InfuSystem Announces Operational and Financial Results for Fourth Quarter and Full Year 2022

ROCHESTER HILLS, Michigan—InfuSystem Holdings, Inc., (“InfuSystem” or the “Company”), a national health care service provider, facilitating outpatient care for durable medical equipment (DME) manufacturers and health care providers, today reported financial results for the fourth quarter and full year ended Dec. 31, 2022.

“We had a highly productive year in 2022 with solid performance achieving record revenue for the fourth consecutive year of $110 million and developing key strategic partnerships laying strong foundations for the future,” Chief Executive Officer of InfuSystem, Richard DiIorio, said. “All of our core businesses remain strong, as our growth opportunities in pain and biomedical services continue to gain measurable results. For the fourth quarter, we had record revenue with solid top-line growth of 9% driven by 15% growth in DME, Durable Medical Equipment Services and 5% growth in ITS, Integrated Therapy Services. InfuSystem’s positive full-year 2022 results are a testament to our team’s ability to overcome significant headwinds during the year with their relentless focus on delivering industry-leading service to our patients and providers. This dedication and the accomplishments during 2022 elevate our growth opportunities for 2023 and beyond.”

Fourth Quarter Overview:

• Net revenues totaled $28.8 million, an increase of 9% vs. prior year.
  • ITS net revenue was $17.6 million, an increase of 5% vs. prior year.
  • DME Service net revenue was $11.2 million, an increase of 15% vs. prior year.
• Gross profit was $16.1 million, an increase of 5% vs. prior year.
• Gross margin was 55.8%, a decrease of 2.0% vs. prior year.
• Net income of $0.1 million, or $0.01 per diluted share.
• Adjusted earnings before interest, income taxes, depreciation, and amortization (“Adjusted EBITDA”) (non-GAAP) was $5.5 million, a decrease of 16% vs. prior year.

Full Year Overview:

• Net revenues totaled $109.9 million, an increase of 7% vs. prior year.
  • ITS net revenue was $68.9 million, an increase of 5% vs. prior year.
  • DME Services net revenue was $41.0 million, an increase of 12% vs. prior year.
• Gross profit was $62.6 million, an increase of 4% vs. prior year.
• Gross margin was 56.9%, a decrease of 1.9% vs. prior year.
• Net income of less than $0.1 million.
• Adjusted EBITDA was $20.7 million, a decrease of 14% vs. prior year.
• Net cash provided by operations was $17.5 million, a decrease of 4% vs. prior year.

2022 Fourth Quarter Financial Review

Net revenues for the quarter were $28.8 million, an increase of $2.3 million, or 9%, compared to $26.5 million for the quarter that ended Dec. 31, 2021. The increase was attributable to both the ITS and DME Services Segments.

ITS net revenue of $17.6 million increased $0.8 million, or 5%, during the fourth quarter of 2022 as compared to the same prior year period. This increase was primarily attributable to additional treatment volume in oncology and pain management and improved third-party payer collections on billings. Pain management net revenue increased by $0.4 million, or 44% for the fourth quarter of 2022 as compared to the prior year fourth quarter due to additional sites of care added over the last year. These increases were partially offset by lower net revenues for NPWT of $0.3 million, or 56.8%, which was due to a temporary disruption in the supply of NPWT devices related to our existing supplier discontinuing their NPWT device.

DME services net revenue of $11.2 million increased $1.5 million, or 15%, during the fourth quarter of 2022 as compared to the prior year period. This increase was due to increases in sales of medical equipment totaling $0.7 million, or 40%, higher biomedical services revenue which increased by $0.7 million, or 50% and higher revenues from equipment rentals totaling $0.2 million, or 5%. Higher equipment revenue reflected a shift in the timing of large orders from the second and third quarters and seasonal factors. Increased rental revenue reflected increased market demand carried over from the 2022 second quarter as customers looked to supplement their infusion pump fleets in the face of supply chain disruptions of disposable medical supplies used with certain model infusion pumps.

The biomedical services revenue included initial amounts of revenue from a new master services agreement with a leading global healthcare technology and diagnostic company that was signed in April 2022. During the fourth quarter of 2022 we continued to onboard covered devices under the contract as part of a ramp-up period originally expected to span the first 15 months of the contract and achieve a run-rate under the contract totaling $10 to $12 million annually. The actual onboarding pace realized during 2022 was slower than originally expected, however, during 2023 the 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. On-boarding activities are expected to level off during the first quarter of 2024 to bring total annualized revenue under the contract to an amount slightly above the original expected range.

Gross profit for the fourth quarter of 2022 of $16.1 million increased $0.8 million, or 5%, from $15.3 million for the fourth quarter of 2021. The increase was driven by the increase in net revenues offset partially by a lower gross profit as a percentage of net revenue (“gross margin”). Gross margin was 55.8% during the fourth quarter of 2022 as compared to 57.7% during the same prior year period, a decrease of 2.0%.

ITS gross profit was $11.2 million during the fourth quarter of 2022, representing an increase of $0.2 million compared to the same prior year period. The improvement reflected an increase in net revenues offset partially by a lower gross margin, which decreased from the same prior year period by 2.2% to 63.5%. The lower gross margin was the result of a $0.5 million increase in the adjustment recorded for pump disposal expenses and $0.3 million higher pump maintenance expenses as compared to the prior year. These increased expenses were partially offset by improved third party payer collections on billings and improved coverage of fixed costs from the higher net revenue. Pump disposal expenses include retirements of damaged pumps and reserves for missing pumps. The increase was mainly related to a net benefit of $0.3 million, or partial reversal of the reserve for missing pumps, recorded in the prior year whereas the current year amount was a more normal $0.2 million expense. Pump maintenance expenses, which include preventative maintenance, cleaning and repair services mainly performed by the DME Services segment, were unusually higher during the fourth quarter of 2022 due to the timing of when the services were performed.

DME services gross profit during the fourth quarter of 2022 was $4.9 million, representing an increase of $0.6 million, or 14%, compared to the same prior year period. This increase was due to the increase in net revenues offset partially by a lower gross margin. The DME Services gross margin was 43.7% during the current quarter, which was 0.3% lower than the same prior-year quarter. This decrease was the result of a gross margin mix associated with higher biomedical services revenue and higher medical equipment sales, both of which have lower gross margin percentages than other business lines in the DME Services segment. The lower gross margin was also due to an increase in labor costs related to an increase in the number of biomedical technicians. The increase in biomedical technician labor resulted from an increase in team members who were hired in order to increase the capacity in biomedical services in anticipation of increased biomedical services demand. A portion of the higher expense included the cost to train the additional technicians. Higher biomedical services revenue anticipated in 2023 is expected to absorb the increased labor costs.

Selling and marketing expenses for the fourth quarter of 2022 were $3.0 million, representing an increase of $0.2 million, or 5%, as compared to the fourth quarter of 2021. Selling and marketing expenses as a percentage of net revenues during 2022 was 10.3% representing a decrease of 0.3% compared to the prior year period.

General and administrative (“G&A”) expenses for the fourth quarter of 2022 were $11.6 million, an increase of 19% from $9.7 million for the fourth quarter of 2021. The increase of $1.8 million was largely due to an increase in management bonus expense. This was due to an adjustment to reduce the short-term incentive management compensation plan accrual during the fourth quarter of 2022 which was much lower than a similar adjustment made during the prior year period. As a result management bonus expense increased by $1.5 million in 2022 as compared to 2021. Additional increases totaling $1.2 million included severance and other termination costs associated with a reorganization of certain management positions, inflation-related increases in wages and employee benefits, additional audit expenses associated with additional requirements to comply with the Sarbanes-Oxley Act of 2002 and other increased expenses associated with revenue volume growth including the cost of additional personnel, information technology and general business expenses. These increases were partially offset by a decrease in stock-based compensation expense of $0.9 million.

Net income for the fourth quarter of 2022 was $0.1 million, or $0.01 per diluted share, compared to $0.4 million, or $0.02 per diluted share for the fourth quarter of 2021. Net income for the fourth quarter of 2022 was 0.4% of net revenue for the period, as compared to 1.5% for the same prior year period.

Adjusted EBITDA, a non-GAAP measure, for the fourth quarter of 2022 was $5.5 million, or 19.0% of net revenue, and decreased by $1.0 million, or 16.0%, compared to Adjusted EBITDA for the same prior year quarter of $6.5 million, or 24.6% of prior period net revenue.

Balance sheet, cash flows & liquidity

During the year ended December 31, 2022, operating cash flow decreased to $17.5 million, a $0.8 million or 4% decrease as compared to operating cash flow during the same prior year period. The decrease reflected lower operating margins during the year but mainly in the first quarter of 2022. Capital expenditures, which include purchases of medical devices, totaled $15.1 million during the year ended December 31, 2022 which was $1.6 million, or 9%, lower than the amount purchased during 2021. This decrease reflected the fact that revenue growth during 2022 favored products, such as biomedical services, that do not require the purchase of medical devices. Offsetting capital expenditures were proceeds from the sale of medical equipment totaling $3.6 million in 2022 and $3.3 million in 2021. Additionally, during the year ended December 31, 2022, $5.5 million was used to repurchase common stock.

On February 5, 2021, the Company refinanced all of its existing bank debt under its 2015 Credit Agreement which, at the beginning of the 2021 first quarter, consisted of three-term notes totaling $37.9 million and an $11.8 million undrawn revolving line of credit. The new 2021 Credit Agreement features a $75 million revolving line of credit, does not include any term indebtedness, and matures on the fifth anniversary of the refinancing date. The initial borrowing under the new facility of $30 million, along with $8.2 million of our available cash, was used to repay all outstanding obligations under the 2015 Credit Agreement. As a result, available liquidity increased substantially, totaling $41.4 million as of December 31, 2022, and consisted of $41.2 million in available borrowing capacity under the new revolving line of credit plus cash and cash equivalents of $0.2 million. Net debt, a non-GAAP measure (calculated as a total debt of $33.2 million less cash and cash equivalents of $0.2 million) as of December 31, 2022 was $33.0 million representing an increase of $0.1 million as compared to net debt of $32.9 million as of December 31, 2021 (calculated as a total debt of $33.1 million less cash and cash equivalents of $0.2 million). We maintain a low balance of cash in our bank accounts to achieve maximum cash efficiency due to the fact that our bank debt is an all-revolver facility that allows us to use any excess operating cash to pay down our revolving lines each day.