UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
for the quarterly period ended March 31, 2022
or
for the transition period from _____ to _____
Commission File Number: 001-35020
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | ||||
(Address of Principal Executive Offices)
Registrant’s Telephone Number, including Area Code: (248 ) 291-1210
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on which Registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer | ¨ | x | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | |||||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of April 29, 2022, 20,540,143 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.
1
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
Index to Form 10-Q
PAGE | ||||||||
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As of | |||||||||||
(in thousands, except par value and share data) | March 31, 2022 | December 31, 2021 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Medical equipment for sale or rental | |||||||||||
| Medical equipment in rental service, net of accumulated depreciation | |||||||||||
| Property & equipment, net of accumulated depreciation | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease right of use assets | |||||||||||
| Deferred income taxes | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Current portion of long-term debt | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of current portion | |||||||||||
| Operating lease liabilities, net of current portion | |||||||||||
| Total liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive income | |||||||||||
| Retained deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except share and per share data) | Three Months Ended March 31, | ||||||||||
| 2022 | 2021 | ||||||||||
| Net revenues | $ | $ | |||||||||
| Cost of revenues | |||||||||||
| Gross profit | |||||||||||
| Selling, general and administrative expenses: | |||||||||||
| Provision for doubtful accounts | ( | ||||||||||
| Amortization of intangibles | |||||||||||
| Selling and marketing | |||||||||||
| General and administrative | |||||||||||
| Total selling, general and administrative | |||||||||||
| Operating (loss) income | ( | ||||||||||
| Other expense: | |||||||||||
| Interest expense | ( | ( | |||||||||
| Other expense | ( | ( | |||||||||
| (Loss) income before income taxes | ( | ||||||||||
| Benefit from income taxes | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Net (loss) income per share | |||||||||||
| Basic | $ | ( | $ | ||||||||
| Diluted | $ | ( | $ | ||||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
| Comprehensive income: | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Other comprehensive income: | |||||||||||
| Unrealized gain on hedges | |||||||||||
| Provision for income tax on unrealized hedge gain | ( | ||||||||||
| Net comprehensive income | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
(UNAUDITED)
| Common Stock | Additional Paid in Capital | Retained Deficit | Accumulated Other Comprehensive Income | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | Shares | Par Value Amount | Shares | Par Value Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based shares issued upon vesting - gross | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation | ( | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2021 | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Stock-based shares issued upon vesting - gross | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased to satisfy minimum statutory withholding on stock-based compensation | ( | — | ( | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Common stock repurchased as part of share repurchase program | ( | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| OPERATING ACTIVITIES | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | |||||||||||
| Provision for doubtful accounts | ( | ||||||||||
| Depreciation | |||||||||||
| Loss on disposal of and reserve adjustments for medical equipment | |||||||||||
| (Gain) loss on sale of medical equipment | ( | ||||||||||
| Amortization of intangible assets | |||||||||||
| Amortization of deferred debt issuance costs | |||||||||||
| Stock-based compensation | |||||||||||
| Deferred income taxes | ( | ( | |||||||||
| Changes in assets - (increase)/decrease: | |||||||||||
| Accounts receivable | ( | ( | |||||||||
| Inventories | ( | ||||||||||
| Other current assets | ( | ( | |||||||||
| Other assets | ( | ( | |||||||||
| Changes in liabilities - increase/(decrease): | |||||||||||
| Accounts payable and other liabilities | ( | ||||||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | |||||||||||
| INVESTING ACTIVITIES | |||||||||||
| Acquisition of business | ( | ||||||||||
| Purchase of medical equipment | ( | ( | |||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Proceeds from sale of medical equipment, property and equipment | |||||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ( | |||||||||
| FINANCING ACTIVITIES | |||||||||||
| Principal payments on long-term debt | ( | ( | |||||||||
| Cash proceeds from long-term debt | |||||||||||
| Debt issuance costs | ( | ||||||||||
| Common stock repurchased to satisfy statutory withholding on employee stock-based compensation plans | ( | ( | |||||||||
| Common stock repurchased as part of share repurchase program | ( | ||||||||||
| Cash proceeds from stock plans | |||||||||||
| NET CASH USED IN FINANCING ACTIVITIES | ( | ( | |||||||||
| Net change in cash and cash equivalents | ( | ||||||||||
| Cash and cash equivalents, beginning of period | |||||||||||
| Cash and cash equivalents, end of period | $ | $ | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
INFUSYSTEM HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.Basis of Presentation, Nature of Operations and Summary of Significant Accounting Policies
The terms “InfuSystem”, the “Company”, “we”, “our” and “us” are used herein to refer to InfuSystem Holdings, Inc. and its subsidiaries. InfuSystem is a leading provider of infusion pumps and related products and services for patients in the home, oncology clinics, ambulatory surgery centers, and other sites of care. The Company provides products and services to hospitals, oncology practices and facilities and other alternative site health care providers. Headquartered in Rochester Hills, Michigan, the Company delivers local, field-based customer support, and also operates pump service and repair Centers of Excellence in Michigan, Kansas, California, Massachusetts, Texas and Ontario, Canada.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. The accompanying unaudited condensed consolidated financial statements include all adjustments, composed of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position and cash flows. The operating results for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 15, 2022.
The unaudited condensed consolidated financial statements are prepared in conformity with GAAP, which requires the use of estimates, judgments and assumptions that affect the amounts of assets and liabilities at the reporting date and the amounts of revenue and expenses in the periods presented. The Company believes that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.
2.Recent Accounting Pronouncements and Developments
3.Business Combinations
Acquisitions Accounted for Using the Purchase Method
On January 31, 2021, the Company acquired the business and the majority of the assets of FilAMed, a privately-held biomedical services company based in Bakersfield, California. In becoming a part of the Company’s Durable Medical Equipment Services ("DME Services") segment, this acquisition supplements the Company's existing biomedical recertification, maintenance and repair services for acute care facilities and other alternate site settings including home care and home infusion providers, skilled nursing facilities, pain centers and others.
On April 18, 2021, the Company acquired the business and substantially all of the assets of OB Healthcare Corporation (“OB Healthcare”), a privately-held biomedical services company based in Mesquite, Texas. OB Healthcare specializes in on-site repair, preventative maintenance, and device physical inventory management to hospitals and healthcare systems nationwide. The acquisition further develops and expands InfuSystem’s DME Services segment and complements the Company’s purchase of FilAMed.
7
The results of operations for FilAMed and OB Healthcare are included in the Company’s consolidated statements of operations from the respective closing dates.
Final Purchase Price Allocation
Pursuant to FASB Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations,” the purchase price for each of the acquisitions was allocated to the assets acquired and liabilities assumed based upon their estimated fair values as of the respective acquisition dates. The purchase price allocations were primarily based upon a valuation using management’s estimates and assumptions. The purchase price allocation was completed for FilAMed and OB Healthcare as of December 31, 2021. The following table summarizes the consideration paid and the allocation of the purchase price to the fair values of the assets acquired and liabilities assumed as of the respective acquisition dates for both FilAMed and OB Healthcare (in thousands):
| FilAMed | OB Healthcare | Total Consideration | |||||||||||||||
| Cash | $ | $ | $ | ||||||||||||||
| Working capital adjustment, paid in cash | |||||||||||||||||
| Contingent consideration | |||||||||||||||||
| Total - consideration | $ | $ | $ | ||||||||||||||
FilAMed | OB Healthcare | Total Acquisition Date Fair Value | ||||||||||||||||||
| Accounts receivable | $ | $ | $ | |||||||||||||||||
| Inventories | ||||||||||||||||||||
| Medical equipment held for sale or rental | ||||||||||||||||||||
| Property and equipment | ||||||||||||||||||||
| Intangible assets | ||||||||||||||||||||
| Goodwill | ||||||||||||||||||||
| Operating lease right of use assets | ||||||||||||||||||||
| Operating lease liabilities | ( | ( | ( | |||||||||||||||||
| Total - purchase price | $ | $ | $ | |||||||||||||||||
The amount of acquisition costs for both transactions was less than $0.1 million for the three months ended March 31, 2021 and was included in general and administrative expenses.
The Company fully paid all consideration for FilAMed as of December 31, 2021. On the OB Healthcare acquisition date, the Company made an initial cash payment of $6.1 million with subsequent cash payments totaling $0.4 million during the year ended December 31, 2021 and had an additional estimated amount due to the seller for contingent consideration of $0.8 million, which was recorded in the balance sheet under the heading for other current liabilities. The contingent consideration arrangement, as amended, required the Company to pay OB Healthcare $0.8 million if certain written contracts were executed. As of March 31, 2022, the Company had a $0.8 million remaining liability relating to this acquisition. However, the requirement under the contingent consideration arrangement was satisfied on April 28, 2022, and the Company paid the remaining payment shortly thereafter.
8
The following table shows the breakdown of the identified intangible assets acquired into major intangible asset classes for both acquisitions:
Acquisition Date Fair Value (Thousands) | Weighted-Average Amortization Period (Years) | |||||||||||||
| Customer relationships | $ | |||||||||||||
| Unpatented technology | ||||||||||||||
| Non-competition agreements | ||||||||||||||
| Internal-use software | ||||||||||||||
| Total intangible assets (a) | $ | |||||||||||||
(a) There was no residual value, renewal terms or extensions associated with any intangible assets acquired. | ||||||||||||||
The goodwill acquired consists of expected synergies from combining operations of FilAMed and OB Healthcare with the DME Services segment as well as their respective assembled workforce who have specialized knowledge and experience. All of the goodwill is deductible for tax purposes.
Unaudited Pro Forma Financial Information
The unaudited pro forma financial information in the table below summarizes the combined results of operations of the Company, FilAMed and OB Healthcare as though the companies’ businesses had been combined as of January 1, 2021. The pro forma financial information for the three months ended March 31, 2021 was adjusted by less than $0.1 million for the tax effected amount of acquisition costs and non-recurring expenses directly attributable to the FilAMed and OB Healthcare acquisitions. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of the period presented nor is it indicative of future results. The following pro forma financial information presented also includes the pro forma depreciation and amortization charges from acquired tangible and intangible assets for the three months ended March 31, 2021 (in thousands):
| Three months ended | |||||
| March 31, 2021 | |||||
| Revenue | $ | ||||
| Net income | $ | ||||
9
4.Revenue Recognition
The following table presents the Company’s disaggregated revenue by offering type (in thousands):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
Total Net Revenues | Percentage of Total Net Revenues | Total Net Revenues | Percentage of Total Net Revenues | ||||||||||||||||||||
| Third-Party Payer Rentals | $ | % | $ | % | |||||||||||||||||||
| Direct Payer Rentals | % | % | |||||||||||||||||||||
| Product Sales | % | % | |||||||||||||||||||||
| Services | % | % | |||||||||||||||||||||
| Total | $ | % | $ | % | |||||||||||||||||||
Third-Party Payer Rentals are entirely attributed to revenues of the Integrated Therapy Services (“ITS”) segment. For the three months ended March 31, 2022, $3.2 million and $4.8 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the three months ended March 31, 2021, $3.1 million and $4.3 million of Direct Payer Rentals were attributed to the ITS and DME Services segments, respectively. For the three months ended March 31, 2022, $0.1 million and $3.6 million of Product Sales were attributed to the ITS and DME Services segments, respectively. For the three months ended March 31, 2021, all Product Sales were entirely attributed to the DME Services segment. For the three months ended March 31, 2022 and 2021, all Services revenues were entirely attributed to the DME Services segment.
5.Medical Equipment
Medical equipment consisted of the following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Medical equipment for sale or rental | $ | $ | |||||||||
| Medical equipment for sale or rental - pump reserve | ( | ( | |||||||||
| Medical equipment for sale or rental - net | |||||||||||
| Medical equipment in rental service | |||||||||||
| Medical equipment in rental service - pump reserve | ( | ( | |||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Medical equipment in rental service - net | |||||||||||
| Total | $ | $ | |||||||||
Depreciation expense for medical equipment for the three months ended March 31, 2022 was $2.4 million, compared to $2.3 million for the same prior year period. This expense was recorded in “cost of revenues” for each period.
10
6.Property and Equipment
Property and equipment consisted of the following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Gross Assets | Accumulated Depreciation | Total | Gross Assets | Accumulated Depreciation | Total | ||||||||||||||||||||||||||||||
| Furniture, fixtures, and equipment | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Automobiles | ( | ( | |||||||||||||||||||||||||||||||||
| Leasehold improvements | ( | ( | |||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Depreciation expense for property and equipment for the three months ended March 31, 2022 was $0.3 million, compared to $0.2 million for the same prior year period. This expense was recorded in “general and administrative expenses” for each period.
11
7.Goodwill & Intangible Assets
| DME Services (a) | ||||||||
| Balance as of December 31, 2021 | $ | |||||||
| Goodwill acquired | ||||||||
| Balance as of March 31, 2022 | $ | |||||||
(a) The ITS segment has | ||||||||
The carrying amount and accumulated amortization of intangible assets consisted of the following (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
Gross Assets | Accumulated Amortization | Net | Gross Assets | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||
| Nonamortizable intangible assets | |||||||||||||||||||||||||||||||||||
| Trade names | $ | $ | — | $ | $ | $ | — | $ | |||||||||||||||||||||||||||
| Amortizable intangible assets: | |||||||||||||||||||||||||||||||||||
| Trade names | ( | ( | |||||||||||||||||||||||||||||||||
| Physician and customer relationships | ( | ( | |||||||||||||||||||||||||||||||||
| Non-competition agreements | ( | ( | |||||||||||||||||||||||||||||||||
| Unpatented technology | ( | ( | |||||||||||||||||||||||||||||||||
| Software | ( | ( | |||||||||||||||||||||||||||||||||
| Total nonamortizable and amortizable intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
Amortization expense for the three months ended March 31, 2022 was $0.7 million, compared to $1.0 million for the same prior year period. This expense was recorded in “amortization of intangibles expenses” for each period. Expected remaining annual amortization expense for the next five years for intangible assets recorded as of March 31, 2022 is as follows (in thousands):
| 2022 | 2023 | 2024 | 2025 | 2026 | 2027 and thereafter | Total | |||||||||||||||||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
8.Debt
12
Inc. (“ISI”), First Biomedical, Inc. (“First Biomedical”), and IFC LLC (“IFC” and, collectively with the Company, Holdings, ISI and First Biomedical, the “Borrowers”).
The 2021 Credit Agreement provides for a revolving credit facility (the “Revolving Facility”) of $75.0 million that matures on February 5, 2026. The Revolving Facility may be increased by $25.0 million, subject to certain conditions, including the consent of the Agent and obtaining necessary commitments. The lenders under the 2021 Credit Agreement may issue up to $7.0 million in letters of credit subject to the satisfaction of certain conditions. On February 5, 2021, the Borrowers made an initial borrowing of $30.0 million under the Revolving Facility. Proceeds from the loan, along with approximately $8.2 million in cash, were used to repay all amounts due under the Company’s then existing credit facility dated March 23, 2015 (the “2015 Credit Agreement”).
The 2021 Credit Agreement has customary representations and warranties. The ability to borrow under the facility is subject to ongoing compliance with a number of customary affirmative and negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, investments, asset sales, affiliate transactions and restricted payments, as well as financial covenants, including the following:
•a minimum fixed charge coverage ratio (defined as the ratio of consolidated EBITDA (as defined in the 2021 Credit Agreement) less 50 % of depreciation expense), to consolidated fixed charges (as defined in the 2021 Credit Agreement)) for the prior four most recently ended calendar quarters of 1.20 to 1.00; and
•a maximum leverage ratio (defined as total indebtedness to EBITDA for the prior four most recently ended calendar quarters) of 3.50 to 1.00.
The 2021 Credit Agreement includes customary events of default. The occurrence of an event of default will permit the lenders to terminate commitments to lend under the Revolving Facility and accelerate payment of all amounts outstanding thereunder.
Simultaneous with the execution of the 2021 Credit Agreement, the Company entered into a Pledge and Security Agreement to secure repayment of the obligations of the Borrowers. Under the Pledge and Security Agreement, each Borrower has granted to the Agent, for the benefit of various secured parties, a first priority security interest in substantially all of the personal property assets of each of the Borrowers, including the shares of each of Holdings, ISI and First Biomedical and the equity interests of IFC.
On February 5, 2021, in connection with the execution and closing of the 2021 Credit Agreement, the Company, along with its wholly owned subsidiaries as borrowers, terminated the 2015 Credit Agreement. All outstanding loans under the 2015 Credit Agreement were repaid and all liens under the 2015 Credit Agreement were released, except that a letter of credit originally issued under the 2015 Credit Agreement in the amount of approximately $0.8 million was transferred to the 2021 Credit Agreement.
The 2021 Credit Agreement was accounted for as a debt modification. As of March 31, 2022, the Company was in compliance with all debt-related covenants under the 2021 Credit Agreement.
On April 15, 2019, the Company sold for $2.0 million and immediately leased back certain medical equipment in rental service to a third party specializing in such transactions. The leaseback term is 36 months. Because the arrangement contains a purchase option that the Company is reasonably certain to exercise, this transaction did not qualify for the sale-leaseback accounting under ASC 842. The medical equipment remains recorded on the accompanying condensed consolidated balance sheet and the proceeds received have been classified as an other financing liability, which is being paid off monthly over the term of the lease. The balance of other financing as of March 31, 2022 was $0.2 million.
13
As referenced above, the Company executed and closed the 2021 Credit Agreement during the first quarter of 2021, and in connection with entering into that agreement, terminated the 2015 Credit Agreement. The following table illustrates the net availability under the Revolving Facility as of the applicable balance sheet date (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Revolving Facility: | |||||||||||
| Gross availability | $ | $ | |||||||||
| Outstanding draws | ( | ( | |||||||||
| Letter of credit | ( | ( | |||||||||
| Availability on Revolving Facility | $ | $ | |||||||||
The Company had future maturities of its long-term debt as of March 31, 2022 as follows (in thousands):
| 2022 | 2023 | 2024 | 2025 | 2026 and thereafter | Total | ||||||||||||||||||||||||||||||
| Revolving Facility | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Other financing | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
The following is a breakdown of the Company’s current and long-term debt (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
Current Portion | Long-Term Portion | Total | Current Portion | Long-Term Portion | Total | ||||||||||||||||||||||||||||||
| Revolving Facility | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Other financing | |||||||||||||||||||||||||||||||||||
| Unamortized value of debt issuance costs | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
As of March 31, 2022, amounts outstanding under the Revolving Facility provided under the 2021 Credit Agreement bear interest at a variable rate equal to, at the Company’s election, a LIBO Rate for Eurodollar loans or an Alternative Base Rate for ABR loans, as defined by the 2021 Credit Agreement, plus a spread that will vary depending upon the Company’s leverage ratio. The spread ranges from 2.00 % to 3.00 % for Eurodollar Loans and 1.00 % to 2.00 % for base rate loans. The weighted-average Eurodollar loan rate at March 31, 2022 was 2.37 % (LIBO of 0.37 % plus 2.00 %). The actual ABR loan rate at March 31, 2022 was 4.25 % (lender’s prime rate of 3.25 % plus 1.00 %).
9.Derivative Financial Instruments and Hedging Activities
The Company is exposed to interest rate risk related to its variable rate debt obligations under the 2021 Credit Agreement. In order to manage the volatility in interest rate markets, in February 2021, the Company entered into two interest rate swap agreements to manage exposure arising from this risk. On a combined basis, the agreements have a constant notional amount over a five-year term that ends on February 5, 2026. The agreements both pay the Company 30-day LIBOR on the
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notional amount and the Company pays a fixed rate of interest equal to 0.73 %. These derivative instruments are considered cash flow hedges. The Company does not have any other derivative financial instruments.
The tables below present the location and gross fair value amounts of our derivative financial instruments and the associated notional amounts designated as cash flow hedges as of the applicable balance sheet date (in thousands):
March 31, 2022 | ||||||||||||||||||||
| Balance Sheet Location | Notional | Fair Value Derivative Assets | ||||||||||||||||||
| Derivatives designated as hedges: | ||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||
| Interest rate swaps | Other assets | $ | $ | |||||||||||||||||
December 31, 2021 | ||||||||||||||||||||
| Balance Sheet Location | Notional | Fair Value Derivative Assets | ||||||||||||||||||
| Derivatives designated as hedges: | ||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||
| Interest rate swaps | Other assets | $ | $ | |||||||||||||||||
The table below presents the effect of our derivative financial instruments designated as hedging instruments in AOCI (in thousands):
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Gain on cash flow hedges - interest rate swaps | ||||||||||||||
| Beginning balance | $ | $ | ||||||||||||
| Unrealized gain recognized in AOCI | ||||||||||||||
| Amounts reclassified to interest expense (a)(b) | ||||||||||||||
| Tax provision | ( | |||||||||||||
| Ending balance | $ | $ | ||||||||||||
(a) Positive amounts represented interest expense. Total interest expense as presented in the condensed consolidated statement of operations and comprehensive income for the three months ended March 31, 2022 and 2021 were $ | ||||||||||||||
(b) As of March 31, 2022, $ | ||||||||||||||
The Company did not
10.Income Taxes
The Company recorded a benefit from income taxes of $0.5 million and $0.2 million during the three months ended March 31, 2022 and 2021, respectively. The income tax benefit during 2022 relates principally to a pre-tax loss whereas the benefit during 2021 relates to excess tax benefits on exercises of stock options and vesting of restricted stock during the period. Other differences in the effective tax rate include the estimate of the Company’s annual state and local taxes and taxes relating to its foreign operations in Canada.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted in response to the COVID-19 pandemic. The CARES Act among other things, allows employers to defer the deposit and payment of the employer's share of Social Security taxes. Under the CARES Act, the Company deferred paying $0.7
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11.Commitments, Contingencies and Litigation
From time to time in the ordinary course of its business, the Company may be involved in legal and regulatory proceedings, the outcomes of which may not be determinable. The results of litigation and regulatory proceedings are inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The Company is not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable, primarily for the following reasons: (i) many of the relevant legal proceedings are in preliminary stages and, until such proceedings develop further, there is often uncertainty regarding the relevant facts and circumstances at issue and potential liability; and (ii) many of these proceedings involve matters of which the outcomes are inherently difficult to predict. The Company has insurance policies covering potential losses where such coverage is cost effective.
The Company is not at this time involved in any proceedings that the Company currently believes could have a material effect on the Company’s financial condition, results of operations or cash flows.
12.(Loss) Earnings Per Share
Basic (loss) income per share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the period. Diluted (loss) income per share assumes the issuance of potentially dilutive shares of common stock during the period. The following table reconciles the numerators and denominators of the basic and diluted (loss) income per share computations:
| Three Months Ended March 31, | |||||||||||
Numerator (in thousands): | 2022 | 2021 | |||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Denominator: | |||||||||||
| Weighted average common shares outstanding: | |||||||||||
| Basic | |||||||||||
| Dilutive effect of common stock equivalents | |||||||||||
| Diluted | |||||||||||
| Net (loss) income per share: | |||||||||||
| Basic | $ | ( | $ | ||||||||
| Diluted | $ | ( | $ | ||||||||
For the three months ended March 31, 2022, all outstanding options and unvested restricted stock units were anti-dilutive due to the Company's net losses for the period and therefore are not included in the calculation. For the three months ended March 31, 2021, less than 0.1 million of outstanding options and unvested restricted stock units with an exercise price above the current market value of the Company’s common stock were not included in the calculation because they would have an anti-dilutive effect.
Share Repurchase Program
On June 30, 2021, our Board of Directors approved a stock repurchase program (the “Share Repurchase Program”) that authorizes the Company to repurchase up to $20.0 million of the Company’s outstanding common stock through June 30, 2024. Repurchases under the Share Repurchase Program are subject to market conditions, the periodic capital needs of the Company’s operating activities, and the continued satisfaction of all covenants under the Company’s existing 2021 Credit Agreement. Repurchases under the Share Repurchase Program may take place in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. The Share Repurchase Program does not obligate the Company to repurchase shares and may be suspended, terminated, or modified at any time. As of March 31, 2022, the Company had repurchased approximately $4.6 million, or 343,514 shares, of the Company's outstanding common stock under the Share Repurchase Program.
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13.Leases
The Company’s operating leases are primarily for office space, service facility centers and equipment under operating lease arrangements that expire at various dates over the next ten years . The Company’s leases do not contain any restrictive covenants. The Company’s office leases generally contain renewal options for periods ranging from to five years . Because the Company is not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments. The Company’s office leases do not contain any material residual value guarantees. The Company’s equipment leases generally do not contain renewal options.
Payments due under the Company’s operating leases include fixed payments as well as variable payments. For the Company’s office leases, variable payments include amounts for the Company’s proportionate share of operating expenses, utilities, property taxes, insurance, common area maintenance and other facility-related expenses. For the Company’s equipment leases, variable payments may consist of sales taxes, property taxes and other fees.
The components of lease costs for the three months ended March 31, 2022 and 2021 are as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Operating lease cost | $ | $ | ||||||||||||
| Variable lease cost | ||||||||||||||
| Total lease cost | $ | $ | ||||||||||||
Supplemental cash flow information and non-cash activity related to the Company’s leases are as follows (in thousands):
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities and right of use assets: | ||||||||||||||
| Operating cash flow from operating leases | $ | $ | ||||||||||||
| Right of use assets obtained in exchange for lease obligations: | ||||||||||||||
| Operating leases | $ | $ | ||||||||||||
Weighted average remaining lease terms and discount rates for the Company’s operating leases are as follows:
| As of March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
Years | Years | |||||||||||||
| Weighted average remaining lease term: | ||||||||||||||
| Rate | Rate | |||||||||||||
| Weighted average discount rate: | ||||||||||||||
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Future maturities of lease liabilities as of March 31, 2022 are as follows (in thousands):
Operating Leases | ||||||||
| 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
2027 and thereafter | ||||||||
| Total undiscounted lease payments | ||||||||
| Less: Imputed interest | ( | |||||||
| Total lease liabilities | $ | |||||||
14.Business Segment Information
The Company’s reportable segments are organized based on service platforms, with the ITS segment reflecting higher margin rental revenues that generally include payments made by third-party and direct payers and the DME Services segment reflecting lower margin product sales, direct payer rental and services revenues. Resources are allocated and performance is assessed for these segments by the Company’s Chief Executive Officer, whom the Company has determined to be its chief operating decision-maker. The Company believes that reporting performance at the gross profit level is the best indicator of segment performance.
The financial information summarized below is presented by reportable segment for the three months ended March 31, 2022 and 2021:
| 2022 | ||||||||||||||||||||||||||
| (in thousands) | ITS | DME Services | Corporate/ Eliminations | Total | ||||||||||||||||||||||
| Net revenues - external | $ | $ | $ | $ | ||||||||||||||||||||||
| Net revenues - internal | ( | |||||||||||||||||||||||||
| Total net revenues | ( | |||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ||||||||||||||||||||||||
| Other expense | ( | ( | ||||||||||||||||||||||||
| Benefit from income taxes | ||||||||||||||||||||||||||
| Net loss | $ | ( | ||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Purchases of medical equipment | $ | $ | $ | $ | ||||||||||||||||||||||
| Depreciation and amortization of intangible assets | $ | $ | $ | $ | ||||||||||||||||||||||
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| 2021 | ||||||||||||||||||||||||||
| (in thousands) | ITS | DME Services | Corporate/ Eliminations | Total | ||||||||||||||||||||||
| Net revenues - external | $ | $ | $ | $ | ||||||||||||||||||||||
| Net revenues - internal | ( | |||||||||||||||||||||||||
| Total net revenues | ( | |||||||||||||||||||||||||
| Gross profit | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ||||||||||||||||||||||||
| Other expense | ( | ( | ||||||||||||||||||||||||
| Benefit from income taxes | ||||||||||||||||||||||||||
| Net income | $ | |||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||||||||||||
| Purchases of medical equipment | $ | $ | $ | $ | ||||||||||||||||||||||
| Depreciation and amortization of intangible assets | $ | $ | $ | $ | ||||||||||||||||||||||
15.COVID-19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The terms “InfuSystem”, the “Company”, “we”, “our” and “us” used herein refer to InfuSystem Holdings, Inc. and its subsidiaries.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this quarterly report on Form 10-Q are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “strategy,” “future,” “likely,” variations of such words, and other similar expressions, as they relate to the Company, are intended to identify forward-looking statements. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying certain factors that could cause actual results to
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differ, perhaps materially, from those indicated by these forward-looking statements. Those factors, risks and uncertainties include, but are not limited to, the effect of the coronavirus (“COVID-19”) pandemic or any resurgence thereof on our business, potential changes in healthcare payer mix and overall healthcare reimbursement, including the Centers for Medicare and Medicaid Services (“CMS”) competitive bidding and fee schedule reductions, sequestration, concentration of customers, increased focus on early detection of cancer, competitive treatments, dependency on Medicare Supplier Number, availability of chemotherapy drugs, global financial conditions, changes and enforcement of state and federal laws, natural forces, competition, dependency on suppliers, risks in acquisitions & joint ventures, U.S. Healthcare Reform, relationships with healthcare professionals and organizations, technological changes related to infusion therapy, the Company’s ability to implement information technology improvements and to respond to technological changes, the ability of the Company to successfully integrate acquired businesses, dependency on key personnel, dependency on banking relations and the ability to comply with our credit facility covenants, and other risks associated with our common stock, as well as any litigation in which the Company may be involved from time to time; and other risk factors as discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed on March 15, 2022, this quarterly report on Form 10-Q and in other filings made by the Company from time to time with the Securities and Exchange Commission (“SEC”). Our annual report on Form 10-K is available on the SEC’s EDGAR website at www.sec.gov, and a copy may also be obtained by contacting the Company. All forward-looking statements made in this Form 10-Q speak only as of the date of this report. We do not intend, and do not undertake any obligation, to update any forward-looking statements to reflect future events or circumstances after the date of such statements, except as required by law.
Overview
We are a leading national health care service provider, facilitating outpatient care for Durable Medical Equipment manufacturers and health care providers. We provide our products and services to hospitals, oncology practices, ambulatory surgery centers, and other alternate site health care providers. Our headquarters is in Rochester Hills, Michigan, and we operate our business from a total of seven locations in the United States and Canada. We deliver local, field-based customer support as well as operate pump service and repair Centers of Excellence in Michigan, Kansas, California, Massachusetts, Texas and Ontario, Canada. InfuSystem, Inc., a wholly-owned subsidiary of the Company, is accredited by the Community Health Accreditation Partner (CHAP) while First Biomedical, Inc., a wholly-owned subsidiary of the Company, is ISO 9001 certified at our Kansas, Michigan, Massachusetts, Canada and Santa Fe Springs, California locations and also ISO 13485 certified at our Bakersfield, California location.
InfuSystem competes for and retains its business primarily on the basis of its long participation and strong reputation in the Durable Medical Equipment space, its long-standing relationships with Durable Medical Equipment manufacturers and its health care provider customers, and the high levels of service it provides. Current barriers to entry for potential competitors are created by our: (i) growing number of third-party payer networks under contract; (ii) economies of scale, which allow for predictable reimbursement and less costly purchase and management of the pumps, respectively; (iii) established, long-standing relationships as a provider of pumps to outpatient oncology practices in the U.S. and Canada; (iv) pump fleet of ambulatory and large volume infusion pumps for rent and for sale, which may allow us to be more responsive to the needs of physicians, outpatient oncology practices, hospitals, outpatient surgery centers, homecare practices, patient rehabilitation centers and patients than a new market entrant; (v) seven geographic locations in the U.S. and Canada that allow for same day or next day delivery of pumps; and (vi) pump repair and service capabilities at all of these facilities and at our customer's locations. We do not perform any research and development on pumps, but we have made, and continue to make investments in our information technology.
Integrated Therapy Services (“ITS”) Segment
Our ITS segment’s core purpose is to seek opportunities to leverage our unique know-how in clinic-to-home health care involving Durable Medical Equipment, our logistics and billing capabilities, our growing network of third-party payers under contract, and our clinical and biomedical capabilities. This leverage may take the form of new products and/or services, strategic alliances, joint ventures and/or acquisitions. The leading service within our ITS segment is to supply electronic ambulatory infusion pumps and associated disposable supply kits to private oncology clinics, infusion clinics and hospital outpatient oncology clinics to be utilized in the treatment of a variety of cancers, including colorectal cancer and other disease states (“Oncology Business”). Colorectal cancer is the third most prevalent form of cancer in the United States, according to the American Cancer Society, and the standard of care for the treatment of colorectal cancer relies upon continuous chemotherapy infusions delivered via ambulatory infusion pumps. One of the primary goals for the ITS segment is to expand into treatment of other types of cancers. There are a number of approved treatment protocols for pancreatic, head and neck, esophageal and other types of cancers, as well as other disease states which present opportunities for growth. There are also a number of other drugs currently approved by the U.S. Food and Drug Administration (the "FDA"), as well as agents in the pharmaceutical development pipeline, which we believe could potentially be used with continuous infusion protocols for the treatment of diseases other than colorectal cancer. Additional drugs or protocols currently in clinical trials may also obtain regulatory
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approval over the next several years. If these new drugs or protocols obtain regulatory approval for use with continuous infusion protocols, we expect the pharmaceutical companies to focus their sales and marketing efforts on promoting the new drugs and protocols to physicians.
Furthermore, our Oncology Business focuses mainly on the continuous infusion of chemotherapy. Continuous infusion of chemotherapy can be described as the gradual administration of a drug via a small, lightweight, portable infusion pump over a prolonged period of time. A cancer patient can receive his or her medicine anywhere from one to 30 days per month depending on the chemotherapy regimen that is most appropriate to that individual’s health status and disease state. This may be followed by periods of rest and then repeated cycles with treatment goals of progression-free disease survival. This drug administration method has replaced intravenous push or bolus administration in specific circumstances. The advantages of slow continuous low doses of certain drugs are well documented. Clinical studies support the use of continuous infusion chemotherapy for decreased toxicity without loss of anti-tumor efficacy. The 2015 National Comprehensive Cancer Network ("NCCN") Guidelines recommend the use of continuous infusion for treatment of numerous cancer diagnoses. We believe that the growth of continuous infusion therapy is driven by three factors: evidence of improved clinical outcomes; lower toxicity and side effects; and a favorable reimbursement environment.
We believe that oncology practitioners have a heightened sensitivity to providing quality service and to their ability to obtain reimbursement for services they provide. Simultaneously, CMS and private insurers are increasingly focused on evidence-based medicine to inform their reimbursement decisions — that is, aligning reimbursement with clinical outcomes and adherence to standards of care. Continuous infusion therapy is a main component of the standard of care for certain types of cancers because clinical evidence demonstrates superior outcomes. Payers’ recognition of this benefit is reflected in their relative reimbursement policies for clinical services related to the delivery of this care.
Additional areas of focus for our ITS segment are as follows:
•Pain Management - providing our ambulatory pumps, products, and services for pain management in the area of post-surgical continuous peripheral nerve block.
•Negative Pressure Wound Therapy (“NPWT”) - NPWT includes providing the Durable Medical Equipment and related consumables, overseeing logistics, providing biomedical services, and managing third-party billing of the U.S. home healthcare market, which as a subset of the broader NPWT market, has an estimated addressable home healthcare market of $600 million per year.
•Lymphedema Therapy – as announced in June 2021, Lymphedema therapy includes providing patient care and customer service, pneumatic compression devices and associated garments through our partnership with Bio Compression Systems, Inc. to outpatients, initially targeting our existing acute care and oncology customers, estimated to be 20% of the multi-billion-dollar Lymphedema market.
•Acquisitions - we believe there are opportunities to acquire smaller, regional health care service providers, in whole or part that perform similar services to us but do not have the national market access, network of third-party payer contracts or operating economies of scale that we currently enjoy. We may also pursue acquisition opportunities of companies that perform similar services, but offer different therapies or utilize different devices.
•Information technology-based services - we also plan to continue to capitalize on key new information technology-based services such as EXPRESS, InfuSystem Mobile, InfuBus or InfuConnect, Pump Portal and BlockPain Dashboard®.
The payer environment within our ITS segment is in a constant state of change. We continue to extend our considerable breadth of payer networks under contract as patients move into different insurance coverage plans, including Medicaid and Insurance Marketplace products. In some cases, this may slightly reduce our aggregate billed revenues payment rate but result in an overall increase in collected revenues, due to a reduction in concessions. Consequently, we are increasingly focused on net revenues less concessions.
Durable Medical Equipment Services (“DME Services”) Segment
Our DME Services segment’s core service is to: (i) sell or rent new and pre-owned pole-mounted and ambulatory infusion pumps and other Durable Medical Equipment; (ii) sell treatment-related consumables; and (iii) provide biomedical recertification, maintenance and repair services for oncology practices as well as other alternate site settings, including, home care and home infusion providers, skilled nursing facilities, pain centers and others. We also provide these products and services to customers in the hospital market. We purchase new and pre-owned pole-mounted and ambulatory infusion pumps from a variety of sources on a non-exclusive basis. We repair, refurbish and provide biomedical certification for the devices as needed. The pumps are then available for sale, rental or to be used within our ambulatory infusion pump management service. Our recent acquisition of FilAMed, a privately-held biomedical services company, on January 31, 2021 supplements the
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Company’s existing biomedical recertification, maintenance and repair services for acute care facilities and other alternate site settings, including, home care and home infusion providers, skilled nursing facilities, pain centers and others. Our recent acquisition of OB Healthcare Corporation (“OB Healthcare”), a privately-held biomedical services company, on April 18, 2021 further develops and expands InfuSystem’s DME Services segment by extending our existing biomedical service capability into our customer's locations. OB Healthcare complements the Company’s purchase of FilAMed.
COVID-19 Update
On March 11, 2020, the World Health Organization declared the outbreak of coronavirus (“COVID-19”) as a pandemic, which has spread globally and throughout the United States. During the period of the pandemic, we took a number of precautionary and preemptive steps to protect the safety and well-being of our employees while ensuring continuity of service to our clients, including, transitioning our employees to a remote work environment, suspending employee travel, canceling participation in industry events and in-person group meetings, promoting social distancing and enhanced cleaning and sanitization efforts across office locations, and implementing protocols to quarantine employees who may have been exposed to COVID-19, or showed relevant symptoms. We also undertook preparedness plans at our facilities to maintain continuity of operations, which provide for flexible work arrangements without any significant disruptions to our business or control processes. Our management team continues to actively monitor the situation and is in constant communication with our workforce, customers and vendors. During the three months ended March 31, 2022, outbreaks of COVID-19, including the Delta and Omicron variants, unfavorably impacted our revenue growth initiatives in certain product lines including Pain Management and NPWT. The impacts included scattered restrictions on elective surgeries and delayed ramp-up in treatment volumes for new customers, both of which unfavorably impacted the Pain Management business, and restricted physical access to our customers facilities, which unfavorably impacted both the Pain Management and NPWT businesses. While the COVID-19 pandemic has not had any material unfavorable effects in our financial results for the three months ended March 31, 2022, beyond this delay to our revenue growth plans, the extent of any future impact will depend on future developments, which are highly uncertain, cannot be predicted and could have a material adverse impact on our financial position, operating results and cash flows.
22
InfuSystem Holdings, Inc. Results of Operations for the Three Months Ended March 31, 2022 Compared to the Three Months Ended March 31, 2021
The following represents the Company’s results of operations for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands, except share and per share data) | 2022 | 2021 | Better (Worse) | ||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||
| ITS | $ | 16,641 | $ | 15,911 | $ | 730 | |||||||||||||||||
| DME Services (inclusive of inter-segment revenues) | 11,610 | 9,998 | 1,612 | ||||||||||||||||||||
| Less: elimination of inter-segment revenues | (1,488) | (1,446) | (42) | ||||||||||||||||||||
| Total | 26,763 | 24,463 | 2,300 | ||||||||||||||||||||
| Gross profit (inclusive of certain inter-segment allocations) (a): | |||||||||||||||||||||||
| ITS | 10,738 | 10,003 | 735 | ||||||||||||||||||||
| DME Services | 4,629 | 4,573 | 56 | ||||||||||||||||||||
| Total | 15,367 | 14,576 | 791 | ||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Provision for doubtful accounts | 47 | (70) | (117) | ||||||||||||||||||||
| Amortization of intangibles | 710 | 1,043 | 333 | ||||||||||||||||||||
| Selling and marketing | 3,319 | 2,376 | (943) | ||||||||||||||||||||
| General and administrative | 11,816 | 10,354 | (1,462) | ||||||||||||||||||||
| Total selling, general and administrative expenses | 15,892 | 13,703 | (2,189) | ||||||||||||||||||||
| Operating (loss) income | (525) | 873 | (1,398) | ||||||||||||||||||||
| Other expense | (305) | (391) | 86 | ||||||||||||||||||||
| (Loss) income before income taxes | (830) | 482 | (1,312) | ||||||||||||||||||||
| Benefit from) income taxes | 462 | 179 | 283 | ||||||||||||||||||||
| Net (loss) income | $ | (368) | $ | 661 | $ | (1,029) | |||||||||||||||||
| Net (loss) income per share | |||||||||||||||||||||||
| Basic | $ | (0.02) | $ | 0.03 | $ | (0.05) | |||||||||||||||||
| Diluted | $ | (0.02) | $ | 0.03 | $ | (0.05) | |||||||||||||||||
| Weighted average shares outstanding: | |||||||||||||||||||||||
| Basic | 20,609,372 | 20,338,160 | 271,212 | ||||||||||||||||||||
| Diluted | 20,609,372 | 21,937,639 | (1,328,267) | ||||||||||||||||||||
(a) Inter-segment allocations are for cleaning and repair services performed on medical equipment. | |||||||||||||||||||||||
Net Revenues
Net revenues for the quarter ended March 31, 2022 (“first quarter of 2022”) were $26.8 million, an increase of $2.3 million, or 9.4%, compared to $24.5 million for the quarter ended March 31, 2021 (“first quarter of 2021”). The increase included higher net revenues for both the ITS and DME Services segments.
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ITS
ITS net revenue of $16.6 million increased $0.7 million, or 4.6%, during the first quarter of 2022 as compared to the prior year period. This increase was primarily attributable to additional treatment volume in all three therapies including Oncology, Pain Management and NPWT, and improved third party payer collections on billings. Pain Management net revenue for the first quarter of 2022 increased slightly as compared to the prior year first quarter due to additional sites of care added over the last year offset partially by decreased patient volume related to COVID-19 market impacts. NPWT net revenues increased due to higher treatment volume and from the sale of equipment under lease contracts for the first time since the therapy was launched. We expect NPWT equipment sales to create new opportunities for patient treatment referrals in future periods.
DME Services
DME Services net revenue of $10.1 million increased $1.6 million, or 18.4%, during the first quarter of 2022 as compared to the prior year period. This increase was mainly due to $1.0 million in additional net revenues contributed by the FilAMed and OB Healthcare businesses, which we acquired during the first and second quarters of 2021, respectively. Other net revenue increases included higher equipment rental and disposable medical supplies revenue, which increased by $0.5 million and $0.2 million, respectively. These increases were partially offset by lower equipment sales.
Gross Profit (inclusive of certain inter-segment allocations)
Gross profit for the first quarter of 2022 of $15.4 million increased $0.8 million, or 5.4%, from $14.6 million for the first 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 57.4% during the first quarter of 2022 as compared to 59.6% during the prior year, a decrease of 2.2%. Decreased gross margin for the DME Services segment was partially offset by an increase in gross margin for the ITS segment.
ITS
ITS gross profit was $10.7 million during the first quarter of 2022, representing an increase of $0.7 million compared to the prior year. The improvement reflected an increase in net revenues, as well as a higher gross margin, which increased from the prior year by 1.6% to 64.5%. The higher gross margin was the result of a more normalized expense for missing equipment for the first quarter of 2022, which was unusually high during the first quarter of 2021, and improved collections on billings.
DME Services
DME Services gross profit during the first quarter of 2022 was $4.6 million, representing an increase of $0.1 million, or 1.2%, compared to the prior year. This increase was due to the increase in net revenues offset partially by a lower gross margin. The DME gross margin was 45.7% during the current quarter, which was 7.8% lower than the prior year. This decrease was the result of an increase in labor costs related to an increase in biomedical technicians. The increase in biomedical technician labor, which totaled $0.7 million, 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. These newly hired team members mainly spent their time training during the period but will be deployed to support higher demand and related revenue volumes in future quarters.
Selling and Marketing Expenses
Selling and marketing expenses for the first quarter of 2022 were $3.3 million, representing an increase of $0.9 million, or 39.7%, as compared to the first quarter of 2021. Selling and marketing expenses as a percentage of net revenues increased to 12.4% compared to 9.7% for the prior year. This increase reflected $0.6 million in higher expenses for NPWT and Pain Management dedicated sales personnel hired during the 2021 second quarter and increased digital marketing expenses. The additional sales team members and digital marketing expenses represent a strategic investment to accelerate revenue growth for these therapies in future periods and the expense included in selling and marketing is a portion of an overall expense increase of $1.0 million incurred during the first quarter of 2022 associated with this initiative. The remainder of the expense increase totaling $0.4 million is included in general and administrative expense. The remaining increase in selling and marketing expenses totaling $0.3 million reflected higher marketing expenses related to our national sales meeting which was held in-person for the first time since the outbreak of COVID-19, increased participation in trade shows and other increased expenses. Selling and marketing expenses consists of sales personnel salaries, commissions and associated fringe benefit and payroll-related items, marketing, travel and entertainment and other miscellaneous expenses.
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General and Administrative Expenses
General and administrative (“G&A”) expenses for the first quarter of 2022 were $11.8 million, an increase of 14.1% from $10.4 million for the first quarter of 2021. G&A expenses during these periods consisted primarily of accounting, administrative, third-party payer billing and contract services, customer service, nurses on staff, new product services, service center personnel salaries, fringe benefits and other payroll-related items, professional fees, legal fees, stock-based compensation, insurance and other miscellaneous items. The increase of $1.5 million was due to $0.4 million in additional expenses related to the investments in NPWT and Pain Management, $0.1 million of additional G&A expenses for the FilAMed and OB Healthcare businesses and higher travel expenses and other increases including higher personnel, healthcare and general business expenses. These increases were partially offset by a decrease in stock-based compensation expense of $0.6 million. G&A expenses as a percentage of net revenues for the first quarter of 2022 increased to 44.2% compared to 42.3% for the same prior year period, mainly reflecting the year-over-year increases partially offset by improved net revenue leverage over fixed costs.
Other Expenses
During the first quarter of 2022, other expense included interest expense of $0.3 million, which was slightly lower than interest expense for the first quarter of 2021. This decrease resulted from lower average outstanding debt balances offset by higher weighted average interest rates and additional commitment fees on a higher unused revolving line availability during the first quarter of 2022 as compared to the first quarter of 2021.
Benefit From Income Taxes
During the first quarter of 2022, the Company recorded a benefit from income taxes totaling $0.5 million representing an effective tax rate of 55.7% on a pre-tax loss of $0.8 million. This effective tax rate differed from the U.S. statutory rate mainly due to the effects of local, state and foreign jurisdiction income taxes.
During the first quarter of 2021, the Company recorded a benefit from income taxes totaling $0.2 million. This amount included a benefit of $0.3 million due to an excess tax benefit associated with a higher amount of equity compensation expense deductible for tax purposes as compared to amounts historically recognized for book purposes on exercises of stock options and vesting of restricted stock during the quarter. This benefit was partially offset by an estimated tax provision totaling $0.1 million representing an effective tax rate of 30.3% on pre-tax income totaling $0.5 million. This effective tax rate differed from the U.S. statutory rate mainly due to the effects of local, state and foreign jurisdiction income taxes.
Liquidity and Capital Resources
Overview:
We finance our operations and capital expenditures with cash generated from operations and borrowings under our existing credit agreement. On February 5, 2021, we and certain of our subsidiaries, as borrowers, entered into a Credit Agreement (the “2021 Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, sole bookrunner and sole lead arranger, and the lenders party thereto, which replaced our then existing credit facility, dated March 23, 2015 (the “2015 Credit Agreement”). See Note 8 (Debt) in the notes to the accompanying unaudited condensed consolidated financial statements for additional information regarding the 2021 Credit Agreement and 2015 Credit Agreement.
The following table summarizes our available liquidity (in millions):
| Liquidity | |||||||||||
| March 31, 2022 | December 31, 2021 | ||||||||||
| Cash and cash equivalents | $ | 0.4 | 0.2 | ||||||||
| Revolving line of credit | 39.4 | 41.4 | |||||||||
| Available liquidity | $ | 39.8 | 41.6 | ||||||||
Our liquidity and borrowing plans are established to align with our financial and strategic planning processes and ensure we have the necessary funding to meet our operating commitments, which primarily include the purchase of pumps, inventory, payroll and general expenses. We also take into consideration our overall capital allocation strategy, which includes investment for future organic growth, potential acquisitions and share repurchases. We believe we have adequate sources of liquidity and funding available to meet our liquidity requirements for at least the next year from the filing date of this report, as well as for our currently anticipated long-term needs, including our long-term lease obligations discussed above in Note 13 (Leases) in the notes to the accompanying unaudited condensed consolidated financial statements. However, any projections of future earnings and cash flows are subject to substantial uncertainty, including factors such as the successful execution of our business plan and
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general economic conditions. We may need to access debt and equity markets in the future if unforeseen costs or opportunities arise, to meet working capital requirements, fund acquisitions or investments or repay indebtedness under the 2021 Credit Agreement. If we need to obtain new debt or equity financing in the future, the terms and availability of such financing may be impacted by economic and financial market conditions as well as our financial condition and results of operations at the time we seek additional financing.
Long-Term Debt Activities:
The Company executed and closed the 2021 Credit Agreement during the first quarter of 2021, and in connection with entering into that agreement, terminated the 2015 Credit Agreement. The following table illustrates the net availability under the revolving credit facility ("Revolving Facility") as of the applicable balance sheet date (in thousands):
| March 31, 2022 | December 31, 2021 | |||||||||||||
| Revolving Facility: | ||||||||||||||
| Gross availability | $ | 75,000 | $ | 75,000 | ||||||||||
| Outstanding draws | (35,000) | (32,974) | ||||||||||||
| Letters of credit | (600) | (600) | ||||||||||||
| Availability on Revolving Facility | $ | 39,400 | $ | 41,426 | ||||||||||
As of March 31, 2022, amounts outstanding under the Revolving Facility provided under the 2021 Credit Agreement bear interest at a variable rate equal to, at the Company’s election, a LIBO Rate for Eurodollar loans or an Alternative Base Rate for ABR loans, as defined by the 2021 Credit Agreement, plus a spread that will vary depending upon the Company’s leverage ratio. The spread ranges from 2.00% to 3.00% for Eurodollar Loans and 1.00% to 2.00% for base rate loans. The weighted-average Eurodollar loan rate at March 31, 2022 was 2.37% (LIBO of 0.37% plus 2.00%). The actual ABR loan rate at March 31, 2022 was 4.25% (lender’s prime rate of 3.25% plus 1.00%). As of March 31, 2022, the Company was in compliance with all debt-related covenants under the 2021 Credit Agreement.
Share Repurchase Program
On June 30, 2021, our Board of Directors approved a stock repurchase program (the “Share Repurchase Program”) that authorizes the Company to repurchase up to $20.0 million of the Company’s outstanding common stock through June 30, 2024. Repurchases under the Share Repurchase Program are subject to market conditions, the periodic capital needs of the Company’s operating activities, and the continued satisfaction of all covenants under the Company’s existing 2021 Credit Agreement. Repurchases under the Share Repurchase Program may take place in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. The Share Repurchase Program does not obligate the Company to repurchase shares and may be suspended, terminated, or modified at any time.
As of March 31, 2022, the Company had repurchased approximately $4.6 million, or 343,514 shares, of the Company's outstanding common stock under the Share Repurchase Program.
Cash Flows:
The following table summarizes our cash flows (in millions):
| Three Months Ended March 31, | ||||||||||||||||||||
| In millions | 2022 | 2021 | 2021 vs. 2020 | |||||||||||||||||
| Net cash provided by operating activities | $ | 4.1 | $ | 2.7 | $ | 1.4 | ||||||||||||||
| Net cash used in investing activities | $ | (2.1) | $ | (2.8) | $ | 0.7 | ||||||||||||||
| Net cash used in financing activities | $ | (1.7) | $ | (6.7) | $ | 5.0 | ||||||||||||||
Operating Cash Flow. Net cash provided by operating activities for the first quarter of 2022 was $4.1 million compared to $2.7 million for the first quarter of 2021. This $1.4 million, or 53.8%, increase was primarily attributable to the positive cash flow effect of a swing from $3.7 million in cash being used to fund increased working capital amounts during the first quarter of 2021 to cash being provided by reduced working capital amounts during the first quarter of 2022 of $0.3 million for a net improvement in cash flow totaling $4.1 million. This amount was partially offset by a decrease in net income adjusted for non-cash items of $3.7 million during the first quarter of 2022 as compared to $6.4 million during the first quarter of 2021, a decrease of $2.7 million. During 2022, cash received from net lower working capital balances included a $1.3 million increase
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in accounts receivable, a $0.1 million decrease in inventory and a $1.6 million increase in accounts payable and accrued liabilities. In 2021, investments in working capital balances included a $0.4 million increase in accounts receivable, a $0.2 million increase in inventories and a $2.9 million decrease in accounts payable and accrued liabilities.
The $1.3 million increase in accounts receivable during the first three-month period of 2022 as compared to the $0.4 million increase during the same prior year period was mainly due to a sequential quarterly growth in net revenues for the first three-month period of 2022 as compared to a sequential quarterly decrease in net revenues for the first three-month period of 2021. Accounts payable and other liabilities, net of capital items, increased by $1.6 million during the first three-month period of 2022, and decreased by $2.9 million during the first three-month period of 2021, a $4.5 million favorable cash flow swing, mainly due to a reduction in the amount paid in 2022 for the 2021 short-term incentive bonus plan as compared to the amount paid in 2021 for the 2020 short-term incentive bonus plan.
Investing Cash Flow. Net cash used in investing activities was $2.1 million for the first three-month period of 2022 compared to $2.8 million for the first three-month period of 2021, a decrease of $0.7 million. The decrease was due to the acquisition of FilAMed totaling $1.2 million during the first three-month period of 2021. There were no acquisitions during 2022. This amount was partially offset by an increase in cash used to purchase medical equipment of $0.6 million. Purchases of medical equipment were higher during 2022 due to an increase in expected future growth during the current year as compared to 2021.
Financing Cash Flow. Net cash used in financing activities for the three-month period of 2022 was $1.7 million compared to $6.7 million for the first three-month period of 2021. Amounts of cash used in financing activities during the first three-month period of 2022 included net revolving line of credit borrowings under the 2021 Credit Agreement totaling $2.0 million, $0.2 million in principal payments on our other financing and $4.0 million to buy back the Company's common stock. These amounts were partially offset by cash proceeds from employee stock option exercises totaling $0.5 million. The use of cash during 2021 was mainly related to the refinancing of our bank debt on February 5, 2021. Prior to that date, we operated under the 2015 Credit Agreement which included three term notes and a revolving line of credit. At the beginning of 2021, we had $9.6 million in cash on hand and no outstanding borrowings under the revolving line of credit. The 2015 Credit Agreement was completely repaid and replaced by the 2021 Credit Agreement, which has a new $75 million revolving line of credit and no term notes. This structure allowed the Company to use a portion of its available cash, totaling $7.9 million, to reduce its overall outstanding debt on the closing date of the financing. Other cash used in financing activities for the first three-month period of 2021 included a $3.1 million net reduction in outstanding borrowings under the 2015 Credit Agreement, which included amortization installments on term notes totaling $5.8 million, debt issuance costs totaling $0.4 million and cash used to repurchase shares to satisfy statutory withholding on employee stock based compensation totaling $0.6 million. These amounts were partially offset by $2.7 million in borrowings under an equipment line of credit and $0.3 million in cash proceeds from employee stock option exercises.
Critical Accounting Policies and Estimates
The unaudited condensed consolidated financial statements are prepared in conformity with GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the unaudited condensed consolidated financial statements and the judgments and assumptions used are consistent with those described in the notes to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 15, 2022. There have been no material changes to our critical accounting policies described in the notes to the audited consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2021.
As of the date of the unaudited condensed consolidated financial statements presented in this Form 10-Q, there have been no material negative financial impacts on our operations resulting from the COVID-19 pandemic. However, the future effects of this pandemic or any resurgence thereof on economic and market conditions is uncertain and increases the subjectivity that will be involved in evaluating our estimates and assumptions underlying our critical accounting policies. Any events and changes in circumstances arising after March 31, 2022, including those resulting from the impacts of the COVID-19 pandemic, will be reflected in management’s estimates for future periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in foreign currency exchange rates and short-term interest rates. Market risks for changes in interest rates relate primarily to our debt obligations under our 2021 Credit Agreement. Foreign currency
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exchange risks are attributable to sales to foreign customers and purchases from foreign suppliers not denominated in our functional currency which is the U.S. Dollar and include exposures primarily to the Canadian Dollar.
The Company periodically enters into derivative contracts with the objective of managing its financial and operational exposure arising from these risks by offsetting gains and losses on the underlying exposures with gains and losses on the financial instruments used to hedge them. We did not have any foreign currency derivative contracts outstanding at any time during the three months ended March 31, 2022. The maximum length of time over which we hedge our exposure to short-term interest rate risk is equal to the remaining term for the debt obligation being hedged. We had interest rate derivative contracts with a notional value of $20.0 million as of March 31, 2022 and December 31, 2021, respectively.
We do not enter into derivative financial instruments for speculative or trading purposes. Our hedging relationships are formally documented at the inception of the hedge, and hedges must be highly effective in offsetting changes to future cash flows on hedged transactions both at the inception of a hedge and on an ongoing basis to be designated for hedge accounting treatment. For derivative contracts which can be classified as a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded to accumulated other comprehensive income in the consolidated balance sheet. When the underlying hedge transaction is realized, the gain or loss included in accumulated other comprehensive income is recorded in earnings in the consolidated statement of income on the same line as the gain or loss on the hedged item attributable to the hedged risk. We record the ineffective portion of interest rate hedging instruments, if any, to interest expense in the consolidated statements of income. See Note 9 to our consolidated financial statements for information related to the fair values of derivative instruments in our condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively, and information related to the effect of derivative instruments included in our condensed consolidated statements of operations and comprehensive income including the amount of unrealized gain associated with our interest rate derivatives reported in accumulated other comprehensive income that was reclassified into earnings during the three months ended March 31, 2022 and 2021, respectively.
The Company uses an income approach to value derivative instruments, analyzing quoted market prices to calculate the forward values and then discounting such forward values to the present value using benchmark rates at commonly quoted intervals for the instrument’s full term.
In July 2017, Financial Conduct Authority (the authority that regulates LIBOR) previously announced its intent to stop compelling banks to submit rates for the calculation of LIBOR after 2021, and the administrator of LIBOR announced its intention to cease the publication of the one week and two month USD LIBOR settings immediately following December 31, 2021, and the remaining USD LIBOR settings immediately following the LIBOR publication on June 30, 2023. The one week and two month USD LIBOR settings were last published on December 31, 2021. Additionally, it is expected that banks will no longer issue LIBOR-based debt after December 31, 2021. Accordingly, there is considerable uncertainty regarding the publication of such rates beyond these dates. The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the rate that represents best practice as the alternative to USD LIBOR for use in derivatives and other financial contracts that are currently indexed to USD LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD LIBOR. At this time, it is not known whether or when SOFR or other alternative reference rates will attain market traction as replacements for LIBOR. The Company's 2021 Credit Agreement, discussed in Note 8 to the condensed consolidated financial statements, and the Company's interest rate swap agreements, discussed in Note 9 to the condensed consolidated financial statements, are indexed to USD LIBOR and management is monitoring this activity and evaluating the related risks.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures and Changes in Internal Control over Financial Reporting
We maintain a set of disclosure controls and procedures designed to ensure that material information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that material information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures. Our CEO and CFO have evaluated these disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q and have determined that such disclosure controls and procedures were effective.
There has been no change in our internal control over financial reporting during our most recent calendar quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
From time to time in the ordinary course of our business, we may be involved in legal and regulatory proceedings, the outcomes of which may not be determinable. The results of litigation and regulatory proceedings are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. We are not able to estimate an aggregate amount or range of reasonably possible losses for those legal matters for which losses are not probable and estimable, primarily for the following reasons: (i) many of the relevant legal proceedings are in preliminary stages and until such proceedings develop further, there is often uncertainty regarding the relevant facts and circumstances at issue and potential liability; and (ii) many of these proceedings involve matters of which the outcomes are inherently difficult to predict. We have insurance policies covering potential losses where such coverage is cost effective.
We are not at this time involved in any proceedings that we believe could have a material effect on our business, financial condition, results of operations or cash flows.
Item 1A. Risk Factors
For information regarding factors that could affect our results of operations, financial condition and liquidity, refer to the section entitled “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 15, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Purchases of Equity Securities by the Issuer
A summary of our purchases of our common stock during the three months ended March 31, 2022 is as follows:
| Period | Total Number of Shares Purchased (a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (b) | ||||||||||||||||||||||
| January 1, 2022 through January 31, 2022 | 79,625 | $ | 15.69 | 76,297 | $18,245,811 | |||||||||||||||||||||
| February 1, 2022 through February 28, 2022 | 177,071 | $ | 12.69 | 177,071 | $15,999,030 | |||||||||||||||||||||
| March 1, 2022 through March 31, 2022 | 56,677 | $ | 9.85 | 56,677 | $15,440,579 | |||||||||||||||||||||
| Total | 313,373 | $ | 12.94 | 310,045 | ||||||||||||||||||||||
(a) Of the 313,373 shares of common stock presented in the table above, 3,328 shares were originally granted to employees and directors as restricted stock awards. Our stock plans allow for the withholding of shares to satisfy tax obligations due upon the vesting of restricted stock. Pursuant to our stock plans, the 3,328 shares reflected above were relinquished by employees or directors in exchange for our agreement to pay U.S. federal, state and local tax withholding obligations resulting from the vesting of the Company's restricted stock.
(b) On June 30, 2021, our Board of Directors approved a stock repurchase program (the "Share Repurchase Program") authorizing the Company to repurchase up to $20.0 million of the Company's outstanding common stock through June 30, 2024 (which was announced on August 12, 2021). Repurchases under the Share Repurchase Program will be subject to market conditions, the periodic capital needs of the Company's operating activities, and the continued satisfaction of all covenants under the Company's existing credit agreement. Repurchases under the Share Repurchase Program may take place in the open market or in privately negotiated transactions and may be made under a Rule 10b5-1 plan. The Share Repurchase Program does not obligate the Company to repurchase shares and may be suspended, terminated, or modified at any time. As of March 31, 2022, the Company had repurchased 343,514 shares under the Share Repurchase Program.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibits | |||||
| 3.1 | |||||
| 3.2 | |||||
| 31.1* | |||||
| 31.2* | |||||
| 32.1** | |||||
| 32.2** | |||||
| 101.INS* | Inline XBRL Instance Document | ||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||
| 104* | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | ||||
* ** | Filed herewith Furnished herewith | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| INFUSYSTEM HOLDINGS, INC. | ||||||||
| Date: May 5, 2022 | /s/ Richard DiIorio | |||||||
| Richard DiIorio | ||||||||
Chief Executive Officer and Director (Principal Executive Officer) | ||||||||
| Date: May 5, 2022 | /s/ Barry Steele | |||||||
Barry Steele Chief Financial Officer (Principal Accounting and Financial Officer) | ||||||||
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