Q1 2020 Earnings Call
Good morning, welcome to the Infusystem Holdings Inc. reports first quarter 2020 financial results Conference call.
All participants will be what's it only mode.
Should you need assistance. Please send all corporate specialists by pressing the star keep followed by T. Rowe.
After today's presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one to withdraw your questions you made press star in Chile.
Also note today's event is being recorded.
At this time I'd like to try to converts color, but you Joe Dorame. Sir. Please go ahead.
Thanks, Jamie good morning, and thanks for joining us today to review the financial results of Infusystem Holdings Inc. for the first quarter of 2020 ended on March 31st 2020.
With us today on the call our rich do you Oreo, President and Chief Executive Officer, and Barry Steele Chief Financial Officer.
After the conclusion of today's prepared remarks, well open the call for 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 Dot Infusystem dot com or numerous other financial websites.
Before we begin with his 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 the statements of historical fact at this conference call. It may contain forward looking statements that involve risks and uncertainties summer, which are detailed under risk factors in documents filed by the company with the Securities Exchange Commission, including the annual report on form 10-K for the year ended December 31st 29.
Team.
Forward looking statements speak only as of the data statements were made the company can give no assurance of such forward looking statements will prove to be correct. If you system does not undertake and specifically disclaims any obligation to update any forward looking statements, whether as result of new information future events or otherwise.
Now I'd like to turn call over to rich Diorio, President and Chief Executive Officer of Infusystem Rich.
Thanks, Joe Good morning, everyone and welcome to our first quarter 2020 earnings call. Thank you all for taking the time to join US. This morning, I Hope you and your families are staying safe as we continue to deal with the effects of Goldman 19, It's times like these when we really game perspective on what's important in life and just how important it is cherish our time with our family and friends.
No wonder where first quarter results I'm extremely pleased with our first quarter performance not just the numbers, but how when she says Oh. The Infusystem team responded to a situation where there was literally no playbook against the backdrop of rolling nationwide locked down we had record setting revenue in the quarter $21.7 million, which is an increase of 18.5% first the first quarter.
My team and our adjusted EBITDA grew by 30% versus the first quarter of 2019.
This was accomplished while transitioning 85% of our team to working from home I couldn't be prouder of the Infusystem team to me that as the definition of executing on a plan in extreme conditions and on top of that we've been able to put contingency plans in place for future potential short and long term disruptions on our operations trunk over 19.
In early March when we first began to assess the potential impact of Kobe gene. We believe certain synergies will most likely take place first we believe that our oncology service, which helps with that so facilitate lifesaving treatments to patients would not be dramatically impacted we were correct. In fact, we treated more oncology patients in March but in any other month ever.
We treated more patients in the first quarter, but in any other quarter 33 years or providing the service.
Second we believed our dnbi platform, specifically pump sales in rentals would likely see increased customer demand what hospital admissions increased we knew that we would need to adapt and execute from a bio biomedical and logistics standpoint to meet that demand and we absolutely did this the operations team deployed more devices than I wouldn't ever thought possible.
Operations has always been part of our front line with our clinical team and deserve. So much credits were making sure our patients get the safest devices wherever and whenever they need them.
Third we expected the elective surgeries were going to see dramatic decline as hospitals started to reserve and redeploy most of their resources to deal with any potential surgical cobot 19 cases.
Unfortunately, we were correct about this as well pay minute pain management numbers were quite strong through early March before showing a steep decline in surgeries. In fact, the pipeline numbers were slightly ahead of plan.
You had them doubling revenue again this year after accomplishing that feet in 2019, I have absolutely no concerns long term, but we are seeing a sharp short term impact more on that later.
Fourth we believe customer access for our sales teams would be severely impacted in addition to our own internal travel restrictions most hospitals restricted access to any non essential visitors rightfully. So for every one safety. These restrictions had the bigger impact on the newest addition to our integrated therapies platform negative pressure wound therapy through our partner.
I think with Cardinal health as with any new product service or partnership face to face meetings are critical for both selling in customer training.
The impact is our role a process is moving a little slower than plan, when we announced a new therapy in February. Despite these challenges. We're currently serving patients in customers and expect to add new customers through the end of the year, just a little bit slower pace. The great news. It did we see very very strong demand in the markets for the powerful combination of all right, yes platform partner was.
Cardinals device the long term potential. So this therapy remains significant with a current addressable annual market of $600 million.
And with that I would like to turn it over to our CFO Barry Steele to provide a review of our financial results.
Thank you Brett thanks.
They are going to everybody on the call today.
As rich mentioned the first quarter represent a strong start to 2020 marked by continued double digit year over year growth in both net revenue and adjusted EBITDA and improved gross margin and adjusted EBITDA margin percentages.
During the quarter, we did not incorrectly that extra cost associated with the health crisis.
Hey, we encounter any reduction in net revenue other operational disruption on the contrary.
The demand for some of our services increased corporate nitrogen driving urgent need for equipment and services, we provide in our journey services segment.
It is finding the crisis.
<unk> increased demand, our preparedness activities, including increasing our levels of both disposable medical supplies.
And to accelerating our capital expenditure or do you any equipment.
<unk> purchases have provided border take stock and keep the supply disruption and ahead and have allowed us to response requests from customers heavily burdened by the crisis.
Net revenues for the 2021st quarter of 21 point Sixmillion represented an increase of 3.4 million or 18% over the prior year first quarter.
Integrated therapy services led the growth, increasing by 2.8 million or 25% and topping our respectable increase and durable medical equipment services.
ER segment up 540000 or a person.
The growth for the integrated therapy services segment, what mainly due to increased market share in oncology, but also about it benefited from a small increase in medical oncology Hot summer.
The durable medical equipment services segment net revenue growth was led by increased equipment, though.
Hi revenue translated into higher adjusted EBITDA, which increased by about 1 million or 30% to 4.1 million during the quarter.
Hi, I got that EBITDA margin with grew 18.8% during the current quarter compared to 17.1% in the prior year.
The improvement was driven by both an improved margin mix favoring the higher margin, yes segment.
Selling general and administrative costs covered.
That partially by higher provision for doubtful account.
Decrease in doing the services segment gross margin.
The bad debt provision increase what mainly driven by an accrual adjustment, which reflected lower customer collections performance.
Difficult comparison to prior year period, which included an accrual reversal.
The lower gross margin in the dealer services segment was due to proportionately higher equipment sales and a mix of lower margin items.
During the first quarter operating Catholic called about the card, though and represented a decrease of 700000 from the prior year.
The current year period was impacted by higher working capital utilization.
Go ahead with our corporate Nike prepared if activity.
The positive operating careful combined with the use of 2.3 million a pair on hand and that borrowings of 1.2 million supported the net capital expenditures of 4 million, which were 1.3 million higher than the prior year first quarter.
This increase in capital expenditures was primarily comprised of increases in our durable medical equipment fleet.
And it represented an acceleration in our current your capital plan timing due to the cobot 19 preparedness and market demand I mentioned earlier.
Note that our financial position had still improved slightly.
As of March 31st why 20, a ratio funded debt to adjusted EBITDA decreased to 2.07 times versus 2.11 times at the end of 2019.
Total available liquidity at the end of the first quarter, which totaled 14.5 million consisted of 8.4 million and in availability on our revolving line of credit and 5.7 million available under an open capital expenditure facility at 300000, California.
Well represented a decrease more available liquidity of 20.9 million as of December 31st look like.
With that again, mainly due to the corporate banking related capital expenditure acceleration and working capital.
We estimate that our liquidity position will decrease slightly during the second quarter, but then improved during the remainder acquired 20 and are working capital position starts to decline to normal level and operating cash flows overtake our capital expenditures during the back half a year.
With that I'll turn it back to it.
Thanks Barry.
Our last call in March I said, it was too early to understand the financial impact covert 19, whatever our business and I did not reiterate our 2020 guidance of $89 million in that revenue.
22, plus million dollars, adjusted EBITDA and $16.5 million and cash flow from operations.
As of today, I am 100% confidence that our team to execute on our plant we had the necessary contingency plans in place for future effects of this pandemic. However at this point there are still too many unknowns outside of our control for me to reiterate our numbers.
As I sit here today, there are some things I know for sure. What did you notice that our oncology patient census continues to grow and it's higher than ever our DMV services team will continue to see higher than normal demand for both pump sales in rentals in pain management as states begin to open an elective surgeries are getting reschedule, we're already seeing the demand for patients coming back.
On what.
And is it that as our hospital access improves we will win negative pressure market share.
What does all this mean I think we'll be fine I think we should be able to drive towards our original numbers, but I also think it would be foolish in these uncertain times Permian tried for me to try to predict future a lot of questions remain that we can't control and can't predict that could negatively impact growth within certain therapies.
We will see a huge we will see a surge Colby 19 as <unk> as the restrictions are lifted state by state, forcing additional shutdowns. That's one of our questions. What we see a resurgence of the virus in the fall as we do with the flu I.
I am hopeful that we when we talk again in August but some of these questions will be answered and we can a better clarity on our full year financials.
I've been with Infusystem for 16 years, and even with everything going on around us I've never been more confident passionate about our strategy.
Why because there's a few things I know for certain the will allow us to overcome any challenge I do know across all of our functions from top to bottom. This team has been built to withstand anything I know Tom recent sales team will be relentless when it comes to managing our growth by expanding into new therapies I know carry a chance in our operations team will be relentless when it comes true constant drive to improve operational fish.
And she is in making sure that are patients and customers receive the industry, leading service, they're accustomed to I do know that all 280 members of the Infusystem team are committed to make sure that our platforms are made saw solid infinitely scalable and I do know that any impact will be short term and we will come out of the other side of the stronger and sharper than ever before.
And with that happy to answer any questions.
Ladies and gentlemen, without will begin today's question and answer session to ask your question. Please press Star then one.
To withdraw your questions you May press star and Sue.
If you are using a speaker phone, we do ask that you. Please pick up your handset before pressing the keys to ensure the best sound quality.
So once again in order to ask a question that it start and then one.
Well pause momentarily to assemble the roster.
And our first question today comes from Brooks O'neil from Lake Street Capital markets. Please go ahead with your question.
Thank you good morning, guys I have a few questions and I admit upfront there's been a whole lot of things going on my end. This morning that I made a bid.
Distracted during some of your prepared remark so if I.
Ask about things you've talked about I apologize, but it would be helpful. If you could.
Phil and I was hoping first again, just a little color on the pain and oncology business is a results. During April in early May I think you alluded to a little improvement, but could you just give us a little more color on what you're seeing out there in the marketplace right now thank you very much.
Sure. Thanks Brooks.
You know regarding oncology a patient demand remains strong. So our sense is continues to grow or you know what we see in April and May is no different than we saw in the first quarter, which you know the first quarter is the best quarter. We've ever had March was the best month, we've ever had Ah. So it's it's exactly what we thought you know that that in oncology people are receiving life lifesaving.
Treatments and that's not something you can delay it's not an elective surgery, it's not something you know try to just the normal.
Physical annual physical it's something you have to go into the hospital for in the hospitals and and outpatient clinics or accommodating those patients. So oncology remained strong there's no concerns at all.
Pain as I mentioned is coming back online. So we saw you know patient census drop at the very end of March in early April as we kind of came out of April into bad we start to see.
The the need for pumps, and thus patients coming back up on line, we're not back to where we want to be for sure. It's going to take a little while it is every state has to open in the schedule and the the surgeries have to be schedule.
But you know all things are pointing positive for for pain management as well as long as there is no rebound of you know covert 19 in the summer and fall they should be being pretty good shape. This year.
Absolutely, that's great and I'm, particularly interested in the negative pressure business. Obviously, you said at the release that there was.
Some disruption to the launch.
Related to cold, but can you just try to give us a little more color again, maybe April bay, and what you're seeing out there in the marketplace in terms of the response to your offering in that market.
Yeah, so from a.
From a launch standpoint.
It's definitely going slower than we thought so negative pressure you know the sales process is really driven through the hospital and that's a challenge when the hospitals just aren't getting any non essential people in there I don't letting some some visitors and to visit patients. So that access has definitely slowed down quite a bit, especially in some of the big cities.
That is slow down the watch that being said when when the hospital start to ease those restrictions, which we haven't we haven't seen happen in April yet. So we don't know when that'll happen it should be pretty soon.
Got it has shaped start to open up they're going to they're going to lessen the restrictions here and let us back in the good news is it there are lot of lot of hospitals waiting for us to come back and we were able to talk to them before the shutdowns happened. So you know tail end of February early March a they were excited about the offering that we have with our service combined with Cardinals device.
So we see the market opportunity there for sure now it's you know once those doors open up in the hospital I think we'll start gaining some market share negative pressure.
That's great. That's fantastic I think you guys alluded to a somewhat of an increase in bad debt expense in the quarter and I'm. Just curious if you could elaborate at that a little bit. So we could I understand what's going on.
It's actually a little bit slower collections as what we what we've noticed though there are people process and in accruing is.
It is driven by you know how quickly they collect so we had to increase our cool it slightly during the quarter and in the prior year. There actually was a significant reversal that just makes it that comp.
Okay I got it and then a last but not at least I'm kind of curious how how you guys feel about your available liquidity. Obviously, you mentioned they come down again, a little bit in Q2, and then maybe improve as you get into the back over the year, but you feel like you have the capital you need to be able to kind of get through.
This period and onto the promised land that is quite obviously up ahead.
Yes, so I'm I'm, a believer in having as much liquidity as possible.
That said I feel very comfortable we definitely don't see <unk>.
At least we see the earnings being very strong. So we'll have significant good cash flow as we go through the year just from the operations right now whats happening. We just we just had to work and invest in working capital to build our supplies and make sure we weren't weren't the stock. If there was any kind of disruption. So we built that inventory in particular.
And I'd be accelerate our pump purchases so that's.
We've been able we're kind of past that now we'll see pretty soon our working capital I will start to go down and and the pump purchases will have slowed. So we'll have we won't have the use of cash for for a few months. So I see it coming back you know strong as we go through the year.
Great Congratulations on the great start to the year and keep it up.
Thanks works.
Our next question comes from Douglas Weiss from DSW investments. Please go ahead with your question.
Hey, congrats on a good quarter.
You are in the press release you mentioned.
3 million unmet medical equipment purchases because of the corridor and the you're going to have an additional 3 million in medical equipment what's.
What does that that's where specifically.
I don't know that we talked about the future but weve.
<unk> been buying pumps, mainly for for a couple of reasons one.
We've had a lot of demand for products that go into facilities that are actually serving covert patients. So our de any segment has bad.
I'm basically trying to find pumps anywhere they can order to serve into that that lot of that revenue start coming into the second quarter.
But that's basically the reason, we we don't see it.
A so a capital expenditure activity, but for the year higher than what we were you had on our plans, but it just happened a little bit earlier because of the Coca crisis.
Okay.
And.
And then you also mentioned.
Yes.
60, stalker medical supplies for oncology.
Yeah what is.
So certainly we deliver services to patients we give them one of our problems, but they also get.
Supply kit I seem to get a couple of times runner then of course are there.
There there I'm using the pump so what we debt as we brought an extra supplies to make sure if something happened in our desktop supply chain, you would be able to us or patients. So that was basically building safety stock in order to lot to prepare ourselves.
<unk> is there kind of a onetime thing or the yep I believe it. It's it's a onetime thing we put our orders then we have some of that ride during the quarter a little bit more that's come that that's showing up in the second quarter.
And then we'll just eat well eat into that stock as we go through time to this year.
And then have you made the capital investments for this year already in the wound care.
Equipment or is that going to show up later in the or.
Yeah, one of the nice things about this business is that you can really you can scale your capital expenditures to but your needs are.
In the automotive industry, where if we had a by a piece of equipment that we probably could be wouldn't put all the.
What tick up that use the the capacity not because equipped for years you might definitely much need so we'd have bought in pumps for or that the the devices for negative pressure.
The only what we need to serve the initial stages of the business.
Okay, and my sense, if you haven't really put much in your guidance as far as that business is that true.
That's correct. That's correct, yes, yeah. There was no no revenue from negative pressure in the guidance because we weren't sure when it would launch this year.
Okay do you have any any anything you.
On a go you might.
Off run out or is it too early.
I think it's too early you know we had initial goals and what we thought we could do this year you know all bets are off when it comes to access the hospitals. So next couple and that's what's your stuff to talk to say I mean, if if we get more market share faster than we expected we could probably catch those numbers.
No, we'll probably have to wait till.
June July to start to see that happen.
Okay, all right well, thanks, and congrats again.
Thanks, Doug.
Once again, if he would like to ask your question. Please press Star then one.
To answer all your questions you May press starts you.
Our next question comes from Air and work from E.S. Capital. Please go ahead with your question.
Hey, guys good morning.
Great start to the quarter are to the year excuse me.
You'd mentioned I know last call rich that the DM eastside might mitigate some of the losses from the Ikea side or some of the delays.
And it and as you said that he didn't think it's been a multiple millions, but no based on the results that you had that data it looks like maybe that's changed perhaps it is now.
Little bit more than you expected back in March is that accurate enough. So what what led to that change.
Yeah, Thanks, Aaron so.
In the first quarter, we actually Didnt see a big drop than I T. S revenue and that's mostly because you know oncology had record a record quarter and you know pain management really didn't get impact until the third week of March from a certain elective surgery standpoint. So we didn't have much overcome in the first quarter, it's really the second quarter and again the the owner.
Lee.
The only hit we're going to take is only elective surgery side for all of April maybe all of May or part of May Dnbi will be will <unk> should recover any of that money again, it's still not in the millions of dollars. It's estimated.
I wasn't a in DMD is it came out of the gate strong or they ended the first quarter strong and they came out of <unk> and the second quarter strong as well so.
We think you know the second quarter could be a good quarter. If a if pain comes back on a line here pretty quick with strong oncology patients on so strong didn't meet quarter and than some recover in the pain side.
[noise] sounds good so I mean I take it then that this elective surgeries losses art.
We must be a pretty small part of the overall business then.
Yeah, Hey, Matt Yeah, absolutely pain management is are as follows.
Piece of the I.T.S. segment.
Obviously dwarfed by oncology. So you know, we don't want to lose it for for longer than we have two and certainly not for quarters and quarters, but you know a few months, we'll be able to recover from.
Right.
I certainly understand your not wanting to you know commit to certain numbers with all the uncertainty out there and you mentioned still lot of uncertainty about what will happen even in the fall but.
Just just taking a look at this I mean extrapolating on your numbers from the quarter and yet and the comps from last year I mean.
It looks to me like you know you could be on pace.
To do as high as like 95 million 23 million and adjusted EBITDA [noise] <unk>.
Is there something is there anything that's happened so far in the second quarter that would make you think that does increasing revenue led to the 18% than that 30% increase and adjusted EBITDA any reason for that to really get off track. So far from what you've seen in the second quarter is it kind of still playing out that way given the fact that.
Some of the thinking you know some of the losses on the 100 being made up on the Jim you side.
Are you know I, I think 95, and 23, a pretty aggressive or even without coven 19, and there's certainly a lot of unknowns in the second half.
Do I think we'll get to to our plan a you know a pain comes back online and Dms stays strong in oncology continues to grow too I think we can get their short.
So do I know, what's going to happen you know next month or even next week with Goldman absolutely not none of us too right. So right you know there. There's there's concerns as we plan you know there's concerns about the boomerang effect. So as states open up does doesn't start to.
You know the case just start to go back up and occur starts to steep and again if that happens that's a problem or even if it stays flat in the summer but comes back in the fall in the food as you know again, we have we could have another show in our hands and we don't know what the second roundwood wouldn't break we don't know if oncology would stay strong we think it would but certainly elective surgeries would be postponed to get in those sorts of things.
So there's just so many factors we just don't know we don't know enough. That's why we're kind of holding off on numbers.
How concentrated is your is your business there and the oncology side in terms of you know like percentage up at being in areas that have already been hard hit.
How spread out is it across the country I don't I don't know how concentrated it is to one gas. So so a couple of locations sure. So were in all 50 states a it's exactly what you would think you know the big cities the Bostons, New York's L.A.'s of the world.
Obviously at the most hospitals most doctors. So we we you know we have so much of the market share. It's it's pretty well represented across the country. So yeah. We you know where it we have a heavy concentration in New York and Boston or you know in Detroit, our hometown all those have been hit for sure, but we haven't even in those cities, we haven't seen much of that called you.
Impact at all.
Yeah and that sounds good heard of future then as well I mean, given that they've been the hardest hit cities and still not seen that disruption. So that sounds. Good final question for me then as you.
You talked about leveraging your relationship with Cardinal health and obviously that still so you know very very early on but I'm just wondering if you've seen anything.
On that if you've been able to do anything on that related to cobot 19 on the DMC side with them here.
Ah with Cardinal so so we have other cardinal devices, just like we have you know backstrom B. Braun devices are outside of negative pressure.
That we rent and sell into hospital markets and just took just different types of infusion pumps and and products.
So that's always been the case that hasn't changed during the cold but prices.
Okay. Thank you guys I appreciate it stay safe and good luck.
Thanks, Eric did you do you.
And ladies and gentlemen, with that will end today's question and answer session I'd like to turn the conference call back over to Mr. diorio for any closing remarks.
Thanks, Jamie we're certainly living an extraordinary times it on behalf of the team I truly appreciate your continued support I want to thanks for participating on today's call and look forward to talking to you again, when we report our 2022nd quarter results. Please stay safe and thank you.
And ladies and gentlemen, without will conclude today's conference call. Thank you for attending you may now disconnect your lines.