ROCHESTER HILLS, Michigan—InfuSystem Holdings, Inc., a leading national health care service provider, facilitating outpatient care for durable medical equipment (DME) manufacturers and health care providers, reported its financial results for the second quarter ended June 30, 2023.
2023 Second Quarter Overview:
- Net revenues totaled $31.7 million, an increase of 17% vs. prior year.
- Patient Services (formerly Integrated Therapy Services ("ITS")) net revenue was $19.3 million, an increase of 12% vs. prior year.
- Device Solutions (formerly Durable Medical Equipment Services ("DME Services")) net revenue was $12.4 million, an increase of 27% vs. prior year.
- Gross profit was $16.4 million, an increase of 10% vs. prior year.
- Gross margin was 51.8%, a decrease of 3.3% vs. prior year.
- Patient Services gross margin was 61.3%, an increase of 2.7% vs. prior year.
- Device Solutions gross margin was 37.0%, a decrease of 11.8% vs. prior year, up 2.5% sequentially.
- Net income increased $0.6 million to $0.4 million, or $0.02 per diluted share vs. prior year net loss of $0.2 million, or $(0.01) per diluted share.
- Adjusted earnings before interest, income taxes, depreciation, and amortization (“Adjusted EBITDA”) (non-GAAP) was $5.8 million, an increase of 4% vs. prior year, up 36% sequentially.
- Updating Net Revenue and Adjusted EBITDA guidance.
Management Discussion
“I am extremely pleased with the results of the second quarter, which reflect the sixth consecutive quarter with record revenues," said Richard DiIorio, chief executive officer of InfuSystem. "We continue to demonstrate positive momentum against our plan by delivering solid revenue growth of 17% for the second quarter. The strength of our core businesses coupled with the execution of our long-term growth strategy in biomedical services and wound care, drove double-digit growth for both Patient Services (formerly ITS), with revenue up 12%, and Device Solutions (formerly DME Services), with revenue up 27%. Our current progress is a direct result of our team’s hard work and commitment to providing high-level service and solutions to our patients and providers.
“Additionally, with a focus on operational improvements, we had sizable gains in profitability with Adjusted EBITDA margins up 4.2% sequentially," Dilorio said. "We believe that we are having substantial success in terms of executing our plan to deliver sustainable top-line growth and improved profitability. Given our positive momentum, we now believe our current year revenue growth to exceed the top end of our previous range of 8% to 10%, and Adjusted EBITDA margin to be between 17% and 18% for the year. Our unwavering commitment to help people live healthier and longer lives provides the foundation to deliver meaningful growth and drive shareholder value for our loyal shareholders in the years to come."
2023 Second Quarter Financial Review
Net revenues for the quarter ended June 30, 2023 were $31.7 million, an increase of $4.7 million, or 17.4%, compared to $27.0 million for the quarter ended June 30, 2022. The increase included higher net revenues for both the Patient Services and Device Solutions segments.
Patient Services net revenue of $19.3 million increased $2.1 million, or 12.0%, during the second quarter of 2023 as compared to the prior year period. This increase was primarily attributable to additional treatment volume in Oncology, revenue from sales-type leases of NPWT pumps, improved third-party payer collections on billings and higher prices. Net revenue in Oncology represented the largest increase totaling $0.9 million, or 5.8%, compared to the same prior year period. This was followed by an increase in revenue for Wound Care which increased by $1.2 million, or 443%, compared to the same prior year period, mainly due to an increase in sales of equipment on sales-type leases, partially offset by lower treatment volumes.
Device Solutions net revenue of $12.4 million (exclusive of inter-segment revenues) increased $2.6 million, or 26.7%, during the second quarter of 2023 as compared to the prior year period. This increase included higher biomedical services revenue which increased by $2.5 million, or 163%. The biomedical services revenue included initial amounts of revenue from a new master services agreement with a leading global healthcare technology and diagnostic company that was launched in April 2022.
Gross profit of $16.4 million for the second quarter of 2023 increased by $1.5 million, or 10.3%, from $14.9 million for the second quarter of 2022. The increase was driven by the increase in net revenue and was partially offset by a lower gross profit percentage of net revenue ("gross margin"). Gross margin was 51.8% during the second quarter of 2023 as compared to 55.1% during the prior year, a decrease of 3.3%. Gross profit and gross margin increased in the Patient Services segment but were both lower in the Device Solutions segment.
Patient Services gross profit was $11.8 million during the second quarter of 2023, representing an increase of $1.7 million compared to the prior year. The increase reflected the higher net revenues and a higher gross margin, which increased from the prior year by 2.7% to 61.3%. The increase in the gross margin reflected lower pump disposal expenses, improved third-party payer collections on billings and improved coverage of fixed costs from the higher net revenue. These improvements were partially offset by an unfavorable product mix favoring lower-margin revenues. Pump disposal expenses, which include retirements of damaged pumps and reserves for missing pumps, decreased by $0.7 million during the second quarter of 2023 as compared to the prior year period which included an unusually high adjustment related to an updated estimate of the volume of pumps considered missing based on pump return data and physical inventories. The unfavorable gross margin mix was mainly related to the increase in revenue related to NPWT equipment leases which have a lower average gross margin than other Patient Services revenue categories.
Device Solutions gross profit during the second quarter of 2023 was $4.6 million, representing a decrease of $0.2 million, or 4.0%, compared to the prior year period. This decrease was due to a decrease in the gross margin partially offset by higher net revenues. The Device Solutions gross margin was 37.0% during the current quarter, which was 11.8% lower than the prior year. This decrease was due to an increase in labor costs related to an increase in the number of biomedical technicians and other expenses associated with the rapid onboarding of the new master services agreement. Some of the additional labor costs include training activities and other labor expenses associated with building a larger team in order to have the capacity required to support higher planned revenue volume. Over time, higher revenue levels are expected to absorb a portion of the increased labor costs and result in an improved gross margin. Other increased expenses associated with the onboarding ramp, which include increased travel expenses and employee acquisition costs, are expected to decrease in the future. We currently estimate that the additional expenses incurred during the second quarter of 2023 that will either be absorbed or reduced totaled approximately $0.9 million.
Selling and marketing expenses were $3.0 million for the second quarter of 2023, representing a decrease of $0.1 million, or 3.2%, compared to the prior year period. Selling and marketing expenses as a percentage of net revenues decreased to 9.4% compared to the prior year period at 11.4%. This decrease reflected a reduction in sales team members and improved coverage of fixed costs from the higher net revenue. The selling and marketing expenses during these periods consisted of sales personnel salaries, commissions and associated fringe benefit and payroll-related items, marketing, travel and entertainment and other miscellaneous expenses.
General and administrative (“G&A”) expenses for the second quarter of 2023 were $12.0 million, an increase of 9.9% from $10.9 million for the second quarter of 2022. The increase of $1.1 million was due to a higher short-term incentive bonus accrued expense totaling $0.5 million and increased expenses totaling $0.7 million associated with revenue volume growth which included the cost of additional personnel, information technology and general business expenses including inflationary increases. These amounts were partially offset by lower stock-based compensation expense of $0.1 million. G&A expenses as a percentage of net revenues for the second quarter of 2023, decreased to 37.9% compared to 40.5% for the prior year mainly reflecting improved net revenue leverage over fixed costs.
Net income for the second quarter of 2023 was $0.4 million, or $0.02 per diluted share, compared to a net loss of $0.2 million, or $(0.01) per diluted share for the second quarter of 2022.
Adjusted EBITDA, a non-GAAP measure, for the second quarter of 2023 was $5.8 million, or 18.2% of net revenue, and increased by $0.2 million, or 4.3%, compared to Adjusted EBITDA for the same prior year quarter of $5.5 million, or 20.4% of prior period net revenue.
Balance sheet, cash flows and liquidity
During the six-month period ended June 30, 2023, operating cash flow decreased to $2.3 million, a $7.2 million or 76% decrease over operating cash flow during the same prior year six-month period. The decrease reflected lower operating margins during the year, resulting from the additional biomedical labor expenses and higher working capital levels. Capital expenditures during the first half of 2023 included purchases of medical devices totaling $7.0 million which was $0.3 million, or 5%, higher than the amount purchased during the same prior year period.
On April 26, 2023, the Company amended the 2021 Credit Agreement which features a $75 million revolving line of credit, does not include any term indebtedness, and, as amended, matures on April 26, 2028. On May 11, 2023, the Company entered into a rate swap agreement to fix the amount of interest expense for $20 million of the outstanding borrowings under the loans with a termination date matching the new credit agreement maturity date. Two interest rate swaps existing prior to the amendment date were settled. As of June 30, 2023, available liquidity for the Company totaled $38.2 million and consisted of $38.1 million in available borrowing capacity under the revolving line of credit plus cash and cash equivalents of $0.1 million. Net debt, a non-GAAP measure (calculated as total debt of $36.1 million less cash and cash equivalents of $0.1 million) as of June 30, 2023 was $36.0 million representing an increase of $3.0 million as compared to net debt of $33.0 million as of December 31, 2022 (calculated as total debt of $33.2 million less cash and cash equivalents of $0.2 million). Our ratio of Adjusted EBITDA to net debt (non-GAAP) for the last four quarters was 1.56 to 1.00 (calculated as net debt of $36.0 million divided by Adjusted EBITDA of $21.8 million).
Full Year 2023 Guidance
InfuSystem is providing updated annual guidance for the full year 2023 with net revenue growth estimated to be above the previously stated range of 8% to 10% and Adjusted EBITDA margin (non-GAAP) to be between 17% and 18% for the year.
The full year 2023 guidance reflects management’s current expectation for operational performance, given the current market conditions. This includes our best estimate of revenue and Adjusted EBITDA. The Company and its businesses are subject to certain risks, including those risk factors discussed in our most recent annual report on Form 10-K for the year ended December 31, 2022, filed on March 16, 2023. The financial guidance is subject to risks and uncertainties applicable to all forward-looking statements as described elsewhere in this press release.
Conference Call
The Company will conduct a conference call for all interested investors on Thursday, August 3, 2023, at 9:00 a.m. Eastern Time to discuss its second quarter 2023 financial results. The call will include discussion of Company developments, forward-looking statements and other material information about business and financial matters.
To participate in this call, please dial (833) 366-1127 or (412) 902-6773, or listen via a live webcast, which is available in the Investors section of the Company’s website at ir.infusystem.com. A replay of the call will be available by visiting ir.infusystem.com for the next 90 days or by calling (877) 344-7529 or (412) 317-0088, replay access code 9921883, through August 10, 2023.
Non-GAAP Measures
This press release contains information prepared in conformity with GAAP as well as non-GAAP financial information. Non-GAAP financial measures presented in this press release include EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, net debt and Adjusted EBITDA to net debt ratio. The Company believes that the non-GAAP financial measures presented in this press release provide useful information to the Company’s management, investors and other interested parties about the Company’s operating performance because they allow them to understand and compare the Company’s operating results during the current periods to the prior year periods in a more consistent manner. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP, and similarly titled non-GAAP measures may be calculated differently by other companies. The Company calculates those non-GAAP measures by adjusting for non-recurring or non-core items that are not part of the normal course of business. A reconciliation of those measures to the most directly comparable GAAP measures is provided in the accompanying schedule, titled "GAAP to Non-GAAP Reconciliation" below. Future period non-GAAP guidance includes adjustments for items not indicative of our core operations, which may include, without limitation, items included in the accompanying schedule below. Such adjustments may be affected by changes in ongoing assumptions and judgments, as well as non-core, nonrecurring, unusual or unanticipated changes, expenses or gains or other items that may not directly correlate to the underlying performance of our business operations. The exact amounts of these adjustments are not currently determinable but may be significant. It is therefore not practicable to provide the comparable GAAP measures or reconcile this non-GAAP guidance to the most comparable GAAP measures and, therefore, such comparable GAAP measures and reconciliations are excluded from this release in reliance upon applicable SEC staff guidance.
