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Edited Transcript of INFU earnings conference call or presentation 14-May-19 1:00pm GMT

Q1 2019 InfuSystem Holdings Inc Earnings Call

MADISON HEIGHTS May 29, 2019 (Thomson StreetEvents) -- Edited Transcript of InfuSystem Holdings Inc earnings conference call or presentation Tuesday, May 14, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory Schulte

InfuSystem Holdings Inc. - Executive VP & CFO

* Richard A. DiIorio

InfuSystem Holdings Inc. - President, CEO & Director

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Conference Call Participants

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* Douglas Weiss

* Joe L. Dorame

Lytham Partners, LLC - Managing Partner

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Presentation

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Operator [1]

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Good morning, everyone, and welcome to the InfuSystem Holdings Inc. reports first quarter 2019 financial results conference call. (Operator Instructions) Please also note, today's event is being recorded.

At this time, I would like to turn the conference call over to Mr. Joe Dorame, Managing Partner. Please go ahead.

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Joe L. Dorame, Lytham Partners, LLC - Managing Partner [2]

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Thank you, Jamie. Good morning, and thank you for joining us today to review the financial results of InfuSystem Holdings Inc. for the first quarter of 2019, which ended on March 31, 2019. With us today on the call representing the company are Rich DiIorio, President and Chief Executive Officer; and Greg Schulte, Chief Financial Officer.

After the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session. If anyone participating on today's call does not have a full text copy of the press release, you can retrieve it from the company's website at www.infusystem.com or numerous other financial websites.

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 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 United States Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2018.

Forward-looking statements speak only as of the date the statements were made. The company can give no assurance that such forward-looking statements will prove to be correct. InfuSystem does not undertake and specifically disclaims any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Now I'd like to turn the call over to Mr. Rich DiIorio, President and Chief Executive Officer of InfuSystem. Rich?

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Richard A. DiIorio, InfuSystem Holdings Inc. - President, CEO & Director [3]

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Hey, Joe. How are you doing?

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Joe L. Dorame, Lytham Partners, LLC - Managing Partner [4]

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Good.

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Richard A. DiIorio, InfuSystem Holdings Inc. - President, CEO & Director [5]

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Did you drop off or are we dropped off?

(technical difficulty)

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Operator [6]

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Pardon me, this is the conference operator. We are experiencing technical difficulties. We do ask that you please remain patient. We should have the speaker line back for you momentarily.

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Richard A. DiIorio, InfuSystem Holdings Inc. - President, CEO & Director [7]

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Jamie, it's Rich DiIorio. We're back.

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Operator [8]

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Mr. DiIorio, you are currently connected. Mr. Dorame has read through his statements, so you can begin whenever you're ready.

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Richard A. DiIorio, InfuSystem Holdings Inc. - President, CEO & Director [9]

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Thanks, Jamie, and thanks, Joe. And good morning, everybody and thank you for joining the InfuSystem First Quarter 2019 Earnings Call.

Before I begin, I'd like to thank the phenomenal team at InfuSystem for their hard work. We've been running at full speed for almost 2 years, first to reorient the company around efficiencies in cost savings, which lead us to the 48% increase in operating cash flows during the fiscal year of 2018. And now we prepare for the growth that we believe lies ahead for the company. Our plan to take advantage of this opportunity and gain market share in oncology is going exactly as planned. As I mentioned on the last call, our largest remaining competitor is in the process of changing its entire business model and this is creating an exciting opportunity for us. But before getting more into that, I'd like to go over a few highlights and then turn it over to Greg Schulte, our CFO, for a review of the Q1 results.

First, I'm pleased to report the growth we talked about last quarter has begun rolling in. In the first quarter, we had revenue growth of 10.4%, which was a result in market share gains from both the elastomeric pumps in oncology as well as growth in our InfuBLOCK pain service and increased product sales.

Second, I'm proud of the efforts of our sales team, as the 10.4% growth in the quarter is a testament to their hard work. The great news is that we're still early in the process of winning significant market share in oncology, and that impact specifically is yet to be seen.

I'll speak more about our progress in oncology, but first, Greg will review the first quarter financials. Greg?

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Gregory Schulte, InfuSystem Holdings Inc. - Executive VP & CFO [10]

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Thank you, Rich. I'm very pleased to report on the highlights of our first quarter 2019 financial performance. As Rich mentioned, net revenues for the quarter ended May -- March 31, 2019 were $18.2 million, an increase of $1.7 million or 10.4% from the same prior year period.

Our cash flows from operating activities were $1.3 million for the quarter ended March 31, 2019, up $0.2 million or 20.5% from the same period in 2018.

Improved working capital net outflows of $1.3 million, primarily due to the positive impact of vendor management on accounts payable, partially offset by net accounts receivable outflows due to our growth, while partially offset by unfavorable profitability after adjustments to net income primarily attributable to the expenses related to our growth that Rich previously mentioned are the primary causes for the increased operating activities. These improved cash flows have allowed us to use our cash on hand to invest in purchase of pumps to support our current and future revenue growth without taking on any additional debt in the first quarter.

Net loss for the quarter ended March 31, 2019 was $1 million versus net income of $0.2 million for the quarter ended March 31, 2018. Adjusted EBITDA and non-GAAP financial measure for the quarter ended March 31, 2019 was $3.1 million, a decrease of 12.5% from the same prior year period and representing 17.1% and 21.6% of net revenues, respectively.

In February, we also completed the Fifth Amendment to our credit agreement with JPMorgan Chase, which will allow us to finance our expected growth primarily through internal cash and give us flexibility we need to respond quickly to opportunities in the marketplace.

I'll now turn the call back to Rich.

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Richard A. DiIorio, InfuSystem Holdings Inc. - President, CEO & Director [11]

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Thanks, Greg. Now I'd like to give everybody an update on the growth opportunity in front of us in the oncology market. Our largest competitor is changing its model in oncology, which is creating a significant opportunity for us. As I mentioned, although we are still early in the process of [converting] customers, the process is going exactly according to plan. With material new business expected, we have begun investing in our team, our operations and our pump fleet as we begin to scale to meet that demand.

These investments will negatively affect profitability in the short term as seen in the first quarter. The additional revenue from the market share gains is expected to start hitting the income statement in the second half of 2019 and carry into 2020.

Over the long term, the incremental business we are winning now will drive higher profitability, higher cash flow and substantial value creation for our shareholders. The nature of our business makes it difficult to predict the quarter-to-quarter impact of this new business. The timing of customer commitments and services in our revenue cycle all impact the phasing of revenue when we add new customers. However, our initial analysis shows the long-term impact is likely to increase InfuSystem revenue to approximately $80 million annually and to improve EBITDA to around $20 million in 2020. Although these are just preliminary numbers, we feel the upside in 2020 is significant. And we will continue to refine our targets as we move further along in the process and we finalize our 2020 plan for the year.

With that being said, I'm happy to answer any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Douglas Weiss from DSW Investment.

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Douglas Weiss, [2]

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Congrats on the continued progress on revenue. I wondered if you could give a little more detail on the cadence of the operating investments. To what extent are those already reflected in the operating expense? And how do you sort of see that flowing through the year?

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Gregory Schulte, InfuSystem Holdings Inc. - Executive VP & CFO [3]

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Yes. Doug, this is Greg. We -- so for the first quarter and the second quarter, as we're continuing to onboard this growth, we expect operating expenses to be on ahead of revenues. Second half of the year, we expect to get the benefit of the operating expenses plus the incremental revenue. So we expect through the first half of the year for the operating expenses to stay out ahead of the revenues.

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Douglas Weiss, [4]

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So you -- I guess you're saying you see a little -- you see some sequential growth in operating expense next quarter?

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Gregory Schulte, InfuSystem Holdings Inc. - Executive VP & CFO [5]

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Probably, reasonably, not much more than this quarter. But revenue traction we expect to be able to pick up as far into Q2, which would be great.

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Douglas Weiss, [6]

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And is that mostly going into the G&A line? Or is it dispersed among the different...

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Gregory Schulte, InfuSystem Holdings Inc. - Executive VP & CFO [7]

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There is -- most of the increase is in the G&A line. We have seen a small increase this quarter in selling just due to the timing of expenses, but most of the increase has been in the G&A line. And also in the cost line, we'll see increases in our supply cost, which -- because we need to ship supplies ahead of the revenues, the supply costs kind of get ahead of the margins as well.

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Douglas Weiss, [8]

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Is it mostly additional employees to serve -- to meet with medical providers?

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Gregory Schulte, InfuSystem Holdings Inc. - Executive VP & CFO [9]

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Yes, we've increased -- we haven't got a final number yet, but we're planning on an increase of about 20, 25 employees to support the increased revenues.

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Douglas Weiss, [10]

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Over the course of year?

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Gregory Schulte, InfuSystem Holdings Inc. - Executive VP & CFO [11]

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Yes, exactly. Yes.

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Douglas Weiss, [12]

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Okay. Do you -- are you still maintaining the general EBITDA guidance you gave for 2019?

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Gregory Schulte, InfuSystem Holdings Inc. - Executive VP & CFO [13]

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Yes. 2019, we expect the guidance to be somewhat -- we expect a little more revenue. But we -- EBITDA will be in the range we've given because it'll take a little longer to get the EBITDA traction above the increased costs.

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Douglas Weiss, [14]

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Okay. And then you didn't break out the sales and rental numbers. Is it possible to say what those were?

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Gregory Schulte, InfuSystem Holdings Inc. - Executive VP & CFO [15]

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Sure. Yes, the -- we just -- for presentation purposes we wanted to condense a little more this quarter. But the rental business grew from $14.4 million last year to $15.1 million this year or 4.5%. And pumps and other product sales grew from $2.1 million to $3.1 million, 52% increase.

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Douglas Weiss, [16]

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Okay. Last question. Do you guys have a way of tracking your churn? And could you talk a little bit about -- it seems like the environment from a year or 2 ago when there was pretty aggressive competition from disposable pumps has become a little more benign, but could you -- I don't know if you have some -- any actual numbers on that, if you track that, or it's not -- can you just talk about it qualitatively?

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Richard A. DiIorio, InfuSystem Holdings Inc. - President, CEO & Director [17]

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Yes. So Doug, you're right. So our last numerics were pretty aggressive for a year or 2. That has effectively died down. As we mentioned over the last couple of quarters, the biggest manufacturer is still on hold in the U.S. So that's died down quite a bit. And obviously with our single biggest competitor changing their model the way that they are, we -- I don't watch the numbers, but I bet you we're at almost 100% retention from a customer standpoint.

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Operator [18]

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(Operator Instructions) And ladies and gentlemen, at this time, in showing no additional questions, I'd like to turn the conference call back over to management for any closing remarks.

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Richard A. DiIorio, InfuSystem Holdings Inc. - President, CEO & Director [19]

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Thanks, Jamie. I'd like to thank everyone for joining our call today. This is an exciting time for InfuSystem, and we're looking forward to future calls and sharing our progress. Have a great day.

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Operator [20]

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Ladies and gentlemen, that does conclude today's conference call. We do thank you for joining today's presentation. You may now disconnect your lines.