Q3 2023 InfuSystem Holdings Inc Earnings Call

Good day and welcome to the Infosys can holdings, Inc, or <unk>.

Speaker 1: Good day and welcome to the infra system holdings Inc reports third quarter 2023 financial

Third quarter, 'twenty 'twenty financial results conference call.

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Speaker 1: I would now like to turn the conference over to Joe Dermie, manager of the

I'd now like to turn the conference over to Joe Dormie Managing partner. Please go ahead.

Speaker 2: Good morning and thanks for joining us today to review infusystems financial results for the third quarter of 2023 ended September 30 of 2023. With us today on the call are Rich DeOrio, Chief Executive Officer, Barry Steele, Chief Financial Officer and Carrie LeChance, President and Chief Operating

Good morning, and thank you for joining us today.

Review, if your systems financial results for the third quarter of 2023 and at September 30 of 2023.

With us today on the call are rich Dilorio, Chief Executive Officer, Barry Steele, Chief Financial Officer, and Carol a chance President and Chief operating officer.

Speaker 2: After the conclusion of today's prepared remarks, we'll open the call for questions.

After the conclusion of today's prepared remarks, we will open the call for questions.

Speaker 2: Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of infuse systems during this conference call constitute forward looking statements within the meaning of the private securities litigation Reform Act of 1995.

Before we begin with prepared remarks, I would like to remind everyone. Certain statements made by the management team up in few system. During this conference call constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Speaker 2: except for the statements of historical fact this conference called may contain forward-looking

Except for the statements of historical fact this conference call may contain forward looking statements that involve risks and uncertainties some of which you detailed under risk factors in documents filed by the company with the Securities Exchange Commission, including the annual report on Form 10-K for the year ended December 31 2022.

Speaker 2: that involve risks and uncertainties, some of which are detailed under risk factors and documents filed by the company with the Security Exchange Commission, including the annual report on Form 10k for the year ended December 31, 2022.

Speaker 2: forward looking statements speak only as of the date the statements were made. The company can give no assurance of such forward looking statements will prove to be correct. If you system does not undertake and specifically disclaims any obligation to update any forward looking statements, except as required by law. Now I'd like to turn the call to Rich Diorio, Chief Executive Officer and infuses

Forward looking statements speak only as of the date. The statements were made the company can give no assurance that such forward looking statements will prove to be correct. If your system does not undertake and specifically disclaims any obligation to update any forward looking statements, except as required by law now I'd like to turn the call over to rich Dilorio Chi.

Executive Officer, and <unk> system rich.

Thank you Joe and good morning, everyone welcome to NP systems third quarter 2023 earnings call. Thank you all for joining us today.

Speaker 3: Thank you, Joe. And good morning, everyone. Welcome to NPE Systems third quarter 2023 earnings call. Thank you all for joining us today.

Speaker 3: I'm going to start this call by reiterating that our key theme for the year has been the 2023 as a year of execution. And I believe our financial results show delivery of strong execution. Not only was the recently completed third quarter, the seventh consecutive quarter with record revenue, it was the second quarter in a row with revenue up 17% or more when compared to the prior year.

I'm going to start this call by reiterating that our key theme for the year has been the 2023 is a year of execution.

And I believe our financial results show delivery of strong execution.

Not only was the recently completed third quarter, the seventh consecutive quarter with record revenue. It was a second quarter in a row with revenue up 17% or more when compared to the prior year.

Speaker 3: Shifting from the top line to the bottom line, we see continued improvement in our margins and operating income. Operating income in the third quarter increased 80% year over year and net income was up 56%.

Shifting from the topline to the bottom line, we see continued improvement in our margins and operating income operating income in the third quarter increased 80% year over year and net income was up 56%.

Speaker 3: Adjusted EBITDA was $6.2 million for the quarter, up 11% from the prior year.

Adjusted EBITDA was $6 $2 million for the quarter up 11% from the prior year.

Speaker 3: While I think that's a solid adjusted EBITDA number with a nice trend line, on a year-to-date basis, we are slightly behind where we originally planned to be versus our original budget.

Well I think that's a solid adjusted EBITDA number with a nice trend line on a year to date basis, we are slightly behind where we originally planned to be versus our original budget.

Speaker 3: This is because our adjusted EBITDA was suppressed early in the year because of the investments made in the first quarter to accelerate and pull forward the onboarding of devices under the initial master services agreement with GE.

This is because our adjusted EBITDA was suppressed early in the year because of the investments made in the first quarter to accelerate and pull forward. The on boarding of devices under the initial master services agreement with GE.

Speaker 3: We elected to make the necessary investments ahead of our original plan and succeeded in pulling forward that revenue, resulting in the strong growth we have delivered over the last couple of quarters.

We elected to make the necessary investments ahead of our original plan and succeeded in pulling forward that revenue, resulting in the strong growth we have delivered over the last couple of quarters.

Speaker 3: So, 2023 has been an execution year in terms of delivering on new revenue opportunities and setting the stage for more revenue in future years. The next phase of execution will be the fine-tuning and the continuous process of identifying and implementing operating improvements that will improve and maintain our long-term operating margins. That will be the story for the rest of this year.

So 2023 has been an execution year in terms of delivering on new revenue opportunities and setting the stage for more revenue in future years.

Next phase of execution will be the fine tuning and the continuous process of identifying and implementing operating improvements that will improve and maintain our long term operating margins.

That will be the story for the rest of this year and into next year.

Speaker 3: After Barry provides his review of the quarter, Kerry will provide some color on the things that we are doing and how our margins are improving as we achieve scale and begin ironing out our processes with our GE Biomed business and start leveraging our national network technicians.

After Barry provides his review of the quarter, Gary will provide some color on the things that we're doing and how our margins are improving as we achieve scale and begin ironing out our processes with our G biomed business and start leveraging our national network of technicians.

Now turning to guidance.

Speaker 3: In August , we updated our guidance for the full year, estimating net revenue growth of 10 plus percent and adjusted EBITDA margin to be between 17 and 18 percent.

In August we updated our guidance for the full year estimating net revenue growth of 10 plus percent and adjusted EBITDA margin to be between 17 and 18%.

Speaker 3: We expect our revenue to come in above the range previously provided. How much above depends on a variety of factors, some of which are outside of our control.

We expect our revenue to come in above the range previously provided how much above it depends on a variety of factors some of which are outside of our control.

Speaker 3: Accordingly, we will continue to take a very conservative approach and raise our full year of guidance to have net revenue growth of 11 plus percent.

Accordingly, we will continue to take a very conservative approach and raise our full year guidance to have net revenue growth of 11 plus percent.

Speaker 3: For adjusted EBITDA, we are maintaining our adjusted EBITDA margin range of 17 to 18 percent.

For adjusted EBITDA, we are maintaining our adjusted EBITDA margin range of 17% to 18%.

Speaker 3: Now I'd like to turn the call over to Barry, who will provide more detail on our financial performance in the third quarter.

Now I'd like to turn the call over to Barry who will provide more detail on our financial performance in the third quarter.

Thank you rich and thank you everyone on the call for joining us today I'm going to focus on three topics. The main drivers for the current quarter's results, our fourth quarter outlook and our current financial position and how it changed during the quarter.

Speaker 4: Thank you, Rich. And thank you everyone on the call for joining us today. I'm going to focus on three topics, the main drivers for the current quarter's results, our fourth quarter outlook, and our current financial position and how it changed during the quarter. First, let me touch on our financial

First let me touch on our financial results for the period.

Speaker 4: Net revenues for the third quarter of 2023 totaled $31.9 million, representing a $4.6 million or 17% increase from the prior year and setting another new all-time revenue record for the seventh straight quarter. Also, the eighth record in the last nine quarters.

Net revenues for the third quarter FY 'twenty, two 'twenty three totaled $31 9 million, representing a $4 6 million or 17% increase from the prior year and setting another new all time revenue record for the seventh straight quarter.

Also the eighth record in the last nine quarters. The three main drivers of this increase were higher revenue from the GE health care contract, who would like to point $6 million.

Speaker 4: The three main drivers of this increase were higher revenue from the GE Healthcare contract totaling $2.6 million, higher lease equipment sales of negative pressure wound therapy devices totaling $1.1 million, and higher revenue in oncology totaling $800,000.

Higher lease equipment sales of negative pressure wound therapy devices totaling $1 1 billion and high revenue in oncology totaling 800000.

Speaker 4: On September 30th, the annualized revenue run rate for devices onboarded to the GE contract stood at approximately $11 million, an increase of $2 million from where we started the course.

At September 30th.

Annualized revenue run rate for devices on board it to the GE contract does that approximate $11 million, an increase of 10 million from where we started the court.

Gross profit for the third quarter of 2023 was $16 2 million, which was $1 million or 6% higher than the prior year third quarter. This was mainly driven by the higher sales, but was partially offset by a lower gross margin percentage, which was 59% during the third quarter of 2023 down from $59 five.

Speaker 4: Gross profit for the third quarter of 2023 was 16.2 million, which was 1 million or 6% higher than the prior year third quarter. This was mainly driven by the higher sales, but was partially offset by a lower gross margin percentage, which was 50.9% during the third quarter of 2023, down from 59.5% from the prior year.

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Speaker 4: The year-over-year decrease was mainly due to unfavorable product mix changes and additional start-up costs for the GE Healthcare Biomedical Services contract.

The year over year decrease was mainly due to unfavorable product mix changes and additional startup costs, but an E health care biomedical services contract the products mix impact is due to the higher biomedical revenue and the negative pressure wound therapy equipment sales growth both of which have a lower gross margin than the company average.

Speaker 4: The product's mixed impact is due to the higher biomedical revenue and the negative pressure wound therapy equipment sales growth, both of which have a lower gross margin than the company average.

Speaker 4: GE Healthcare start-up costs are estimated to have been about $1.2 million for the 2023 third quarter. This amount continues to be higher than we originally planned and with a larger amount than in the first and second quarters due to the higher revenue volume.

The health care startup costs are estimated to have been about $1 2 million or the 2023 in third quarter.

Amount continues to be higher than we originally planned and with a larger amount than in the first and second quarters due to the higher revenue by them.

Speaker 4: We continue to anticipate that these elevated amounts will dissipate over the next several quarters, and then our margin will approach our original estimates once we reach full ramp and circle past the first year of coverage for the growing number of devices.

We continue to anticipate that these elevated amount will dissipate over the next several quarters and that our margin will approach. Our original estimate once we reach full ramp and circle passed the first year of coverage for the growing number of devices.

Speaker 4: Selling general and administrative expenses for the third quarter of 2023 totaled 14.5 million, representing a decrease of 333,000 or 2% as compared to the prior year. The amount was 45.6% of revenue, which represented a 10.4% decrease from the prior year ratio, which was 56.5%.

Selling general and administrative expenses for the third quarter of 2023 totaled $14 5 million, representing a decrease of 33 333000 or 2% as compared to the prior year the.

The amount was 45, 6% of revenue, which represented a 10.4% decrease from the prior year ratio, which was 56%.

Speaker 4: As a result of these impacts are adjusted EBIDA with $6.2 million or 19.4% of net revenue during the 2023-34 quarter, which represented an increase in the prior year totaling $600,000 and an increase sequentially from the 2023-2nd quarter totaling $400,000.

As far as all of these impacts our adjusted EBITDA was $6 2 million or 19, 4% of net revenue during the 2023 third quarter, which represented an increase from the prior year totaling 600000, and an increase sequentially from the 2023 second quarter totaling 400000.

Turning to the prospects for the fourth quarter.

Speaker 4: As Rich stated, we now expect our annual revenue growth rate to be over 11%. This amount represents an increase from our outlook at the end of the last quarter when our minimum growth forecast was 10%.

As rich stated, we now expect our annual revenue growth rate to be over 11%.

The amount represents an increase from our outlook at the end of the last quarter when our minimal growth forecast was 10%.

Speaker 4: While we do expect a sequential decrease in our fourth quarter revenue, mostly due to timing issues, the amount applied by an 11% annual growth rate represents a significant hedge that almost ensures that we'll not have a year and a month.

While we do expect a sequential decrease in our fourth quarter revenue, mostly due to timing issues. The amount applied by an 11% annual growth rate represents a significant hedge that almost ensures that we will not have a year and a mess.

Speaker 4: The timing issues are twofold. First, during the fourth quarter, it is likely that we will deliver fewer negative pressure wound therapy devices, which totaled $1.1 million in revenue during the third quarter. This reflects the quarter-to-quarter variability we typically experience in equipment sales.

The timing issues are twofold first during the fourth quarter. It is likely that we will deliver fewer negative pressure wound therapy devices, which totaled $1 1 million in revenue during the third quarter. This reflects the quarter to quarter variability, we typically experience in equipment sales.

Speaker 4: Second, we are expecting revenue for the GE Healthcare contract to be about $500,000 lower in the fourth quarter compared to the third quarter.

Second we are expecting revenue for the G health care contract it'd be about 500000, lower in the fourth quarter compared to the third quarter. This.

Speaker 4: This is mainly due to our quicker than expected ramp up in adding devices to the contract during the year, which has resulted in a lower number of devices being onboarded in the fourth quarter and consequently, less of the initial per device onboarding related revenue being recognized.

This is mainly due to a quicker than expected ramp up and adding devices to the contract during the year, which has resulted in a lower number of devices being on boarded in the fourth quarter and consequently less of the initial per device onboarding related revenue being recognized we.

Speaker 4: We do not currently see any other specific additional sequential revenue reduction.

We do not currently see any other specific additional sequential revenue reduction we are holding our minimum outlook at 11% to provide for an extra measure of assurance.

Speaker 4: We are holding our minimum outlook at 11% to provide for an extra measure of assurance.

Speaker 4: Turning to a few points on our financial position and capital reserves. As we indicated during the second quarter call in August , our operating cash flow for the third quarter to a $4.3 million increased sequentially for the second straight quarter and represented an increase of $800,000 over the prior year of third quarter.

Turning to a few points on our financial position and capital reserves as we indicated during our second quarter call in August our operating cash flow for the third quarter trailing fourth point 3 million increased sequentially for the second straight quarter and represented an increase of 800000 over the prior year third quarter.

Speaker 5: This was due to a lower amount of growth in working capital levels, which reflected a slower sequential revenue increase from the 2023 prior quarter than for the earlier two quarters.

This was due to a lower amount of growth and working capital levels, which reflected a slower sequential revenue increase from the 2023 prior quarter than for the earlier two quarters.

Speaker 6: We expect this trend to continue in the fourth quarter. Additionally, our net capital expenditures were a relatively low 300,000 during the third quarter. This lower amount is partially related to the timing of our pump equipment purchases during the year, and due to the fact that much of our growth was derived from less capital intensive revenue sources, such as biomedical services and wound care. The capital required to fund

We expect this trend to continue in the fourth quarter.

Additionally, our net capital expenditures were a relatively low 300000 during the third quarter.

This lower amount is partially related to the timing of our pump equipment purchases during the year and due to the fact that much of our growth was derived from less capital intensive revenue sources, such as biomedical services and wound care the.

The capital required to fund negative pressure wound therapy equipment leases shows up in our working capital investments I E operating cash flow and that capital expenditures.

Speaker 7: shows up in our working capital investments, i.e. operating cash flow and not capital expen

Because of these factors our net debt decreased by $3 5 million to $32 5 million and our available liquidity totaled 41.7 million at the end of the court.

Speaker 8: Because of these factors, our net debt decreased by 3.5 million to 32.5 million and our available liquidity total of 41.7 million at the end of the quarter.

Speaker 9: The decrease in total debt in higher trailing 4-quarter adjusted EBITDA caused our ratio of total debt to adjusted EBITDA to decrease modestly to 1.5 times at the end of the quarter as compared to 1.59 times.

The decrease in total debt and higher trailing four quarter adjusted EBITDA caused our ratio of total debt to adjusted EBITDA decreased modestly to one five times at the end of the quarter as compared to 1.59 times.

At the end of the 22 to fourth quarter.

Speaker 10: Our debt consists of borrowing on a revolving ladder credit with no term payment requirements, nearly five years in the remaining term, and with $20 million of the outstanding balance protected from increasing interest rates through an interest rate swap having the same term.

Our debt consists of borrowing on our revolving line of credit with no term payment requirements nearly five years of remaining term and with 20 million of the outstanding Dallas protected from increasing interest rates through an interest rate swap having the same term.

Speaker 11: I'm now going to turn the call to Carrie, who will provide more detail and what we are doing to improve our operation.

I'm now going to turn the call over to Kerry who will provide more detail on what are we are doing to improve our operating margins.

Thanks, Gary and good morning, everyone.

Speaker 12: Thanks, Barry, and good morning, everyone. As Rich indicated earlier, I'd like to provide some color on what we are doing to improve our operational efficiencies after new business has been onboarded. Today, that is primarily related to our biobed business for the opportunity is greatest. In wound care, we are still mostly preparing the channel with negative pressure pump placements, an activity where we have a lot of prior experience and are already very efficient.

As rich indicated earlier I'd like to provide some color on what we're doing to improve our operational efficiencies. After new business has been on boarded today that is primarily related to our biobank business or the opportunity is greatest and wound care. We are still mostly preparing the channel with negative pressure pump placements and activity, where we have a lot of.

Prior experience and are already very efficient.

Speaker 13: The primary driver in Biomed is onboarding of the GE Master Services Agreement, involving roughly 230,000 devices located in facilities across the country.

The primary driver in Biomed is onboarding of the G E Master services agreement involving roughly 230000 devices located in facilities across the country.

Speaker 14: For each of these facilities, there is of course an initial onboarding visit that must occur. We do as much prior planning as we can, but there are several details you need to each facility that our teams must deal with. Where to park, how to gain access, introductions to key people, and the big one, locating all of the punks to be serviced, that make the first visit the most time consuming, and least efficient engage.

For each of these facilities. There is of course, an initial on boarding visit that must occur.

We do as much prior planning as you can but there are several details you need to each facility that our teams must deal with where to park how to gain access introductions to keep people and the big one locating all of the pumps to be serviced that make the first is that the most time consuming at least sufficient engagement.

Speaker 15: Fortunately, we are nearing the end of our initial onboarding and each subsequent visit will build upon the experience of the prior. And we expect things to become progressively better as we improve on hiring, training and deploying our personnel and manage travel costs.

Fortunately, we are nearing the end of our initial on boarding and each subsequent visit well build upon the experience of the Pryor and we expect things to become progressively better as they improve on hiring training and deploying our personnel and manage travel costs.

Speaker 16: The biggest area of improvement we see is in staffing and staffing costs. In the beginning, the overarching objective was to please the client. We are known for our premium concierge level services. We get the job done, we do things right, and we do it the first time.

The biggest area of improvement, we see is in staffing and staffing cost and the beginning the overarching objective was to police the client well.

We are known for our premium concierge level services, we get the job done we do things right and we do it the first time.

Speaker 17: To ensure this, at the beginning, we erred on the side of over staffing projects as we settled into the workflow and cycles of visiting our contracted sites. Subsequent visits will benefit from right-sized teams, more experienced technicians, and first-hand experience with the facilities where these teams work.

To ensure this at the beginning we erred on the side of oversight staffing projects as we settled into their workflow and cycles of visiting our contracted sites subsequent visits well benefit from rightsize teams more experienced technicians and first hand experience with the facilities, where these teams work.

Speaker 18: Additionally, and potentially even more important, is our having used the first year to build our national network of biomed technicians.

Additionally, and potentially even more important as are having is the first year to build our national network of Biomed technicians are traveling teens rock and the bigger the first time around because of our regional technician not being in place.

Speaker 19: Our traveling teams were often the bigger the first time around because of our regional technicians not being in place.

Speaker 20: Going forward, when it's time for annual inventory and preventative maintenance, the work will be more organized and will have even greater familiarity with each site that has already been matched with one of our regionals.

Forward when it's time for annual inventory and preventative maintenance the work will be more organized and we will have even greater familiarity with each site that has already been matched with one of our regional technicians.

A last point on this the national Knapp for work of technicians. We are building is an asset that extends beyond the G E relationship.

Speaker 21: A last point on this, the national network of technicians we are building is an asset that extends beyond the GE relation.

Speaker 22: Our biometric technicians are not always locked into a single site. They are locally mobile and will often cover multiple sites.

Biomass technicians are not always locked into a single site. They are locally mobile and will often cover multiple sites.

Speaker 23: This means that as we gain experience and efficiency, they can and will be used to provide services, allocations outside the GE contract and facility.

This means that as we gain experience and efficiency they can and will be used to provide services at locations outside the G E contracted facilities.

Speaker 24: We have opportunity in areas to add new business to that. We'll absorb the capacity of our regional technicians and add more text to geographies where we will win additional business. Each geography will be supported by the surge capacity of our traveling team.

We have opportunity in areas to add new business to that will absorb the capacity of our regional technicians and add more text to geographies, where we will win additional business. Each geography will be supported by the surge capacity of our traveling teams.

Speaker 25: The flexibility of this structure to be lean where the workflow warns and to be able to surge into parts of the country to satisfy one off or periodic customer needs aligns very well with our concierge model of service. We have been making study progress throughout 2023 to put the biomedical services model into place and we believe the benefit will continue to show into 2024 in both the top and bottom line. At this point, I would like to turn the call back for information to respond to the purchase of the

The flexibility of the structure to be lean, where the workflow warrants and to be able to surge into parts of the country to satisfy one off our periodic customer needs aligns very well with our concierge model of service, we have been making steady progress throughout 2023 to put the biomedical services model into place and we believe the benefit will.

Can you just show into 'twenty, 'twenty, four and both the top and bottom line.

At this point I would like to turn the call back over to rich.

Okay.

Thanks, Gary.

Speaker 26: After completing the first three quarters of 2023, I continue to be very pleased with our performance and I am excited about infe systems future potential.

After completing the first three quarters of 2023 I continue to be very pleased with our performance and I am excited about entry systems future potential.

Speaker 27: We promised execution and in 2023, we're delivering strong revenue growth and have started the process of fine tuning around that revenue, improving our efficiencies and our operating margins.

We promised execution and in 2023, we're delivering strong revenue growth and have started the process of fine tuning around that revenue improving our efficiencies in our operating margins.

Speaker 28: Looking forward, I expect the execution story in 2024 will advance to include material improvements in our operating return.

Looking forward I expect the execution story in 2024, well advanced to include material improvements in our operating returns.

Speaker 29: We are still in the planning phase, but as Barry and Carrie explained, we are steadily increasing our efficiencies and expect these trends to continue.

We are still in the planning phase, but as Barry and Cary explained we are steadily increasing our efficiencies and expect these trends to continue.

Speaker 30: For the time being, we expect that biomed and wound care will be our primary growth drivers. We do expect to see incremental growth across nearly all of our activity lines in 2024, but the strongest drivers will be these two.

For the time being we expect the biomet in wound care will be our primary growth drivers we.

We do expect to see incremental growth across nearly all of our activity lines in 2024, but the strongest drivers will be these two.

Speaker 31: And while we are always interested in learning about material new growth opportunities, we believe our attention going into 2024 will be best focused executing on our continuing opportunities in Biomed and WIM Care.

And while we are always interested in learning about material new growth opportunities. We believe our attention going into 'twenty 'twenty four will be best focused executing on our continuing opportunities in biomed and wound care.

Speaker 32: In Biomed this means completing the GE onboarding and then adding incremental and most likely smaller projects to our growing national network of technicians. In Wuncare this will mean continuing to place hardware into the channel and working with our joint venture partner, Sinera, to open that channel to distribution of the joint ventures advanced Wuncare product.

And biomed. This means completing the GE onboarding, and then adding incremental and most likely smaller projects to our growing national network of technicians in wound care. This will mean continuing to place hardware into the channel and working with our joint venture partner scenario to open that channel to distribution of the joint ventures advanced wound care products.

Both of these opportunities will continue to scale and they will become significantly more creative in 2024. Both have tremendous remaining potential and both are expected to be material contributors to our top and bottom line growth for years to come. Operator.

Both of these opportunities will continue to scale and they will become significantly more accretive in 2024.

Both have tremendous remaining potential and both are expected to be material contributors to our top and bottom line growth for years to come.

Operator, we are now ready for questions.

Thank you. We will now begin the question and answer session. To ask a question you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your handset before press.

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If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause for mental health.

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At this time, we will pause momentarily to assemble our off.

Our first question comes from Brooks O'neil with Lake Street Capital markets. Please go ahead.

Our first question comes from Brooks O'Neill with Lake Street Cabal Market. Please go ahead.

Good morning, everyone, and congratulations on the strong results.

Good morning to everyone and congratulations on the strong results.

I have a few questions. I guess I'd like to start by focusing on your two growth businesses. It sounded like in facility.

But a few questions I guess I'd like to start by focusing on your two growth businesses.

It sounded like.

In our facilities.

Third U E has equipment.

that you're primarily focused on servicing GE.

That you're primarily focused on servicing G E.

And I'm curious.

is the pipeline of incremental opportunities beyond GE really building. Can you give us any color?

The pipeline of incremental opportunities.

G E.

Really building didn't give us any color on that and.

Did I hear you correctly that where GE has the presence of your primarily focused on that?

Did I hear you correctly that.

He is the president you're primarily focused on them.

Yeah, So so where <unk> has a presence we're definitely focused on that right. So so they don't have a contract where just the pumps they have contracts for everything in that hospital. So.

Yeah, so where GE has a presence, we're definitely focused on them, right? So they don't have a contract for just the pumps, they have contracts for everything in that hospital. So we wouldn't want to step on their toes.

So we wouldn't want to kind of step on their toes.

I think this is part of the criminal opportunities outside of GE and beyond GE. We have a team that's going to be their job is selling the biomedical services in non GE facilities, which there's roughly two or three thousand beyond GE's curvy.

Think.

As far as incremental opportunities outside of GE and beyond GE.

We have a team that that's going to be their job is selling the biomedical services into non GE facilities, which there is roughly two or 3000 beyond ge's purview.

We've been purposely holding off on that because we wanted to establish the team where they were at work at work.

We've been purposely holding off on that because we wanted to establish the team where they were work at work.

I know the challenges from a logistics standpoint and be ready. And we knew we had to execute on GE first and foremost. Now we're that starting to get to more of a stable space. And even more so in the first quarter, once that happens, then we can start bringing in non-GE facilities. But if we had done that too early, we would have filled on both sides.

Alright, and what the challenges from a logistics standpoint, and be ready and we knew we had to execute on G. First and foremost now where that's starting to get to more of a stable <unk>.

Space and even more so in the first quarter. Once that happens then we can start bringing in non GE facilities, but if we had done that too early we would have failed on both sides.

Sure that makes total sense I appreciate that color, let me turn to Oh wound care.

Sure, that makes total sense. I appreciate that color. Let me turn to a wound here.

I guess I'm not as familiar as maybe I should be with the lease arrangement that you referenced in the dynamics there. So if you could give us a little bit of color on what that is and what's going on there that'd be great. And then as well, if you could give us a little more color on how things are going with the joint venture with Sonara, that would be extremely helpful too.

I guess I'm not as familiar maybe I should be would the lease arrangement that you referenced.

The dynamics there. So if you could give us a little bit of color on what.

What that is and what's going on there that'd be great and then as well if you could give us a little more color on how things are going with the joint venture with <unk> that would be extremely helpful too.

So on the lease side, we're leasing equipment directly to customers and through a distributor, a larger distributor. So we lease their equipment, Barry can get into the, how we recognize the revenue in a second, but it's court devices, there'll be some genodine devices coming in soon too. We lease them, we book them as a sale effectively. They put them into the field nursing facility, the long-term care facility, and they sit there, and they effectively own them once we should.

Sure so on the lease side.

We're leasing equipment.

Directly to customers and through it distributor larger distributor. So we leased their equipment Barry can get into the how we how we recognize the revenue in a second but.

It's cort devices there'll be some gender and devices coming in soon too.

We lease them, we book them as a sale effectively.

Put them into the skilled nursing facility, the long term care facility and they they sit there and they they effectively own them. Once we should come out but I don't know if you want to talk about we recognized that it's basically just equipment sales are well, we will get the payments over 36 months.

And Mary, I don't know if you want to talk about what we recognize. Yeah, that is basically just equipment sales. Well, we get the payments over 36 months. The least form qualifies for what's called the sales type lease accounting. Again, we're booking revenue. The cost of the equipment to us is our cost of sale. So it's just like any equipment sale. We just wait to get paid. There was a small cost to capital component built into us. We recognize a little bit of interest revenue and the revenue line over the 30 months, but it's not very much.

Swarm qualifies for a what's called a sales type lease accounting.

And we were booking revenue with the cost of that equipment to us is our cost of sales. So it's just like any equivalent sale. We just wait to get paid there was a small cost of capital component built into it to recognize a lot of interest revenue on the revenue line over the 30 month.

But it's not very much.

And then on the Sonara piece, we are starting now. The team is now, you know, all the back end systems are effectively done. There's still some tweaks here and there to do. But the team now has a pipeline with physician groups to go out and start placing the Biakos and high call products from Sonara. And we're going to start seeing that pretty soon. I think we're still expecting it to be kind of real and significant at the end of next year. But there'll be some products that start going out the door here pretty, very soon. Hopefully by the end of this year or very early next year.

And then on the sonar piece.

We are starting now the team is now all the back end systems are effectively done there's still some tweaks here and there to do but the team now has a pipeline.

With physician groups to go out and start placing the bicoastal and high coal products from scenario.

And we're going to start seeing that pretty soon.

I think we're still expecting it to be kind of real and significant at the end of next year, but there'll be some products to start going out the door here pretty very soon probably hopefully by the end of this year or very early next year.

Great, and can you just help me to understand one final thing, which is is there overlap between what you're doing with the scenario partnership and placement of these negative pressure devices in nursing homes, or are they fairly separate opportunities?

Great and can you just.

Help me to understand one one final thing with G is there overlap between what you're doing with the scenario of partnership and the placement of these negative pressure devices in nursing homes or are they fairly separate.

Opportunity as you think about it today.

Yeah, So so I think.

Yeah, so I think the placing of the leases is separate to start, right? So it's kind of a single channel through distributor largely. But the good news is once our equipment is in there, that relationship hopefully will blossom. And that gives us the opportunity to place in their products, you know, those same nursing homes and long-term care facilities. So there should be, we should be able to combo those products in those same facilities, not every single one, but absolutely there should be synergies there.

The the placing of the leases is separate to start right. So it's kind of a single channel through a distributor largely.

But the good news is once our equipment is in there that relationship hopefully will blossom and that gives us the opportunity to play scenario products in it.

Those same nursing homes and long term care facility. So there should be.

We should be able to comp combo of those products and those same facilities not every single one but absolutely there should be synergies there.

Hmm mm.

Interesting. Let me ask one last question, I apologize. I have a sense that there are some mobile operators in the wound care business today that are, I think having some pretty good success. Have you seen that? And is there any opportunity for you guys to interact with mobile operators? Or do you see this as being primarily focused on nursing homes and what I might call six sites location?

Let me ask one last question I apologize.

I have a sense that there are some mobile operators in the wound care business today that are I.

Having some pretty good success have you seen that and is there any opportunity for you guys to interact with mobile operators or do you see that.

It has been primarily focused on nursing homes, it's what.

What I might call fixed site location.

Works, do you mean in more broad writers you're talking about the traveling physician groups?

Brooks do you mean in mobile operators, you're talking about the traveling physician groups.

Yeah.

Yeah, and I just have a sense that there are people who have, you know, have bands that put negative pressure devices in there and go around to not just certain, not just operating one nursing home, but maybe the patients in multiple nursing homes in a community or, or that kind of thing. And I think, I think that opportunity is growing pretty fast. It's a sense I've,

But there are people who have.

You don't have bad negative pressure devices in there and go round up but it's not just operating one versus you know, but maybe.

The patients in multiple nursing homes in a community or for.

So that kind of thing.

I think that opportunity is growing pretty fast since ive got.

Yeah, so we call those guys traveling physician groups. So they're doctors that are just contracting with different facilities, right? So they're not, they don't work at any of them. They're contracted out. That's a huge opportunity. It might be one of the single biggest opportunities because there are a ton of them around the country. They tend to be regional.

Yeah. So yeah. So we call those guys traveling physician groups. So there there are doctors that are just contracted with different different facilities right. So they're not they don't work at any of them are they're contracted out.

That's a huge opportunity it might be one of the single biggest opportunities because there are a ton of them around the country are they tend to be regional.

But when you get those guys, you can cover a lot of nursing, skilled nursing facilities and long-term care facilities with those single groups because the facilities themselves aren't going to employ a full-time wound care doctor typically. Well, that's a, that's, that is definitely a big opportunity. They are in our pipeline. We have some relationships with those guys.

But when you get those guys. You know you can you can cover a lot of nursing skilled nursing facilities in long term care facilities with those single groups because the facilities themselves are going to employ a fulltime wound care doctor typically.

Right.

That is definitely a big opportunity they are in our pipeline, we have some relationships with those guys.

So when we start to see real revenue, you know, back in the next year, they will be a piece of that for sure. Yeah, great. Okay. Thanks for taking-

So when we start to see real revenue back into next year, they will be a piece of that for sure.

Yeah, great. Okay. Thanks for taking my question.

Brooks.

Yeah.

Our next question comes from Alex Nook with Craig Hall and please go.

Our next question comes from Alex Nowak with.

Craig Hallum. Please go ahead.

Hey, good morning, everyone. So the the bolus of wound revenue yeah.

Hey, good morning everyone. So the, the bowl is so good and revenue, you know, in the first year.

First three quarters of the year.

Yeah, that's because you place a lot of these systems. So is that recurring 36 month payment? You're gonna start to kick in more in future quarters and that helps with margins and kind of treat that like a consumable play? I'm just trying to think of...

Yeah, that's because you placed a lot of these systems. So as that recurring 36 months payment you're going to start to kick in more in future quarters and that helps with margins kind of treat that like in consumable play I'm just trying to think of you all.

all the systems that you place so far, I feel like this is gonna be a longer lasting benefit over the next few, in next three years.

All of the systems that you've placed so far I feel like this you've got to be a longer lasting benefit over the next few and you know next three years.

So.

I think we recognize the revenue up front. There will be a piece of, so we'll sell the consumables as well. It's a much smaller number, right? When we leave, you know, if we have a million dollars in leases in the quarter, the consumables might be, you know, $100,000 or less.

I think we recognize the revenue upfront that there will be a piece of it we will sell the consumables as well it's a much smaller number probably when we you know if we have a $1 million in leases in the quarter the consumables might be.

$100000 or less so.

So that will be kind of the consumable piece that we'll see coming down the pike. I think one thing that I want to make sure that everyone knows is that, you know, we have this big bolus of leases over the first three quarters, right? It doesn't mean that we're done, right? It's going to be part of our forecasting, hopefully forever. We're going to continue to get leases. The pipeline is full.

So that will be kind of the consumable piece that we'll see coming down the Pike I think one thing that I want to make sure that everyone knows is that we had this big bolus of leases over the first three quarters right. It doesn't mean that when done right, it's going to be part of our forecasting hopefully forever, we're going to continue to get leases the pipeline is full.

You know, we're not going to guess when it comes to our guidance on when those leases will come to fruition, but the sales reps are out there selling leases outside of this distribution agreement every day of the week. So it's not like it's going to be gone. It's just we're not going to see that kind of...

You know, we're not going to guess when it comes to our guidance on when those leases will come to fruition, but the sales reps are out there selling leases outside of this distribution agreement.

Everyday of the week, so it's not like it's going to be gone. It's just we're not going to see that kind of burst of revenue every quarter forever, but we will continue to place leases.

you know, burst of revenue every quarter, you know, forever. But we will continue to place these.

Okay, Alright that makes sense and I know we've talked about this in the past, but the revenue from the Sundar JV when can we start to.

Okay, all right, now that makes sense. And I know we've talked about this in the past, but the revenue from the scenario J.P. When can we start to say that's contributing to the top line?

Say, that's contributing to the top line in a meaningful way is that a 2024.

Time period.

Yeah.

So the least is we're kind of really part of the gent venture so we could say now, but any revenue that we have going forward will be booked on our top line. And then there's a buying that the JV actually is just a purchasing vehicle where we can share the profit that's built into the place.

Yes.

The leases world kind of really part of the joint venture side, we can say now, but any revenue that we have going forward will be booked on our top line.

And then as we're buying that the JV actually is just a a purchasing vehicle where we can share the profit that's built into the supply chain.

Okay, okay, got it, got it, all right, that makes sense. So then the gross margin, you know, it's been, it's been impacted by the last couple of quarters here and you walk through all those sort of operations.

Okay. Okay got it got it alright that makes sense. So then the gross margin it's been it's been impacted but the last couple of quarters here and you walked through all of those sort of operational Brooklyn's you could've been make there. So that's very helpful. I guess as you get into the middle of 2024 D.

you're gonna make their steps very helpful. I guess as you get into the middle of 2024,

Do you get back to a high Fifty's gross margin or is it really we got to wait till end of 'twenty 'twenty four 'twenty five until we can start to see the leverage there.

We get back to a high 50s gross margin or is it really we got to wait till end of 2024, until they can touch the single leverage.

Yeah, I don't know that we get necessarily back to high fifties, keep in mind that some of that additional business is just lower gross margin, pay the biometh, for example. The nice thing is it doesn't add a lot of GNA. So from an EBITDA margin perspective, you know, we're getting, we're approaching back to the 20% margin and we should be able to break through that next year at some point as we continue to be more efficient on delivering those services.

Yeah, I don't know that we get necessary back to high fifties keep in mind that some of that additional business is just lower gross margin. The biomet. For example, the nice thing is it doesn't really add a lot of G&A stuff from an EBITDA margin perspective, you know, we're getting we're approaching back to the 20% margin that we should be able to break through that next year at some point as we continue to.

To be more efficient on delivering those services.

Okay, got it. And then on the revenue guide, you know, appreciate the conservatism. There's a lot of factors that place here outside the control. So what's that level that we can be? But, you know, on the flip side, 11% growth, that gets you to the lowest core, would essentially put your cue for at the lowest quarter of a year, which based in the commentary, I don't think would be necessarily correct. So maybe just put the puts in digs there. I mean, it seems like more like 12, 13% growth is more the likely scenario.

Okay got it and then on the revenue guide and you know appreciate the conservatism. There is a lot of factors at play here outside of control. So what is that a level that we can be but on the flip side, 11% growth that gets you to the lowest court would essentially put your Q4 at the lowest quarter of the year, which based on the commentary.

I don't think would be necessarily correct.

So it may be just put the puts and takes there I mean, it seems like more like 12, 13% growth is more the likely.

Scenario.

Yes, I think you're right that we shouldn't have the lowest quarter of the year in the fourth quarter. I would look at the 11 plus percent is that we just moved the floor up. Right, so we still expect to beat that number.

Yeah, So I think.

I think youre right that we shouldn't have the lowest quarter of the year in the fourth quarter I would look at the 11 plus percent as we just moved the floor up right. So we still expect to beat that number.

I can never guarantee a number, but we should be able to beat 11 plus percent. How much more we beat it by is there's timing issues. Are there other leases that come in that replace what happened in the third quarter and prior quarters?

I can never guarantee a number but we should be able to beat 11 plus percent how.

How much more we beat it by Theres timing issues are there other leases that come in that replace what happened in the third quarter and prior quarters.

I think Barry went through the 500,000 GE just on the timing of the onboarding of new devices and the Leases in Q3. Outside of that, I don't have a line of sight in the anything else that's gonna bring us down that far.

I think Barry went through the 500000 and GE just just on the timing of the Onboarding of new devices and and the leases in Q3.

Outside of that I don't have a line of sight into anything else, that's going to bring us down that far but we've also had the experience in the last two years, where things that we didn't have line of sight into hit us in the fourth quarter that we didn't expect right. We had all mcallen in December of 'twenty. One last year, we had a supply chain issue that we had in order for it couldn't get the devices out the door.

But we've also had the experience in the last two years where things that we didn't have line of sight into hit us in the fourth quarter that we didn't expect. We had Omicron and...

December 21, last year we had the supply chain issue that we had an order for and couldn't get the devices out the door.

So we're just giving ourselves some space. So if something like that happens, we can still hit the number. Because that's one thing that we're gonna do is we're gonna hit numbers when we put them out there. We just wanna make sure we can account for things that we don't even know yet.

So, we're just giving ourselves some space or something like that happens we can still hit the number.

Because that's one thing that we're going to do is we're going to hit numbers. When we put them out there and we just wanted to make sure. We can account for things that we don't even know yet.

Totally understood and great to hear. Appreciate the update. Thank you. Thanks, Alks. Thank you. Again.

Totally understood and great to hear I appreciate the update thank you.

Thanks, Alex.

Okay.

Yes.

Again.

And then my Dad. If you have a question. Please press star one to be joined into the queue.

The next question comes from Jim Sidoti with Sidoti and company. Please go ahead.

Hi, good morning and excuse me, thank you for taking the questions. So, you know, first one on S-GNA, you don't typically see a company grow the top on 17% and have lower S-GNA. Now, I know you did reduce some of the sales teams slightly in 2023, but were there any other one time expenses in 2022 that haven't come back? And do you expect to continue to be able to leverage this S-GNA line in 2024?

Hi, Good morning, Hum excuse me. Thank you for taking the questions.

So first one on SG&A you don't typically see a company grow the top line, 17% and have lower SG&A.

Oh, no I know you did reduce some of the sales teams are frankly.

Our 2023, but were there any other one time expenses in 2022 that haven't come back and do you expect to continue to be able to leverage this SG&A line in 2024.

Yeah, so there are some seasonal things. So Q1 is a little bit higher in the selling costs than some of our sales meetings and some of our shows and things we do. I think that the

Yeah. So so there are some seasonal thing so Q1 is a little bit higher than the selling costs with all of our sales meetings in some of our shows and things. We do so you should expect that to come up a little but I think that the but the stock comp bounces around a little Betsy I'd be careful about that you'll be able to see that amount and the adjusted EBITDA.

dot com bounces around a little bit so you have to be careful about that. You'll be able to see that amount in the Adjustment you bit dot table so you can kind of pull that out of the sort of trench if you will

So you can kind of pull that out of the sort of the trends if you will.

I think that our theme is to try to leverage the fixed cost built in the GNA, as best we can by growing a little faster on the top line. So I think you should hope to see that we can improve margins somewhat by leveraging our S.

I think that that's our theme is to try to leverage the fixed cost built into the G&A as best we can to buy by growing a little faster on the top line. So I think you said you hope to see that we can improve margins somewhat by leveraging our SG&A.

All right, and then he told me a little bit of book, a little bit more about how you're preparing with Sonera. You know, obviously you're getting the pumps out there in 2023, but have you started training with those people or are you ramping up for anything?

Alright, and then.

He can talk a little bit about a little bit more about how you are preparing.

With Tamara you know you, obviously, you're getting the pumps out there in 'twenty two 'twenty three but have you started trading with those people are you know.

Are you ramping up for anything.

Specific in 'twenty four you know just to give us some color on how the how that all plays out.

specific in 24, you know, just give us some color on how that all plays.

Yeah, so the team is pretty well trained up and ready to go. They've been filling the pipeline now for months. I would say once...

Yeah. So the team is pretty well trained up and ready to go they've been filling the pipeline now for months I would say once.

We got the accreditation licensing that we needed earlier in the year. The team is starting to kind of talk about the stuff, talk about the products in the market.

We got the accreditation licensing that we needed earlier in the year. The team is starting to kind of talk about the talk about the products in the market then.

Then we got all the back end systems built, I mean all the way down to like, you know, what the document looks like that the doctor has to fill out. I mean it's that type of detail we have to get to.

And then we've got all the back end systems built I mean, all the way down to like you know what the document looks like that the doctor has to fill out I mean, it's that type of detail we have to get to.

That's largely done at this point. So the reps are now able to go out and talk about the product again.

That's largely done at this point so the reps are now able to go out and talk about the product again.

trying to close some deals that are in that pipeline. We've already seen a patient or two come in and go on the supplies from Sonara.

To close some deals that are in that pipeline.

We've we've already seen a patient or two come in and go on a go on the supplies from scenario. So as that starts to rollout it should accelerate relatively quickly.

as that starts to roll out, it should accelerate relatively quickly. But sales cycles can take six to 12 months, and that's why we really think it'll be the back end of next year where we really start to see it ramp. But we'll see some revenue early on next year.

But sales cycles can take six to 12 months and that's why we really think it'll be the back end of next year, where we really start to see it ramp, but we will see some revenue early early on next year, we should but the team is ready to go there and actually get breakfast point earlier with the traveling physician groups.

But the team's ready to go. There's actually a Brooks's point early with the traveling physician groups.

Our guys have been talking to those groups already. So when we're ready to turn the faucet on, it should go pretty well fairly quickly.

Guys have been talking to those groups already so when we're when we're ready to turn the faucet on it should go pretty well fairly quickly.

So just to be clear. So now that you have these pumps out there you do expect them to generate.

So just to be clear, so now that you have these pumps out there, you do expect them to generate some type of service and consumable revenue in 2024, the patients who are using these pumps. Is that correct?

Some type of service and consumable revenue in 2020 for the patients.

Who are using these pumps is that correct.

Yeah, yeah, that's correct. I don't think it's a big number. I think it's hundreds of thousands of dollars, not millions of dollars, for the pumps that are out there today. The hope is that as we add more equipment into the market, the consumer will be pieced drives up with it. But it's not millions of dollars in 24. It's a relatively small number.

Yeah, Yeah, that's correct I don't think it's a big number I think it's hundreds of thousands of dollars not millions of dollars for the pumps that are out there today.

Is that as we add more equipment into the market the consumable piece drives up with it.

But its not its not millions of dollars in 'twenty four.

Relatively small them.

Okay.

All right, and then assuming that things play out the way you're saying and you do see that some decent revenue growth with margin expansion that should translate into better cash flow. You know, when the cash flow does start to improve, what's gonna be the priority? Is it debt pay down? Are you gonna look at other opportunities? You know, what are you thinking regarding cash generation? That another question?

And then I'm, assuming that things play out the way you were saying and.

You do see you know some of you said revenue growth with margin expansion that should translate into better cash flow.

When when the casual does start to improve what's going to be the priority is debt pay down or are you going to look at other opportunities.

You know what what do you think regarding cash generation.

So I think the priority issue.

Sure, yeah. So I think our priority is still to grow the business, to feed the business where we have to. When there are devices to buy with the money or acquisitions to make.

Sure Yeah. So I think our priority is still to grow the business to feed the business, where we have to.

When there are devices to buy with the money or acquisitions to make then we will look at is it debt is it stock buybacks and it's what we've done in the past right. It's opportunistic if we think the stock is a good value then.

then we'll look at is it dead, is it stock buybacks. And it's what we've done in the past, right? It's opportunistic. If you think the stock is a good value, then.

We'll go buy some stock back. You can see in the third quarter we paid down debt with it. Prior to a couple million dollars.

We'll go buy some stock back you can see in the third quarter, we paid down debt with it I had a couple of million dollars.

So there's a variety of factors, but I think the priority is still number one, to invest in the business when we have to. If we have a window of opportunity where we don't have to invest in the business, we'll look at buybacks or we're paying doubt debt.

So there's a variety of factors, but I think the priority is still number one to invest in the business when we have to if.

If we have a window of opportunity, where we don't have to invest in the business will look at buybacks or.

I doubt that.

Alright, and then.

Oh I'm, sorry, I was just gonna stay one good thing on our debt structure is that we can pay down debt and they don't lose our commitment. So we can always borrow it back. So we have a good efficient way on a pad like short term.

One good thing on our desk structure is that we can pay down debt and they don't lose our commitment. So we now borrow back. So we have a good, efficient way of handling short-term evidence blows of our cash flow. So we're following them.

Ebbs and flows of our cash flow.

And then with <unk>.

With regards to G E.

No.

How many more folks do you think you need to bring on to service all their equipment?

How many more folks do you think you need to bring on to service all their equipment.

You know, we're probably down to getting regional technicians in place in certain geographies. It's a couple dozen people. It's not a ton of guys.

We're probably down to getting regional technicians in place in certain geographies. It's you know a couple of dozen people, it's not a ton of guys.

So you pay your your boat.

80, 90% done with the staff addition. Yeah, I think that's a fair assessment. Okay. All right.

Maybe 90% done with the with the definitions here.

I think that's I think that's a fair assessment.

Okay alright, thank you.

Thank you.

Okay.

Oh I see no further questions.

A question and answer session I would like to turn the conference back over to Rich D are yet to see if the company for any closing remarks.

And I would like to turn the conference back over to Rich Theory.

I want to thank everyone for participating on today's call and we look forward to our call in the spring to discuss our fourth quarter and full year results. I hope everyone has a great day.

I want to thank everyone for participating on today's call and we look forward to our call in the spring to discuss our fourth quarter and full year results I hope everyone has a great day.

Okay.

Conference has now concluded. Thank you, Virginia. Today's presentation you may all

The conference has now concluded. Thank you for attending today's presentation you may all now.