Q4 2022 InfuSystem Holdings Inc Earnings Call
Good day and welcome to the MTS systems Holdings incorporated reports fourth quarter or first quarter and full year 2022 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an <unk>.
Opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone and twists draw. Your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Mr. Joe Dormie. Please go ahead Sir.
Good morning, and thanks for joining us today to review a few system Holdings' financial results for the fourth quarter and full year 2022 ended December 31 2022.
With us today on the call are rich Diiorio, Chief Executive Officer, Barry Steele, Chief Financial Officer, and Kerry, what chance President and Chief operating Officer.
After the conclusion of today's prepared remarks, we will open the call for questions.
We begin with prepared remarks, I would 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.
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 as documents filed by the company with the Securities 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 the company give no assurance that such forward looking statements will prove to be correct.
<unk> system does not undertake.
Typically 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>, Chief Executive officer of infuse system Rich.
Thank you Joe Good morning, everyone and welcome to MTS Systems' fourth quarter and year end 2022 earnings call. Thank you all for joining us today.
Our press release announcing our results for the fourth quarter and for our fiscal year 2022 was distributed earlier. This morning as you can see from the summary financials in the release, we underperformed against our expectations for the end of the year. This was a result of a few material deals that do not develop as expected at year end.
It should be noted however that in the fourth quarter, we did deliver eight 7% topline growth versus the prior year.
Our core oncology pump sales and rental business has remained very sound and we delivered another year of strong operating cash flows.
Our core business remains strong, but we did struggle in 2022 to advance certain growth initiatives case in point is our negative pressure wound therapy business, we would expect it to close on some material new pump placements during the fourth quarter in December we had the orders, but found ourselves unable to ship devices and book the revenue when our manufacturer could not get us the devices before the end of the year.
At this time the supplier problem was not with cardinal but instead, the new supplier that we had selected to replace Cardinal.
Our new partner identified a circuit board problem related to one of its components. The faulty circuit board made the equipment unreliable and unsafe for patients and this made it impossible for the manufacturer to release the devices.
In response to the supply chain problem, we have expedited our efforts to identify and onboard multiple reliable negative pressure device suppliers in the meantime, I can report that the supply chain issue did not hurt us with respect to the affected customer. The circuit board problem is being resolved and we have begun making the planned deliveries in the first quarter of 2023.
At this point I would like to turn the call over to our CFO , Barry Steele, who will discuss in more detail, our fourth quarter and fiscal 2022 financial results.
Thank you rich and good morning, everyone. Let me start with an explanation of why we are reporting results. Much later than we have over the past few years.
As many of you are aware if he system raised a key milestone in 2021 by exceeding the $100 million revenue threshold.
Yeah.
While exciting for our team and also brought new reporting responsibilities, namely a requirement for an integrated independent board that included an audit of our internal control environment and accordance with world or be the Sarbanes Oxley Act of 2002.
Like many companies addressing such a challenge the amount of effort put forth to completely control about it the first time slowed our reporting process timeline.
To prepare for this eventuality, we began putting resources towards making ourselves ready for the control on it in the summer of 2021.
This readiness project, including expanding our internal audit resources, documenting our financial processes and controls and identifying and enhancing key control activities.
These efforts were not completely successful and like many companies are experiencing their first integrated audit we identified several material control deficiencies that we will be that we are unable to crack prior to the end of the year.
These will be outlined in detail along with our plans to correct that when we file our 2022 annual report in summary, but efficiencies fall into three categories that first include controls surrounding information and airports that we create and use to support our control activity or so-called I E.
Second control over access rights of our team members within certain software applications.
Financial reporting that to establish adequate segregation of duties over certain financial reporting process.
And third management review controls covering both customer prices and contract terms in certain of our revenue cycles.
While these efficiencies are important and correcting them will be a high priority for 2023. It is an important fact that the deficiencies were not identified in conjunction with any specific error in our restatement of our financial statements for any period in.
In fact, our audit firm has not identified any necessary adjustments to our financial statement in conjunction with their substantive audit.
Audit process and procedures.
This has been the case for 2022 and for several prior years.
Furthermore, as the audit has proceeded we have already begun to plan and implement improvements to our control activity and add additional controls that you believe will mediate each of these control deficiencies area without significant additional administrative problems.
Turning to the actual results themselves I want to share with you some insights into the financial performance of the fourth quarter.
For 2022 fourth quarter revenue was $28 8 million was top of the prior year fourth quarter by 8% and represented a five 7% improvement sequentially from the third quarter.
That's a mountain establishes a new quarterly revenue record our fifth in a row.
The year over year quarterly revenue growth of $2 3 million, including improvement in oncology.
Management, biomedical services equipment sale and equipment right.
Three of these categories analogy biomedical services and equipment sales all grew by just over 700000.
The increases for biomedical services, and the management represent a growth rate that 50% and 45% respectively.
Negative pressure wound therapy revenue, partially offset these increases with a decrease of 302000, mainly due to a difficult comparison to 2021, which included some missed sales that were not repeated in 2022 due to the supply chain issues previously mentioned by rich.
Our biomedical services revenue included over 600000 in revenue the G E Master services agreement, which was launched in April 2022 during.
During the fourth quarter, we continued to process.
Continued the process of Onboarding covered devices as part of a ramp up period originally expected to span. The first 15 months of the contract and achieve a run rate totaling $10 million to $12 million annually.
The actual onboarding pace realized during 2020 was slower than originally expected. However, during 2023 monthly onboarding rate is expected to accelerate we now anticipate reaching an annualized run rate of $10 million by September 2023, 18 months. After the initial launch and 12 million.
By December 2023.
Onboarding activities are expected to level off during the first quarter of 'twenty 'twenty four to bring total annualized revenue under the contract to an amount slightly above the rate of our expected range.
The strong fourth quarter revenue led us to a annual revenue for 2022 of 110 billion, which is our fourth straight annual revenue record and an improvement of seven 4% from 2021.
Higher amounts of revenue led to an increase in gross profit of nearly 800000 during the fourth quarter of 2022, despite a 2% decline in our gross margin percentage.
The decline in gross profit margin percentage was attributable to a different different mix of product volume favoring lower margin revenue.
Medical equipment sales and the biomedical services revenue.
A change in the impact from adjustments in our missing pump reserve, which was a benefit in the prior year and higher pump maintenance expense on our pump rental fleet.
So Laura Biomedical services gross margin was partially attributable to temporary expenses associated with building a larger team such as training class and other and other startup expenses for the project.
Selling general and administrative expenses were higher in the fourth quarter of 2022 by about $2 million as compared to the prior year.
This increase included a higher expense accrual for our short term incentive bonus totaling approximately $1 5 million in severance and other termination costs associated with a reorganization of certain management positions totaling approximately 600000.
Other increases were offset by a decrease in stock happens to stock based compensation expense of 900000 and include investments in business applications for the biomass biomedical services revenue additional head count to support higher sales volume and inflationary increases in wages and salaries.
Adjusted EBITDA for the fourth quarter was $5 5 million or 19% of revenue representing an approximate $1 1 billion decrease from the fourth quarter of 2021. However, adjusted EBITDA for the fourth quarter of 2021 included a $2 2 million benefit related to the fourth quarter adjustment and our short term incentive.
If a cool in that year.
Turning to a few points on our financial position and capital reserves.
We continue to be positioned well to find that revenue growth with strong cash flow from operations backed by significant liquidity reserves available from our revolving line of credit and manageable leverage and debt service requirements.
Our net debt increased by <unk> decreased by $1 1 million to $33 million.
Our available liquidity totaled $41 million at the end of the quarter.
Our net debt to adjusted EBITDA continues to be a modest 1.59 times.
Our debt consists of borrowing on our revolving line of credit with no term payment requirement just under three years remaining on its term and 20 million of which is protected from increasing interest rates through an interest rate swap having the same pattern.
And with that I'd like to turn it back over to Mr. D area. Thanks Barry.
Despite some challenges 2022 was a year filled with significant strategic accomplishments in the first half we signed and we're able to announce our master services agreement with GE healthcare, we believe that relationship will serve as a springboard for significant growth in our biomedical business and more broadly our entry into acute care.
In the second half, we signed and announced what we believe will be immature material joint venture with scenario Med tech to distribute its advanced wound care products.
Absolutely and my belief that in few systems long term prospects are stronger than ever.
Shifting timing of the negative pressure pump deliveries to this quarter, coupled with our improving G ramp gives us confidence that we will be ahead of our internal budget for the first quarter, giving us a strong start for the year.
That said I fully appreciate that the delays we have experienced in delivering on some of our major growth initiatives Warren appropriate adjustments going forward. This presents in two ways first as discussed last year, we are going to be very conservative around our longer term guidance. We're only going to talk about business, we can clearly see predict and deliver <unk>.
Respecting the length of time it is taking for some of our growth initiatives to launch.
Our plan is to trim, some investments and hold back on some spending to more closely align our gross related cash outflows was more cautious expectations around the timing for a revenue ramp.
In wound care this means being conservative with some planned investments as we take into account the need to find a secondary supplier of negative pressure devices and the time it will take to get all of the regulatory approvals necessary to begin distributing and billings and our products under the new joint venture.
We believe we will be going at full strength and our expanded wound care initiative as we enter the second half of the year.
We will be making similar adjustments to reduce our spending and investments related to some lower priority growth initiatives pain management is one area of focus here.
We have a great offering in pain, and there's always been a lot of interest in the program. While it is growing it is behind our expectations as it has been confronted by one challenge after another including supply chain shortages and the impact of Covid given the much larger opportunities that we have emerged that have emerged in recent years, particularly our growth new growth initiatives with <unk>.
We are taking steps to retool that initiative and at least for 2023, they will be less of a growth focus in more of a focus on ROI and this pain business.
That leads us nicely into a higher level overview of our business and strategic priorities for 2023.
As an introduction has been it has been a couple of years since we first launch what we called our <unk> system to 0.0 initiatives. We call that just a few years ago in feed system was generally understood to be it oncology pump rental business with strong operating cash flows, but limited growth prospects, we've been very busy busy changing that and this results from the recognition that over its three plus decades.
Ads of operations in <unk> system has developed some very significant capabilities and a few years back when we began looking outside the scope of our core business. We could quickly discovered that there is a lot of demand within the health care community for a unique and powerful solutions that we can deliver.
Today. It takes time to review all the opportunities that are or could be pursued under each of our two operating units.
In our integrated therapy services or Ats business. The strategic objective is to leverage the platform. We built for oncology into additional therapies pain management wound care currently being the two primary examples our second business unit Dnb services has historically operated primarily in a support function to Etfs.
But that change when we did an ROI study and identify that the incredible potential inherent.
Within our Biomed services group.
In addition to servicing our own pump fleet are highly skilled biomed teams can be deployed to service customer owned devices.
While biomed starts with lower gross margins it has minimal capex requirements and leverages. The capabilities. We've spent decades perfecting the new biomed revenue opportunities balance, our ats and pump rental efforts by delivering growth with a low capex model.
The emphasis on biomedical services is relatively new but I've said before that I expect biomed to be the first of our various growth initiatives to scale to the point of exceeding the size of our of our core oncology business.
And as we increase the reach of our Biomed services. This will create new opportunities in acute care for our <unk> service business, which includes pump rentals and the sales of both medical equipment and consumables.
Over the last couple of years, we've made substantial progress in repositioning the company and few system is now a multifaceted business with significant growth opportunities and as word gets out within the health care marketplace. These opportunities keep expanding here are the highlights in 2019, we worked with them with mckesson to onboard their oncology patients in 2020.
Cardinal approached us to help provide a last mile solution for their negative pressure wound therapy pumps in 2021, our new biomed offerings captured the attention of GE healthcare, which led to the multi year Master services agreement and in 2022, our partnership with scenario was formed through a joint venture relating to wound care and the opportunity to combine their best.
In class products with our industry, leading services and payer network to change the way wounds are treated.
In feed system is increasingly well known for its exceptional levels of service and our culture that is committed to exceptional patient care, we solve problems for device manufacturers hospitals clinics patients and Payors. We are experts in the last mile in every year handle the logistics for hundreds of thousands of pumps and the paperwork and revenue cycle for even more medical procedures.
Service calls.
We've seen that these capabilities are sought after by many leading health care companies and if there is no shortage of opportunities for expanding the business and delivering significant long term growth.
Going into 2023, it is clear that to effectively execute against our potential it is necessary to apply focus to the most important of the current opportunities and those with the greatest long term potential.
What this means in our Dms services unit is easy focus on executing and ramping our relationship under the GE agreement to.
To give additional color to this I'd like to have Gary <unk>, our president and CFO to discuss our partnership with GE and the progress we have made at the end of 2022 and the acceleration of our ramp up as we start the year.
Thanks, Rich and good morning, everyone.
When we announced the GE a master services agreement in April of 'twenty 'twenty. Two we were very excited to get things Rolling we had several months to prepare and then hired and trained to the appropriate number of biomedical technicians to begin onboarding process.
We reported later in the year, however, the onboarding with slower than expected during the early stages.
I think it's important to explain that the delays were not caused by problems with the early rollout just the reverse.
Our white glove approach and surfaces were received very favorably. However, we needed to slow down in an effort to align expectations and gain efficiency.
Since then we have worked hard with our partner to better align the communication channels further streamlining onboarding processes and to develop and implement software tools shared between our companies.
As intended these process improvements are paying dividends now, allowing us to significantly accelerate the onboarding process I.
I am confident that the careful and measured approach we took in 2022 well greatly enhance the long term success of this strategic relationship.
Our visibility to the work ahead continues to improve every month and we now have a clear schedule of upcoming locations number of devices to be serviced and appropriate staffing needs.
Our pace with the GE contract is accelerating.
Each month, we are onboarding more devices in the prior month, and we will have already on boarded more devices in the first quarter of this year than we did in all of 2022.
At our current pace, we will be well ahead of our Q1 forecasted ramp up as Gerry mentioned earlier. These initial indicators should allow us to get to the $12 million run rate by the end of this year.
We are extremely proud of the quality of work. Our teams are performing we will continue to onboard more technicians as we scale into larger hospital systems throughout the U S.
I'm happy to report that the feedback coming from GE customers on the work we have completed has been phenomenal.
This is further proof of what we believed early on which is that our biomedical services capabilities are a core competency that we have perfected over the last couple of decades.
At this point I would like to turn the call back over to rich. Thanks, Gary So in 2023 focus and execution in our <unk> services business means one protecting and expanding our core pump rentals and sales and consumables business and to absolute obsessive attention to executing above and beyond under the GE Master services agreement is the planned rollout.
<unk> and opportunities emerge to expand the relationship and services, thereby deepening our move into the acute care setting.
And our Ats business unit, we are moving to apply a similar similar focus that will result in improved execution against the potential demonstrated in our business. In 2023. This means our priorities will be first on our core business and oncology, providing excellent patient and customer service and continued expansion of our already dominant market position generating more revenue.
Continuing our strong and steady cash flows and second our most important incremental therapy. This year will be the newson our joint venture. This doesn't mean, we've lost interest in our other ats therapies, including painted lymphedema instead. It means the current circumstances warrant that we prioritize and focus on executing against our largest and most compelling current growth opportunities are.
Our lymphedema opportunity is still present it was of course sideline when we shifted attention to the more urgent and compelling GE opportunity wanted to emerge in 2021.
And in pain in 2023 will have an increased focus on improving ROI and less on the pursuit of growth as we shift resources to more the more urgent and compelling synar opportunities.
As we discussed during our last earnings call the sonar opportunity incorporates and greatly expands upon our prior negative pressure efforts with Cardinal.
Our scenario wound care initiatives gives us a complete product portfolio and is more compelling is a more compelling offering to take to health care providers that also targets a much broader addressable market our relationship with Cardinal excluded us from the largest segment of the wound care market.
Located in long term care and skilled nursing facilities and this is our initial focus in our joint venture with Sinatra.
So our key objectives in 2023, and our Ics business are one to develop a more robust device agnostic supply of negative pressure manufacturer and suppliers to obtain all necessary accreditations and approval for devices and products.
Three as devices and approvals come through work with sonar or to continue to develop best practices and build our pipeline and for rent business into 2024, and an effective and efficient way.
And stepping back the strategy for all of the <unk> system in 2023 is focused on execution and.
<unk> services this means our core business.
And successful ramping of GE through the year and in <unk>. It means advancing the core business and launching this in our wound care joint venture getting all the pieces in place during the first half and then gaining momentum in the second half in order to be able to deliver in 2020 for the kind of growth we're seeing in 'twenty three from GE.
Before commenting on guidance I wanted to announce some branding changes that you will be seeing as we refresh our IR deck over the last few years, we've been referring to our two operating units most often by their acronyms <unk>.
Moving forward what was it.
We will now be known as patient services.
And what was <unk> services will now be known as device solutions in.
In short patient services focuses directly on improving the quality of life for our patients by enabling continuity of care, while device solutions focuses on allowing our customers to do the same utilizing the devices we support.
Now moving to our 2023 guidance I would like to first reiterate the point I emphasized earlier that infuse system as a company surrounded by opportunities, creating truly significant growth potential.
I believe that we have so much opportunity that the key to our success in 'twenty three will be to prioritize and focus on executing against our most significant opportunities there.
The first of these is our master services agreement with GE healthcare and the adjacent projects that are already beginning to develop for us in acute care.
As Barry and Carey mentioned earlier, our biomedical services business with GE is now ramping and will have a material impact on our results in 'twenty three.
Our second priority this year will be developing the scenario wound care joint venture and preparing it to begin building momentum later this year to deliver significant revenue next year.
As discussed last year.
We intend to be much more conservative with our guidance going forward. This acknowledges the difficulties we've had in accurately predicting when material events will occur I hope everyone will agree that we have generally been pretty good in describing where business is going for example, the strategic initiative and biomed to begin with a couple of small acquisitions in 2021 and lead directly into the current Master services agreement.
And with GE.
The difficulties have been and accurately predicting the timing of things. For example, we were very confident in closing on some material negative pressure wound therapy placements in December of 'twenty, two only to see that that business pushed unexpectedly in a 23 doing due to an unpredictable circuit board problem with our device supplier.
Turning to our outlook for 'twenty three.
We are taking a conservative approach to our guidance. We are estimating full year 2023 revenue growth to be in the range of 8% to 10% or approximately $118 million to $121 million of net revenue.
We are forecasting adjusted EBITDA margin to be greater than 19% or more than $22 million for the year. It is important to note. The guidance for 2023 does not include any material revenue from this in our wound care initiative and reflects a modest growth forecast for pain management, making this outlook more achievable.
And now we are happy to answer any questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
And the first question will come from Brooks O'neil with Lake Street Capital markets. Please go ahead.
Good morning, everyone I have a few questions I guess I'll start on the D side.
Good.
I appreciate the comments, particularly that carried me, but could you talk about how satisfied he is with your performance and the execution.
With them.
I think.
I don't want to speak too much for them, but you know between GE and the customers I think they're very satisfied I think that that's why we're.
The governor kind of came off the program in the ramp up kind of late in the fourth quarter and certainly into this year and we're starting to see the ramp really accelerate I think it's a combination of GE, just kind of getting to know us and see it in our performance and also them getting feedback from their customers not just us. So if I can just speak for them I'd say, they're very pleased with the performance so far.
Right rich.
Could you just amplify a little bit on what you mean, when you speak about the broadening opportunity in acute care.
That.
Arrangements similar to what you do with GE or do you anticipate.
Different but related opportunities.
Yeah, that's a great question so.
Historically as a company we've we've we've been in acute care a little bit on the oncology side when our customers are hospital based but for the most part we've been more in the alternate site market, so private practices ambulatory surgery centers and pain.
Even the home infusion space on our Dms side. It was it's really tough to kind of break into the acute care space and what's gonna broadened for us in change for us is with GE and US all of their business is in the hospital space.
So once we are in the hospital you have a presence and the customers happy with our performance in the Biomed side.
Does that open up opportunities for us to rent pumps to bring our negative pressure program and do some other things within the acute care space that we didn't have entre into before so this is kind of opens up a whole new world. Some of that hopefully will be with GE in other programs beyond just repairing and servicing devices, but some of that will just be our sales team, having an opportunity to now call on a customer that they never.
Access to before.
No number to put on it, but but having access to the biggest space in healthcare that we didn't have before certainly will create opportunities over time for us.
Alright.
And then just the third question on that side of the business could you could you just say whether you see opportunities with other clients beyond G on the Dnb services business.
Yeah. So we don't we don't see anything the size or scale would be kind of imminent.
But there is certainly at the customer level hospitals that were doing service with today, where we're trying to focus mostly on the GE piece in it.
In some cases, even walking away from kind of one off deals just to focus and get the <unk> contract up and running.
But there's definitely one off hospital deals and Theres manufacturers that approach is all the time to help them with service in the field recalls issues that they have so over time, that's why I think it's going to be the first program to catch oncology.
He is not going to do that on its own right, it's going to be a nice cornerstone for us to launch on boom.
But the opportunities outside of GE are all over the place. So just we want to get this contract and execute on it.
And then move on to the other opportunities.
Brooks This is Barry when I want it but I want to add to that is when we're done launching all the <unk> business, we're going to have a geographic breadth and capabilities that will be enhanced to us to a point, where we'll be able to serve the market very very well. So I think you should look forward to that benefit that come from that.
Great that's perfect.
Let me switch and ask you a little bit more about negative pressure in the <unk>.
Treatment business obviously.
Goodbye.
That could plug in that area is disappointing but.
I know you staffed up considerably two to prepare for growth in that business could.
Could you give us a sense for.
Snapping today.
Got it.
Whether you feel that will be fully utilized during 2023 as you ramp because of our partnership.
Yeah. So we are we made the initial ramp in the team I guess it was in the summer or fall of 'twenty one.
Sure.
To really make a big push on the negative pressure space with Cardinal that team I think we bounced up to like 15 people from two or three at that point in time. It was it was a pretty considerable investment we're down to about eight now so we've cut back some of the people that we hired weren't what we thought they were in and with Cardinal kind of pulling out of the market in the summer, we peel back that team a little bit.
To just keep the core team in place so that they can help us launch the scenario opportunity.
So the investment has been cut considerably.
So an investment there for sure, but it's about it's about salespeople give or take maybe one.
So the good news is that team is in place. They are currently working on opportunities starting to build the pipeline with Sinatra that.
That should should gain momentum in this year and really start to return results next year. That's the plan.
Okay.
One last one I think you said it and wrote in the release that you don't expect the contribution from tomorrow in 'twenty three it sounds like you think it's going to begin to ramp up in the back half do you really think.
We will see a meaningful contribution in 2024, obviously that that's a long time down the road, but that what youre thinking.
Yes, so in 2023 nothing from scenarios in the guidance.
Hopeful that some revenue will come in in the back half of the year, but again the timing of that is a really tough thing to predict.
But rolling into 'twenty four we absolutely expect some some meaningful revenue coming from that is in our partnership.
Okay, great. Thank you for taking my questions. Thanks Brooks.
The next question will come from Alex Nowak with Craig Hallum. Please go ahead.
Okay, great. Good morning, everyone. So I wanted to ask kind of a high level overview question to start here. So there's a lot of moving pieces on the call here. It's is it fair to say Youre de prioritizing the Ics segment and really focusing on biomed the near term and that's really because you just have more line of sight. There and then when you look back what do you think ultimately.
Made ips, whether it be pain or won.
So difficult to tack on these new therapies, that's all despite the market share leadership in oncology why is the oncology piece.
Your your strength there why does it translate into these other therapies.
Yeah. So Alex Thanks for the question, there's a lot to unpack there. So let me start with the prioritization of ideas and <unk> I wouldn't say, we're de prioritizing Etfs I think we are prioritizing pain within Ics in.
And the reason is as you know the opportunity said with the scenario in wound care piece is just too great long term for us to not put resources and time into that versus pain. It doesn't mean, we actually expect pain not to grow we actually have a pretty pretty modest growth number in there, but we expect some growth from pain. It's just this executive team our company's time market.
<unk> resources, it resources thats going to largely be shifted into the scenario relationship and partnership. So it's not that we're de prioritizing Etfs.
Just within Ics pain is kind of moving second in line behind scenario.
We'll incur the GE opportunity obviously, that's a that's a major focus because it's here right. It's arrived it's in our hand, it's ramping today its not something thats here in three months six months or 12 months. So that's certainly a priority, but I would say that that in scenario like if I could write on the board what are our company priorities to focus and execute on its G. The GE relationship on the <unk> side.
The scenario.
Preparation for 24 on the Ics side.
I'd say that that's how we're prioritizing things internally.
As far as the challenges with pain and wound its been different.
<unk> has been hit with a lot of things kind of out of our control from drug shortages and bad shortages, three or four years ago to Covid multiple times.
Supply chain issues last year for almost the whole first half of the year. It's just things outside of its control. It's not that the program is not great. The programs as strong as it's ever been and people love it.
I just think that.
It's been then.
Hit with some things outside of its control and I think that's a market thing with pain I think in paints.
The market is driven by opioids, and it's easy for people to drop back to that.
Versus just.
I'm, saying, hey, we're going to push through issues and continue to use.
Continuous peripheral nerve block in wound care I think that's different I think in wound care its a need in the market. It's not something that's nice to have or we don't have to shift People's paradigm, It's a product and a service group that people are going to need.
Just to kind of to pile on the wound piece.
We launched three years ago with Cardinal is not what we have today and I want to be clear about that we launched Cardinal we thought they were going to be a great partner. It was right in the face of Covid. It was like two weeks before and we had one product and we had one product in a very limited market. We were only allowed in the post acute space or patient to home I think is a better way to say it but we were <unk>.
Out of the skilled nursing facilities and long term facilities in that agreement and that's where the majority of the revenue is in the patients with.
With us in our relationship and the Cork relationship it's totally different we have full access to the full breadth of the market.
With a full product suite is a totally different service than what we launched three years ago three years ago. It was an entre into the market. It was a way to get in and see if we could see if we were interested in and see if we can perform it wasn't a great relationship with Cardinal and ultimately they're going to pull in their device on the market.
What we launched in November which scenario and we're currently rolling out now totally different offering totally different market space totally different addressable market.
It's as if we started over in November and I think that's a great thing because where we were prior to that wasn't it was it was something we probably wouldn't have continued with if that's all we had.
Okay. That's extremely helpful. Just to give us kind of a high level overview on the shifts and it makes it a lot more sense when you laid it out like that but yeah no pushback on the pain piece, you did see something like what 40% growth in paying this quarter is there a concern by you were internal to the team that maybe you're letting off.
The gas on pain, just is it starting to ramp or is it really kind of come down to the ROI, where we could allocate those resources the GE or the wound piece and we could see a greater return on our investment in a shorter amount of time and that's simple as that.
Yeah, I think it's a little bit of that so we made a lot of investments in pain last year that was on the priority list <unk> wasn't kind of.
Sure.
There until the end of the year. So pain was one of the priorities with GE.
So we made a lot of those investments in time energy and financial resources last year, which started to prove itself out in the back half of the year with like you said with the 40 plus percent growth in the fourth quarter. Those investments are going to continue to pay off we still expect strong double digit growth from paint it's not like we expect it to be flat. This year at all I think we're looking at 30, 40% growth. This year. So we expect.
It to continue we just don't need to pour a lot of the resources, we put into that last year back into pain, we'd rather put that in a scenario because the opportunity is just too big.
Specifically on the Ics side, obviously, we're going to continue with the <unk> priority.
But yeah, we invested in at last year, it's starting to prove itself out at the end of the year, we're not taking our foot off the gas. We just don't need to put additional resources in and actually we can take some of those off of that program and now redeploy them into.
The sonar and wound care piece.
Like any company right. This finite resources, where do you put them on <unk>.
Long term the opportunity set with wound care is just so great.
Have to start putting a push behind that to get it going.
Okay. It makes sense and then rich you you did start the call off talking about a few deals that didn't materialize.
This has led into the conversation about southern guidance Conservative and we've heard we've heard that over the last year here.
And twice by two talking about conservative guidance, so as you're entering 2023 with the 8% to 10% growth that you have outlined.
How could you give us confidence that that is actually a conservative view that there that there could potentially be a slip up here <unk> delays.
Yeah. So <unk> is not included but perhaps paying comes in more around that 20% versus the 30 or 40 that you just mentioned just how to help investors around that conservatism, we're thinking about 2043.
I think to start.
We did talk about this in November and being more conservative I think last year. It was it was a little bit more of a challenge because we were a little hamstrung on what was already out there. This year, it's a clean slate right. So we can start being conservative we can start with the 8% to 10% hopefully build from there.
I think theres a couple of things GE is not a glimmer in our eye anymore and are hopeful ramp we're seeing the ramp now.
Think maybe Carrie mentioned it earlier that in Q1, we're going to onboard more devices than we did all of last year within the <unk> relationship. So that's already arrived that's not like we're not hopeful that it continues to ramp or that it ramps it's already here.
The pain the pain conservatism is already in the budget. So we didn't go and ask for 50% 75% growth from those guys. We ask from a number that we have clear sight into accounts that are already on board at the end of the year that revenue will show up this year or accounts that we have onboard it or had clear sight into the onboarding date and will generate revenue and nothing kind of outside of that and like you mentioned scenario.
The wound care piece, there's nothing in here other than what we already rolled forward from 2022. So it is it is conservative or.
Our hope is that this is just the baseline at the beginning of the year and as the year progresses, and we have a better line of sight into the specific timing of paying accounts or the continued ramp in GE that we can give you guys line of sight into that as we move forward, but I think this was a good way to start conservative with a really solid baseline that we can see and touch and feel.
With a clean slate this year and then build off of that as things progress.
But Q1 is OK. That's helpful. Q1, Q1 has been a very good indicator for us.
We're almost through the whole quarter I don't have visibility into every dollar that's going to come in but the first couple of months between GE and some of the other parts of our business is a very positive sign for this quarter, which obviously is a good indicator for the rest of the year.
Okay. That's extremely helpful. And then just last question just given given the internal control issues that you outlined here.
Just a quick question when would you expect that relates to the 10-K, what's the timeline to fix those.
It was internal control issues and then.
Are there any covenants or stipulations of a debt regarding has delayed the 10-K or internal control problems.
So the 10-K tomorrow, we expect to file tomorrow.
Yes.
The efficiencies that we have are not unusual for a company just first reporting facts and given our size and breadth for example segregation of duties typically an area have issues. When you don't have a huge team. So they are pretty easy to FX as I said in my remarks now it's not a lot of costs, which also implies you shouldn't take us quite a lot of factset.
Covenants and don't see any problems with covenants, there's nothing in our bank agreements that indicate that having a material weaknesses issue for our banks.
The problem there okay, alright very helpful. Thank you I appreciate it.
Thanks, Alex.
Again, if you have a question. Please press Star then one our next question will come from Jim Sidoti with Sidoti <unk> Company. Please go ahead.
Hi, good morning, Thanks for taking the question.
Just wanted to be clear with the.
Situation with the negative pressure wound therapy. So you started with cardinal.
They just continue the proud if you would the Cork.
<unk> had production problems. So are you, saying you're going to have a third supplier.
Over a over the course of 2023.
Yeah. The hope is that over time, we have a third and fourth and fifth supplier. So we want to emulate as what we do in oncology, which is we're completely device agnostic. We carry every pump on the market for the oncology patients, we'd like to get to that point or as close to that point and in wound care as well Cork was.
Coming in as our second device before we heard from Cardinal that they were pulling theirs. So our number two device put moved up to number one on the list.
You can't get new devices and overnight. It takes it takes months it doesn't take years, but you have to go find the right product you have to we have to make sure. It's safe clinically we have to have to sign the right agreement for the company.
So we'll have a second device this year.
In a matter of a few months, we will have some secondary supplier and then the hope is not to stop there right to continue to look at the third and fourth.
As we progress so yes, we have to solve that problem.
Thought Cork was a solution in case something happened with Cardinal now we need something in place in case, something else happens with Cork and continue down that path.
So how long do you think it'll take before you have another.
The pump on the shelf.
Good question I think we're I think we're talking to three or four companies now they're all in various phases, but I would say.
Within the probably next quarter.
So we're going to have a second device so it's not too far off okay.
Okay, and then you gave an annual revenue number but if you look at.
The quarters in 2022 basically.
$27 million every quarter until the fourth quarter, then it popped up to $20 do you think in 2023, you'll see a more gradual growth quarter over quarter.
Yes.
Main reason for that is the G E.
Contract is the lion's share of the growth, we're seeing and it is as we add pumps continuously every month.
It will gradually grow as you get through the year.
And those are very easy comps because we had nothing in the first quarter last year, we have just a very small actually nothing in the second quarter. So it'll be a much more gradual as you see it.
Increases each quarter.
Alright.
Do you think.
You'll generate.
Free cash flow in the year and if you do what do you think you'll do with it will be another stock buyback or we'd be paying down debt.
Yeah, clearly no question that we'd be generating free cash flow, we have consistently for I think three or four years. There's no reason this year will be any different keep in mind that the growth is not capital intensive type businesses, particularly the biomed medical services and what we do with it I think that our capital allocation priorities haven't changed that.
Invest in the company and our growth opportunities.
Generally and return of capital to shareholders when it makes sense.
So that one and that will most likely through buybacks and that sort of thing.
Okay, Alright, and then the last one.
Where do you think you have an adequate team in place now with these new accounting regulations or do you think you'll have to add.
Yeah, we already have.
Yes, well, we'll add one or two people as I said, though the controlled efficiencies that we.
We will have to overcome are not huge cost type of items it pretty simple things to fix if we had earlier.
<unk> has seen some of these things earlier in the year than we would have had in place before the end of the year. So we don't see a major issue here in resolving their issues.
And we went to college.
Our normal things that company is going through what we're going through I would have to encounter.
Okay alright, thank you.
Thanks, Jim.
This concludes our question and answer session I would like to turn the conference back over to Mr. Richard Diorio for any closing remarks. Please go ahead Sir.
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 first quarter call. Please stay safe and thank you.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Yes.
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