Q3 2022 InfuSystem Holdings Inc Earnings Call
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 2021.
Forward looking statements speak only as of the date. The statements were made with 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 Diiorio, Chief Executive Officer of <unk> system Rich.
Thanks, Joe and good morning, everyone and welcome to <unk> Systems' third quarter 2022 earnings call. Thank you all for joining us today.
Before providing some color around our new exciting partnership and wound care with Sinatra Med Tech I would like to provide a quick overview on the recently completed quarter in.
In the third in the third quarter, we once again achieved record revenue, while improving on our gross margins from the prior year, resulting in a return to GAAP profitability.
The quarter continued to demonstrate the strength of our core business and was led by our Ats segment, which grew 5%. Despite the continuing headwinds in wound care relating primarily to the availability of the cardinal negative pressure devices for new customers.
Our aggregate our aggregate gross margin improved by 202 basis points year over year operating income increased $1 $3 million and net income increased $900000 for the third quarter.
As it worked steadily to expand our offerings and improve our long term growth potential we can see how <unk> systems unique positioning in the market is drawing well respected companies such as scenario and GE healthcare to partner with us.
First our <unk> centers of excellence are strategically positioned to serve all of North America.
We are participating in network provider in over 770 health insurance networks, covering more than 95% of the U S population and.
And third there is a strong and growing reputation reputation for white glove service and patient focused care too.
Together these and other attributes have helped NP system to be increasingly recognized as a go to partner for companies looking to upgrade their health care service offerings or to expand their marketplace reach.
It is in fee systems unique problem solving abilities, and our growing reputation that attracted scenario to partner with us.
As I turn now to our new relationships and offerings related to wound care I hope to be able to convey why we are so excited about these developments and how they are expected to impact our future business.
Starting at a high level wound care is believed to be a particularly attractive opportunity for <unk> system. In addition to having a very large addressable market wound care epitomize the need in health care for solutions that can help to facilitate an effective transition from the hospital or clinic to the patient's home wounds.
Wounds can take significant time to heal and hospitals due to high costs and focus on it.
<unk> patients before moving them to the next care setting.
Not the ideal place for patients and clinicians to advanced wound healing over a long period of time.
When <unk> system entered the wound care market a few years ago, our offering was based upon a single Cardinal health negative pressure device since that time, we have worked hard to develop several opportunities that could have material materially contributed to our topline. However in fee systems experienced to date in wound care has admittedly been disappointing.
With the recent announcements relating to wound care I believe this is about to change.
With our new distribution agreement with <unk> medical we now have an alternative to the Cardinal device. It is no longer available in the market.
Through our new relationship with <unk>, we have immediate access to a state of the art device and technology.
Additionally, we believe scenario will be an ideal partner as we work to provide a more comprehensive offering to the wound care market.
This starts with the company sharing our long term focus that everything we do is based on improving the quality of our patients' lives across the continuum of care by reducing the complexity of treatment and offering a diverse set of advanced wound care products.
We will win business together in wound care by proving that our solutions are better for patients better for providers and better for payers.
There are two important components of the <unk> systems, and our approach to wound care.
First our aligned vision on patient care focused on providing solutions that promote healing lowering the cost of care and improving patient outcomes second the combination of best in class wound care products with our leading industry, leading turnkey turnkey services, leveraging our <unk> platform and our 770 in network contracts result.
And expanding the continuum of care and going well beyond just selling and leasing negative pressure pumps.
The agreement signed last week is much more than a distribution agreement we have been talking to scenario for over a year planning our combined disruptive approach to wound care.
This is a true partnership with each party, bringing to the table unique and world class capabilities. Our goal is to bring a more effective approach to the wound care market and redefine the standard of care by capitalizing on <unk> systems unique service offerings that will include our sales distribution clinical support and revenue cycle revenue cycle capabilities that will complement.
And our deep wound care experience and expertise in their leading edge products, including <unk> and high call to promote patient healing.
To fully develop this opportunity we have formed Psi wound care a jointly controlled LLC that will enable both companies to maximize new wound care business opportunities and share in the profits.
We will provide more details on this operating agreement in a moment.
Coincident to launching the partnership and fee systems signed a distribution agreement with Cork medical with plans to almost immediately begin taking advantage of this new supplier relationship.
Our team will sell and lease their <unk> brand of negative pressure wound therapy devices and supplies in the U S and Canada.
The new relationship with Cork is the solution of the difficulties with Cardinal health and access to their negative pressure equipment that we discussed on our call in August .
Previously with only having a single point solution that wound care market. Our team was challenged to compete effectively with the larger more diversified players.
With us in our partnership we believe that obstacle has been removed.
We now feature a comprehensive portfolio of wound care products and have a tremendous opportunity to grow our wound care business by offering a complete solution.
From a device to advanced wound care products designed to heal patients and not just treat them.
Our belief is that if you can take care of patients by improving outcomes and satisfaction and satisfaction clinicians will take notice leading to increased market share.
Switching over to our <unk> services segment, I would like to give an update on the status of our ramping relationship with GE healthcare while.
While the Onboarding process started out slower than we had anticipated and realized revenues behind where we expected it to be at this point in the calendar. Our Biomed service team continues to work very closely with their counterparts within GE.
We have confirmed that our white glove services are being well received both by GE and the onboard facilities and that Onboarding of new medical facilities will continue in a systematic manner.
We finished the third quarter with a strong August and September and we continue to build positive momentum in the deployment of our services that could involve up to 300000 pumps located in 200 medical facilities, including 800 hospital systems in the U S and Canada.
As a reminder, the foundational Master service agreement with GE relates to our team performing preventative maintenance and repairs onsite at the hospitals are off site at one of our seven service centers we.
We see many opportunities to potentially expand upon this relationship and I am pleased to report that includes one projects slated to start in the fourth quarter of 2022.
This relates to Ge's mobile asset management system, using RFID tagging to track devices.
Although onboarding of facilities has taken longer than we expected we remain very optimistic about the <unk> relationship and opportunity. We now believe the revenue potential will be larger than our original estimate of $10 million to $12 million on an annual basis. Once we are fully operational.
Now turning to pain.
Remained very positive on the outlook of the pain management business and are excited about our near term prospects for the third quarter, our pain business generated a 37% increase in revenue versus the comparable quarter last year.
This is as we are beginning to see the benefits of our investments in the sales team that we made last year.
Despite the short term supply related interruptions in Q2, our team continue to gain market share. Despite the seasonality of the summer months when fewer procedures are performed well.
We are seeing rising patient treatments with this setting the stage for a strong finish to the end of the year.
Our partnership with Ventas pharma, a leader in advanced surgical and chronic pain management solutions became effective in the third quarter, the national sales and marketing agreement gives our sales team access to the enduring kit a single injection for pain management that can be used in conjunction with our <unk> block or as a standalone treatment.
One of the keys to gaining market share and driving revenue growth in pain will be providing more choices to health care professionals and patients by giving them an alternative to opioids in.
<unk> system is fully committed to doing our part in helping to reduce the use of opioids in North America.
Moving onto guidance Infosys.
<unk> system is estimating total revenue for the full year 2022 of approximately $112 million, which is at the lower end of the previously stated guidance of 10% to 13% revenue growth for the year. Additionally, adjusted EBITDA for the full year 2022 as expected is estimated to be approximately $22 million with adjusted EBITDA margin in the range of 19 to 20.
<unk>.
I want to thank the entire <unk> system team for their hard work and dedication in ensuring our customers and partners receive industry leading service now.
Now I would like to turn the call over to our CFO , Barry Steele, who will provide a review of the third quarter financial results.
Thank you rich and thank you everyone on the call for joining us today.
Im going to focus on three topics. The main drivers for the current quarter's results from details related to our outlook for the fourth quarter.
A discussion of the new scenario partnership, including how we will account for this activity.
First let me touch on our financial results for the third quarter, which will include both year over year and sequential improvements on various metrics.
Net revenues for the third quarter of 2022 totaled $27 3 million, which was about a 3% increase from the prior year.
While this fell short of our expectations, a topic, which I'll talk more about in a moment and set a new quarterly revenue record. The third time, we've seen that this year.
The year over year growth came from the Ics segment with oncology, increasing by 550000, or 4% and pain management, increasing by 308000 or <unk>, 37%.
Revenue for the Dms segment was slightly down compared to the prior year, but that was due to lower medical equipment sales, which tend to vary from quarter to quarter due to the uneven timing of large orders.
This decrease decrease which totaled 837000 or 41% with nearly offset by increases in rental and biomedical services revenue, which increased by 522000 and 236000, respectively.
Both of which saw double digit increases of 13% for rentals and 16% for biomet.
Biomedical services revenue included initial amounts of revenue from the GE Biomedical services agreement that was launched in April of this year.
Under that agreement totaled 414000 for the quarter.
You may recall that our revenue under this important contract is expected to grow as we continuously onboard locations and devices.
As of September 30, we have cumulatively on boarded nearly 27000 devices.
This represents 13% of the devices needed to reach the midpoint of our annual revenue goal of $10 million to $12 million under the contract.
Gross profit for the third quarter totaling $16 2 million was also an all time record. This improvement was due to the higher revenue and an improving gross margin percentage.
Which increased to 59, 5% representing a significant increase from both the prior year and sequentially.
This increase was driven by both improved product revenue next coming from higher Ips and rental revenues both of which are higher in gross margin than say equipment sales, which decreased and.
And improve productivity for our team of biomedical technician EMEA.
You may recall that in prior quarters, we had begun to increase the number of biomedical technicians, which increased cost priority revenue coming online.
These costs were better absorbed with the higher Biomed services revenue during the current reporting period.
Total selling general and administrative costs were $15 3 million for the third quarter. This was 333000 or 2% lower than the prior year third quarter.
Decreases in stock based compensation, which was 900000 lower in intangible asset amortization, which decreased by 421000 were partially offset by higher general and administrative expenses, including cost of upgrading our internal control documentation for Sarbanes Oxley, which is being audited for the first time this year and higher short term incentive.
Compensation accruals.
Adjusted EBITDA for the third quarter was $5 6 million or 25% of net revenue.
<unk> was 100000 higher than the third quarter of 2021 and about the same as this years second quarter.
Now let me tell you more about our full year outlook as I mentioned earlier reported revenue was behind our previous forecast.
This was attributable to revenue growth coming slower than anticipated for both pain management and the new biomedical services contract.
Longer than anticipated time needed to prepare a new device for wound care and the timing impacts of equipment sales.
Despite year over year revenue growth of 33, 7% our expectations for pain management revenue were much higher than our actual performance. This is due mainly to slower onboarding of new customers.
This lower growth rate is expected to continue during the fourth quarter the.
The same is true for our biomedical services revenue.
While picking up significant momentum and onboarding of new devices under the GE healthcare contract. The peso is still behind our previous expectation.
This does not change our overall assessment of the amount of revenue we will ultimately achieve under the agreement in fact that expectation has improved considerably.
This slower Onboarding pace will continue during the fourth quarter. However, the new contract to provide RFID tagging, which was not in our previous forecast.
Mostly offset that.
You may recall that we reduced our expectations for wound care revenue when we provided our previous guidance by taking out anticipated equipment leases that cannot be fulfilled since our supplier Cardinal health took away our ability to provide the necessary equipment.
We did not anticipate that would have a negative impact on our ability to grow our treatment volume that.
That volume actually decreased during the third quarter.
Fortunately now that we have a new supplier for negative pressure wound therapy devices, and a new customer that needs equipment due to the Cardinal supply issue. We are now expecting an equipment lease to be completed in the fourth quarter.
Finally, our <unk> equipment sales were lower than anticipated for the third quarter as.
As I mentioned earlier this represent a typical timing for that business since large orders have a tendency to vary quarter to quarter.
We expect to makeup for this shortfall during the fourth quarter.
Furthermore, we are anticipating a number of additional large orders to close during the fourth quarter as customers rushed to complete their fiscal year end capital spending plan.
These orders along with the anticipated negative pressure wound therapy equipment lease are expected to drive a significant increase in net revenue for the fourth quarter.
However, we have only included a portion of these amounts in our stated revenue outlook as we know we will not close 100% of them by year end. For example, we have only included 50% of the negative pressure wound therapy lease deal, despite our confidence being significantly higher.
As a result of these factors and as Richard stated we are forecasting that.
To complete 2022 with total revenue of approximately $112 million and adjusted EBITDA of approximately $22 million.
The last topic I'd like to talk about related to the new partnership in wound care.
The setup for this arrangement we.
We will have an impact on how you will see earnings appear in our financial statements for the commercial activities of the partnership.
That is because products that will be sold by Mtc system will run through the partnership in order to capture margins that will then be shared equally by the partners.
For regulatory reasons, the partnership will not have its own revenues to third party customers.
That it was all products to MP system for resale to customers.
Because of this our gross profit on partnership revenue will only cover certain general and administrative.
Expenses.
In addition, there'll be expenses that recharge directly to the partnership through a separate services agreement.
We will not be able to consolidate the partnerships financial statements, but will account for our interest as an equity investment as such and fee system share of earnings which is 50% and includes the gross profit on product throughput will be reported as income from equity invested and included an MP Systems' operating income.
And with that I'd like to turn it back over to Mr. <unk>.
Thanks Barry.
We have tremendous opportunities to deliver on multiple therapies in our Ats segment, and we expect significant growth of biomedical services and our Dms segment and.
In wound care, we have three critical components coming together.
Leading edge negative pressure device from <unk> medical and.
In advanced wound care product line with expertise from scenario.
In our Ats services on the back end.
The new combined partnership will give us a complete wound care solution, enabling us to capture market share and grow multiple synergetic revenue streams.
We believe our focus on patient care that promote healing lowers the cost of care and improve patient outcomes will give us a competitive advantage to gain market share in chronic and acute wound care.
In closing our motto of safe smart and trusted.
And for more than 30 years, we worked hard to build a culture that embodies the patient at the center of everything we do.
The foundation of the company has never been stronger and we are confident in our growth plans to build an even better and fee system. We.
We have transformed <unk> system into a leading healthcare service provider improving the quality of care with the most cost effective solutions for both clinic to home and acute care markets.
Unique service solutions offered by our two service platforms <unk> are well positioned for long term success and meaningful revenue generation in 2023 and beyond.
Before we take questions as I mentioned in August part of the executive team, including myself were awarded stock options in the fall of 2017 that are now coming up on their 50 year anniversary and are set to expire on November 15th.
You will see a form four filings from me before that date that with respect to the expiring options, which will reflect a net option exercise.
This transaction is absolutely know in no way a reflection of my confidence in this business for the future of this great company.
And we are now happy to answer any questions.
Thank you.
We will now begin the question and answer session.
You ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Good morning, everyone I have a few questions I guess I'd like to start off with.
Here I'm curious.
If you believe that new arrangements with Coke and Sundar position you.
Reasonably well to compete with the industry leader my friends at <unk>.
And if so.
What are the key things you think.
Put you in that position.
Good morning Brooks.
Absolutely it puts us in position to compete against <unk> and anyone in the wound care market.
As I mentioned earlier, just having a negative pressure device was was a tough road for the sales guys right, having a single product in a market where we are.
Petitor likes the Ram that has multiple products.
I think the difference maker for this relationship versus a company like those guys.
Is.
We're not going to just treat the patients right. This isn't God's pads and Bandaids. These are products that actually heal wounds and I think that's how we're going to attack the market alright. So you combine a great product a great device from Cork.
Is it replacement for Cardinal you put the experience at the Sonora team Hasnt wound care with their products that can heal wounds and then all of our back end support that we have on the <unk> platform.
You put those three things together and that's pretty powerful and Thats not just to go nibble at the edges of the market. This is to go in and change the way that patients are treated and healed in wound care and that's what we're trying to accomplish here. It's a totally different approach and we started with two and half years ago.
What was it February of 'twenty with the Cardinal announcement, so totally different approach absolutely. We believe and know that we can go compete with the big guys now.
I'm excited about that so just tell me.
It sounds like this arrangement puts you in a position to be more clinically oriented.
Shirley one it goes so far as to say youre going to put our hands on the patient, but I've always felt the Ics opportunity.
Business platform and the <unk>.
More.
Use June .
Nancy arrangement with the payers, but this sounds like you're actually going to get very involved in treating patients.
A am I right about that and B. What gives you confidence that you can extend the company in that direction.
Yes, so so I think it's more of a clinical sale to the customer for sure right. So historically it's been.
Our device versus Casey ice device right and these devices are all pretty simple.
So device to device, we really there was no winter a loser there where we were winning when we did with against <unk> was really a service sale right I think with a product thats in our house with <unk> in high call. It is more of a clinical sale because the product actually does something different than everything else on the market right. So this isn't we're going to put some neosporin on and put a band aid on.
These are products that are actually going to heal the wound keep them clean eliminate or reduce infection. So it's more of a clinical sale, but I wouldn't say, there's any more clinical hands on other than the the call points will be a more clinical call point than they have in the past.
Okay. That's helpful. And then just one more for me.
If I'm hearing you correctly, we're a little behind in biomedical services, but you are still pretty optimistic about the outlook.
That's the right way to characterize it.
Yes, I think thats a good way to look at August and September definitely ramped up.
Going to continue that ramp we actually see some things, especially into next year, where it starts to really accelerate.
I think the good news is we had always thought that there would be other opportunities with GE and this RFID tagging. For example is a good a good way to look at that.
So I think either Barry and I mentioned in our prepared comments that the $10 million to $12 million. The initial number that we're looking at.
We already can see that it's going to be bigger in that long term once we're fully up and running.
Yes, I mean, it's a little bit slower, especially in the middle of the year right that May June time frame.
Maybe even into July but long term it doesn't change the outlook other than probably gets better.
We're sitting here in a year, we're going to be better off than we thought we were six months ago.
Great and I guess I lied.
We do that I apologize, but.
Would you say that there are additional opportunities beyond even RFID with GE and or are you seeing any other companies recognizing what what you have with GE and seeking to take advantage of.
Of your platform in those areas.
Yes, so I think.
We don't see another GE, specifically, but theres a lot of manufacturers that have approached us and have been for the last year or so to work on their devices for them, whether it's recalls or mediations preventative maintenance those sorts of things. So those are out there and I think we'll win some of those over time, none to the scale of <unk>, though.
Certainly not $10 I think within GE.
RFID tagging is probably the.
The first new.
Program outside of the preventative maintenance.
GE touches a lot of devices and.
In these hospitals so over time do we end up working on more devices outside of infusion pumps, yes, I mean, I could foresee that happening but.
We still have some time to go and some things to prove to GE and their customers and ourselves.
When we get there I think there'll be more opportunities for sure.
Cool Thanks, a lot for taking my questions.
Thanks Brooks.
Our next question comes from Alex Nowak with Craig Hallum Capital Group. Please go ahead.
Alright, great good morning, everyone.
The efforts that went into the Cardinal device could you transfer that immediately to the core medical device or is there.
Sales processes need to restart there.
Happens pretty immediately and then just clarification as Cardinal is still going to be a supplier of negative pressure devices for you or.
Or pretty much saying that.
Completely which is what's the status of a carnival.
Yes, so I guess I'll go in reverse so cardinal.
Announced their customers about a month or so ago that they wouldn't be selling any additional devices.
Effective immediately and no more supplies at the end of the year. So cardinal is going to be kind of a dead product in the market not just in fee system, but in the marketplace.
As far as does that does that all the work we put into Cardinal transfer. It absolutely does I think we still need to retrain, our biomet guys on new device, which isn't Super complex, we need to train the sales guys on the device itself.
But we're able to walk into most of those opportunities that were out there in our pipeline with the Cardinal device, we're going to flip those to the Cork device.
As devices Theres, some bells and whistles here and there that are a little bit different but they are relatively simple devices.
So as long as they work people are okay with it as long as they work, they're easy to use those sorts of things.
And the court device absolutely meets all those requirements. So the work we put in the pipeline all the back end support the backend stuff is all agnostic it doesn't matter what the devices. It doesn't matter what model number or serial number it as we bill it and our clinical team triage as it and all those things remain the same so those arent lost efforts, we get to use those as bill.
<unk> blocks, we just need to train the sales guys and the biomed team on the new device.
Okay understood and then I just want to make sure I have all logistics with the new LLC.
Distributor agreements here, so am I correct to say that all of the <unk>.
All of this in our distribution sales is going to show up through the LLC will be reported.
<unk> systems revenue alive, but below but below the revenue line and but the negative pressure devices from Cork will still show up in the issues revenue lines I'll make sure I got that.
But these are all of the revenue all the revenue that we have all those products will be in our top line.
But we'll have a very skinny gross margin because we are going to being close to what we saw in <unk>.
So that we can capture the margin and the.
<unk> venture so the profits basically will come through our P&L through the equity line.
And does that joint venture include the Cork medical too or just the scenario is.
Now the Bill does the partnership will buy the products from Cork.
And so on to the system.
Got it okay. So the revenue all the revenue will be quality through MPD system or your component of the revenue will be and then.
The operating it will show up as an operating income line item not through gross profit.
That's right and there'll be a little bit of gross margin just to cover our direct expenses that we'll have and there are some expenses down in G&A that will charge back to the partnership.
For the most part the <unk>.
<unk>.
The earnings that we'll have will come through the equity line.
Okay understood and then.
And then maybe on the pain side, just what is dragging that kind of a slower uptake there we're starting to see procedure volume rebound here.
Doug too busy working on something else to necessarily bring up a new paint solution is there anything from competition or reimbursement that's slowing the uptake there.
No. So I don't think its anything in the competitive environment I think it's just the nature of the business. So we came out of the supply chain issues late in the second quarter, you kind of have to restart that kind of customer intake and onboarding process and that just it takes a quarter or so to see that happen right. So you got to go in and you got to set up appointments you're getting in service.
The customer they have to start.
You have to train their entire nursing staff and team and then they start using the product. So it just kind of starts and ramp slow, but we almost had to restart the entire engine right want to supply chain, we had to shut it off so we were able to keep our existing customer base and treat all of their existing patients, but we couldnt add any new ones in that second quarter or for the majority of the second quarter.
It was just a timing issue.
And on boarding process. It just takes a little bit of time and then the revenue itself can take a month two months three months to start showing up so that's all it is but it is nothing in the market I mean, we still by far have the best offering when it comes to the continuous peripheral nerve block market, it's not even close to the next best competitor. So.
Nothing competitive nothing nothing has changed in reimbursement. It's just a it's an onboarding kind of slower uptake than we would have liked because of the supply chain issues in the second quarter.
Okay.
And then maybe just thinking about next year, but a lot of moving parts. This year, but for next year, you've got the oncology business called stable mid single digits GE businesses ramping of Sundar agreement.
<unk> medical is the pain as well would you just talk to US just how are you thinking about growth into next year, but also the expense growth as well to support that.
I'll, let I'll, let Barry address the expense side I think on the on the top line growth, we're still going through our budget process now.
It's going to be solid rate for everything you just said Alex right, whether it's the kind of organic business in Dms sales rentals oncology, we know what those businesses are going to do we know pain is going to grow we know the GE agreement is going to generate revenue.
<unk> is going to sort of our partnership is going to generate something as well, so theres going to be some solid growth there.
I just don't have a sense of it yet until we go through this process and bear I don't know if you want address the margin side, yes.
Yes, clearly cost will go up as we grow the revenue, but overall, we believe that the cost will grow slower for couple of reasons as we have already pointed out we still have some spending to absorb and sales on the sales line for example, and some other areas as well we will be continuously fighting the inflation that you see in the marketplace, which hasnt hurt us too much so far.
So those might be wildcards, a little about on the cost side, but for the most part we think we'll grow our margins.
Getting back to normal where we were a couple of years ago.
Okay.
Perfect. Thanks for the update appreciate it.
Thanks, Alex.
Our next question comes from Jim Sidoti with Sidoti <unk> Company. Please go ahead.
Hi, good morning, and thanks for taking my question with regards to <unk>.
We feel pretty confident in that 10 to 12 million number.
How will we think it will be so that's something I would say.
He used to get to that level or do you think that will be going in that.
I would say a bit quicker.
Okay.
Thanks, Jim.
I think we had originally put out 15 months.
We still may come in at that number or pretty close so 15 months puts us from the original agreement sometime next summer early fall somewhere in that range. So I think we're still pretty close to that give or take a month or two.
And the RFID tagging projects does that.
Related to the infusion pumps or is that other equipment as well that you'll be targeting.
All the equipment in the hospital, so it's putting the stickers on its getting the beacon setup so that.
The system knows where the devices are so it's not just infusion pumps as any device and that hospitals, they want to tag so it could be.
A defibrillator or pump a bed stretcher I mean anything that they want to put these tags on they'll do it and we will help them do that.
And so it feels like maybe there'll be other opportunities as.
As well I mean look we're using you for this.
With all these other potential there.
Yes, I think if you prove you are a good partner and you're going to do what you say you're going to do and you do it well.
It's like any good partnership right that theyre going to open that up to other opportunities where maybe they need some help.
And we can we can do it the right way.
So, yes, I would expect there's going to be opportunities, there's no guarantee but if we do what we're supposed to do and what we think we can do I wouldn't be surprised to see more of these types of projects come on board.
Alright, and then last one for me a lot of the other companies in the space.
Difficulty getting enough manpower in place.
Weak demand you've invested quite a bit.
Hi, Kevin.
Over the past couple of years do you think your staff is.
Is adequate now too.
Look we anticipated demand in 'twenty three 'twenty four.
Not yet so I think we still have some some hiring to do on the biomet side as we ramp up Jay we're definitely going to have to add some more people. We added some obviously ahead of that.
That agreement end of last year and early this year for sure just to just have enough to get us started.
But as this ramp picks up this quarter next quarter and in future quarters, we're going to have to definitely add some more people and it's not easy right, it's not easy for anybody but.
But it's certainly not impossible, we are very picky on who we hire.
We want people that are going to be here for years and fit the culture and have the right skill sets. So.
We kept that philosophy and culture here, so it's not easy, but when we when we need to get people on board, we get people on board and we also don't have a lot of turnover, which helps we're not kind of back filling a ton of spots just to get to the baseline. So.
Overall definitely tougher than it was pre COVID-19, but not an impossible task for us and we've been able to execute execute on it over the last six to 12 months.
How about outside of direct labor or do you have the sales team.
The reimbursement staff in place for the anticipated revenue growth.
Yes, so I think the sales team, where we are in great shape.
Add a person here or there, but generally speaking across the board oncology all the way to wound care.
Pretty well staffed up for a while and that's part of what Barry is answer to Alex was about.
We still have some cost to cover there as we grow so the margin should expand.
<unk>.
On the wound care side, we may need some back end support and revenue cycle. If we grow this the way we think we're going to.
We will need some support back in there, but that will be based on how many how much revenue comes in and how many pumps are out the door. It's all variable costs as we grow that team will grow.
But in general it sounds like you think that the bottomline is going to restore grow faster than the bottom line than the top line at this point.
That's the idea for sure.
Okay alright, thank you.
Thanks, Jim.
Okay.
Our next question comes from Aaron Warwick with regard Investor. Please go ahead.
Hey, guys.
I wanted to dig a little deeper here on the numbers.
Obviously third quarter was a little soft compared to the full year guidance, but looking ahead in the fourth quarter.
Like back into the numbers, you're estimating over $30 million revenue in that 16%, 17% topline growth is that accurate.
That's correct.
So is that kind of like.
Getting to the cadence that youre expecting roughly going into 2023 to be up more closer to that area.
I think it would be it should be a little cautious on that because we do have some some equipment deals that come at different times of the year. So I don't think I would take that number multiplied by four is a baseline right.
There is things like the GE contract will continue to ramp every time, we add a pump.
Additional annual fee that we will have a it just grows and grows so there'll be other things that get us there won't actually be some of the things you see in the fourth quarter.
Okay.
And then just on the wound care it really positive to hear the developments there and then also specifically.
Thank you have the ability to compete with the Big boys so.
Just going back looking at earlier I think it was in 2021, you guys had kind of said that the Tam and in wound care was $600 million.
And that you thought you could win 10% of that and obviously it was different situation back then not necessarily asking for a precise number or anything but it is just roughly that 10% of that.
Tam attainable and potentially more now that some of these developments have happened over the last 12 to 14 months.
Yes, that's a great question. So I think the Tam is completely different so the $600 million was specific to.
A little bit of acute care, but really patients going home with an with a negative pressure device. It was kind of a small subset of even with the negative pressure right I mean <unk>.
ACI before they get bought by three am was what $1 billion five $2 billion in revenue just a negative pressure.
The Tam has grown considerably because we're not only in the negative pressure world anymore. We have these other products with the scenario relationship.
I don't want to put a percentage on it.
Or a number but.
This has been a long time in the making for a reason we were very deliberate with this partnership with <unk> and by the way there Theyre an awesome partner they already have been from the people and the culture to the products and expertise.
I think we're creating something special here in the wound care space and we're not just going after one sliver of it anymore.
We really think we can do some special things and take care of some patients and heal some patients that have been struggling for years in some cases with wounds.
So can I put a number on it not really not right now other than we're going after a much broader market because the product offering is that much broader.
Not just pigeonholed into this.
Pressure device anymore.
Well I think that answers speaks for itself again, not necessarily looking for a precise number right now, but the opportunities obviously a lot larger than it was so that's fantastic for unit I mean, it sounds to me I know you probably can't comment on this but I mean, it sounds like it's just as good of an opportunity for scenario as it is for you. So I think you both have a lot to gain.
From that partnership so I think that's fantastic for you guys as well.
As it relates to the GE deal are you able to give any numbers on that I mean, you said it would be.
More than $10 million to $12 million, but.
What.
How much more than that I mean are we talking double that we tuck in.
20% more and more with just some rough ideas.
Yes, I think it's I think it's an incremental.
Single digit million number it's not it doesn't go from 10 to 12 to 20 to 25 right.
Low teen kind of number it's just.
The good news is it's still there and it's better than it was and we're just going to onboard more pumps I think is ultimately what we're going to do.
I think Barry is as it comes due.
One way to maybe look at it is that our 10 to 12 implied around 60% of the devices that they control of getting.
No. We don't we won't get all of them for various reasons, but that just gives us something to measure, but then it that doesn't even count the other opportunities like the RFID tag and the other thing.
Okay.
Yeah.
Back to the scenario deal.
In terms of sales support there.
What are they providing what's their role in that.
Yes, so that sales is going to.
So we have our team that we built out I guess it was the middle of last year still intact and ready to go starting training here shortly.
Scenario has.
I think it's like 30, plus almost 40.
I think they call them regional managers regional account managers.
Most of what they do is tied to their surgical part of the business, but they are going to help on the negative pressure in wound care side as well.
So we're going to leverage their team in addition to our team.
And hit the market that way.
Okay final one for me then is just what are you thinking of in terms of longer term with your EBIT margins.
It sounded like those would probably be increasing based upon what was mentioned earlier about obviously revenue growing but then expenses will also grow but at a lesser degree what are you kind of looking at longer term for those margins.
I think it would be the same as what we've indicated before that if you Peel back the investments. We currently have on our P&L, we should be.
Linda mid to low 20% EBITDA margin as you look at the.
The contribution margin from any one of our businesses.
Including the Biomet, which is the lower end of the range. Those are all are all in north of that that amount. So it should be able to grow that margin as we grow the topline the key will be how fast we do it right because we're going to see cost pressures are.
Things that we've got to overcome over time.
Sure.
So youre thinking like but just to be clear youre thinking like 22% to 25% or something like that in the long run like if it was a steady state and no more investment.
Yes, I think that if you were more like 20% 25, right now if youre able to get the volume to overcome the extra expenses that we're incurring just to help grow the vessels, where they are probably more things in the future. We want to investments that will help us that will keep it down but.
Underlying is a much better contribution margin so that should come through at some point.
Excellent. Thank you guys very happy with the direction you guys had.
I hope you have a good holiday season.
Thanks, Sarah and Youtube.
Okay.
This concludes our question and answer session I would like to turn the conference back over to rich.
Julia for any closing remarks.
Thank you Sarah I want to thank everyone for participating on today's call I Hope everyone has a great day and I look forward to talking with you again, when we host our fourth quarter and year end call. Please stay safe and thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.