InfuSystem Holdings, Inc. (AMEX:INFU) Q4 2024 Earnings Call Transcript

InfuSystem Holdings, Inc. (AMEX:INFU) Q4 2024 Earnings Call Transcript March 4, 2025

InfuSystem Holdings, Inc. misses on earnings expectations. Reported EPS is $0.04 EPS, expectations were $0.08.

Operator: Good day, and welcome to the InfuSystem Holdings, Inc. Reports fourth quarter and full year 2024 financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. To withdraw your question, please press star then two. 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.

Joe Dorame: Good morning, and thank you for joining us today to review InfuSystem Holdings, Inc.’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 prepared remarks, I would like to remind everyone that certain statements made by the management team of InfuSystem Holdings, Inc. 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 Holdings, Inc. does not undertake and specifically disclaims any obligation to update any forward-looking statements except as required by law. Now I would like to turn the call over to Rich DiIorio, Chief Executive Officer of InfuSystem Holdings, Inc.

Rich DiIorio: Thank you, Joe, and good morning, everyone. Welcome to InfuSystem Holdings, Inc.’s fourth quarter and fiscal 2024 year-end earnings call. Thank you all for joining us today. I will 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 Chemo Mouthpiece, and then I will 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 progressed 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%. For the full year, it 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. Now, revenue growth in 2024 also built up as we worked 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%, and equipment sales by 20.6%, driven by a large one-time transaction in the third quarter. 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 aligns 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 and Nephew negative pressure partnership, which continues to scale up as expected. As we have highlighted in the past, our core businesses, specifically in oncology and pump, require 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.

Barry Steele: 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 will stop here and turn the call over to Barry to discuss our financial results in more detail. Barry?

Barry Steele: Thank you, Rich. Thank you, everyone on the call for joining us today. I am going to focus on three topics, including the main drivers for the current quarter’s results. I will then talk about the high tax rate we show for the quarter, and finally, I will 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 high-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, 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 amount 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 cannot 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 non-cash 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 of non-cash expenses and a reduction in our working capital levels as compared to the prior year when our working capital 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 up $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 continue 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 with the growing cash flow from operations backed by significant liquidity reserves available from a 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 $23.3 million. This despite having spent nearly $1.2 million during the year under our stock repurchase plan. Our available liquidity continues to be strong, totaling more than $51 million as of December 31, 2024. Our ratio of total debt to adjusted EBITDA is 0.92 times. Our debt consists of borrowing 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 will turn it over to Carrie.

Carrie Lachance: Thanks, Barry. I would like to provide an update on Chemo Mouthpiece. You will recall that in September, SI Healthcare Technologies, our joint venture with Senara MedTech, signed an exclusive distribution agreement for Chemo Mouthpiece. 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. Senara helps identify the opportunity, and InfuSystem Holdings, Inc., 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 distributions for our existing oncology sales force, aided by additional sales personnel from other parts of our business.

We have made broad initial contact with our customers to educate them 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 and momentum build. We are working with our partners at Chemo Mouthpiece 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 is still unknown, but we do believe once providers understand the health benefits, Chemo Mouthpiece will see broad adoption, and oral cryotherapy utilizing the product will become common for cancer patients receiving chemotherapy.

Now I will turn it back to Rich.

Rich DiIorio: 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 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 programs with Smith and Nephew, the new wound care initiatives, and increased Chemo Mouthpiece adoption. Operator, we are ready for the Q&A portion of the call.

Q&A Session

Operator: To ask a question, you may press star then one. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed, you may remove yourself from the queue by pressing star then two. The first question today comes from Brooks O’Neil with Lake Street Capital Markets. Please go ahead.

Aaron Warwick: Hey. Good morning, guys. This is Aaron on the line for Brooks. Are you able to hear me okay?

Rich DiIorio: Loud and clear. Good morning.

Aaron Warwick: Good morning. Thanks for taking our question. So, you know, you expect Advanced Wound Care products should continue to grow in 2025 and beyond. You know, as we understand that, that should be a good amount of the growth this year. Can you just give us some additional color on what you are seeing in both wound care and biomed? You know, you called out some specifics in your prepared remarks, but, you know, we just see both seem ripe with opportunity. I am just kind of curious about the traction you are getting with potential new customers in both those areas, realizing those are less capital-intensive for the company.

Rich DiIorio: Sure. So I think the good news in 2025, similar to what we saw in 2024, is we are going to grow probably in all of our business lines. Aaron, you are definitely right. 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 are plenty of DME partners that are coming to us and need help with referrals. That is what I mentioned about the end of last year. We saw a lot of that coming to us. We want to make sure we had our systems and processes and people in place so we can scale it in 2025. And on the biomed side, you know, obviously, we have GE. They have given us a couple of smaller opportunities that we have continued to add.

We added Dignitana at the end of the year, so that should roll out this year. And then there are 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, and then we will see what Chemo Mouthpiece can do this year. But those are definitely contributors. And all three of those are very, very light from a capital cost standpoint.

Aaron Warwick: Understood. Yeah. That is helpful. And then maybe just piggybacking off of what you just said on Chemo Mouthpiece. I am curious about any feedback that you received from oncology centers and/or patients. You know, I know Carrie called out we should be able to look out for those papers, but, you know, obviously, we all know there is no real competition out there. Are you just beginning to see a real emerging from that, and do you think that will be a material contributor here this year? Thanks, guys.

Rich DiIorio: Yeah. So we are definitely seeing momentum building for sure. You know, the sales cycle will start to pop in the next few months. We will 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. Then when the clinical trials come out and those get published, that will definitely have a big impact in the market.

There are a lot of physicians that just will not write it until they see that. So yeah, we are very happy with where Chemo Mouthpiece 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 is the case.

Aaron Warwick: Absolutely. Yeah. I totally agree with you that. That is a pretty big opportunity for you guys. So appreciate you taking the questions. I will hop back in queue.

Operator: Thanks, Aaron. The next question comes from Matt Hewitt with Craig-Hallum Capital Group. Please go ahead.

Matt Hewitt: Good morning. 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 are improving that process and kind of where you are in that? Is it something where you are 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?

Rich DiIorio: I think we will see it ramp throughout the year for sure. We should see some benefit in Q1. But really what it is, Matt, when we are 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 at the right time, that we are compliant, and it comes in a form that we can then process it into our system. Depending on the partner, some partners, it is going to come in really clean early, and it is 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 are working through those.

The good news is both sides kind of want to be successful and want to help the patients out. So we will get through there. We will see some impact in Q1, but as we go through the year, it will get better and better. But that will be a it is not a one-time thing. It is a continual quarter, quarter from it and build throughout the year and, you know, hopefully for years to come.

Matt Hewitt: That is great. And then maybe a separate question regarding Chemo Mouthpiece. Thank you for the update there. Obviously, a nice potential driver. As we look at that, if I am 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 am wrong, but anticipate a nice lift in gross margins as you see broader adoption of that platform. Thank you.

Barry Steele: That is 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.

Rich DiIorio: And it will be accretive to our overall EBITDA margin.

Barry Steele: Nicely accretive to our EBITDA margin.

Matt Hewitt: Oh, okay. Thank you for the clarification. Thank you.

Operator: The next question comes from Kyle Bauser with B. Riley Securities. Please go ahead.

Kyle Bauser: Hi. Good morning. Thanks for taking my question. So I am just following up on Chemo Mouthpiece and Dignitana. Can you just give us a sense of 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, you know, what a sales number would be at scale.

Rich DiIorio: Sure. So Dignitana is in the hundreds of thousands of dollars. It is 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. Our on-site team or not our on-site team, our regional technician team. Hopefully, it is 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. Chemo Mouthpiece is a totally different product line. Chemo Mouthpiece’s addressable market is in the hundreds of millions.

I think it is around five or six hundred million if you got kind of wide adoption. I do not expect it to be that big necessarily, but that is the market. The fact is it is a product that, you know, right now when it comes to oral mucositis, there is no real product that helps reduce incidence and severity of it. And the standard of care today is ice chips. If you have ever been in a cancer center and the patient has ice in their mouth, that is why they are doing it. They are trying to cool their mouth down and shut down the uptake of the chemo in their oral cavity. So it is certainly an unmet need. There is really no product like it. The reimbursement certainly helps. We will see how the reimbursement adoption happens over the next year or so.

But between reimbursement for the hospital, an unmet need for the patient, you know, it could be a revenue generator depending on reimbursement for the hospital. The opportunity is huge. We do not, you know, we have to wait for the studies to come out, which will be a big lift for us. But right now, what we have 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 is why we are seeing that excitement. Everything from small private practices to huge hospital and teaching institutions are excited about it. So we have to watch how the sales cycle plays out over the next few months, but we will know a lot pretty soon as the sales cycle starts to hit.

Kyle Bauser: Got it. And I appreciate that. That is 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 what are the key factors that will be big contributors to the earning 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. Thank you.

Barry Steele: Yeah. So I think it is the continued efficiencies and improvement in the biomed. We have seen some improvements we are getting back. We expect more for next year. So just continuing to hone that additional new business that we have until it is something that is much better than it has been. Adding things like Dignitana help leveraging that team and covering fixed costs, and then it is just the growth in the other areas. As we just mentioned, Chemo Mouthpiece is accretive to EBITDA margins. We had some unusual expenses last year that 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, we will be better than the prior year in terms of profitability.

Rich DiIorio: Yeah. What is nice to see is if you know, if you kind of put that to the side because it is 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 are there.

Kyle Bauser: That is great. Excellent. Super helpful. Thanks so much. I will jump back in queue.

Operator: Thanks, Kyle. The next question comes from Jim Sidoti with Sidoti and Co. Please go ahead.

Jim Sidoti: Hi. Good morning. Thanks for taking the questions. You know, the oncology piece business, your biggest business, is up mid-single digits again in the quarter, which, you know, 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 at that mid-single-digit level?

Rich DiIorio: Yeah. Good morning, Jim. I think that is a good question. It has beaten our expectations the last couple of years. I think it has grown in two ways. Number one, our team has done a good job just adding volume, new customers, 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 has been the case for the last few years. They have been improving that. So it is a combination of those two things. I would love to see every year be 6% to 8% like it has been the last couple of years. I do not know how much more we can squeeze out of the revenue cycle side. I think we are getting about as good as we can get. We are going to continue to add volume. So, low to mid-single digits is probably a good place to be. Do not expect it to be more than 6% this year. But it should not be less than 3% or 4% either. So it is probably in that range.

Jim Sidoti: Okay. Alright. And the $2.5 million you are spending on the ERP upgrade, I think you said that should be done by the end of this year. So by 2026, you think those costs are much lower?

Rich DiIorio: Yeah. I think the cost in 2026 should be lower. This year, we will have it ready to go, and then it is more of a timing of when do we implement and do the cutover from our existing system to the new system. And that will be early next year. We have to make sure it does not interact and interrupt the closing of the year for 2025. So most of the cost will be in this year for sure.

Jim Sidoti: Alright. And then, you know, 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 will start paying cash taxes?

Barry Steele: Yeah. So after this year, we are down to around $20 million in NOLs remaining. But we do have some other timing differences that we will be able to take some deductions for bad debts, for example. We have not 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 will be a cash taxpayer. However, we will probably be improving our pre-tax income, and so it will go a little faster than that.

Jim Sidoti: Okay. Alright. Thank you.

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

Rich DiIorio: Thank you, Betsy. I want to thank everyone for participating in today’s call, and we look forward to our next call to discuss our first quarter results. Thank you, and have a great day.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.