Q3 2021 InfuSystem Holdings Inc Earnings Call
[music].
Good day and welcome to the MTS Systems Holdings, Inc. Third quarter 2021 earnings Conference call.
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I would now like to turn the conference over to Joe dormant with Lytham partners. Please go ahead.
Thank you Rocco good morning, and thank you all for joining us today to review the financial results of Info system Holdings, Inc. For the third quarter of 2021 ended September 30th 2021 with US today on the call are rich Diiorio, 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 questions. 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 in few system dot com or numerous other financial websites before we begin with prepared remarks.
I'd like to remind 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 1995, except for the statements of historical fact this conference call may contain forward looking statements that involve risks and uncertainties some of which are detailed under risk.
Factors in documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31 2020.
Forward looking statements speak only as of the date. The statements were made the company can give no assurance that such forward looking statements will prove to be correct. 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 <unk>.
Oh, Chief Executive Officer of <unk> system Rich.
Thanks, Joe.
Everyone and welcome to our third quarter 2021 earnings call. Thank you all for taking the time to join US. This morning, and I Hope you and your families are staying safe.
This morning, we will review our financial results for the third quarter of 2021 provide an update on our business discuss the status of our current growth initiatives review guidance for 2021 and talk about the outlook for 2022 and beyond.
To start I'm as excited as I've ever been with the progress the team is making across the board. We are building meaningful meaningful momentum in both of our business units and we're doing this on top of delivering record revenue in the third quarter.
Our financial performance came in on plan, which puts us on target to meet our updated guidance for 2021.
As most of you know <unk> system has two operating units integrated therapy services or Ats is the original and larger of the two.
And it is focused on providing turnkey solutions for continuity of patient care between the hospital or clinic in the patient's home specifically when the carrier includes the use of complex durable medical equipment, including oncology pumps negative pressure wound therapy devices et cetera.
Integral to the Ics business is there a third party payor billing capability.
Terrible medical equipment reimbursement has unique billing requirements and our operational focus on it combined with our extensive payor contracts is a key part of the turnkey solution that NP system brings to the table.
Our second operating unit as our durable medical equipment services business, which focuses on equipment rentals and biomedical services. The DMT business was originally acquired to support our Ats segment. This is the part of the business that provides equipment repair and maintenance and where our equipment rental offerings are located.
About two years ago, we began efforts to expand and extend the operations of the Ips segment. The idea was to leverage the core competencies that were developed and perfected for our original therapy in oncology and apply those skills to an expanding number of additional therapies today.
Today, we have four therapies in Ics.
Biology is still the largest the next to pain and wound care, both have momentum and we believe they will generate significant revenue in 2022 and 'twenty three.
The fourth and newest therapy as pneumatic compression to treat lymphedema, which is a couple of years away from being real revenue contribution, but with a $1 billion plus addressable market. We are extremely excited for what the future holds.
The reason why are we so excited is that each one of these therapies could be transformational in their own right.
Therefore, we don't need to hit on all four to be successful, but I remain confident in our ability to deliver revenue growth in each of these four therapies due to our team's ability to focus and execute our growth plans at a high level.
Additional additionally, all four business opportunities fit perfectly into our core competencies and we have the capacity to manage each of these business as effectively as we've been doing some form of each of these for the last 30 plus years and one final point.
They will almost certainly be more Ips therapies. In addition to the current forward in the future by becoming a preferred partner for providing the last mile solutions for durable medical equipment going from the clinic to the Hall <unk>.
T system has positioned itself such that we get a lot of inquiries for medical equipment manufacturers looking for help as more and more patients and therapies transition towards the home environment.
My vision is that we will double the company revenue to approximately $200 million in the next three to five years. This is tremendous growth given it took us more than 30 years to get to our current top line levels. We have the right team in place to manage the growth our strong financial foundation and a highly leverages <unk> service platform that will enable this growth.
Now getting back to the investments, we're making this year to support our growth.
I frequently highlighted that the nature of our business is that we often have to make investments first absorbing some expenses and then waiting a quarter or more before revenues begin to show up in our financials. We saw this a few years ago when our major competitor left the oncology market and we ramped up our inventory and operations to allow us to capitalize on the opportunity and take on most of their former customers.
And we are seeing something similar this year, while we didn't enter 2021 expecting it to be a material investment year. It has turned out that way due to a series of opportunities that we are eagerly capitalize upon and that have put us in a perfect position to build on the future.
The first was discussed in some detail on our last call. When we disclosed that we nearly doubled the size of our sales force after begin after being given the chance to hire some of the best salespeople in the pain and wound care markets with the help of these new experience reps, we hope to be able to make more announcements like the one we made in the press release on November 2nd announcing the AP system has been selected by a leading.
U S based health care provider to provide our pain management service <unk> block.
And the agreement NP system will be providing pain management services to a top U S health care provider with more than 12 million customers as part of the service agreement, we will provide <unk> block, which includes electronic infusion pumps for continuous peripheral nerve block at 24, seven clinical hotline and biomedical services.
Power supplies the pain business is really gaining traction in the marketplace and a win like this gives us even more confidence there is so much more to come as the team continues to build on this momentum.
Our second biggest investment this.
This year was touched on briefly on the last call and involves our aggressive hiring of technicians into our biomedical team and DMA.
This hiring accelerated in the third quarter and we've been busy onboarding training and equipping the expanded team getting them ready to execute on the business, we expect that to come.
As disclosed in this morning's press release, we are finally in position to begin discussing a major new opportunity.
<unk> system has been selected to provide biomedical services to a leading global medical technology and diagnostic equipment company with operations in more than 100 countries as part of this service will provide biomedical services, including annual preventative maintenance and repair solutions to the fleet of infusion pumps at hospitals and other medical facilities under contract in North America.
Service will be conducted either onsite at most of their 1200 medical facilities, including 800 hospital systems in the U S and Canada or off site at one of <unk> system seven service centers.
Once negotiations and contracting are finalized in the coming weeks. This program is estimated to generate approximately $45 million over three years with $8 million to $12 million in the first year of service.
This new relationship marks a major shift in the DIY side of our business and comes as a direct result of the acquisition of two unique biomedical services companies in the first half of the year.
We decided it was finally time to extend our capabilities into the acute care space. So we enhanced our already strong biomedical team with onsite capabilities, which was done with the <unk>.
April of this year and to diversify our skills to be able to work on more types of medical devices, which was done with the filament acquisition in February of this year.
With the addition of the Ob health and filament teams and their capabilities NP system can cover a broader range of services, including on site repair preventative maintenance and physical device inventory management to hospitals and health care systems nationwide.
We can also serve as not only infusion pumps, but also compression devices defibrillators electro surgical units and patient monitors these incremental capabilities make it possible for NP system to pursue potentially transformational deals in the future.
I firmly believe our DNA platform now has the same growth potential is our <unk> platform and could be the fastest growing segment over the next couple of years.
Acute care is a huge market opportunity and it is our strategy to maximize the synergies created by the two acquisitions to drive growth and expand our market share in that space.
Of course executing against all of the available opportunities will require both operating discipline and increase scale at this point back to my earlier comments about upfront investments being necessary before material revenue is realized.
In the case of our planned growth in Dnb the investments began in the first quarter with the acquisition of filament followed by the acquisition of will be held in the second quarter.
We have been ramping up our team in operations and operations steadily ever since to discuss how we've been preparing to onboard the anticipated new revenue I will turn it over to President and Chief operating Officer, Carol a chance.
Rich and good morning, everyone.
As rich just mentioned the process of upgrading the company systems and operations in preparation for growth has been ongoing for some time now our third party payor billing and collections team was the first area of focus given the importance of getting paid for the services we provide.
We have a very strong team under Jamie Thank banner, our VP of revenue cycle in place now and we have implemented a system of constant process improvements. This includes increasing automation and new efficiencies that reduce cost and drive both higher revenues from increased collections and higher operating margins, our process and rationalizing the billing and.
<unk> function has been so successful we completed the long desired integration of teams, bringing Ics and dnb under a single more efficient operating structure.
The next functional area I'd like to comment on as delivering substantially greater output with far greater efficiency as our it department under Adam Cooper.
Got great coordination now with operating very comfortably and so part of the rest of the company.
Key implementations have been rolling out on schedule, including upgrading and integrating systems that support our continued growth.
Integration of the two biomed acquisitions went very smoothly and is complete as rich discussed we are adding to those teams as well as to our legacy biomed team, adding people equipment and increasing the footprint of our biomedical operations with Covid haven't changed many of our practices, we're taking advantage of changing over space for <unk>.
Typical seeds to set and setting up dozens of new work benches training of new technicians has progressed smoothly and the team is ready to begin onboarding new work, we expect hiring to continue as the workload ramps up through much of the next year.
Senior management has given careful thought to setting priorities for the next year, obviously biomedical services is a top priority and we plan to continue the same work done over the last two quarters to hire train and ensure the highest quality work and the most efficient operation of this rapidly expanding part of the company paint.
Pain management is also growing quickly and we are focused on streamlining processes, both in the field and to the back end office to stay ahead of the anticipated growth.
<unk> and we've had time this year to fine tune our processes in advance of the revenue scaling expected in that business and finally.
Operations will be ready to support the pneumatic compression business when the therapy begins to come online.
Overall, the approaches to scale existing operations in Ics and DNA, taking advantage wherever possible to achieve greater efficiencies by a greater throughput areas, including warehouse and nursing support have existing capacity to support higher volumes, while our biomedical team and billing and collections had the space structure and.
Our leadership to support significant growth operations is ready for growth and we are already executing in anticipation of everything we've talked about here today with that I will turn it over to our CFO Barry Steele to provide a review on our financial results.
Thank you Carrie and thank you everyone on the call for joining us today.
I'm going to focus on three areas the status of our financial resource reserves. The main drivers for the current quarter's result, and it's an important factors that would drive our revenue and profitability higher during the fourth quarter.
First let me touch on our financial position.
As Richard indicated we are expecting a significant acceleration in our revenue growth in the next quarter and into 2022.
Well positioned to fund that growth with strong cash flow from operations backed by significant liquidity reserves available from our revolving line of credit.
Notwithstanding the strong position our growth capital needs are expected to be markedly lower as compared to historical growth period.
This is because our biomedical services revenue growth did not require us to purchase metal equipment medical equipment or other capital items as compared to our Ics business.
This year through the first three quarters, we have generated $14 6 million in operating cash flow.
This compares to $12 7 million during the prior year, a 15% increase the.
The amount was sufficient to cover $8 million and net capital expenditures during the period and finance, all but $1 1 million of the filament and it'll be health care acquisition, which totaled $7 7 million.
We continue to anticipate that our full year operating cash flow will be $19 million to $22 million.
We also continue to anticipate that our investing cash flow, which includes cash used to purchase medical devices and other capital expenditures and cash provided by the sale of used equipment for the full year of 2021 to be within the range of $12 million to $15 million.
At the end of the 2021 third quarter, our total debt stood at $30 9 million a decrease of $1 6 million at the end of the second quarter and our ratio of total debt to adjusted EBITDA for the last 12 months is one three times.
Our debt included $30 8 million of outstanding borrowings on our 75 million revolving line of credit.
And then quick and an equipment loan totaling 400000.
This debt structure aligns perfectly with our growth strategy for the following reason.
The credit line is not a term loan and therefore requires no principal amortization.
It does not expire until February 2026, and we have strong traditional bank partners, including Jpmorgan Wells Fargo Bank, PNC Bank and Comerica Bank under.
Under the credit agreement, we have significant financial covenant headroom, allowing for a maximum leverage ratio of three five times and a minimum fixed charge ratio of one two times.
We currently enjoy a very low rate of interest at LIBOR, plus 200 basis points and have protected $20 million of the outstanding drawing against increases in interest rates to the end of the facility term.
Because of the flexibility of having an all revolver facility, we have the ability to manage our cash on hand, very efficiently, which is why our cash balance at the end of September with only 165000.
Our.
Liquidity at the end of the quarter totaled 40, $43 6 million and consisted of $43 5 million in available borrowing capacity under the revolving line and the cash on hand.
Turning to a few points on the operating results.
Net revenues for the third quarter of 2021 totaled $26 6 million. This was our highest quarterly revenue ever even beat our best quarterly revenue amount in 2020 during COVID-19 when the market demand for infusion pumps with unusually elevated due to the pandemic.
This represented a 6% and 7% increase respectively from the prior year and sequentially.
The amount was right in line with our forecast growth drivers include revenue from the acquisition increases in pain management and negative pressure wound therapy strong collections strong equipment sales and improvement in rental fleet volumes.
Preparations for the new large biomedical services opportunity created additional costs during the quarter in both cost of sales and general administrative expenses that slightly diminish our gross profit and adjusted EBITDA margins and increased our G&A expenses.
Other factors impacting profit margins included slightly higher pump maintenance and an increase in our loss pump reserved in the Ics segment.
Favorable gross margin mix in the <unk> business due to lower rental revenues compared to the prior year and 800000 in costs related to increased sales team.
For native pressure, one therapy, and pain management, which started during the second quarter. A portion of this increase totaled 500 that totaled 500000 was included in selling expense with the remaining amount included G&A expense finally, higher equity compensation of $1 $3 million increased G&A expenses during the quarter. This increase includes both impacts from a higher <unk>.
Price for our common stock and for performance based awards related to the acquisition and other operating targets, including both growth related achievements for the Biomed services business.
Finally, a few comments about our performance expectations for the remainder of the year.
As rich stated in his morning or serious getting as stated in this morning's press release.
We are maintaining revenue and earnings guidance with 2021 revenue expected to be between 107% $110 million and adjusted EBITDA to be between 27% and $28 million.
In addition, we continue to expect the combined revenue run rate for pain and wound care to exit this year at a run rate of approximately $15 million.
These amounts include significant increase from previous quarters, which stem from a continuation in the sequential increases in revenue we have seen in the third quarter.
The increase also includes several significant medical equipment and capital lease sales in our negative pressure wound therapy business.
Presenting an important part of our go to market strategy for therapy.
The outlook also includes some additional expenses related to our efforts to be ready to successfully launch new programs and the biomedical services business that rich and Carrie mentioned.
These mainly come in the form of new personnel, but also supply cost and other expenses. However, despite the higher expenses.
Higher revenue expected to come at a favorable contribution margin, which will improve overall profitability.
And with that I'd like to turn it back over to Mr. Diorio.
Thanks, Maury I believe NP system is at an inflection point and I am extremely confident about the future of the company with multiple material growth initiatives in both our <unk> and <unk> segments.
The strength of our business model and positive outlook for 2022 and beyond.
Abides us the confidence to make these important growth investments in 2021, it will allow us to drive long term revenue growth.
We are reaffirming our guidance for 2021, as Mary mentioned and we'll be exiting 2021 in a position of strength to successfully execute our growth plans.
As a result, we expect stronger top and bottom line financial performance in 'twenty, two and subsequent years.
I am extremely excited for the future of <unk> system as we are transforming the company for long term success.
And now we're happy to answer any questions.
Thank you we will now begin the question and answer session.
To ask a question of numerous I'll start with one on their home phone.
So we are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please first started them too.
Today's first question comes from Alex Nowak with Craig Hallum. Please go ahead.
Great. Good morning, everyone and thanks for the update I just wanted to better understand the sales agreement with a medical device company that you announced this morning are they a global manufacturer of devices and abuse into system will essentially become the contract service provider for them and just both devices and then what sort of additional staff and do you need to do to get <unk>.
Ready for this deal next year.
Okay.
Good morning, Alex Yes, so great questions. They manufacture devices. They also provide services.
So we're going to be helping them with their service of infusion pumps and all of their customers. Once the agreement is signed so they they are definitely global.
When everything is finalized we'll put out a press release likely with their name in it you guys will see that but.
What we're going to be doing is we're going to be providing some supplemental services for them on their mostly infusion pumps are around the country and even a little bit in Canada.
From a staffing standpoint, we.
We definitely need to hire the biomed tax right. They only have so much capacity per person per day.
So we have all the numbers and we can back into how many how many techs, we need where they need to be whether they're onsite or in one of our service centers.
But that's the majority of the staffing we don't need a bunch of extra salespeople. There's no clinical involved there's no revenue cycle involved. So it's really just the biomed technicians that we have been we've been adding now for a little bit in the second quarter quite a bit in the third quarter and that'll continue through the fourth quarter as well.
Get to the number we need to service the number of devices.
We're gonna need the service.
Okay got it that makes sense and then your competitor in lymphedema is a big one out there had some disruption in this earning cycle is there any potential to go faster.
That market make some make some investments like you've made a dependable and space to get you better positioned for.
2022 or at least early 2023.
Yes, so so we're not we're not putting lymphedema on the back burner.
To build the program the right way and we are going to invest a little bit into next year, we have to a degree this year as well.
Yeah realistically early 2023 is when we should start to see revenue come in next year will continue to build the program buildup the team a little bit of experts, who we need to bring in house.
And go attack that market, but but we're confident long term with lymphedema I'm also very conscious that with this new opportunity that we have in front of us with biomed with the growth of pain in wound care, we need to make sure we execute on whats standing right in front of us with the programs that have their feet under them already.
But we're not going to we're not forgetting about lymphedema in any way the revenues just another year or two away.
That's helpful and then thinking about Q4, but also next year. The company has a number of building blocks that are going to help make 2022, I think look pretty good you've got Pam would ramp into that run rate you've got this <unk> contract coming on board.
So I guess the.
The guidance assumes a pretty material step up for Q4. So are you already starting to see some of these contracts materialize in October and November or are these all kind of pushed to the end of December just help us get comfortable with the Q4 guide. But then also how are you thinking about 2022 from a growth perspective, when you put all those together.
Yes, so the fourth quarter is a combination of a lot of factors. So there is just kind of normal growth. The reps that we hired in Q2 will be kind of just hitting the ground at that point. So we will see a little lift in paint in wound care in the fourth quarter paint also has seasonality in Q4.
Once a patient start to hit Copays and deductibles they tend to come in for elective surgeries at the end of the year, where they don't have as big of an out of pocket expense. So we see that every year. So that's a piece of it.
And Barry mentioned earlier on the wound care side as part of the go to market strategy, you need the inpatient and outpatient.
Program to service patients for negative pressure. So we have some pretty good sized leases that are that are on the books.
In the pipeline I should say.
That we think is going to come to fruition in the fourth quarter. So that's how we're going to get to the Q4 number.
2022, yet growth is.
We should see significant growth I mentioned top and Bottomline improvements next year.
The 8% to $8 million to $12 million, we expect from this one agreement once it's signed alone is a good number throw in paint in wound care.
We're still finalizing our budget for the year, So I don't want to get out ahead of ourselves but.
Next year should be a really good growth year for sure much better than this year.
Certainly it looks like it I appreciate the update thank you.
Okay.
And our next question for John.
Sure Brooks O'neil.
Hello, Mark.
Good morning, all thank you very much for the comprehensive overview I found it terrific.
I have a couple of questions. One is you know most of the companies that have reported in our area or sector. So far this quarter have highlighted.
Covid disruptions nursing shortages labor shortages in general and supply chain disruptions.
I think I missed it but I don't think you mentioned very much about that do you guys see that in your markets are you.
Are you being hurt by it you're benefiting from it what's going on out there.
For us we're kind of neutral so we see the disruption, but we're not really affected by it so from a labor perspective, we've done a great job of retaining our team when we need to go hire people, we offer great benefits great company to work for Great culture. So we don't really struggled to find people even in this crazy market the higher <unk>.
Apply chain Theres been no issue.
Although we're small in the health care World, we're pretty large in our space. So we can we can throw our weight around a little bit when when things get tight and get the products, we need but we have seen zero supply chain disruption.
Really since the beginning of Covid.
At the end of the day people need these services right. These aren't something that you can decide whether or not you want them.
So we really haven't seen much disruption at all this.
This year I would say, obviously last year there was much different when it first hit but.
In 2021, there really hasn't been a big disruption at all I mean, there is here and there you'll see a pocket or hospital or two denying.
Denying access if they have a surge in that in that town or city or state but.
Nothing thats material kind of on either side for us.
Great.
Second question.
What I have found over a long period of time.
That are tossed around in our industry.
Some people think they know what they mean and I, usually don't so I'm going to ask you to help me understand what the acute care opportunity is like or what youre seeing there just to make sure that I.
Clear about what you're doing in that area, what the opportunity is.
Sure. So so acute care in the hospital space right. So NP system. Historically has lived in what we call alternate site, so physician practices and ambulatory surgery centers home infusion providers basically all health care kind of entities out there outside of the hospital.
And that's been great for US right, that's where our <unk> business is rented pumps and service pumps, that's where oncology kind of lives.
Even pain in wound care to a degree.
The shift in the last call. It nine months 10 months since the acquisitions is is really on the biomedical services piece in the acute care setting so.
Historically, we've done a few million dollars and repairs.
Side of our own our own fleet and Thats been for home infusion companies that need need some repairs and maintenance done on their devices, but the acute care spaces, where all the devices are right. So a hospital system could have 5000 10000 devices in one hospital system.
And then just in infusion pumps. In addition to everything else that moves around that hospital thats in there.
So the opportunities are just in a much bigger scale and we never had the chance to take advantage of them because we didn't have onsite repair we could only do infusion pumps.
And between the two acquisitions and how we can repair more than just an infusion pumps and we can do it on the onsite at the hospital. The hospital is not going to want to ship back a thousand pumps to do a preventive preventative maintenance you have to do it there right.
Kind of right next to the bed in their basement kind of thing so.
Now we have those capabilities and it just creates a whole new world of opportunity for us.
We're already seeing.
The team capitalized on in the sales team go out and win some major accounts and some big business and obviously this new opportunity as a piece of that.
So it's just it's a market that was untapped for an <unk> system and strategically we made those acquisitions to get into that market and now we're often running.
And we're just pretty much the dnb business, you don't see an opportunity to provide services in the acute care facilities.
I mean the clear.
Yes, I think thats accurate.
The fact is we have most of the major hospitals for oncology around the country, we might be in their outpatient oncology center, but we are in the hospital.
Same thing with wound care, we have a growing presence there now we have some pain customers that are in the hospital setting. So it actually we can leverage some of those relationships and some of the acute care hospitals, because we already have so much of their.
Trust to use our other services so now to gain their trust for the Biomed services pieces a nice additional.
I wanted to back so.
But yes, we're not going to be providing clinical support for the pumps, it's just not going in and repairing maintaining due in inventories those sorts of things.
Okay. That's good and then.
Cary and Barry provided great insight to your ability to scale.
I'm just checking with you to make sure you don't think your eyes are bigger than your stomach in terms of your.
The true ability to manage all of the growth and all the things youre doing while continuing to deliver the kind of steady profitable business results you've always done.
I'm not concerned at all so.
We very deliberately have built this team over the last few years to be ready for this.
We have an infrastructure in place that we've built over 30 plus years.
And at the end of the day I think I've mentioned in the in the.
Opening remarks that <unk>.
Nothing we're embarking on is anything different than what we do everyday and have been doing everyday for 34 years. So whether it's biomedical services that we've been doing for years on our own pumps.
Pain management in wound care, which mirror oncology program that we had for 34 years.
All of these things are right in our wheelhouse.
You see us start selling software, we probably have a problem right, but when we're repairing devices and helping patients get home that is exactly what we do and I would argue are the best in the world at that so I have no concern between this team and.
The system, we have in place and the infrastructure.
No concerns at all.
Great perfect. Thank you very much congratulations to keep it up.
Brooks.
Ladies and gentlemen, as a reminder to ask a question. Please press Star then one.
Question comes from Jim Sidoti with Sidoti and company. Please go ahead.
Hi, good morning, and thanks for taking the questions.
First one is a quick one were there any one times in the quarter that contributed to revenue or on the expense side other than the option expense and one time expenses that are notable.
We did have some expenses again related to just the ramp up that we had planned for for the new the new.
Opportunities, but nothing that was really onetime in nature I wouldn't say it will have the revenue to pay for it very quickly.
I'd characterize it.
Alright, and then kind of a bigger question a bigger picture question as you look out over the next couple of years. It sounds like you have four or five.
Significant opportunities to grow revenue.
How important is it for you to grow the bottom line in the near term.
It's something you kind of put on to the side as you make these investments or do you think you'll still be able to grow earnings.
The increased cash flow in the near term, while you are investing for the.
Larger opportunities on the Powerpoint.
Yes, what I would say is that we certainly have.
To grow the profitability, we as we've said before we have we can see a path to higher EBITDA margins I think that will build.
The multi EBIT be determined based on how much the inverse.
And the opportunities we have in this company, there's more investment opportunities on the P&L, then there isn't necessarily a capital.
I think that again.
Again, if you kind of Peel it back, but certainly higher profitability higher cash flow, but again, we will have to make some investments along the way.
Alright, thank you.
Thanks, Jim.
The next question today comes from.
What was what is the breakdown of investors. Please go ahead.
Hey, guys. Thanks for taking the call.
Kind of piggyback off the last question.
Our EBIT margins around 21% this quarter.
In the first quarter.
25% last year a 27%.
What are you kind of thinking for for next year.
Do you think it will see a return to that 25% to 27% level and then I know long term you've said, 30% is your is your target is that kind of still what you're thinking and specifically than.
Of that 25, 27% is that attainable next year.
First couple.
Clarification as last year's margin was elevated mainly because of the benefit for Covid. We sold a lot of devices out of inventory that had no no book value anymore, they're it's fully depreciate. It so it's not really a great proxy for us.
If you sort of Peel back the investments were making this year, we're at sort of that 25% Mark.
We haven't done our budget completely for next year. There are some of the investments, we're making the sales team fully be.
Paid for with the revenue almost paid for by the end of the year, but still let's say a little bit of headwind that said I think we still are confident that.
That we see a path to 30% maybe not next year, but certainly after that and the one nice thing that we see is that things like biomed and even lymphedema when it really comes on line.
They they have.
Decent contribution margins that are accretive clearly that the opportunity with our new biomed Contra.
Contract is very accretive to us.
And yet those those two things the biomed lymphedema require no capital. So certainly our cash flow our free cash flow is definitely improved which is an important measure for this company.
Yeah. Thank you for that because my I guess my read of it was that.
Medical services business with.
Probably be one of the higher margin businesses for you it sounds like that's correct.
Yes got it.
Do you need those generally have lower gross margin, but it has a lot less sort of overhead and G&A. So that's again, what we see is the biomed as we grow it definitely is accretive to EBITDA.
What are you guys thinking about you know last year I think it was in December you came out.
You know apart from an earnings release and gave the 2021 guidance what should we expect in a lot of moving parts I know.
But when do you expect to give any sort of guidance on 2022.
Yeah, and I think I think you just hit the nail on the head there is.
There's a lot of moving parts, we want to finalize this agreement first.
To make sure we can put on the books for next year. There's a couple of other opportunities that are that are out there that we should have better visibility into in the next call. It 30 to 60 days.
But once we finalize it will certainly come out with our guidance if I had to put a date on it it's probably.
Early January it.
It could be a little bit sooner than that a little bit later, but it's in that ballpark, we just wanted to get comfortable with.
The opportunities between the salespeople we've added.
In wound care and pain that are starting to come to the door.
This one big opportunity in Biomed Theres, a couple more out there we want to get our arms around them and have as much information as possible before we put the number out but the good news is it's it's going to be a really good number.
In 2022, almost any way that we look at it any model we've looked at.
2022 is going to see some significant growth for sure.
Yes, I mean, I was just kind of running the numbers based on what you've said on this call are not even adding anything more which you just indicated you know could possibly happen.
I don't see any way that would be under $15, 16% in terms of.
Revenue growth is that.
I don't know how much you can say about that now but is that an accurate based just on the numbers you put out now it seems.
Yes, I mean, I think that that's that's on the very low end.
That's what I thought yeah, yeah, I mean without getting into all the numbers I think.
In order of magnitude of 20% is probably.
A good baseline to start up but again, we'll finalize what the opportunities are out there and see what that looks like but yes next year is going to be a pretty solid if not better growth here.
Yeah, and then I mean, and then the EBITDA should be even.
Higher percentage wise given the.
A return to better margins than that Barry just mentioned so that's good.
So.
We're probably not going to hear from you again until March since it's the end of the year for you.
Are you thinking then that there may be some updates and between besides just the guidance. It sounds like you've got some things in the pipeline, maybe we will hear from me before that.
Yes, I think I think when something significant significant happens we will let everybody know for sure. There is no reason not to that could be a combination of announcements are.
Our guidance for next year, I think all of that will happen before March.
You'll hear from us.
Alright, Thanks, guys appreciate it keep up the <unk>.
Okay.
Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over for.
For closing comments.
Thanks Rocco.
I want to thank everyone for participating on today's call I hope everyone has a good day and I look forward to speaking with you again, when we report our fourth quarter 2021 results. Please stay safe and thank you.
Yeah.
Thank you. This concludes today's conference call. We thank you all for those who are joining today's presentation. You may now disconnect your lines and have a wonderful day.