InfuSystem Holdings, Inc. (INFU) Earnings Call Transcript

Good morning, and welcome to the InfuSystem Holdings, Inc. Reports Second Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Glen Akselrod, Investor Relations. Please go ahead.

Good morning, and thank you for joining us today to review InfuSystem's Second Quarter 2026 Financial Results ended June 30, 2026. With us today on the call are Carrie Lachance, Chief Executive Officer; and Barry Steele, Chief Financial 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 Private Securities Litigation Reform Act of 1995. Except for statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed under the Risk Factors in the 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, 2025. 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 Carrie Lachance, Chief Executive Officer of InfuSystem. Carrie?

Thank you, Glen, and good morning, everyone. Welcome to InfuSystem's Second Quarter Fiscal Year 2026 Earnings Call. Thank you all for joining us today. I will provide a second quarter overview, highlighting our progress in the quarter, then Barry will provide a detailed summary of our financial results. I will then come back with some closing comments before opening the line to questions. During the 2026 second quarter, we made measurable progress in our efforts to drive revenue growth and to improve our operational capacity and efficiency to make the revenue growth more profitable. This morning, we reported second quarter of 2026 revenue of $36.9 million. This represented a new quarterly record and an increase from the prior year of just over $1 million or 2.6% on a GAAP basis and a 7.5% increase on a non-GAAP pro forma basis. On a GAAP basis, the increase was achieved despite the impact of restructuring of our biomedical services contract with GE Healthcare, which reduced revenue by $1.6 million during the second quarter and is the basis for the adjustment to providing pro forma revenue growth. As previously mentioned, this restructuring improves our earnings because it allowed for an even larger reduction in direct contract expenses. As a result of the increased revenue and the benefits of the GE restructuring and other initiatives, we generated approximately $8.6 million in adjusted EBITDA this quarter, representing a 7.6% increase over the prior year and resulting in an increase of more than 1% in our EBITDA margin, which came in at 23.4%. These results were driven by both continued steady growth in our core Oncology business and accelerating growth in Wound Care. Quarterly Oncology revenue surpassed the $20 million mark for the first time during the second quarter and grew 6.4% over the prior year, further extending our large share of the outpatient oncology ambulatory infusion market, where we serve 18 of the top 20 U.S. hospital systems. Within Wound Care, compression devices for lymphedema patients represent the main growth driver. In total, Wound Care net revenue grew by $2.1 million or 154% year-over-year during the second quarter. Compression devices represented nearly 90% of that increase. As the newest offering in our portfolio added less than a year ago during the last year's third quarter, we are pleased with the growth in partnerships that we have in place today. We are now working with 2 manufacturers, which bring us a breadth of product offerings, covering both Pneumatic Compression Devices or PCDs, which use sequential compression technology and Adjustable Compression Wraps, which feature Velcro closures that are easier for patients with limited mobility as compared to traditional products such as compression stockings. This new product line is expected to continue to drive near-term growth with these existing suppliers while also opening up potential opportunities by adding additional manufacturing relationships in the future. We believe our capabilities and payer contract portfolio make us an attractive DME partner to current and potential future manufacturing partners. Less noticeable in the current period results is continued progress on our new enterprise resource planning application or ERP and other business applications that we've been updating. During our first quarter call, we reported that our new ERP was launched successfully and that we were continuing to work to stabilize certain areas of the system. During the second quarter, we made significant progress towards that effort and as a result, brought down the spending rate. While refinement and enhancement work continues, we see additional opportunities and are laser-focused on using the new application to drive improved capacity and efficiencies in the many processes that operate in that application. As we look towards the second half of the year and after adjusting for the expected $7.1 million lower annual revenue related to the GE Healthcare contract restructuring, on a pro forma basis, we continue to anticipate annual revenue growth in a range of 6% to 8%. Additionally, we continue to anticipate that our adjusted EBITDA margin will remain in the low to mid-20% range, consistent with our longer-term target of a 22% to 25% margin. This is inclusive of the impact of costs related to our information technology systems upgrades. We are excited about the opportunities ahead, and we'll look to update you again in future quarters. Now I'll turn it over to Barry for a detailed review of the second quarter financial results. Barry?

Thank you, Carrie, and thank you, everyone, on the call for joining us today. As Carrie mentioned, second quarter revenue increased 2.6% to $36.9 million compared to $36 million in the prior year. Importantly, this result includes a $1.6 million reduction in biomedical services revenue from the restructuring of our GE Healthcare contract. Excluding that impact, revenue growth would have been approximately 7.5% year-over-year, demonstrating continued strength in our core operations. Patient services continued to perform exceptionally well, with revenue increasing 15.2% to $24.8 million. That includes Oncology revenue, which grew 6.4% or $1.2 million, driven by higher treatment volumes and improved reimbursement collections, while Wound Care revenue increased by 154% or $2.1 million, benefiting from the successful launch and expansion of Pneumatic Compression Devices and Adjustable Compression Wraps. Device Solutions revenue declined by 16.1% to $12.1 million, primarily due to the planned reduction in biomedical services revenue associated with the GE Healthcare contract restructuring and a 49% decline in equipment sales, resulting from a large rental customer buyout that occurred last year. However, despite the lower revenue, Device Solutions gross profit remained stable at approximately $6.1 million, reflecting significantly improved profitability. Consolidated gross profit increased 7.7% to $21.4 million, while gross margin expanded to 58% from 55.2% last year, an improvement of 2.8%. This margin improvement was largely driven by Device Solutions, where gross margin increased to 50.2% from 41.9%, an improvement of 8.3%. The GE contract restructuring alone improved Device Solutions margin by approximately 4.8%, while procurement initiatives, productivity improvements and a favorable revenue mix provided additional benefits. In Patient Services, gross profit increased 10.9% to $15.3 million as higher revenue more than offset a modest decline in gross margin to 61.8% from 64.2%, a decrease of 2.4%. The margin decline was primarily attributable to a larger mix of Wound Care revenue, which carries lower margins than our Oncology business and increased pump maintenance costs in the segment. Net income increased to $3.2 million or $0.15 per diluted share, compared to $2.6 million or $0.12 per diluted share a year ago. Adjusted EBITDA increased 7.6% to $8.6 million, representing 23.4% of revenue, compared to $8 million or 22.3% of revenue in the prior year period. While we continued investing in growth, operating expenses increased as expected. Selling and marketing expenses increased 10.5% to $3 million, reflecting additional sales resources and higher travel costs. G&A expense increased 7.2% to $14.1 million, driven by higher stock-based compensation, wage inflation, health care costs and investments to support our expanding Patient Services business. Spending on our new ERP decreased sequentially as we anticipated and was focused on post go-live stabilization and enhancement activities. From a cash flow and balance sheet perspective, we generated $7.7 million of operating cash flow during the first 6 months of the year, invested $6.5 million in rental equipment to support growth and returned $4.4 million to shareholders through share repurchases. We ended the quarter with $55.2 million of available liquidity, including $54.2 million of revolver availability and maintain a conservative leverage profile with net debt of $19.5 million, representing only 0.61x trailing 12-month adjusted EBITDA. This financial flexibility supports both our continued investment in organic growth and selective tuck-in acquisitions. I will now turn the call back over to Carrie.

Thanks, Barry. As we reflect on our second quarter progress, the update shared today and our priorities through the remainder of 2026, we remain focused on the strategic objectives we previously outlined for shareholders, executing with discipline, delivering profitable growth and driving long-term value creation. Underpinning that is a diversified derisked revenue base, where no single customer represents more than 10% of our revenue. Our Medicare exposure remains below 10% and our 800-plus payer contracts cover more than 97% of U.S. insured lives, providing strong visibility and predictability. Operator, we are ready for the Q&A portion of the call.

[Operator Instructions] Our first question comes from Jim Sidoti with Sidoti & Company.

The oncology business, it continues to perform very well, up 6% in the quarter. Is that something you think is sustainable?

Jim, thanks for the question. I think we've continued to see a little bit higher than that single kind of lower digit growth over the years. We're seeing -- starting to see some great volume. We've added some new customers this year. And then our collections and reimbursement improvements are also contributing to that. So I do think it's pretty sustainable moving forward.

And the other big surprise to me was the -- I guess it's the lymphedema business that's really boosting sales for the Wound Care business. Is that correct? Is that really the product that's growing? And is that something that continues to grow throughout the course of 2026 and into 2027?

Yes. We've seen great success growing. We have a couple of new partners there. As we've talked about in the past, I think we're 154% growth. So we continue to see volume coming in. That is improving, and we continue to foresee that happening through the remainder of 2026 and certainly beyond. So yes, I would expect some continued growth there.

And the big difference between this time with lymphedema and when you tried to get into that market a couple of years ago, is that the contracts or the product? Or why is it so strong this time?

Yes. I would say it's certainly the partnerships. Again, we were in this a few years ago. We have to have a good partner that's going to get us the paper that we need to be able to submit claims, and that process just has to work really well. We struggled in that in the past. We've learned a lot since then. We have a couple of new partners on board. As I said, we continue to work on looking for additional partners as well. And that's really the key. If you have a really good partner that's going to get you all of the paperwork and work with their patients and their clinics to make sure that you have what you need is perfect. I think an additional piece of that is that Patient Lymphedema Treatment Act that was enacted in 2024, really, I think we saw a take off in '25. That's seeing the whole market really is growing and that which is great for patients, right? That's a needed treatment and necessary. So the reimbursement around that has been very helpful.

All right. And then just a couple more. The decline in ERP expenses, I think you said that was about $300,000. Is that year-over-year? And do you think that number grows as the year progresses? Or do you think you'll make increased investments in the ERP system?

Yes, it was a sequential decrease. We highlighted that because this is a period -- the post go-live period where we're kind of just refining things. It definitely was a significant and larger decrease from the prior year where we're still in the process of going through the implementation phase. We do expect it to continue to taper down. As we've launched it, there's tons of opportunities to improve our processes and even enhance it. So it probably won't go to 0 because we see great opportunities to make investments that give us real efficiency and cost improvement savings. So it should taper down and certainly be more of the enhancement type as opposed to stabilization spend.

So how did we compare the ERP spending this quarter to the year-over-year quarter?

I think it was about half. They were about $600,000, $700,000 last year, and we're in the $300,000 range this quarter.

Okay. So that $300,000 is -- that's a year-over-year number.