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Hello, and welcome to the InfuSystem Holdings, Inc. Second Quarter 2023 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to Joe Dorame, Managing Partner. Please go ahead.

Good morning, and thank you for joining us today to review InfuSystem's financial results for the second quarter of 2023, ended June 30, 2023. With us today on the call are Rich DiIorio, Chief Executive Officer; Barry Steele, Chief Financial Officer; and Carrie Lachance, President and Chief Operating Officer. After the conclusion of today's prepared remarks, we will open the call for questions. Before we begin with prepared remarks, I would like to remind everyone certain statements made by the management team of InfuSystem during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under risk factors and documents filed by the company with the Securities and Exchange Commission, including the annual report on Form 10-K for the year ended December 31, 2022. 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. InfuSystem 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 DiIorio, Chief Executive Officer of InfuSystem. Rich?

Thanks, Joe, and good morning, everyone. And welcome to InfuSystem's second quarter 2023 earnings call. Thank you all for joining us today. I'll start by noting that a key theme in our prior two calls this year was that 2023 is going to be an execution year. With this morning's press release, we now see strong second quarter numbers building on those from the first quarter, and delivering results for the first-half of the year that meet or exceed expectations. Barry will cover the specifics of the quarter in a few minutes, but I will point out that Q1 2023 was the first quarter in our history where revenue exceeded $30 million. And the recently completed second quarter was the first ever above $31 million, coming in at $31.7 million, which reflects 17% growth year-over-year. Our growth in the first-half of the year is the result of strong execution in our biomed and wound care businesses, specifically the rollout under the initial master services agreement with GE, and it's moving rapidly and has achieved the desired momentum. In wound care, we saw another strong quarter of negative pressure device placements as part of our relationship with Cork Medical. As a reminder, these device placements not only contribute to our top line, but they are also important to establish our customers base as we prepare for the introduction of Sanara products that we hope will be a growth driver, starting in 2024. I'd like to do a quick review of the strategic decisions that paved the way for the performance that we are seeing in 2023. Prior to 2020 InfuSystem had a long history as primarily an oncology pump company. Hidden within that business was a collection of underappreciated and underutilized assets and capabilities. These include our national payer contracts, covering 96% of the U.S. population, a strong and scalable revenue cycle management team, and great biomedical services capabilities. Starting just a few years ago, we began looking beyond oncology and infusion pumps to expand the potential of both of our business units, Patient Services and Device Solution. And this has led to material growth and opportunities, first involving McKesson, then Cardinal, GE, and most recently Cork and Sanara. To understand how these partnerships and opportunities grow our business, it is important to emphasize that InfuSystem is a service company; we provide services that solve difficult problems for manufacturers, healthcare providers, patients, and payers. What we do is challenging, requiring a long-term vision built around a culture dedicated to patient care. All this is to explain why it often takes times between when we announce the business initiatives and when the revenue from these initiatives begins to ramp. We attempt to be as transparent as possible. Often, our initiatives require investments be made several quarters in advance of anticipated revenue. In this, we would like to thank you for your patients as we've all waited for some of the big initiatives we've been pursuing to begin bearing fruit. 2023 is the year where the benefits of the hard work and effort in prior years is beginning to show up. With GE, that work began back in 2022 or '21, when we started talking about what would become the Master Services Agreement. We signed that deal and started work in '22. And now, in '23, we see how impactful the relationship is and will continue to be. The next big initiative is the joint venture with Sanara. The nature of that relationship was developed through '22. And in 2023, we're steadily working towards the necessary preparation to allow a material revenue to start in '24. GE and the Sanara joint venture are not the only projects we are working on, but they are currently the biggest and are expected to be the most impactful. The total addressable market for biomedical services is huge, especially in acute care. And the GE opportunity will open doors for us as we execute on the existing agreement, and place our technicians in hospitals all over the country. The new initiative with Sanara is a much larger opportunity than our initial project a few years ago, that involved only negative pressure wound therapy. But it was that early work with Cardinal that brought Sanara to us and led to the joint venture. Sanara has incredible products and a disruptive model that can greatly benefit patients and payers focused on healing patients. The partnership brings together these products with our national payers contracts, robust RCM capabilities, and the logistics backbone that are needed to address the opportunities that Sanara has long-seen in skilled nursing and long-term care facilities. That will be a 2024 story, and I'm happy to report that the progress and preparations remain on schedule. Now, I would like to update everyone on our guidance. At the beginning of the year, we gave guidance for the full-year, estimating net revenue growth of 8% to 10%, and greater than 19% adjusted EBITDA margin. Through the first-half of this year, our revenue grown at a pace above the 8% to 10% rate we guided for the full-year. 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. Accordingly, we are taking a conservative approach and raising our full-year guidance to have net revenue growth of 10%-plus. We should have even greater visibility when we speak again after our Q3 results in the fall, and we'll give you more color and updated numbers. Barry will now take us through the financial results for the second quarter, and then Carrie will provide additional color on operations involving GE and Sanara.

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 forecast for the rest of the year, and our progress towards clearing the internal control deficiencies identified during the 2022 audit. First, let me touch on our financial results for the period. Net revenues for the second quarter of 2023 totaled $31.7 million, representing a 17.4% increase from the prior year. This was a fixed rate quarter, setting a new all-time revenue record, and the seventh record in the last eight quarters. Both of our operating segments contributed to this growth, with Device Solutions leading the way with increased revenues totaling $2.6 million, up 27%, while the Patient Services segment delivered an improvement of $2.1 million or 12%. In Device Solutions, revenue growth was primarily attributed to the continued ramp-up of the biomedical services contract with GE HealthCare, which booked revenue of $2.4 million during the 2023 second quarter, compared to only $145,000 in the prior year second quarter, which was the quarter when the program was first launched. On June 30, the annualized revenue run rate for devices onboarded to the contract stood at approximately $9 million, and we continue to march towards our current target of $12 million. The improvement in Patient Services was driven by negative pressure equipment sales on lease, which totaled $1.3 million. This was nearly triple the amount from the 2023 first quarter. We had no negative pressure from the sales during the second quarter of 2023. Most of these sales were to one customer, and this channel is expected to taper off in the next couple quarters. Most of the rest of the improvement in Patient Services was in oncology, which increased by $900,000 or almost 6%. Gross profit for the second quarter of 2023 was $16.4 million, which was $1.5 million or 10% higher than the prior year's second quarter, and an increase of $900,000, or 6%, in the gross profit of this year's first quarter. This was mainly driven by the higher sales, but was partially offset by a lower gross margin percentage, which was 51.8% during the second quarter of 2023, down from 55.1% from the prior year, but up slightly from this year's first quarter. The year-over-year decrease was mainly due to unfavorable product mix changes and additional startup costs with the GE HealthCare biomedical services contract. The products mix impact is due to higher biomedical services revenue, and the negative pressure equipment sales growth, most of which have a lower gross margin than the company average. GE HealthCare startup costs are estimated to have been about $900,000 for the 2023 second quarter. While this amount is still higher than we originally planned, it is significantly lower than the amount we started off with during the first quarter when we also had lower amounts of revenue on the contract. You may recall, in this case, startup costs largely include employee acquisitions and development costs, such as recruiting fees and hiring bonuses, training time, lower initial productivity in the field, and higher travel expenses for the travel team. These upfront expenses were higher than originally planned due to the decision to accelerate the onboarding process when the opportunity was presented. We anticipate that these higher-than-planned expenses will continue to dissipate over the next several quarters, and then our margin will approach our original estimates once we reach full ramp. Selling, general, and administrative expenses for the second quarter of 2023 totaled $15.6 million, representing an increase of $500,000 or 3% as compared to the prior year. However, the amount was 47.9% of revenue during 2023, which represented a 6.4% decrease from the prior-year ratio, which was 54.3%. As a result of these impacts, our adjusted EBITDA was $5.8 million or 18% of net revenue during the second quarter of 2023, which represented a slight increase in dollars from the prior year, totaling $200,000, but a decrease in margin of 2.2%. Sequentially, from the first quarter, the dollar amount of $1.6 better, and the margin percentage improved by 4.4% to 18.3%. Turning to the prospects for the rest of the year, as Rich stated, we now expect to exceed our previously stated revenue growth outlook of 8% to 10%. However, we expect to fall slightly short of our adjusted EBITDA expectations. Important factors that have contributed to the improvement in revenue growth include a faster than originally planned ramp rate for GE contract, and a significant amount of negative pressure wound therapy equipment sales. As we look towards the second-half, we anticipate a continued steady ramp for the GE contract, but lower shipments of negative pressure wound therapy equipment. Our adjusted EBITDA outlook is now expected to be 17% to 18% mainly due to the higher GE contract startup expenses, which [fell heaviest] (ph) in the first quarter. We anticipate the adjusted EBITDA margin for the second-half to meet or exceed the original 19%-plus level. Finally, let me update you on the progress of remediating our material weaknesses, and while I'm at it, I'll tell you a little bit more about an important change in our annual audit process. When we filed our Annual Report, we told you about three material deficiencies in our internal controls. They include deficiencies in the design of controls over the completeness and accuracy of information produced by the entity and used by control owners, so-called IPE, general information technology controls over access rights within certain financial reporting and accounting applications, and a deficiency in controls over management review of established pricing and contract terms to support recorded revenue and accounts receivable for some of our revenue categories. These general deficiency categories, with an aggregate result of a number of individual-specific control [findings] (ph). We have addressed many of these individual underling items by redesigned and implementing new procedures and policies, and adding specific steps to our existing process. We have made many of the necessary corrections and are working to complete the remainder. In addition, we still need to validate that the new activities are operating as intended, which is a testing and review process that we will be performing in the coming weeks and months. Given our current progress, we continue to anticipate that the material weaknesses will be completely mitigated by December 31 of this year. The update to our annual audit process I want to tell you about is the recently announced appointment of Deloitte as our independent registered public accountant for the 2023 annual audit. Deloitte has been completely engaged, and we are working to complete the second quarter review process before we file the second quarter 10-Q next week. Next up, is our President and Chief Operating Officer, Carrie Lachance, who will provide some additional color on developments in biomedical services and our wound care business.

Thanks, Barry, and good morning, everyone. I'd like to provide more details on the rollout under the current MSA with GE, and update the status of the JV with Sanara. During the second quarter, we accelerated the pace of onboarding and increased the number of devices generating revenue under the MSA to nearly $170,000. As a reminder, we recognize an initial fee when each pump is onboarded, and then a monthly maintenance fee that will continue for the life of the contract. We currently estimate that the initial phase of the MSA will involve approximately 230,000 devices, and that the initial onboarding process will be substantially completed by the end of the first quarter, in 2024, as Rich mentioned. A key part of the GE rollout involves building a national network of biomed technicians that will perform ongoing maintenance and complement our mobile strike teams. The strike teams are responsible for the onboarding process as well as the annual return to each facility to perform required preventative maintenance. While we are still very much focused on delivering white-glove levels of service under the initial phase of the MSA, GE has made clear its own intention to leverage InfuSystem's rapidly scaling capabilities. This may include adding different types of devices such as ETCO2s and sequential compression devices, and adding additional services that our teams can perform within the hospitals. A good example of this is the RPID inventory project that we have already started. As national network is built out, both that network and our strike teams can and will be leveraged to perform biomedical services for manufacturers and facilities outside of the work we are doing for GE. Again, we believe it's strategic to defer such opportunities into next year so as to focus on delivering superior services under the GE MSA, and building our reputation for quality that will benefit our future business initiatives. Turning to wound care, we had another strong quarter of negative pressure device placements. This was partly the result of the backlog that developed due to the supply chain issues experienced by our supplier, Cork Medical, at the end of last year. Cork has resolved all issues, and we are currently receiving delivery of devices as expected. However, I'll take this opportunity to remind everyone that we added as second negative pressure device supplier, Genadyne, in the first quarter. The vast majority of pumps we have been placing have been going into long-term care facilities. This is strategic as it allows us to distribute Sanara's advanced wound care products into these same facilities. With regard to that, I'm happy to report we are making steady process with our revenue cycle team taking a lead in establishing the processes and connections necessary to successfully implement third-party payer billing. We are on schedule, and expect testing and other selling efforts to begin before the end of this year. At this point, I would like to turn the call back over to Rich.

Thanks, Carrie. As we sit today, a little over halfway through 2023, we are in a very good place. The GE rollout continues to ramp, and is expected to help drive strong revenue growth for the rest of this year, and into 2024. Our relationship with GE is excellent, and there are regular discussions on how to expand beyond the scope of the initial MSA. We expect to be aggressive next year, identifying the best opportunities to leverage the national service network we are building, and this will involve opportunities both inside and outside of GE. As I said, Sanara should start materially contributing before the end of 2024, as our other businesses continue making steady progress. Oncology has been a great contributor this year, and paying continues to ramp as we target strategically important surgery. Equipment sales, rentals, and consumables are holding their own, and are ready to make bigger contributions if and when opportunities emerge in acute care. We are now ready to begin the Q&A portion of the call.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brooks O'Neil of Lake Street Capital Markets. Go ahead.

Hi, good morning everyone. This is Aaron Wukmir on the line for Brooks, so, just a couple of questions here. You guys mentioned, in the long-term care facilities, those opportunities in the wound care area. I'm wondering if you could just provide a little more color on that. Do you see any opportunities in the home as well or are you mainly just focusing on those long-term care facilities?

So, it's a little bit of both. When a patient gets discharged from the hospital and the go down step-downs, whether it's a skilled nursing facility or a long-term care facility, they need their wounds treated. So, a lot of the care is done at that facility. But when they go home as well if they need continued care, we can place the Sanara products there as well.

Okay, awesome, thanks. And then just a quick follow-up on Sanara actually, so you mentioned they were -- are you planning for a revenue ramp in 2024? Do you have any specific guidance as to whether it be first-half or second-half or anything like that?

Nothing yet. As we build on our budget for the year we'll start to roll that in. But the team is already out there building the pipeline, so we'll see some revenue probably early in the year, but it should really kick in second-half, towards the end. But we don't have anything specific yet; we haven't built that out for 2024 just yet.

Okay, very helpful. Congrats, guys, [on the print] (ph).

Thanks, Aaron.

Our next question comes from Alex Nowak of Craig-Hallum Capital Group. Go ahead.

Okay, great. Good morning, everyone. And Rich, I was just curious, how much of a strength here, first in Q1, now in Q2 is really just gaining [positive] (ph) environment and staffing back to normal, allowing InfuSystem now to hopefully get out there and secure these deals and get these deals ramped?

Yes, I guess on the nursing side and hospitals, it's definitely not back to normal, and I don't know if it ever will get to where it was. But it's really not having an impact on us any more. In our core businesses, we're very much viewed as a partner, so the access even during COVID wasn't terrible. With the new businesses, I wouldn't say it's back to normal, but it's good enough to get the access we need to go place products, and talk to customers, and in-service them, and that sort of thing. But there's definitely a national nursing in acute care sites, for sure, but, in general, not really a concern for us anymore.

Okay, that's great to hear. As the business ramps here, is it still fair to assume that you've made of the investments that you needed to do so far, and we're going to start to see some leverage, whether it be in the second-half of this year or into 2024?

With GE, just in general. Yes, so, yes, that -- we're talking about how investing into initial GE, certainly that's tapering down of the cost to hire people, and things like that, and the efficiency in training, it'll probably be until we're totally onboarded and can have even some more time to completely hone the effort to where we think we'll ultimately be on that contract. That said, there's other investments that moving out there for other things that could come up. So, we would never say that we would be making investments to grow the business. But we -- that being said, the things that we're doing now, for the most part, we'll get past pretty quickly.

Yes, and just to add to that, Alex, in the wound care and pain side, the big investments were the team, the sales teams, and those investments already in, so we can grow those businesses a fair amount over the next couple years without adding to that cost because then the team is in place that we need for quite a bit.

Okay, got it, makes sense. And I appreciate the update on GE. What other biomed deals are out there being discussed in the background? Is there a handful of GE-like names that would make sense to ultimately partner with InfuSystem to help with your devices out there in the market?

Yes, so we are taking on some smaller kind of hospital base, individual hospitals outside of GE just when we have time, and then our techs have some -- a gap in their schedule. But we're still trying to focus on the GE stuff this year just to get our feet completely under us to get that stabilized going into '24. I think when we look out, we're going to see individual hospital deals, right, where a hospital just needs us to come in and help them out. We're going to see manufacturers that we're going to help out. And there's a couple guys out there that, maybe not the name like GE, but we could partner with, nothing eminent, but certainly once our footprint is out there and that capability is there from a logistics standpoint, we can partner with any of the above, and hopefully all of the above.

Okay, got it. And then one more, and then I want to get the guidance just real quick. Sanara is obviously building up a pretty unique wound portfolio. Just how integral is InfuSystem to that setup? Is Sanara looking at maybe multiple vendors that can provide the same sort of services that InfuSystem could provide or is if you're really the sole source provider, really [indiscernible] I think that could provide the service out there?

Yes, so we're definitely sole source, and that's why we went the JV route, so that we're both integrated with each other, and we don't -- we have a negative incentive, in theory, right, to go out and get another supplier products. And they're in the same boat as far as getting another company to go onto the revenue cycle, and clinical, and logistics, and all that, and biomed and everything. So, the JV really locks us at the hip, which is great. That's what we both wanted when we entered that agreement.

Okay, that's good. And then on the guidance front, and obviously we're not getting a new range here, but, in the past, we've had guidance issued and we've -- maybe fall a little bit short of it or have just met it. So, as you're looking about growing above the range, is it a meaningful amount above the range versus setting a new range? And what sort of, I guess, cushion did you leave yourself if a couple items didn't pan out in the second-half this will get above the range?

Well, I guess, meaningful is a subjective term, right. We're going to be 10%, right, that's -- you can see it in the numbers already. There is always risk to our business. We've seen it over the last couple years, right, supplier issues, things that are out of our control, deals don't come in. And we're small enough that $1 million or $2 million will make a difference. So, we wanted to give ourselves a little bit of cushion. We're not going to show up with 20% growth this year, like that's not on the table. But can we beat 10%? Sure. How much we beat it by will be a combination of factors. Our hope is that, in early November, when we announce Q3, we'll have that much more runway behind us, better visibility with only six or eight weeks left in the year, that we'll be able to tighten up the range for you guys and give you better visibility. But you're absolutely right, the last couple years, we've all lived through it, and we want to be conservative so that we, at a minimum, hit the number and hopefully beat it.

Absolutely. Well, congrats on the good results, keep up the work, and thanks for the update.

Thanks, Alex.

[Operator Instructions] Our next question comes from Jim Sidoti of Sidoti & Company. Go ahead.

Hi, good morning, and thanks for taking the questions. I think I heard Barry say that equipment sales for the negative pressure pump was $1.3 million in the quarter. Were there other, what you would consider maybe, one-time sales in the quarter beyond that?

No, nothing that really stands out as sort of lumpish. That said, our normal equipment, our other equipment sales does have a tendency to jump around. This was a healthy quarter for regular equipment sales, nothing that is really outside the norm of what we can do in the next coming quarters. On the negative pressure equipment, as Carrie pointed out, was it's -- we're filling a backlog. Doesn't mean it'll go to zero as we go forward, but we certainly have some more, but we just -- it could be a big number; it could be a small number.

Okay. So, other than that $1.3 million, it was a pretty, you would say, sustainable quarter in terms of revenue?

I agree, yes.

Okay. And then you've dealt with -- and this has come up on several call, you've dealt with a lot of supply chain issues, in the past, between the pumps and whatnot. Is there anything right now that you're concerned about or do you feel like you've got [dual sourcing] (ph) for most of the equipment you have in place?

I think, from a supply chain standpoint, we're in good shape, certainly a lot better than we have been in the last couple years. Jim, you're dead on, on the negative pressure side we ran into the single-source issue at the end of last year, and that was solved with the Genadyne agreement this year. So, we're in a pretty stable position. That being said, we don't know what phone call we're going to get tomorrow, next week, or at the end of the year. But right now we're in a very good position.

And then this next question, I think it's been asked already, but I just want to be clear. When Sanara starts to ramp up, you already have the team in place to deal with that or will you have to go out and hire more folks as this deal starts to -- or as that revenue starts to come in?

Yes, so on the sales side, for sure, we're in good shape. That team is in place, they can do some order of magnitude millions of dollars before we have to add people. We will have to add some backend support, right, customer service, revenue cycle team, but that's -- as the business comes in we'll add those positions. But as far as the big investments in the sales team, that's in place and ready to go. And we have quite a while before we have to add to that team.

Okay. All right, that was it for me. Thank you.

Thanks, Jim.

This concludes our question-and-answer session. I would like to now to turn the conference back over to Richard DiIorio for any closing remarks.

I want to thank everyone for participating on today's call. And we look forward to our call, in the fall, to discuss our third quarter results. I hope everyone has a great day. Thank you.