InfuSystem Holdings, Inc.
Q4 2016 Earnings Call Transcript

Published: 22 Mar 2017

[Operator:]

Good morning, everyone, and welcome to InfuSystem Holdings Fourth Quarter 2016 Conference Call. This is your operator, Christine. Let me first give you to Christopher Downs, Interim Chief Financial Officer.

[Christopher Downs:]

Good morning, everyone and thank you for joining the InfuSystem Holdings, Inc. earning call for the fourth quarter of 2016. Joining me today are Eric Steen, President and CEO; Janet Skonieczny, Chief Operating Officer, Mike McReynolds, Chief Information Officer, and Trent Smith, Chief Accounting Officer. The first administrative matters. The Company issued a press release this morning. The release is available on most financial websites. Additionally, a web replay of this call will be available on the Company’s website for 30 days. The press release and associated Form 8-K as well as the Company’s Form 10-K for Fiscal Year 2016 was also filed with the SEC this morning. Except for the historical information contained herein, the matters discussed on the conference call are forward-looking statements that involve risks and uncertainties. Such risks and uncertainties could cause actual results to differ materially from those predicted by such forward-looking statements. The words believe, expect, anticipate, and estimate or other similar statements or expectations identify forward-looking statements. These risks and uncertainties include general economic conditions, as well as other risks detailed from time-to-time in InfuSystem’s publicly filed documents with the Securities and Exchange Commission. Specifically, information about risks and uncertainties that could cause the Company’s actual results and financial conditions to differ from those predicted by forward-looking statements are disclosed in the Company’s year-end report on Form 10-k for the year ended December 31, 2016 under the heading risk factors and elsewhere in the report and another filings made by the Company from time to time with the Securities and Exchange Commission, including subsequent quarterly reports on Form 10-Q. Forward-looking statements reflect management’s analysis only as of today. The Company has no obligations to update the forward-looking information contained in this conference call. While discussing the Company’s performance, the Company will refer to certain non-GAAP measures, such as adjusted EBITDA and adjusted net income, which are not considered measures of financial performance under Generally Accepted Accounting Principles or GAAP. A reconciliation of the differences between non-GAAP financial measures and those measures such as adjusted EBITDA, and adjusted net income, and the most comparable GAAP measures are contained in today’s press release. Now I would like to discuss the financial results for the quarter and fiscal year. For the fourth quarter total net revenues were down 10% versus the restated prior year period to $16.9 million. Note that the prior year comparable period was prior to the SE1609 announcement by the Center for Medicaid and Medicare Services and the associated pricing impact on our Medicare patients. Total net rental revenues were down 8% versus prior year to $14.8 million. Gross profit with down 19% versus prior year to $10.7 million, operating income with a loss of $454,000. Net income was a loss of $473,000 or $0.02 per diluted share versus $1.5 million opr $0.07 in the prior year period. Adjusted EBITDA was $2.9 million versus 5.2 million in the prior year. Adjusted EBITDA margin decreased from 27.6% to 17.3% and adjusted diluted earnings per share was a loss of $0.02. Now for the full fiscal year 2016 total net revenues were roughly flat versus the restated prior year at $70.5 million. Note that the current year included six months of Medicare competitive bidding price reduction that went into effect January 1, and six months of SE1609 pricing impact that went into effect July 1st. The prior year was before EBITDA of these changes. The total net rental revenues were down 1% versus prior year to $62.2 million. Gross profit was down 10% versus prior year to $44.7 million. Operating income was $1 million versus $7.3 million in the prior year. Net income was a loss of $0.2 million versus $2.8 million in the prior year. Adjusted EBITDA was $13 million, a decrease of 24% versus prior year of 17.2 million. Adjusted EBITDA margin decreased from 24.4% to 18.5% versus prior year. Adjusted diluted earnings per share was a loss of $0.01 down from $0.12 per diluted share for the prior year period. Now with that I would like to turn the call over to Mr. Eric Steen, Chief Executive Officer.

[Eric Steen:]

Good morning everyone. 2016 was an eventful time in InfuSystems, to recap we started the year with the continued roll-out of our express computer system that provides real time information to our clients, our customer service and our sales reps to collect our insurance billings. In late April with SE1609 CMS announced that ambulatory infusion pumps would no longer be reimbursed for Medicare patients leaving an outpatient clinic or physician office. We quickly pivoted to educate the market on this sudden reimbursement change and we took over 1700 outpatient infusion clinic customers to a newly developed direct pay method for service that includes software, pumps, supplies and nursing. We accomplished all this while rolling out the new system to our customers in place. The end of the year found us as we stated our financials due to a formula error in our net revenue recognition estimation process. Now 2017 finds us with the largest market share the company has ever had, no longer subject to Medicare pricing risk and having recently completed a real engineering and streamlining that has reduced our annual payroll by over $1 million. We are well positioned in the marketplace aided by a suite of electronic connections solutions that make life easier and paperfree for our customers and our internal operations as well. As we look at the fourth quarter numbers we can see the impact of several different events, the biggest impact is the transition from billing the Center for Medicare and Medicaid Services to billing the outpatient infusion clinic providers directly. In Q3 we still had some of the CMS insurance pricing in our revenue mix even though we started billing all clinics direct for Medicare patients effective July 1, we were still processing and collecting on pre-July 1st treatments in Q3. In Q4 the CMS insurance collections are mostly out of the mix, however due to market share gain our Q4 revenues were up slightly over Q3 by 4%, we can more clearly see the results of our market share gains in Q4 due to the 9% volume increase of our third party payer insurance billing segment versus Q1 of 2016 before the CMS announcement of the reimbursement discontinuation. In the fourth quarter we had 430,000 for the cost of outside consultants related to the restatement. We also booked a large accrual of over $600,000 for bad debt related to our direct Medicare treatment pricing. I consider that conservative accrual my experience in doing business with hospital systems is they do pay their bills. It takes time to contract with these complex buying organizations. Due to the unexpected Medicare change and the fact that we did not have existing contract positions with our third party payer from [ph] our customers, its been drawn out process working with the compliance, legal, purchasing nursing and pharmacy departments some with the largest integrated health networks in America to complete contracts and arrange payment. The majority of the contracts and projects orders have been executed with more in process so we should be able to reverse a portion of the accrual later in the year. Our direct pay business had another solid year by focusing on the recurring business opportunities rentals were up 24%, service and repair were up 21%, the sale disposable products were up 28%. We did not have the one or two big capital equipment pump sales in Q4 of 2016 like we've had in past years. I'm not surprised there is no big year in pump deals in play in the non-acute market as there were two significant reimbursement changes in the non-acute infusion marketplace in 2016. The first was SE1609 and CMS not reimbursing for ambulatory infusions started in the clinic or office which was then followed by the 21st Century Cures Act that impacted drug reimbursement. Our large fleet customers have hunkered down and did not invest heavily in CapEx to expand or upgrade their pump fleet at year-end. I've been asked about the impact of the 21st Century Cures Act on InfuSystem so let me take a moment to explain the dynamic for our two primary business units. The 21st Century Cures Act shifted payments for Part B home infusion drugs from an average wholesale price model to an average sales price model. Average wholesale price for AWP had a margin for the drug built in. So the impact of the Cures Act was an immediate reimbursement cut for home infusion companies billing drugs under Part B. When there is an immediate and significant reimbursement cut the typical customer behavior is to limit CapEx so we see our home infusion company customers rent instead of buy or repair the older model instead of buying new which impacts our direct pay business. Another impact of the Cures Act is not in the traditional home infusion marketplace that in the outpatient infusion clinic to home market segment where InfuSystem and our third party payer business model is the market leader. In this segment, our home infusion customers become a type of generic competitor by offering a different way to satisfy the infusion needs of a patient transitioning from the infusion clinic to the home. The home infusion companies offer a bundle that includes providing the drug and reimbursement for the drug where InfuSystem does not handle drugs and we focus on only providing a service that includes software pumps, supplies and nursing support. This allows our customers to keep their pharmaceutical supply chain under their own control. To reduce drug reimbursement of the Cures Act has made it less profitable or in many cases unprofitable for home infusion companies to provide drug pumps supply and nurse [ph] for infusion patients going home from a clinic. In some instances home infusion companies have left this segment and InfuSystem system has gained market share as a result. I mentioned earlier our gross billings have increased 9% over the last nine months and some of that market share gain came from home infusion companies leaving the outpatient infusion segment. Our non-narcotic, non-opioid post-surgical pain management service continues to grow. At year-end this business was on a run rate to serve 5000 patients a year and generate a million dollars in net revenue but several new clients already implemented in 2017 have these numbers moving solidly up then to the right. We will soon be launching our previously developed block pain dashboard application now on mobile phones. This will provide real time access to anaesthesiologist and pain doctors directly to their smartphones which we expect to further accelerate this growing business. Our investment in IT technology and pump fleet was well-positioned to complete. Our plan for 2017 is to leverage that investment by continuing with our strategy, our strategic tenets of conducting electronically with our expanding customer base, expanding our portfolio of services and products, increasing our operational efficiencies by leveraging our IT investment and growing profits and limiting our CapEx to generate cash to pay down debt and strengthen our balance sheet. Early in the year our earnings will be lower and covenants will play a greater role in strategic decision making than in past years. I expect that EBITDA will increase throughout the year and get progressively better each quarter. Looking at cash flow in 2017 we should spend less than 4 million in CapEx including IT investments and that should get us 7 million to 8 million in free cash flow to repay our debt so we can work ourselves to a stronger balance sheet. And now I'm going to turn it back over to Chris with some information on the bank [Technical Difficulty].

[Christopher Downs:]

Thank you, Eric. One more imp update for everyone is to announce that this morning after the Form 10-K was filed the company executed documents to effect a second amendment to the credit agreement with JPMorgan Chase. This amendment will be filed on Form-8K in the next several days. It provides for improved required maximum leverage covenant levels under the original agreement the leverage covenant maximum level which is calculated as total indebtedness over trailing 12 months adjusted EBITDA was scheduled to step down from 2.7 times to 2.5 times at the end of March, at the end of this first quarter. This step down has now been pushed back to March 31, 2018 a year from now. With all subsequent step down also delayed by 12 months. It also eliminates prepayments from the definition of fixed charges which is the denominator in the fixed charge coverage covenant. This allows us to prepay our term loans at a faster rate than we would otherwise be able to. As any such prepayments of debt would previously have counted against us in the fixed charge coverage ratio and ultimately would have been limited by this covenant. To be clear the revised language still includes scheduled repayment of debt but now excludes prepayments of debt, our friends at Chase have remained very supportive of the company and management and will be handling of a very challenging Medicare billing transition. This amendment gives the company the room to continue adapting and responding to this new reality of lower reimbursement on Medicare patients. I would like to thank them on behalf of the company and also personal way for their continued support.

[Eric Steen:]

Thank you, Chris. And now I'd like to open up the phone line for any questions that you may have.

[Operator:]

[Operator Instructions]. Our first question comes from Andrew Walker from Rangeley Capital. Please go ahead.

[Andrew Walker:]

So just starting off, it was really helpful to get all the commentary on the free cash flow and kind of the pace of earnings looking at 2010 but I guess you know the first thing that pops into mind is last quarter on the call you guys I think there was guidance that was you know single digit growth for 2017 and you know kind of jumps out that there's no guidance in this press release in this call. I think you guys have pretty traditionally given guidance. So are you kind of backing away from the single digit growth guidance?

[Christopher Downs:]

I have not given a lot of guidance just because with a small company like look at the impact of the Medicare pricing from this year that things happened I guess I don’t have to worry about that more though. So we're still working through what we can do, how much we can harvest with our new systems, you know total impact I have not given guidance yet for 2017. I probably would like see another quarter come in before I really provide improved direction for everyone.

[Andrew Walker:]

And then again last quarter you guys mentioned there were some cost increases with five payers, I think was it was 5% to 20% and that you're working on some more. Can you kind of give some commentary on how your negotiations with commercial payers are going?

[Christopher Downs:]

Yes, all those ones I talked about last quarter happened and we continue to add our commercial payers and work through filling the value of our system for commercial payers and trying to take price increases where it make sense. Now there is not -- yet some point here those things we're working on. I think we've got 50 targeted for new increases for next year -- for 50 new contracts but at some point were certain that such a large all the major groups contracted -- we will eventually reach a diminishing value of return of these new contracts as we just start working smaller and smaller down the list but also with potential changes in healthcare going forward there's probably going to be all the new types of payers that emerge, that will continue to have contracting with. But as you know we do a 24 month work that look at our collections of these increases that we've got and we're really started focusing on this over the last year plus will start to become a bigger percentage of our lookback and should help our net revenue recognition rates going forward. And some of them decrease by the way that we have competitive Medicare will eventually work its way out of the revenue recognition rate.

[Andrew Walker:]

And then just kind of looking to the expense side, I think if I look at 2016 full year G&A is about 25 million, the press release mentioned you're cutting payroll by a million I think you guys have said that IT system upgrades kind of kick in this year and that's an extra 1 million in amortization but you get kind of double that in cost savings. So if I'm looking at full year kind of cash SG&A are we looking down 3 million to 4 million is that kind of the right number?

[Christopher Downs:]

I think I have specifically given the statements I made about the cost savings and the enhancement through the new system, the 2 million with the million little salary cuts over half of that I said we had over 1 million in salary reductions and then the IT amortization does kick in this year and so those savings more than offset the IT amortization I think that's what I've said publically so far.

[Andrew Walker:]

Okay. I might follow up on that with you guys and then you know I guess just turning to obviously you guys have been stressing capital allocation, debt reductions. I understand that you guys have -- there are covenants on the debt and it was helpful to get the information on the extension everything but if I look at the business you guys are forecasting 7 million to 8 million free cash flow this year you had $3 million in excess cash on the balance sheet I'm sure you're going to put that towards debt repayment and your debts kind of 3.75% interest rates right now. Does it really make the most sense to be putting all this debt towards interest paid down when your stocks kind of six to seven times EBITDA right now, like you would have to go get an amendment and maybe pay a higher interest rate but is this really optimal capital allocation?

[Eric Steen:]

It's a great question and there's a lot where everybody's got an opinion on it. I think for me being in the trenches every day when I first got here I think the company was in the high 50 million or something like it and it was so small, let's get out there and be somebody and gain share and dominate this market and expand in new market which we have done. The pain business I'm very excited about people say why you talk about this small thing because there is an opioid crisis in America today and if we can catch this thing the right way and become part of somebody's value based purchasing program because we can have a big impact on their total cost and I think it's a thing that can be well positioned for growth. So we know that's why I will continue to focus on the new things we are going to do to continue to expand and we have invested a lot in IT and lot of pumps and then we got hit this last year with an unexpected and I was in the middle of [indiscernible] CMS trying to get them to reimburse for pain pumps coming out of clinics right when this happened. So I had a front row seat of it and didn't see it coming and that's a big change and so I think it makes sense you know that small company, not that big of a managed team doing asset acquisition purchasers, buying pumps [ph] taking market share, getting a new business growing disposables, launching all these different software platforms for a small company, and integration [indiscernible] dashboard express, [indiscernible] dashboard, all the different programs we launched its time to just sort of take a breath, let's make sure we're really using the pumps we have and what you find is I have spent practically zero and Chris can give you the actual number its nothing on pumps, so far this year and what you find at all the model on the shelf the sales force didn’t thing was respectable, you squeeze it down a little bit and you start getting better utilization, it's a good time to do that and also maybe reshape our fleet a little bit, get rid of some older models, get into different things, kind of reshape things reposition and you know at some point when the timing is right, the best to settle we can go out and down more aggressive with capital again but I just think with the change we have had it would make sense to kind of take a breath and make sure we maximize what we have already invested in.

[Operator:]

Our next question comes from Doug Weiss from DSW Investment. Please go ahead.

[Doug Weiss:]

So a couple of financial questions, on [indiscernible] accounts or the allowances you have a $600,000 accrual and I take that it’s a one-time true up that's not really a recurring, its more of a kind of conservative what's the other model change as opposed to what we're really experiencing.

[Eric Steen:]

This is just real direct business, so this is -- there's no collection of insurance, this is just send an invoice and it's this much for treatment and but it's direct with all these clinics that we didn't have a relationship with before and so our 1700 locations I always talk about could be everything from a physician's office in a small rural town to the largest healthcare center in America and all points in between because we have such a big share of patients going home on especially chemotherapy directly from the clinic. So I think we're going to collect that money we've collected a lot of it and so just went back to July 1st, we started going direct 1700 clinics and I have to -- first over half pay, then over 2/3rds in pay and then the next thing I will give an update and 80% of pay or whatever it's going to be and we will collect it but the problem is we have no contracts and no POs and we have no relationship in that integrated health network with anybody who has the authority and new contracts on their behalf, we have relationships with outpatient clinics where we put our equipment on site at no charge to build insurance companies, so it was tremendous change, it was very confusing. When Medicare made the announcement most people didn't realize it and I decided that we needed to need to point of the spirit of this thing and go out and educate the market and be one of the first companies that took a compliant stance of no longer billing Medicare anything for these patients that come on out and doing it all is a direct to provider agreement. So the accrual you get a lot of accountants and our internal team and our committees and external auditors who look at it and say well you've got a large bad debt amount there and my answer is yes, these are super complex organizations, you have got to go back and forth with compliance departments and do -- BAA agreements and all this and hey the good news is we're doing it and we've got a large amount of them done and we've got contracts streaming through the system. I sent out a mass mailing in June letting people know that we were doing this direct pricing methodology and its interesting, I got an e-mail yesterday for a lady who is with one of our many large faith based organizations saying I'm responding to your letter of June and [indiscernible] how did they slip through the cracks of our system, I don't know maybe she got contacted by her clinic and now she is going back to this letter that was proof that we need a contract. I think sales reps say 99% of the people or 99.9% of the customers have agreed to pay in December -- we can't do business with them anymore, it's no longer -- would be illegal for InfuSystem to provide [indiscernible] to Medicare patients so we can't do that so we may have to start with a small amount of customers but for the other ones once you explain to the compliance department and the various departments what the situation is and all the documentation from Medicare and our communications to them they agree all we need a contract and then you get stuck in there cycle and we're pretty small fish for some of these big systems the invoices are hundreds of dollars and not hundreds of thousands of dollars. So pretty small fish for a lot of these big systems.

[Doug Weiss:]

So is the issue that well what percent of these accounts in question are contracted as of today you know approximately?

[Eric Steen:]

I would say as of today non-contracted would be 20%.

[Doug Weiss:]

Okay. So you've covered a lot of ground there.

[Eric Steen:]

Covered a ton of ground, a small department that never done lot of with all these big institutions and they have all got their own agreements and their own clauses and it’s a lot of work for our contract department to keep our people organized and of the 20% that are non-contracted some of our biggest customers -- its an 80

[Doug Weiss:]

So because I guess the challenge for investors is what's the number going to be next year or 2017 because it's kind of been all over for us this year and maybe that’s just a wait and see or I don't know I mean how would you think about the provision for 2017 for the whole year.

[Eric Steen:]

I believe that our bad debt for our Medicare treatment program will be as good if not better as a bad debt of our direct pay business because its both direct pay with I would say even more conservative, more big hospital customers, we have always pay their bills when they do service with somebody. Chris, would you remind -- FBI -- collection rate?

[Christopher Downs:]

Collection rate is around 99%.

[Eric Steen:]

Okay, so 99% in our FBI business which is a direct pay business with home infusion, I believe our collection rate will be close to that number. It has to be again it would -- really a compliance, a federal CMS compliance violation, its not, so it's got to be 99% or 100%. I just think that people who know how hard it is to contract with these complex integrated health networks where people they have no idea who InfuSystem, InfuSystem is a little niche player helping oncology clinics and doctors officers be super-efficient to send these patients home and they all had to educated, it just takes a lot time, so I think there is its especially bad, so there was $670,000 accrual.

[Doug Weiss:]

Just to nail it down a little further, is that going to improve sequential then so in other words it would look better. And I guess its going to be tough to see in the first quarter -- typically the first quarter is a bad quarter for doubtful accounts anyway, so I guess that just -- how much visibility -- we're basically at the end of the first quarter do you have fairly good visibility on the first quarter and can you talk to how it looks this quarter?

[Eric Steen:]

I don’t want to get in. I just want to put a wrap on 2016 and it was a lot of moving parts, the -- all the new customers and contracts in collecting that during the computer system, I really need to and then it’s a business, well it’s a quarterly business anyway, we get all these billings come in at the end of the quarter, it’s a tough thing to estimate. So I want to see how that’s going and we're -- I'm very confident. We took all these customers and people said no one will ever pay for this service. We could evaluate program together, custom contracts with all these integrated health networks. Year ago we couldn’t have gotten contracts with hospitals of this and the CMS change gave us a chance to do it and we're working through this complicated process which is going to be a great strategic advantage for us to now use these direct contracts as a distribution channel to do other things and so I would say I know that we were to very conservative on that accrual and on a one-time event and I think--

[Doug Weiss:]

Yes, I understand what you're saying, I mean you're basically saying the customers are good, their credit worthy -- there is just a timing lag in terms of those collections because you have to get everyone contracted, if I'm hearing you correctly.

[Eric Steen:]

Exactly. So we do have those part of the market that's not contracted. We still haven't collected on our July Medicare patient treatments and so people look at that and say that is -- you have got that debt that's been months, you got to collect that and each month more contracts go through the hopper, invoices coming in, the bar graph goes up as people pay now not only July but July and August and the other months usually when someone pays they are catching up over several months and so we continue to make good progress on it. Our sales reps are doing other things thankfully and just trying to collect payments but that's part of their life and internally for our legal and contracts group there's a lot of work back and forth every day working through the completion the compliance and legal perspectives of some of the health care systems in America.

[Doug Weiss:]

So I think if I could just sort of encapsulate of what I understand you to be saying is that it could be elevated for another quarter or two but as you get all these things in place it should -- your percent of revenue doubtful accounts as a percent of revenue should trend back towards those 2015 levels which if I'm correct we're in the mid-8s.

[Eric Steen:]

Yes, I would say this when you look back to 2015 30% of that Medicare business doubtful accounts are going to go from whatever they were before to over 99% collection rates.

[Doug Weiss:]

It's going to get better in other words?

[Eric Steen:]

Yes it's going to be better and we're going to and some of the rules of you know using one pump per patient and the information we have to collect in verifying beyond filing limits or [indiscernible] receive in CMS all that is the rare mirror and so when you look at it, I mean we did take a $5 million price decrease but now we're going to get our money more consistently quicker with less effort and part of our streamlining have been able to reduce annual salaries by over a $1 million, part of it was IT and part of it Medicare is easier to collect. So you got to reshape as the business changes.

[Doug Weiss:]

And so you've highlighted those payroll reductions, let me ask specifically, on G&A, so G&A had a large sequential bump rate, you were at 5.3 million last quarter and you are at 6.3 million this quarter. Now the 5.3 million was a lot better than the quarter before, so was that just an anomaly that the third quarter was so low or is there something that happened this quarter -- which is the outlier, is it the third quarter or is it this quarter? Do you know what I'm saying generally on administrative expense?

[Eric Steen:]

Third quarter is the outlier.

[Doug Weiss:]

The third quarter was unusually low.

[Eric Steen:]

Yes.

[Doug Weiss:]

Okay. Can you give any sort of full of -- any additional color on what's going on there?

[Eric Steen:]

There was a change in accrual and compensation program realizing what the tough things we had for the year, compensation levels, bonuses, commissions, those types of things realizing there were going to be some misses, a reverse accrual in the third quarter and made a one-time unusual decrease in HR compensation.

[Doug Weiss:]

So this quarter is more of realistic run rate on G&A, so then I guess the next question is there's some opportunity to cut on payroll and it looks like some of that’s already showing up this quarter. Are there other opportunities to cut next year either in or somewhere in that SG&A line.

[Eric Steen:]

Yes we will definitely looking at areas to spend less in 2017 and continue to gain leverage investments that we've made. We've done some things in marketing or promotion that maybe we can scale back on, its usually people and so we're going to press forward see take a good look at our first quarter results and we think we would be able to do more with less as a result of our IT systems and part of its going to be the rate that we're able to grow making best use of the people, software and pump fleet that we own and do that as efficiently as possible.

[Doug Weiss:]

And so I'm pleased to hear on the CapEx, the 4 million. Do you think that’s a sustainable long term number inclusive of IT spending?

[Eric Steen:]

It depends on how you want to run the business. You know there is strategically some things that you could do and way it operates, if your goal is to keep CapEx down and we're doing those things right now and I don't want to share all of them but you know there's ways to maximize your pump fleet and your flow and take advantage, you always have to take advantage of the profitable opportunities the marketplace offers you or you are going to let somebody else exploit that opportunity and it's going to hurt you long term. So there is ways to do it and if you want to be aggressive and go faster there is ways to pump money in it and right now there's been some big reimbursement changes in home infusion, I think it's a good time to have all the [indiscernible] we have built, with the investment we have made and then re-evaluate. I've got a lot of expectations for our IT systems allowing us to process new treatments and really harvest the most from our -- now we've got a payer contracts and we've got the clinics and we have got a software to harvest the billings that those relationships provide us and that’s what we're going to do for short term.

[Doug Weiss:]

And by the way I sort of agree with you on that but I think that is crept up and EBITDA has come down and your leverage ratios have crept up and I definitely support the direction you're going there. So I guess directly related to that if you look at the cash flow the last couple of years, both this year and last year you had --- it had pretty large pay downs of accounts payable, is that going to -- no longer going to be a drag on cash for 2017?

[Christopher Downs:]

As what you see on the balance as of the end of the year it's probably a good go forward number which is down from previous periods primarily because we're not spending so much on pumps so we don’t have these large pump purchases sitting at the end of the quarter.

[Doug Weiss:]

Can I ask one more question which is -- you made a passing comment or a comment regarding EBITDA and I heard where you said EBITDA will sequentially improve through the year but what was the first thing you said about EBITDA, was it in relation to the bad debt or what was the initial comment there?

[Eric Steen:]

Progressive sequential throughout the year, that's what I remember saying. I'm just looking at my note here, increase throughout the year and get progressively better each quarter.

[Doug Weiss:]

Okay. But you didn’t give any sort of -- all right so that was kind of it, you didn’t sort of give any guidance in terms of relative to 2017 or--

[Eric Steen:]

Yes I said 2017, kind of back into it, I said 7 to 8 minimum of free cash, because I said that publically I feel that’s sort of the worst case where you can kind of back into it from them. I remember, I've said this before as soon as I -- I am glad our investors feel comfortable calling me and asking questions to clarify things and I know one thing I've said on some of these calls is I remember when I trying to get to 5 million EBITDA a quarter, and we got to 5 million a quarter but then since then you say well you've the impact of the price cut, 5 million a year so that’s 1 million to 2 million a quarter, we have got some restatement things in there. You know still I think and when you look at this quarter and then dong -- we have 400,000 in June for restatement so add that back in you know and then when I think we're going to be able to -- our market share numbers are going well and I do feel we're going to get better with this express system and be able to get more treatments and squeeze some more out of that and I think having to do the computer rollout while we were doing all this contracting it was a lot for our sales team and I think that's going to get better and I think we're going to see more -- and when we go beyond filing on this treatment, you have all the cost to the pumping, you're using the supplies and so you can capture those things and just give up rights to the bottom one. So I'm looking forward to seeing in the New Year and what our investments will bring us.

[Operator:]

[Operator Instructions]. We have no further questions at this time.

[Eric Steen:]

Okay. Thank you very much.

[Operator:]

Thank you and thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.