quarter, and we delivered on our objective of making 2024 an accretion year.

Gross margins increased year over year by a full 2% to 52.2%. Operating income increased 69% from last year to $6.9 million, and adjusted EBITDA increased 13% to $25.3 million. Our adjusted EBITDA margin in the third and fourth quarters exceeded 22% and for the full year came in at 18.8%, a full percentage point increase over 2023. This result is after $735,000 of technology systems upgrade costs that were not included in our original forecast for the year.

Our revenue growth in 2024 also built up as we work through the year as we added new projects and scaled existing business lines. We ended the year with revenues up 7.2% versus the prior year. This step-up was a result of growth in almost every business line, including Oncology and Pain Management, which were up 6.1% and 14.7%, respectively.

In Device Solutions, equipment rentals grew by 13.6%, equipment sales by 20.6%, driven by a large one-time transaction in the third quarter and biomed grew by 6.7%. The one business line that came in below our expectations for the year was Wound Care, and this was not due to a lack of business opportunity, but rather due to our decision to pause the onboarding of some new initiatives at the end of the year to ensure that the quality of the referrals align with existing resources and expectations as we prepare to ramp this initiative in 2025.

Much of our recent focus in Wound Care involves partnering with regional wound care DME companies to leverage our extensive payer contracts and expand upon our historic revenue cycle capabilities. We see a significant amount of opportunity for revenue cycle in the wound care space, and because of its long-term importance, we are taking a conservative approach, taking time to test our processes and improve the ways we are receiving the referrals so we can scale effectively.

This new business is in addition to the Smith & Nephew negative pressure partnership, which continues to scale up as expected. As we've highlighted in the past, our core businesses, specifically in Oncology and Pump Rentals are capital intensive. That is, growth requires investments in pumps to enable incremental growth.

Our newer initiatives in wound care and biomed are far less capital intensive and accordingly, will generally result in greater free cash flow. We can see the growing impact of this changing business in our 2024 financial statements. Our debt balance at year end was down to a little more than $23 million. And remember, we still have a long-term interest rate swap on the first $20 million of debt at favorable below market rates.

We paid down debt in 2024 at a historic rate, and we did that after some larger-than-expected pump purchases during the year and $1.2 million of stock repurchases. Also, as reported in the press release, we have repurchased an additional $2.4 million in the first quarter of 2025. I'll stop here and turn the call over to Barry to discuss our financial results in more detail.

Barry?

Thank you, Rich, and thank you, everyone, on the call for joining us today. I'm going to focus on three topics, including the main drivers for the current quarter's results. I'll then talk about the high tax rate we show for the quarter. And finally, I'll update you on our current financial position and how it changed during the quarter. Now let me start with our financial results for the period.

During the fourth quarter of 2024, our net revenue totaled $33.8 million, representing a $2 million or 7% increase from the prior year fourth quarter. That included growth in both of our operating segments with the Patient Services segment leading the way, reporting a year-over-year quarterly increase in net revenues totaling $1.6 million or 8%, and the Device Solutions segment having increased net revenue of $475,000 or 4%.

Higher net revenue for the Patient Services segment included increases due to higher treatment volumes in all three therapies. Oncology net revenue increased by nearly $1 million or 6%. Advanced Wound Care revenue totaling $700,000 was up by 342%, and Pain Management increased by 23%. These increases were partially offset by lower negative pressure wound therapy equipment sales due to a difficult comparison that included a surge in equipment leases in the prior year.

The growth in Device Solutions was primarily attributable to higher rental revenues coming from new customers and was partially offset by lower biomedical services revenue related to a greater amount of seasonal downtime and large project timing impacts.

Gross profit for the fourth quarter of 2024 was $18.2 million, which was $1.5 million or 16% higher than the prior year fourth quarter. Our gross margin percentage was 53.8%, representing a 1.2% improvement over the prior year fourth quarter amount of 52.6%. This improvement was mainly driven by favorable revenue mix favoring higher-margin revenue such as oncology and rentals and lower negative pressure wound therapy equipment sales.

Selling, general, and administrative expenses for the fourth quarter of 2024 totaling $15.6 million was about the same as the prior year despite including approximately $500,000 in expenses during the quarter associated with our business application upgrade project and a higher short-term incentive expense accrual, which was approximately $500,000 higher. These increases were offset by lower selling expenses, including commissions associated with a lower rate of revenue growth during the current year period as compared with the 2023 fourth quarter.

Adjusted EBITDA during the 2024 fourth quarter was $7.5 million or 22% of net revenue, which represented an increase of over $1.3 million or 22% from the prior year fourth quarter. Our effective tax rate for the 2024 fourth quarter was 59% and was 54% for the full year. About 10% of this amount reflects tax deduction shortages on equity compensation. That is the amount of actual tax benefits or deductions related to equity compensation realized by our employees was lower than the amounts expensed for book purposes.

This is because of the reduced value of equity awards related to the lower market price of our stock over the last few years. We expect this effect to continue in 2025. However, we can't predict to what extent. Other contributors to the higher rate include limitations on the deductibility of reimbursed meals for our travel teams and officers' compensation and impacts for local and foreign income taxes for jurisdictions where we do business.

Our tax expense continues to be mostly noncash due to the utilization of net operating loss carryforwards. Turning to a few points on our financial position and capital reserves. Our operating cash flow for the fourth quarter totaled $7.9 million. This amount was 70% higher than the amount for the prior year fourth quarter. This increase was due to higher operating income, net of non-cash expenses, and a reduction in our working capital levels as compared to the prior year when our working capital increased.

The increase for the prior year, you may recall, was partly due to a high amount of sales-type lease revenue for negative pressure equipment and due to the growth of a contract asset associated with the GE Healthcare contract during the prior year's onboarding period. The increase contributed to the 2024 full year amount of operating cash flow, which totaled $20.5 million, representing an all-time annual record topping the previous record set in 2020 during COVID.

Our net capital expenditures were $3.3 million during the 2024 fourth quarter, which was higher than the $1.4 million we spent during the fourth quarter in 2023. The amount during the current period was focused on infusion pumps needed to support increased volume in Oncology and the Device Solutions Rental business, both of which are expected to contribute to 2025 revenue growth.

We continue to anticipate that our overall capital spending requirements will moderate as compared to amounts in prior years as the sources for our revenue growth will continue to be more weighted towards less capital-intensive revenue sources such as biomedical services and advanced wound care supplies.

We continue to be positioned well to fund continued net revenue growth with the growing cash flow from operations backed by significant liquidity reserves available from our revolving line of credit and manageable leverage and debt service requirements. Our net debt decreased by $4.3 million during the fourth quarter and by $5.3 million for the full year to 22 -- $23.3 million. This despite having spent nearly $1.2 million during the year under our stock repurchase plan.

Our available liquidity continued to be strong and totaled more than $51 million as of December 31, 2024. Our ratio of total debt to adjusted EBITDA was a modest 0.92 times. Our debt consists of borrowings on our revolving line of credit with no term payment requirements, more than three years in the remaining term and with $20 million of the outstanding balance locked in at a below market rate by an interest rate swap having the same expiration.

Now, I'll turn it over to Carrie.

Thanks, Barry. I'd like to provide an update on ChemoMouthpiece. You will recall that in September, SI Healthcare Technologies, our joint venture with Sanara MedTech, signed an exclusive distribution agreement for ChemoMouthpiece. This product is used to reduce the incidence and severity of oral mucositis in patients undergoing chemotherapy. The device received 510(k) clearance in the first half of 2024 and then received an initial CPT code for reimbursement in July of 2024.

Sanara helps identify the opportunity and InfuSystem with our deep relationships into more than 2,000 oncology centers is well positioned to distribute and support the product. We are providing the tip of the spear for distribution for our existing oncology salesforce, aided by additional sales personnel from other parts of our business.

We've made broad initial contact with our customers to educate on the availability of this new treatment opportunity and the reimbursement to hospitals provided by the CPT code. We have received a few small orders and are starting to see interest in momentum build. We are working with our partners at ChemoMouthpiece and are impressed by their clinical and marketing investment and capabilities.

Currently, we are awaiting the publication of two clinical papers. The first on the medical efficacy of cryotherapy treatment and the second on the economics to hospitals of reducing the incidence of oral mucositis and the costs associated with treating patients with severe cases.

Precisely when the papers will be published it's still unknown, but we do believe once providers understand the health benefits, ChemoMouthpiece will see broad adoption and oral cryotherapy utilizing the product will become common for cancer patients receiving chemotherapy.

Now I'll turn it back to Rich.

Thanks, Carrie. Moving to guidance. We are expecting revenue growth for the full year 2025 to come in between 8% and 10% and our adjusted EBITDA to again demonstrate the leverage in our business by increasing at a faster rate, taking our adjusted EBITDA margin above the 18.8% delivered in 2024.

This improved adjusted EBITDA is after the impact of costs related to our ongoing technology systems upgrade, which expenses are expected to be approximately $2.5 million in 2025. Without the impact of this upgrade program, which is expected to be largely completed this year, our outlook for the full year 2025 would be for adjusted EBITDA margins above 20%.

As we have seen over the last couple of years, the first quarter adjusted EBITDA margin is expected to be lower in the first quarter than the rest of the year. We expect to have adjusted EBITDA margins in the mid-teens in the first quarter, offset by significantly higher adjusted EBITDA margins in the second half of the year as we saw in both 2023 and 2024.

This is a result of having higher expenses in the first quarter, such as a large portion of our audit expense, marketing expenses that occur earlier in the year, and higher patient financial responsibility before they start reaching their co-pay and deductible requirements. Revenue should also ramp sequentially as we work throughout the year, scaling new projects, including our program with Smith & Nephew, the new Wound Care initiatives and increased ChemoMouthpiece adoption.

Operator, we are ready for the Q&A portion of the call.

(Operator Instructions) Brooks O'Neil, Lake Street Capital Markets.

This is Aaron on the line for Brooks. Are you able to hear me okay?

Loud and clear.

Thanks for taking our questions. So you expect Advanced Wound Care products should continue to grow in 2025 and beyond. As we understand that, that should be a good amount of the growth this year. Maybe can you just give us some additional color on what you're seeing in both wound care and biomed. You called out some specifics in your prepared remarks, but we just see both seem ripe with opportunity. And I'm just kind of curious on the traction you're getting with some potential new customers in both those areas, realizing those are less capital intensive for the company.

Sure. So I think the good news in '25, similar to what we saw in '24 is we're going to grow probably in all of our business lines. Aaron, you're definitely right, like Advanced Wound Care is going to drive most of the growth. Biomed will contribute as well. And I think both of those lines have plenty of opportunities.

So on the advanced wound care side, there's plenty of DME partners that are coming to us and need help with referrals. That's what I mentioned about the end of last year. We saw a lot of that coming to us. We wanted to make sure we had our systems and processes and people in place so we can scale it in '25.

On the biomed side, obviously, we have GE. They've given us a couple of smaller opportunities that we've continued to add. We added Dignitana at the end of the year, so that should roll out this year. And then there's other opportunities in the pipeline. So both of those businesses will grow for sure. I would say most of the growth will be driven by advanced wound care, biomed, and then we'll see what ChemoMouthpiece can do this year. But those are definitely contributors. And all three of those are very, very light from a capital cost standpoint.

Understood. Yeah, that's helpful. And then maybe just peeking back on what you just said on ChemoMouthpiece. I'm curious maybe just any feedback that you've received from oncology centers and/or patients. I know Carrie called out we should be able to look out for those papers. But obviously, no real competition out there. Are you just beginning to see a real opportunity emerging from that? And do you think that will be a material contributor here this year?

Yeah. So we are definitely seeing momentum building for sure, where the sales cycle will start to pop in the next few months. We'll know a lot in the next few months as far as how many orders start to come through. But definitely a lot of interest from customers. There are some customers that knew it was coming and were waiting for it.

So as Carrie mentioned, we had some small orders come in. We have some good-sized customers from a sales cycle standpoint that are pretty far down the process. We just have to see when they close. Is it this month? Is it in a few months? Time will tell in that respect. And then when the clinical trials come out and those get published, that will definitely have a big impact on the market. There's a lot of physicians that just won't write it until they see that.

So yeah, we're very happy with where ChemoMouthpiece is today. Awesome partner, as Carrie mentioned, and a great product that fits an unmet need in the marketplace. So we think we can help a lot of patients, which will make all of us very successful if that's the case.

Absolutely. I totally agree. We see that as a pretty big opportunity for you guys. Appreciate you taking the questions. I'll hop back in queue.

Matt Hewitt, Craig-Hallum Capital Group.

Thanks for providing the update and taking the questions. Maybe first up, regarding the referral process, could you kind of just walk through what changes or how you're improving that process and kind of where you are in that? Is it something where you're largely complete and you expect to see the benefits of that starting here in Q1? Or does it take a little bit longer and so the real benefit will come in the second half of the year?

So I think we'll see a ramp throughout the year for sure. We should see some benefit in Q1. But really, what it is, Matt, when we're talking about different DME suppliers coming to us with opportunities, they all have different systems. They all feed us information differently. We want to make sure we get the right information that it comes in, in the right time so that we're compliant and it comes in a form that we can then process it into our system.

And depending on the partner -- some partners, it's going to come in really clean early, and it's very easy to integrate with them and some of them are a little more difficult, and we had a couple more of the difficult ones at the end of the year. But we're working through those. The good news is both sides kind of want to be successful and want to help the patients out. So we'll get through there. We'll see some impact in Q1.

But as we go through the year, it will get better and better. But that will be a -- it's not a one-time thing. It's a continual process every time we start with a new partner. So we will see some revenue this quarter from it and build throughout the year and hopefully for years to come.

That's great. And then maybe a separate question regarding ChemoMouthpiece. Thank you for the update there. Obviously, a nice potential driver. As we look at that, if I'm not mistaken, that should carry above corporate average margins, particularly on the gross margin side. So as we exit this year and get into next year, I would anticipate or correct me if I'm wrong but anticipate a nice lift in gross margins as you see broader adoption of that platform.

That's not exactly correct. We do have good EBITDA margins on that product, but we are sharing with our partner. And so the profits will come through the equity line for us and gross margin will be a little bit lower because of that.

But it will be accretive to our overall EBITDA margin.

Nicely accretive to our EBITDA margin.

Okay. Thank you for the clarification.

(Operator Instructions) Kyle Bauser, B. Riley Securities.

Great update here. Just following up on ChemoMouthpiece and Dignitana. Can you just give us a sense as to how material these businesses could be or maybe talk about the addressable market, just kind of sizing up those opportunities to get a better sense of what a sales number would be at scale.

Sure. So Dignitana is in the hundreds of thousands of dollars. It's not a huge contract. But it was a nice one to get because it was the first good sized one outside of GE that helped -- that we leveraged our GE team, right, our on-site team -- or not our on-site team, our regional technician team. Hopefully, it's the first of many that are kind of in the hundreds of thousands, low millions. Those are very easy to integrate, tend to be more profitable than the bigger ones.

So Dignitana is not a tremendous opportunity other than it shows us being able to use our capabilities and scalability of our team. ChemoMouthpiece is a totally different product line. ChemoMouthpiece, the addressable market is in the hundreds of millions. I think it's around $500 million or $600 million if you got kind of wide adoption.

I don't expect it to be that big necessarily, but that's the market. The fact is it's a product that right now, when it comes to oral mucositis, there's no real product that helps reduce incidents and severity of it. And the standard of care today is ice chips. So if you've ever been in a cancer center and a patient has ice in their mouth, that's why they're doing it. They're trying to cool their mouth down and shut down the uptake of the chemo in their oral cavity.

So it's certainly an unmet need. There's really no product like it. The reimbursement certainly helps. We'll see how the reimbursement adoption happens over the next year or so. But between reimbursement for the hospital, an unmet need for the patient, it could be a revenue generator depending on reimbursement for the hospital.

It's really -- the opportunity is huge. We don't -- we have to wait for the studies to come out, which will be a big lift for us. But right now, what we've seen in the market is people are excited about having an opportunity and a new product that can help their patients that there really is nothing to help them today.

So that's why we're seeing that excitement. Everything from small private practices to huge hospital teaching institutions are excited about it. So we'll have to watch how the sales cycle plays out over the next few months, but we'll know a lot pretty soon as the sales cycle starts to hit.

Got it. And I appreciate that. That's exciting. Looking forward to seeing that play out. And then just on the guidance from an EBITDA margin standpoint, can you just help me understand kind of what are the key factors that will be big contributors to the earnings leverage this year going north of 18.8%. Obviously, top-line sales growth will be nice. But just help remind me what other factors are the most important in being able to achieve the improvement in operating leverage?

Yeah. So I think it's the continued efficiencies and improvement in the Biomed. We've seen some improvements. We're getting back. We expect more for next year. So just continuing to hone that additional new business that we have into something that's much better than it has been.

You adding things like Dignitana help leveraging that team and covering fixed costs. And it's just the growth in the other areas. As we've just mentioned, ChemoMouthpiece is accretive to EBITDA margins. We had some unusual expenses last year that has held us back a little bit. Those will disappear.

The only thing kind of working against us this year is that we are spending on the ERP, but we expect even with that expenditure, as Rich mentioned, will be better than the prior year in terms of profitability.

Yeah. What's nice to see is if you kind of put that to the side because it's largely this year, the cost of that, our underlying EBITDA margin, we believe, is over 20%, which is kind of what our target has been in the last couple of years to get back to that threshold. It looks like we're there.

That's great. Excellent. Super helpful. Thank you so much. I'll jump back in queue.

Jim Sidoti, Sidoti & Co.

Thanks for taking the questions. The Oncology business, your biggest business, is up mid-single digits again in the quarter, which seems to be a pretty steady grower. Do you see any changes for that going forward? Or do you think that will continue to grow in that mid-single-digit level?

Yes, Jim, I think that's a good question. It's been our expectations the last couple of years. I think it's grown in two ways. Number one, our team has done a good job just adding volume, new customer, new sites, new locations. Our revenue cycle has also done a really good job at collecting more per dollar than we ever used to. And that's been the case for the last few years. They've been improving that. So it's a combination of those two things.

There'll be -- I'd love to see every year be 6% to 8% like it has been in the last couple of years. I don't know how much more we can squeeze out on the revenue cycle side. I think we're getting about as good as we can get, but we're going to continue to add volume. So low- to mid-single digits is probably a good place to be. I don't expect it to be more than 6% this year, but it shouldn't be less than 3% or 4% either. So it's probably in that range.

Okay. All right. And the $2.5 million you're spending on the ERP upgrade, I think you said that, that should be done by the end of this year. So by 2026, do you think those costs are much lower?

Yeah. I think the cost in '26 should be lower. This year, we'll have it ready to go, and then it's more of a timing of when do we implement and do the cutover from our existing system and newer system. And that will be early next year. We got to make sure it doesn't interact and interrupt the closing of the year for '25. So most of the costs will be in this year for sure.

And then Barry did a nice job going over the reason why the tax rate went up so much because of the option deductibility. But you mentioned the NOLs. Just -- can you remind me how much NOLs do you have? And when do you think you start paying cash taxes?

Yeah. So after this year, we're down to around $20 million in NOLs remaining. So -- but we do have some other timing differences that we'll be able to take some deductions for bad debts, for example, we haven't been writing off some bad debts. So I would expect that at the current rate of our profitability, we have a few years left before we'll be a cash taxpayer. However, we'll probably be improving our pre-tax income, and so it'll go a little faster than that.

Okay. All right, thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Rich DiIorio for any closing remarks.

Thank you, Betsy. I want to thank everyone for participating on today's call, and we look forward to our next call to discuss our first-quarter results. Thank you, and have a great day.

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