Q4 2020 InfuSystem Holdings Inc Earnings Call
Good day, and welcome to the and pieces from holdings fourth quarter and full year 2020 of your financial results Conference call.
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Please note today's event is being recorded.
And I'd like to turn the conference over to Joe Torre Mayor with Lytham Partners. Please go ahead Sir.
Thanks, Rocco good morning, and thank you for joining us today to review the financial results of the Info system Holdings, Inc. For the fourth quarter and full year 2020 ended December 31, 2020 with us on the call today are rich Diorio, Chief Executive Officer, Barry Steele, Chief Financial Officer, and carry of the chance President.
And Chief operating officer.
After the conclusion of today's prepared remarks, we will open the call for a question and answer session, if and when and 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 and few system dot com or numerous other financial websites before we begin with prepared remarks I would like to.
Mind, everyone certain statements made by the management team of <unk> system. During this conference call constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
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 and 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 2019.
Forward looking statements speak only as of the date. The statements were made the company can give no assurance of such forward looking statements will prove to be correct. If your system 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 rich Dilorio Chi.
<unk> Executive officer of infuse system rich.
Thanks, Joe and good morning, everyone and welcome to our fourth quarter and full year of 2020 earnings call. Thank you all for taking the time to join US. This morning, and trust that you and your families are staying safe as we hopefully work through the final stages of this COVID-19 pandemic.
Looking back the year 2020 wasn't unprecedented type of all of us across every aspect of our lives and empty system, we focused on what's important to us the wellbeing and safety of our patients and our team members, we adapted and countless ways to keep our team of safe as possible, while maintaining the highest levels of service to ensure our devices are available to our patients for <unk>.
Dropped and medical treatments.
I am extremely proud of our team and their ability to successfully adapt so many changes and overcome so many challenges and was their perseverance and makes it possible for us to report record results today.
On this call we will cover our financial results for the fourth quarter and full year 2020, reaffirm our 2021 annual guidance and provide an update on our business in 2021 and outlook for 2022 and beyond.
During 2020, we found the doing many things the old way had become and possible and the developing new ways of doing things would result in the long term advantages our team faced up to each challenge adapting as necessary, often creating new efficiencies and continued to successfully execute on our growth strategy. The result of their outstanding efforts was evident by the record 2020.
Accomplishments that include the following.
Record net revenue per the year of $97 $4 million and increase of 20% over 2019.
Adjusted EBITDA of $26 $4 million and increase of 45% from the prior year with this translating into net adjusted EBITDA margins of the year of 27, 1%.
Operating income of $8 $8 million and increase of 150% over 2019 operating cash flow continued to grow reaching $20 million and increase of 44, 4% over 2019 and.
And the face of COVID-19, we grew up pain management therapy and treated a record number of patients. Despite limited access to medical facilities and the broad postponement of elective surgeries. During the year. We were also able to launch of our partnership with Cardinal Health as we entered the $600 million wound care market with our negative pressure wound therapy service.
The COVID-19 pandemic has put a spotlight on the need to move patients out of the hospital environment and into their home to continue their treatment.
And the increasing moving toward Homebase treatment benefits the patient the provider and the Payor and <unk>.
The system provides the services that make this possible we bridge the gaps and enable the the.
And the continuity of care for patients between the hospital and their home.
Our integrated therapy services.
Posted a record year delivering growth of 18% over last year with strong gross margins of 65, 1% driven primarily by increased oncology therapy as we treated a record number of patients and 2020.
Oncology remains the core of our Ats platform and it is the strength of that offering that allows us to expand into new therapies and develop new growth drivers.
Our durable medical equipment services platform also delivered record results with growth of 25% over last year and solid gross margin of 45, 6% growth was driven by strong market demand for infusion pumps, partly due to COVID-19, resulting in significant pump sales and new rentals, although pump sales and not likely to repeat at the same levels in 2000.
'twenty, we believe the new rental customers are here to stay and 2021 should be another strong year.
Turning to our relatively new relationship with Cardinal health.
And I'm extremely pleased to report the despite the challenges of Covid, we've been able to accomplish a lot and a short period of time.
Our sales teams are already working together and each company is leveraging the capabilities and relationships of the other to successfully deliver patient services, we are gaining traction and negative pressure wound therapy and I firmly believe we will capture 5% to 10% of the estimated 600 million dollar negative pressure of home health care market and the next three to five years.
The <unk> system over the last 12 months, we were able to significantly strengthen and enhance the capabilities of our leadership team. This includes the appointment of Barry as our Chief Financial Officer last March and the recent recent promotion of carried a president in addition to of our CLO.
Berry continues to strengthen the financial foundation of of the company with this perfectly evidenced by our new credit facility and free system has always generated strong operating cash flows, but our success and attracting a syndicate of premier banks two of $75 million credit facility shows how much progress we've made and the last few years with the new and improved facility we of the.
Liquidity and financial flexibility to timely capitalize on a growing array of potential growth opportunities and each of our two operating platforms <unk> and DNA.
And carry his expanded role she'll be leading the implementation of new therapies under both platforms and the integration of acquisitions now I would like to take the opportunity for carry to introduce yourself and provide some color around our acquisition of filament.
Thanks, Rich and good morning, everyone and.
I'm very happy to be on the call today and honored to serve the company as President and Chief operating Officer.
I've held numerous management roles during my time, working at and pieces, Joe with each new line, giving me great of our ability to contribute to the strategic objectives of the organization and in addition to helping drive new revenue opportunities my role of the option to identify and execute on streamlining operations and improve efficiencies and increase margins and net cash flow.
And I look forward to working with rich and the leadership team and growing our I T S and gaming platforms, and making N P system, a leading healthcare service provider for outpatient care across many markets.
Rich mentioned, our synergistic acquisition of filling that in February 2021.
The acquisition was the proceeds primarily as the means to expand our D&B and service capabilities. This acquisition broadens and enhances our scope of biomedical services, particularly in areas such as compression devices defibrillators electro surgical units and patient monitors adding.
Adding to them. It also provides us the opportunity to enter into the acute care market.
We believe theres the opportunity to expand our biomedical and service offerings and the potential impact being adding double digit millions of dollars to our top line over the next few years. This year the incremental revenue being contributed by the biomedical and services might be enough to push us to the higher end of our 2020, one guidance, which rich will discuss the 15 minutes.
Thanks, Gary for the last several years I've been firmly committed and building to building a strong leadership team with deep industry knowledge and proven execution abilities. I believe I believe now we have the team in place to make into the system of leading health care services company for years to come again I'm extremely proud of the entire in free system team and the way that they adapted and ex.
<unk> on our growth plan, even during extreme conditions. The patient is at the center of everything we do and delivering patient wellness and our team did an outstanding job meeting this commitment and with that I'd like to turn it over to our CFO Barry Steele to provide a review of our financial results.
Thank you rich and thank you to everyone joining the call today.
As rich mentioned during the quarter, we met our revenue and profitability expectations, while continuing to be cash flow positive and further reducing balance sheet leverage.
Net revenues for the fourth quarter of 2000, 2012 to $24 7 million and represented an increase of $3 million or nearly 14% over the fourth quarter of 2019 the.
The D and the services segment led the way with net revenue growth of $1 7 million or 25%, while the net while the net revenue of the larger Ips segment increased by one $3 million of 9%.
The merger of the 2022nd and third quarters. The deemed the services segment net revenue growth was favorably impacted by higher rental revenue, which increased by $1 1 million and higher equipment sales, which increased by about half of volume during the quarter.
Much of the rental revenue growth was represented by an expansion and the market share with the with National home infusion service providers and the addition of new devices to our product portfolio of stemming from new partnerships partnerships with device manufacturers. In addition to increasing increases and increased result of increases resulting from the COVID-19, driven mark.
Demand, which currently shows no signs of moderating as the pandemic resides.
Growth continued to be driven by favorable the favorable market penetration and the oncology business, resulting from an improved market and competitive landscape.
Pain management net net revenues, which are part of the Ats segment continued to recover during the quarter from COVID-19, shutdowns growing by 22% compared to the prior year fourth quarter and 17% sequentially from the 2023rd quarter.
The higher net revenue has translated into higher adjusted EBITDA, which increased by 750000 or 14% to $6 2 million during the 2024th quarter as compared to the prior year.
The adjusted EBITDA margin for the quarter of 2004th quarter of 2020 was 24, 9%, which was about the same as the prior year adjusted EBITDA margin and this represented a sequential decrease from the 2023rd quarter, mainly due to an increase and the annual bonus accrual and higher bad debt expenses during the fourth quarter.
These expenses are expected to return to lower levels during the 2021 first quarter.
During the fourth quarter of 2020 of the company recorded a tax benefit totaling $9 9 million.
And this included a benefit associated with a one time reversal of a deferred tax valuation allowance totaling $11 2 million.
The valuation of allowance reversal was prompted by having generated significant pre tax income and a three year cumulative basis.
We now believe that the company will realize the benefits of its significant federal and state net deferred tax asset, including our significant net operating loss carryforward.
And also because of the evaluate the full valuation allowance reversal, we will be recording a more normal tax provision and future reporting periods.
However, these provisions are likely to be largely deferred provision provision.
Meaning that we do not expect to be a significant payer of cash taxes and the next few years.
Without the valuation of lots reversal of the company would have recorded a provision for income taxes of $1 5 million, which would have represented in the factories and effective tax rate of 19, 4%.
And this adjusted effective tax rate differed from the U S statutory rate, mainly due to permit differences and the amount of equity compensation expense.
Expense recognized per book versus tax purposes.
We estimate that our regular effective tax rate for future periods will be between 25 and 30%. Although there are likely to be periods, where this this amount is lower due to significant windfall gains currently existing in the.
And outstanding employee equity awards.
During the 2024th quarter operating cash flow totaled $7 6 million, which exceeded our guidance and was 75% higher and operating cash flow and the fourth quarter of 2019.
The improvement was both due to much higher net income adjusted for non cash items and due to a continued reduction of working capital, which returned to more normal normal more normal levels. After the COVID-19 related peak during the first half of the year.
Net capital expenditures, which totaled $3 2 million during the 2024th quarter also approach normal levels.
And this represented a significant reduction however from the fourth quarter of 2019.
During which.
<unk> net capital expenditures were $5 6 million.
Finally, our outstanding debt increased by $4 million during the 2024th quarter due mainly to a $5 7 million.
All of drawdown on and open equipment line that was otherwise scheduled to close at the end of the year offset partially by quarterly amortization payments of $1 5 million on our then outstanding term debt.
The net result of all of all of this activity the strong operating cash flow the normalized net capital expenditure level and the net borrowing and our bank debt resulted in a $7 7 million increase and our cash balance during the quarter to $9 6 million at December 31.
As a result, our ratio of funded debt net debt to adjusted EBITDA as of December 31, 2020 decreased to $1. One one times down 0.1 down from 136 times as of September 30th 'twenty, and 'twenty and 2.11 times at the end of 2019.
Our total available liquidity at the end of the quarter, which totaled $19 7 million consisted of $10 million and availability on our revolving line of credit and $9 6 million of cash.
This amount represented an increase and our available liquidity of $17 5 million at the end of this year's third quarter.
As we know.
And we announced in February this year, our available liquidity more than doubled from this amount as a result of the refinancing of our bank debt, which rich mentioned mentioned.
In addition to the improved liquidity this new all revolver credit facility provides much improved flexibility to pursue our growth strategy and capital allocation priorities by eliminating amyris amortization payments and raising our maximum leverage covenant and my brain and additional banking partners.
With that I'll turn it back over to rich Thanks Barry.
Looking ahead, we expect 2021 will be another record year for Enphase system with strong double digit growth and both net revenue and adjusted EBITDA driven by strong growth and our Ats segment, where pain management and negative pressure wound therapy will begin and presented growth drivers our focus in 2021 will be on the fall and.
Growing the three new therapies currently on our itx platform oncology pain management and negative pressure.
<unk> and new for therapy on our Ats platform.
And the first half of 2021.
Adding new products and services to our <unk> platform.
Successfully executing on our new cross selling initiatives to capitalize on our over 'twenty 100 sites of care and oncology.
Developing a new strategic partnership to grow our platforms.
And identifying small tuck in acquisitions that will enhance and expand our current capabilities and offerings.
Based on the confidence and our business I'm reaffirming our annual full year 2021 guidance, we are projecting net revenues to be within the range of $107 million to $110 million adjusted EBITDA to be within the range of 29 million to $30 million to $30 million.
Operating cash flow to be within the range of $21 million to $23 million.
We're also forecasting adjusted EBITDA margin to be 27%.
Our 2021 guidance does not include any potential one time large pump sales.
Driving growth in 2020, one will be our pain management negative pressure businesses with net revenues to be in the range of $8 million to $10 million combined when we exit 2021, we are projecting of $12 million run rate for net revenue in pain and negative pressure combined.
At the beginning of the next phase of growth of the company and these two therapies will allow us to sustain and 15% growth with solid gross margins for years to come.
We have seen some recent disruption of the wound care space regarding service levels from one of our competitors, while we're still evaluating the exact impact of the market. We plan on capitalizing and the opportunity, which we believe may allow us to accelerate our growth and that market if that the disruption become significant.
We are of very strong and experienced team in place to continue to successfully execute on our strategic business plan, our service platforms and device agnostic and I believe we are in and operating in a position of strength as we leverage our two operating platforms facilitating outpatient care.
I am confident and free system is uniquely positioned to meet the rising demand for in home health and health care services as we successfully expand our two operating platforms with new therapies and products to improve patient outcomes I am very excited for the future of and fee system and with that I'm happy to answer any questions.
Thank you we will now begin the question and answer session. So that's the question you May Press Star then one on a touchtone phone.
Usually the speaker phone, we ask you. Please pickup your handset before pressing the keys and the majority of your question. Please press Star then two.
Today's first question comes from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Good morning, and rich and Barry and congratulations Carrie and welcome to the call. This morning.
Thanks Brooks.
So.
I was gonna put Korea and the spot.
First and ask it.
You have kind of a current idea about your priorities for 2021 are the big things you need to accomplish or is the kind of continuation of.
And the current activities for the company.
Okay.
Yeah. Good morning. Thanks for the question I would say you know priorities and definitely operating.
And you know efficiently that the integration of Oslo and that is certainly a priority and kind of streamlining our workflows and the negative pressure.
Great.
Rich you mentioned, the disruption and the and the negative pressure market as your enthusiasm for the opportunity and that business increased in recent months.
So so negative pressure in general I still believe we're likely going to get to that 5% to 10 per cent of the addressable market, which puts us in the $30 million to $60 million range.
And the disruption of the market, we're still trying to identify kind of the extent of it and and the impact.
I think the good news is regardless of what the of how big that.
Opportunity is we're going to take advantage of it and that.
And what the team is assessing right now.
Will it will it allow us to get over the 5% to 10% I don't I don't really know if that's the case, but what it might allow us to do is get to those numbers faster. So instead of being three to five years, maybe it's two or three years to get to the five or 10%. So it will just help us accelerate the growth.
So our response and execution of that response is really what's important and I think we're still working out the details, but when we all talk again and a couple of months, but most likely in may with our first quarter numbers will will hopefully have some more information on kind of what's going on and and exactly what our responses and what our expectations are but.
Anytime you're in a market and there's an opportunity.
And there is disruption and it and it benefits us and organization with your service levels.
That's a good day right so.
We'll see to what extent, but yeah. It's all good news.
Greg can you talk a little bit you and sort of given us a sense. The deal you see of $30 million to $60 million kind of opportunity and negative pressure can you give us a sense for the size of the opportunities you see and pain.
Yeah, So pains interesting. So so the market we're going after right now is probably about $125 million roughly.
<unk>.
What can our pain business do.
It can probably you can certainly get into double digit millions right.
I said that in November that by the end of 2022, we should be at that point. So we should be 10 million plus.
And where it goes from there.
You know theres some theres some some reimbursement challenges for the physician that hopefully the government will change and the next couple of years, if that happens of kind of blows the top off the addressable market for all of us and that market. So.
And at that point, the potential doubles and triples, so could it be of 20 $30 million business sure do I expect that and in the next couple of years no but over time, we can certainly get the.
Right and if I can.
And remember correctly your your pain.
And there would be essentially.
Eliminating the need the prescribed opioids is that rate isn't that something of the government's going to want to promote.
Yeah, you would think so right you would think of that would that would help us get our get the reimbursement for the physicians.
It doesn't it doesn't always eliminate the need for opioids, but it greatly reduces it and a lot of cases eliminated so instead.
Instead of our conversation with CMS as debt.
Instead of treating a patient after they become addicted, which costs over a half a million dollars that's roughly the number to treat a patient.
For our for a few hundred dollars you can reimburse the doctor to place the catheter and hopefully eliminate the addiction altogether right. So financially obviously it makes it makes our total sense.
And I think we'll get there eventually and when we do you know it'll just it'll it'll grow the addressable market for everybody involved.
Absolutely. Okay can you give us any color and the size or the type of opportunities Youre looking at for the fourth platform.
Sure so the.
The number of opportunities.
In front of US right now and I wouldn't go as far as saying their unlimited, but they feel like it's pretty close to that.
There are dozens and dozens and dozens of products and therapies and devices that go home with patients there.
There's manufacturers approaching us we're looking at markets that we want to get into the.
The trick is gonna be and the art is to get into the right market at the right time with the right partner.
Where it makes sense from an economic standpoint.
Theres addressable markets ranging from a few million dollars to a few billion dollars that we're looking at and we're not afraid to get into either if it's the right time and the right place and and depending on how much heavy lifting there as you know and a small addressable market. We'll obviously take advantage of if we think there's a good opportunity.
But I think the one that youll see and the next few months is gonna be you know of 1 billion plus the addressable market. It's a big market that we're looking at.
And we've narrowed it down to a couple of contenders for the next therapy.
We're in the phase now, where we're talking about what the agreements look like what our licensing what licensing we need.
And what the rollout plan would be so we're getting close and.
And a couple of that were getting close to a pretty sizeable.
The addressable markets for us.
Great.
Well, thanks, a lot and keep up all of the great work. Thanks Brooks.
And our next question today comes from Alex Milwaukee, where the Craig Hallum Capital. Please go ahead.
Greg Good morning, everyone I wanted to first follow up to Brooks' question here and maybe expand on the disruption of the wound care space and maybe I've mentioned I've missed it but.
What specifically are you seeing is it around the shift of care temporarily to the physician office versus the wound care clinics as of the impact with your competitor just maybe some more color on exactly what the disruption levels, you're saying yes.
Yeah sure so good morning, Alex.
We're still in the phase of of.
The kind of the discovery phase of what's going on.
But its disruption of the customer level from a service piece, so relationships being disrupted.
Clinical standards and not being not where they were for free.
Of this competitor.
The negative.
The negative pressures just like our oncology business. It is 100% service right. The device really doesn't matter as long as it does the job. It's all about the service piece and whether that's the clinical team and the biomed team the sales relationships.
That's the that's the core of the business. That's the art on what makes us successful and oncology and what will make us successful and negative pressure and.
And those types of things of what.
From a service level standpoint of being reduced which which only benefits the company like NP system that that's who we are right where a service company at the end of the day and we have perfected our service levels over 30, plus years, where the best and the world some of the things that we do.
So I was already kind of bullish on what we can do and that market, but when and when a competitor service levels dropping.
It's a it's a perfect storm for us to go seize that opportunity and hopefully gain some share pretty quickly.
Okay.
Makes sense and maybe staying on that and actually switching over to the oncology business. There are some some big competitive wins throughout 2020 that you were able to benefit through.
How do you think about the competitive environment now and continuous chemo.
And really change there do you still expect more competitive wins is there anything that might reverse just any help there for 2021.
Yeah. So so.
Nothing Big that's new.
It's kind of the status quo I think we are still the dominant player in that market from a market share standpoint, and service level, we don't really have a direct competitor anymore and they're all out of the market. So now we can we compete against home infusion companies that had been entrenched and the customer for a long time so.
We will go back the old fashion and selling you know win and one of the talent at the time and grown market share of that way and and I have no delta.
And that that market is going to grow it's not going to grow of 20% like it has the last couple of years.
But that team I have a 100% faith and we're going to continue to win customers, we don't really lose customers and that market.
I think R.
Our retention rate is 90, 899% of year. So if anything we're going to grow that market over time, just it'll grow slow it's a pretty established market and we have a good percentage of the share.
And that's great and I know and few system was the legacy infusion service provider day and May route.
And you know as you're starting to go into these other therapies and youre doing it and wound, but you're having to go beyond traditional infusion and you made the feel of that acquisition that gets you into some more capability. So I guess the question is do you need to make more acquisitions to go into these new areas that you're looking at which are the.
Beyond the infusion.
Not necessarily so there's there's kind of two ways that we're going to get into new therapies on the <unk> side.
It could be and acquisition for sure if theres a therapy that we like and a product we like and of a manufacturer that that it makes sense to acquire.
And to take on those those skill sets will go do that.
The the kind of a better option for us from an investment standpoint at least upfront investment and.
Is something similar to the negative pressure and Cardinal where we found a great partner with a great product that we can layer on our service and enter the market without a huge investment upfront.
But with a lot of cachet and that market to go and take market share. So that's kind of of the ideal way of doing it but we're not going to be shy of if there's a great market opportunity and there's a product out there and we need to acquire to get in and then we will do that as well.
Okay makes sense and then just last question and maybe I missed this or I got the interpretation wrong, but did you mentioned with the acquisition that you made in February and your book at the guidance that you're probably closer to the upper end of that guidance now.
That the right way to think about it.
Yeah, It's it's you know.
It's not of $10 million acquisition right, it's relatively small and we think of this year, what we can get out of that debt that those enhanced capabilities will push us to the you know the top half of that guidance. If everything goes according to plan right, but and that's why we're reiterating the number we're not we're not going over that number yet it's still too early and the year, but.
And now we're still comfortable with that number and fill them and hopefully will push us to the top of and in that range.
Alright, that's great I appreciate the update thank you thanks Alex.
And the next question today comes from Jim Sidoti of Sidoti and company. Please go ahead.
Hi, Good morning can you hear me.
Yeah, Good morning, Jim.
Great Great happy St Patrick's day.
So two questions for me one.
Seems to me like you've got a boost last year for some of the businesses because of Covid and the trend to treat people at home.
As Covid subsides do you think that some of that sticks and as doctors and patients.
See the benefit of home treatment.
Yes, so I think the pushed it to treat patients at home has been going on for awhile and this isn't a new kind of concept I think COVID-19 just gave it a little bit of of a push right. It was gas on the fire. So.
It's been a few years now at least that the physicians understand patients recover better at home patient satisfaction goes through the roof, when they're at home versus being in the hospital.
And the payers like it because it's less expensive to the health care system. So none of that's new news, but I think COVID-19 gave it the push that it needed and really opens and People's eyes that let's let's look at all of the potential we have the sudden patients home and I also think the technology has caught up with that concept, where some of these devices now becomes small enough that you can actually take the moment and affordable.
<unk>.
And where you know before it was like you know and air conditioning unit next next to your bed now you can actually carry something home. So I think all of that is kind of emerge perfectly and I think that's here to stay I think it's kind of just accelerate the move to the patient's home.
And that's what's Covid has really helped from a from a boost standpoint within our businesses. It was definitely felt more on the dms side and pump sales and rentals.
The good news is the booster pump rentals was from newer customers and we really believe now that we're basically a year out that those customers of here to stay so we might have one of the customer because of COVID-19 and what that rental revenue for the most part is here to stay and it's and it's part of our our new kind of baseline and foundation of our of our revenue.
Alright, and then you're still of a question on the cost side I'm sure that you guys reacted to COVID-19 like everybody else and figured out ways to reduce cost when you weren't sure where the businesses we're headed.
Some of those initiatives going to stick in 2021.
Sure. So I think I mentioned earlier on the.
You know doing things book pre Covid and post COVID-19 or are much different some of the things we used to do don't work anymore and the good news is some of the average adaptations we've made.
Uh huh.
They have allowed us to do business, better and smarter and more efficiently and absolutely there was going to say so.
There's no no need to change things back if they're working now and we think they'll work kind of post COVID-19 is hopefully it loosens its grip on all of US here pretty soon but yeah and just like customers.
It forced every company to adapt Fortunately for <unk> system, we are extremely nimble as the company and.
And we were able the DAP really quickly and makes them make a lot of really good decisions early on that I think are here to stay which will just you know.
Help us and the long term.
Alright, and then the last one for me is regard to this the four therapy, you think you'll you'll enter and in 2021 and it.
It sounds like you've of pretty good idea of where you're going so the question is.
Are you going to be able to use the same infrastructure you have in place already for reimbursement of it.
And all of this therapy or do you think youre going to have to build out.
And people build out new infrastructure for this for therapy.
Yeah, Great question, so the whole concept of adding new therapies, especially on the Ats platform is there we're going to leverage the infrastructure we have.
We're not going to have to build plants and and buying machinery to make things. It's just not who we are we're not of manufacturer.
Our revenue cycle team, our clinical team our biomed team the the core structure's already there even the sales team and some cases.
No we will supplement that as new revenue comes in and more paperwork gets processed and more customers are online, but it's an incremental add as opposed to kind of rebuilding or even building something from scratch. So we are absolutely going to leverage what we have in place and and that's part of the R&R picking the next therapy. So it's not just the bump the right market at the right time.
And the right partner a lot of it is how does it fit into our core competencies today and.
And the less we have to change or tweak the better off we are and the more we can leverage so.
Absolutely it's part of how we look at this going and moving forward.
Alright, thank you.
Thanks, Jim.
And ladies and gentlemen, and I as a reminder, if you'd like to ask the question. Please press Star then one so there is the next question comes from and are more with the U S.
Capital. Please go ahead.
Hey, good morning, guys and Gary Congratulations on your promotion and hope your families are well.
Like you said hopefully one of the backside of this pandemic.
Before this call and I went back.
The our dialogue rich on the transcript from last May.
That time, you would set your target of your guidance for $89 million and revenue and I was doing the math and say and you know should be closer to 95, and you pushed back and here. We are not quite a year later and you guys did and 97 million so congratulations on that but.
And I kind of bring this up of your you know the second guy and the call as well mentioned this.
You're targeting out of the upper end of it $110 million.
Obviously, a nice growth rate, but.
And I'm kind of surprised you haven't raised debt since November given everything that you've been saying on today's call I don't I don't know if you could sort.
A little more and why you're sticking with that rather than raising it.
Yeah. So you know.
It's still early in the year right. We're only halfway through March were not done with the first quarter. Yet I think you know what people have learned about us over time is that when we put out a number it's a number that we know we can hit right. There's there's inherent risk and they're in there there is a little bit of upside and there, especially with the range this year, which is which as of <unk>.
You were kind of constant for us over the last of again and I'm on it.
Going outside of that guidance right now I'm, just not comfortable doing that doesn't mean, when we talk and meda, we don't raise it I think each of the last two or three years, we've raised our guidance throughout the year.
<unk>.
I think you guys can be confident that we're comfortable that we're and the number that we gave on already of the 170 of 110 on the top line and that as we see opportunities and they start to crystallize for us that will give you guys visibility into that by raising the guidance right. So we're not we're not against moving the number as we get more clarity.
Throughout the year and I think I think over the last couple of years, we've raised it more than once during the year.
But for now it's still early enough of it.
You know, there's always inherent risks out there just like Theres opportunities. So I would say for now we're kind of a little bit more conservative, but we'll stick to it for now and we'll see what happens and may in future calls.
Yeah, and I'll give you guys credit for that I mean, youre very reliable as it relates to that so I kind of use that as the bottom.
Number and my own assessment.
Listening to you guys talk about the the.
Phil and Med acquisition that you announced back in February and and even looking at the press release and you know what.
It mentioned something about how it allows you the opportunity to enter the acute care market.
You kind of pitch this and announced the as an acquisition of the P. M East side of your business, but I mean, it sounds to me like a prison and what I would consider perhaps of materially a relevant new therapy on the on the <unk> side is that fair way to think about it.
Yeah. So so.
And we say new therapies, especially on the Ats, that's kind of of fitting way to describe it sort of categorize it on the <unk> side, it's usually more products and more services of just different language based on based on the platform itself I think filament fits into the Dms side, as a effectively and new product or service the biomed offering for us.
As a capability that we already have right. We already work on our pump pump fleet of 100000, plus pumps, and addition of customer devices with fill them and it allows us the right to get into the acute care market. The hospital market with enhanced capabilities on existing pumps pumps, and we already fixed as well as devices that we didn't currently have the the skill set forth.
In today's market with everything going on with Covid and the crunch on the hospitals financially what we're going to see and what we expect to see as the hospitals aren't going to have the capital to go out and buy new devices, they're going to want to keep their existing fleet and repair the maintain them inventory of them and the filament acquisition allows us and an entry into the acute care.
To do that for them. So I think it's perfect timing for the acquisition it was certainly opportunistic.
But.
I think Kerry mentioned it.
It is it is without a doubt potentially 10, 20 $30 million and revenue overtime over time, meaning 356 years from now.
Right and.
And it's without a lot of Theres no theres no huge upfront investment right, we're not buying devices, it's really just manpower.
Get out there and do the do the maintenance and service on the devices.
Great.
And then final one for me and you mentioned sounds very promising the with the dress.
The rest the bull market and so forth this new therapy, and the and the first half of 2021.
And it sounds like you know and in your response to Brooks, you've got a promising pipeline, there and and I'm. Just wondering if we should expect maybe in the back half of the year. Another therapy or are you kind of you know to be added to the Ics side are you looking kind of further down the road for that what's what's the time line looking like there.
Yeah. So so we're not really forcing a timeline on new therapies for a couple of reasons number one we can come up with the new therapy and a new a new device almost every month for the next few years, if we wanted to but if we don't execute on it and what's the point right. So.
What we're looking at is we're gonna be methodical and deliberate on rolling out the therapies were not in any rush.
Especially if theres, an opportunity and negative pressure here and the short term and and that with the focus of energy there, but we want to rollout of therapy carry is going to make sure that on the back and we are we are efficient.
And we have we have everything in line, so that where we're really off and running during the rollout once we get to that point, then we're more willing to kind of roll of the next therapy and so it will depend on the next one and that's kind of how it'll be it. The next one will depend on the one we just rolled out and how fast we get it up and running and how successful it is.
Before we roll out future ones that's the.
The and said can we roll out one and the second half of the year sure. I mean, if we think that it's something that really just kind of leads into our existing infrastructure and and.
And to the Jim's point.
Leverage our existing team and and infrastructure. That's in place then it's easier to rollout yeah.
It's not crazy to think we will have one and the second half of the year, but I don't want to put a timeline on it either and I want to make sure of the negative pressure is off and running paint continued their momentum, which is they're there and a torrid pace right now.
And that the next therapy really gets.
It gets up and running and integrated on the backend of our of our system and then we'll and we'll talk about the next one.
It sounds like a good approach.
So just clarification that you know.
Cardinal approach of you guys and it sounds like from what you said earlier that that's kind of happening.
More and more now and this on the side of things that you are being approached by others is that did I hear that correctly.
Yes. So its both there are some markets we want to get into the we think we have some real core competencies and we can do some damage and that market.
But there's a lot of manufacturers coming to us for help.
Whether it's on the logistics side of the sales team relationship side, our operational capabilities of our revenue cycle capabilities.
Any and all of the above so you know like I mentioned earlier I Wouldnt say its unlimited, but it kind of feels that way. Some day is that theres a lot of opportunity out there and now it's you know, it's the trust and the team to pick the right. One for the next one and I have of 100% state that we're going to do that and we're going to execute on the next therapy.
All of you certainly of the track record.
Speak to that so look forward to watching this play out and and seeing.
And what happens this year. Thank you guys.
Thanks, Eric.
And then the next question today comes from Douglas Weiss with DSW investment. Please go ahead.
Hey, good morning.
I wondered if you could.
Lay out a little bit more on the the wound therapy side.
And how that 600 million addressable market breaks out in terms of.
Third third party providers and.
Doctors, who just try and devices directly and so you know in terms of what where you see the competition and what you see is.
Directly addressable market.
Yeah. So the $600 million is actually of a piece of the overall wound care market.
This is specific to negative pressure.
And it's specific to patients going home, so, leaving the hospital and going home. There's there's a it's probably about a $2 billion addressable market. If you count patients at home patients at home patients and the hospital and patients have stepped down and long term care facilities as well we are focusing 100% on just the patients that are being discharged from the hospital.
And going home with their device and that's where the $600 million Mark that comes in and so it's kind of a breakdown of the bigger.
And we won't care space in that space, it's because of the patients going home theirs.
Four of five players.
And obviously us with Cardinal we expect it to take some some share over the years.
The biggest player and that market by far is <unk>, which is now and by three of them they build and the space for years.
And there they are like we are in oncology and the negative pressure space. So that's really the big competitor.
The hospitals do by their own devices and they own them outright.
But that's not really part of the market, we're going after it because thats inpatient acute and the inpatient acute care setting where we.
Really going after one patient and the patient's home.
Okay, Thanks and.
What do you expect as far as capital investment too.
Reach.
If you get to that 5% to 10% level.
Okay.
Certainly our capital investment will be less intensive than in the past as we have more revenue streams that are that don't require devices and that.
That said as we're growing and the 20% range of it as we I think we've said before where we're and be a consumer of capital won't have quite enough cash flow to cover the can needs for for buying devices and that while we're growing at the current rate our ore and the mid double digit rate, where we definitely would will generate cash and don't need the wood.
We don't need of buys may devices and those cases.
And if that helps.
Yes. It is.
And the possible the two.
Speak directly to the wound care.
And then in terms of what what it would cost to you know what it will cost too.
Yeah.
Yeah, I think I can answer that so you know.
And the devices are a couple of thousand dollars.
We've only been in the market for a year. So we don't know what the lifespan is going to be our infusion pumps, we depreciate them over seven years some of them last 10 or 12 years.
But but for every new patient because we didn't have to go buy a whole bunch of them and stick them on the shelf. So as we get new customers new patients, we go and buy new devices.
The way it works and the pump side is basically for every dollar you spend on the pump and the first year, that's what you're going to get back and revenue and then obviously the pump lasts another six to 10 years. So so it's.
The economics of going a lot better after year, one I would say, it's similar if not even faster on the negative pressures on the just the reimbursements just more so the devices of little bit more of it the reimbursement better.
So the same kind of thing for every dollar of negative pressure revenue roughly and the first year.
Of new revenue, you're going to have to spend about $1 on the device.
Okay.
And then.
In terms of the guidance.
Hum.
Looks like.
You got into.
Similar margins on the incremental revenues that you're forecasting.
And now you're on an EBITDA basis, it looks like your margins can be pretty flat or maybe up slightly.
Can you just explain you know my understanding was a lot of these new revenues.
And we're leveraging your existing infrastructure and would be higher margin.
So I guess, if you could just.
Talk to that.
Yes, some of them a contribution margin perspective the <unk>.
The segment is.
From a gross margin perspective, and the 60% range. However, we do need to add.
The clinicians revenue cycle team members and other things and it'll be commissioned and the things like that that will add to our SG&A.
That said, we see a as the AD revenue a higher contribution margin and the current EBITDA margin.
We do have to make some of them investments.
Investments and the infrastructure to grow the mad at higher volumes that will happen over time, but generally speaking we don't what we don't see is the need to make significant SG&A investments to add to the therapy, that's where we get the leverage so our expectation is that our EBITDA margin will grow.
Steadily if not.
Double digits, but it will grow steadily and will improve as we add the new revenue.
Okay, Okay, Thanks nice quarter.
And ladies and gentlemen. This concludes the question and answer session I would like to turn the conference back over to rich the Oreo for closing remarks.
Yeah.
Thanks, Rocco I'd like to thank everybody for participating on today's call I hope everyone has a good day and I look forward to talking to you again, when we report our first quarter 2021 of the results. Please stay safe and thank you.
And thank you Sir This concludes today's conference call and thank you all for attending today's presentation and then now disconnect your lines and have a wonderful day.