InfuSystem Holdings, Inc.
Q4 2017 Earnings Call Transcript

Published: 13 Mar 2018

[Operator:]

Good morning, ladies and gentlemen and welcome to the InfuSystem Holdings Fourth Quarter of Fiscal Year 2017 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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.

[Joe Dorame:]

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 in fiscal year 2017, which ended on 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 DiIorio:]

Good morning, everyone, and thank you for participating in today's earnings call. I'm joined on today's call by Gregg Lehman, Executive Chairman of the Board; Chris Downs, our Interim CFO; Janet Skonieczny our Chief Operating Officer; and Trent Smith our Chief Accounting Officer. During the second half of 2017, Management team made considerable progress into improving our operational efficiencies, reducing costs and reducing debt. I have absolute confidence in our leadership in the team to maintain this focus and continue to drive strong cash flow. The improvement in collections and focus on operational improvements enabled us to reduce net debt on non-GAAP financial measure by an additional $3.8 million during the fourth quarter, with net debt of $25.5 million at December 31, 2017. On a year-to-date basis, we've reduced our net debt by $8.5 million. Included in our recent earnings release from this morning, we also included that the company's Board approved a $1 million share repurchase program. This is a significant step for InfuSystem and I believe it reflects management's confidence and 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 path again is clear. Focus on our existing business and operate as efficiently as possible while continuing to win new business when it creates value. I believe this will be accomplished by focusing on four key areas

[Chris Downs:]

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 resulting in gross margin of 60% versus 63% in the prior year period. Provision for double accounts decreased 31% to $1.2 million compared to the prior year period. Intangible asset interment charger that were related to internally developed internal use software project were determined by management to be obsolete or no longer in use, totaled $1.0 million for the quarter end 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 at $11.4 million valuation allowance and the $5.6 million cumulative effective 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 the loss of $0.5 million or a loss of 2% 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 of 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 the 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 of 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.

[Rich DiIorio:]

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. In 2018, we 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. And I'd like to personally thank Chris Downs for his service and commitment in InfuSystem during the last six 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:]

Thank you, sir. [Operator Instructions] And our first question will be from Beth Lilly of Crocus Hill Partners. Please go ahead.

[Elizabeth Lilly:]

Good morning. I wanted to just spend a minute and talk about the terrific improvement you've made and just talk about now that the businesses 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 a revenue growth and then what type of EBITDA margins do you think this company could generate in let's call two to three years.

[Trent Smith:]

This is Trent. I think the EBITDA margins, we've had them in the past somewhere between 15%, 17%, sometimes I think there has 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'd be comfortable where we are right now. But again, as a future-looking statement, I wouldn't know how we're probably going to predict that.

[Elizabeth Lilly:]

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

[Rich DiIorio:]

Sure. From a top line standpoint on the oncology side, we're going to continue to grow and gain market share where it makes 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.

[Elizabeth Lilly:]

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?

[Rich DiIorio:]

I think we're in the single digits still. 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.

[Elizabeth Lilly:]

Okay. So maybe mid-single digits?

[Rich DiIorio:]

In that ballpark.

[Elizabeth Lilly:]

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

[Rich DiIorio:]

Majority is tough because it's a small piece of our business. Is the percentage overall quite a bit on their own?

[Janet Skonieczny:]

Yes.

[Rich DiIorio:]

But oncology is still the work horse of the business and even small growth there contributes much more significantly than the pain side is.

[Elizabeth Lilly:]

Yes. Okay, great. Thanks so much.

[Operator:]

[Operator Instructions] And the next question will come from Michael Potter of Monarch Capital Group. Please go ahead.

[Michael Potter:]

Hey, guys. Congratulations on a great turn around and stabilizing the company. A couple of quick questions for you. I know a lot of investors have been looking for more information out of the company on what you're using internally to track the business, the particular KPIs, utilization rates, things along those lines and I know that has always been a criticism of the prior management, just a lack of transparency. Can you give us some more information of some of the areas where we should be focusing?

[Rich DiIorio:]

Yes. Utilization is certainly a driver. Michael, we discussed this, it's a huge efficiency for us. Every decimal point in utilization is a huge pickup for us financially on the CapEx side. 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 collection side. Janet, her team have done wonders in the last nine months to get us back on track. 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 getting paid for the business we have is critical for us. Using the pumps we have and getting paid for the pumps that are out there. Most of our KPIs are set at around those two metrics.

[Michael Potter:]

So do we have utilization targets? Where was our utilization for 2017 and what are you targeting? The same thing, I guess, with DSOs. Where should our DSOs fall going forward?

[Rich DiIorio:]

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 never as good as we want to be, but 1% pick up on that is hundreds of thousands of dollars. Typically we target a few percent increase every year on the utilization side. We achieved it 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, reduce our CapEx to fund the growth that we need.

[Trent Smith:]

This is Trent. I think on the DSO question you ask, 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.

[Janet Skonieczny:]

54 days.

[Trent Smith:]

Yes and I think at the end of last quarter, September 30, we're around 59 days. 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 dividend.

[Michael Potter:]

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

[Janet Skonieczny:]

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. So while we're coming up with ways to address those claims more quickly and deal with the authorization that are needed. I think we're probably right in our sweet spot right now.

[Michael Potter:]

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

[Rich DiIorio:]

Yes. 17.6%.

[Michael Potter:]

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

[Trent Smith:]

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 was going to reduce some of the amortization in the future years, but I think in the 17.5%, maybe in that range, maybe a little bit higher but I wouldn't say anything into the mid-20% 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.

[Michael Potter:]

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

[Rich DiIorio:]

We don't break out pain yet. It's still a very small number. It's not significant enough. The hope is someday that it's significant enough, we can break those out for you.

[Michael Potter:]

Okay. All right, guys. Great job. I'll get back in queue.

[Operator:]

[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.

[Rich DiIorio:]

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.

[Operator:]

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