# InfuSystem Holdings, Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [InfuSystem Holdings, Inc](/companies/infu.md) (CIK 1337013)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 16:39 ET
- Period: 2023-09-30
- Accession: 0001628280-23-038294
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1337013/000162828023038294/infu-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1337013/000162828023038294/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $31.9m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $94.0m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $15.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $45.8m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $16.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $48.2m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $1.7m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $2.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $563.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $1.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $431.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $324.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $689.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $800.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.04 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.03 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.04 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 21,719,404 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 21,615,706 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $6.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $616.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $153.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $161.0k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $29.7m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $102.1m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $14.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $50.6m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $32.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $0 | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $51.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,542 characters.

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 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 and recessionary risks, rising inflation and interest rates, labor and supply chain disruptions, 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, systemic pressures in the banking sector, including disruptions to credit markets, dependency on banking relations and the ability to comply with our credit facility covenants, the Company's ability to remediate its previously disclosed material weaknesses in internal control over financial reporting, 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, 2022 filed on March 16, 2023, 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, and we 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 applications.

During the second quarter of 2023, the Company renamed its two operating segments. Prior to that time, the Patient Services segment was known as Integrated Therapy Services and the Device Solutions segment was known as Durable Medical Equipment Services. The changes were for marketing purposes only and there were no changes to the operations of either segment.

#### Patient Services Segment

Our Patient Services segment’s core purpose is to seek opportunities to grow our business by leveraging 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 Patient Services 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 fourth 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 goals for the Patient Services 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 that 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 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, which could benefit us.

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: (i) evidence of improved clinical outcomes; (ii) lower toxicity and side effects; and (iii) 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, the Center for Medicare and Medicaid Services 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 Patient Services 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.
- Wound Care – launched in November 2022, the Company established a partnership, SI Wound Care, LLC (“SI Wound Care”), with Sanara MedTech Inc. “Sanara”). The partnership will focus on delivering a complete wound care solution targeted at improving patient outcomes, lowering the cost of care, and increasing patient and provider satisfaction. The partnership is expected to enable InfuSystem to offer innovative products including negative pressure wound therapy (“NPWT”) devices and supplies from Cork Medical LLC's (“Cork”) and Genadyne Biotechnologies Inc. and Sanara's advanced wound care product line to new customers through the jointly controlled entity.
- 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, InfuBus or InfuConnect, Pump Portal, DeviceHub and BlockPain Dashboard®.

The payer environment within our Patient Services 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 revenues net of concessions.

#### Device Solutions Segment

Our Device Solutions 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 maintenance services on medical equipment that include recertification, annual preventative 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 provide biomedical services at both our facilities and at our customers' locations. 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.

### InfuSystem Holdings, Inc. Results of Operations for the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

The following represents the Company’s results of operations for the three months ended September 30, 2023 and 2022:

*(in thousands, except share and per share data)*

| Net revenues: | Three Months Ended September 30, 2023 | 2022 | Better (Worse) |
| --- | ---: | ---: | ---: |
| Patient Services | $19,289 | $17,375 | $1,914 |
| Device Solutions (inclusive of inter-segment revenues) | 14,218 | 11,514 | 2,704 |
| Less: elimination of inter-segment revenues | (1,598) | (1,610) | 12 |
| Total | 31,909 | 27,279 | 4,630 |
| Gross profit (inclusive of certain inter-segment allocations) (a): |  |  |  |
| Patient Services | 11,837 | 11,400 | 437 |
| Device Solutions | 4,409 | 4,819 | (410) |
| Total | 16,246 | 16,219 | 27 |
| Selling, general and administrative expenses |  |  |  |
| Provision for doubtful accounts | (169) | (90) | 79 |
| Amortization of intangibles | 248 | 704 | 456 |
| Selling and marketing | 2,728 | 2,894 | 166 |
| General and administrative | 11,742 | 11,768 | 26 |
| Total selling, general and administrative expenses | 14,549 | 15,276 | 727 |
| Operating income | 1,697 | 943 | 754 |
| Other expense | (577) | (396) | (181) |
| Income before income taxes | 1,120 | 547 | 573 |
| Provision for income taxes | (431) | (104) | (327) |
| Net income | $689 | $443 | $246 |
| Net income per share: |  |  |  |
| Basic | $0.03 | $0.02 | $0.01 |
| Diluted | $0.03 | $0.02 | $0.01 |
| Weighted average shares outstanding: |  |  |  |
| Basic | 21,095,404 | 20,683,366 | 412,038 |
| Diluted | 21,719,404 | 21,452,483 | 266,921 |
| (a) Inter-segment allocations are for cleaning and repair services performed on medical equipment. |  |  |  |

#### Net Revenues

Net revenues for the quarter ended September 30, 2023 (“third quarter of 2023”) were $31.9 million, an increase of $4.6 million, or 17.0%, compared to $27.3 million for the quarter ended September 30, 2022 (“third quarter of 2022”). The increase included higher net revenues for both the Patient Services and Device Solutions segments.

#### Patient Services

Patient Services net revenue of $19.3 million increased $1.9 million, or 11.0%, during the third quarter of 2023 compared to the prior year period. This increase was primarily attributable to additional treatment volume in the Oncology Business, revenue from sales-type leases of NPWT pumps, improved third-party payer collections on billings and higher average prices. The largest net revenue improvement came from Wound Care, which increased by $1.1 million, or 693%, compared to the same prior year period, mainly due to increased sales of equipment on sales-type leases, partially offset by lower treatment volumes. Net revenue in the Oncology Business for the third quarter of 2023 increased by $0.8 million, or 5.2%, compared to the same prior year period.

#### Device Solutions

Device Solutions net revenue of $12.6 million (exclusive of inter-segment revenues) increased $2.7 million, or 27.4%, during the third quarter of 2023 compared to the prior year period. This increase included higher biomedical services revenue, which increased by $2.6 million, or 150%, compared to the same prior year period. The increased biomedical revenue was mainly attributable to increased revenue from the master services agreement that we entered into with a leading global healthcare technology and diagnostic company in April 2022.

#### Gross Profit (inclusive of certain inter-segment allocations)

Gross profit for the third quarter of 2023 of $16.2 million increased slightly compared to the third quarter of 2022. The impact from the increase in net revenue was offset by a lower gross profit percentage of net revenue (“gross margin”). Gross margin was 50.9% during the third quarter of 2023 compared to 59.5% during the prior year period, a decrease of 8.5%. Gross profit increased in the Patient Services segment but was lower in the Device Solutions segment. Gross margin decreased in both operating segments.

#### Patient Services

Patient Services gross profit was $11.8 million during the third quarter of 2023, representing an increase of $0.4 million compared to the prior year period. The increase reflected the higher net revenue partially offset by lower gross margin, which decreased from the prior year by 4.2% to 61.4%. The decrease in gross margin reflected higher pump disposal expenses and an unfavorable product mix favoring lower margin revenues. These impacts were partially offset by improved coverage of fixed costs from higher net revenue. Pump disposal expenses, which include retirements of damaged pumps and reserves for missing pumps, increased by $0.2 million during the third quarter of 2023 compared to the prior year period. The unfavorable gross margin mix was mainly related to the increase in revenue related to NPWT equipment leases which have a lower average gross margin than other Patient Services revenue categories.

#### Device Solutions

Device Solutions gross profit during the third quarter of 2023 was $4.4 million, representing a decrease of $0.4 million, or 8.5%, compared to the prior year. This decrease was due to a decrease in gross margin, partially offset by higher net revenue. The Device Solutions gross margin was 34.9% during the current quarter, which was 13.7% lower than the prior year period. This decrease was due to an increase in labor costs related to an increase in the number of biomedical technicians and other expenses associated with the rapid on-boarding of the master services agreement described above. Some of the additional labor costs include training activities and other labor expenses associated with building a larger team in order to have the capacity required to support much higher planned revenue volume. Over time, higher revenue levels are expected to absorb a portion of the increased labor costs and result in an improved gross margin. Other increased expenses associated with the on-boarding ramp, which include increased travel expenses and employee acquisitions costs, are expected to decrease in the future. We currently estimate that the additional expenses incurred during the third quarter of 2023 that will either be absorbed or reduced totaled approximately $1.2 million.

#### Selling and Marketing Expenses

Selling and marketing expenses were $2.7 million for the third quarter of 2023, representing a decrease of $0.2 million, or 5.7%, compared to the prior year. Selling and marketing expenses as a percentage of net revenues decreased to 8.5% compared to 10.6% in the prior year period. This decrease reflected a reduction in sales team members and improved coverage of fixed costs from higher net revenues. The selling and marketing expenses during these periods consisted of sales personnel salaries, commissions and associated fringe benefit and payroll-related items, marketing, travel and entertainment and other miscellaneous expenses.

#### General and Administrative Expenses

General and administrative (“G&A”) expenses for the third quarter of 2023 were $11.7 million, a decrease of 0.2% from $11.8 million for the third quarter of 2022. 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. G&A expenses as a percentage of net revenues for the third quarter of 2023 decreased to 36.8% compared to 43.1% for the prior year period, mainly reflecting improved net revenue leverage over fixed costs.

#### Other Expenses

During the third quarter of 2023, other expense included interest expense of $0.6 million, which was $0.2 million higher than interest expense for the third quarter of 2022. Interest expense includes interest and other fees paid in relation to borrowings under the 2021 Credit Agreement, as amended, partially offset by amounts received on interest rate swap derivatives. The increase resulted from higher weighted-average interest rates and higher average outstanding debt balances during the third quarter of 2023 compared to the third quarter of 2022, partially offset by lower commitment fees on a lower unused revolving line availability.

#### Provision For Income Taxes

During the third quarter of 2023, the Company recorded a provision for income taxes totaling $0.4 million on pre-tax income of $1.1 million, representing an effective tax rate of 38%. During the third quarter of 2022, the Company recorded a provision for income taxes of $0.1 million on a pre-tax income of $0.5 million, representing an effective tax rate of 19%. The effective tax rates for these periods differed from the U.S. statutory rate mainly due to the effects of local, state and foreign jurisdiction income taxes and certain permanent differences in expenses recognized for tax purposes, such as non-deductible meals and entertainment. The impact of permanent differences weigh heavier on the effective tax rate when pre-tax earnings are close to break even.

### InfuSystem Holdings, Inc. Results of Operations for the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

The following represents the Company’s results of operations for the nine months ended September 30, 2023 and 2022:

*(in thousands, except share and per share data)*

| Net revenues: | Nine Months Ended September 30, 2023 | 2022 | Better/ (Worse) |
| --- | ---: | ---: | ---: |
| Patient Services | $57,382 | $51,260 | $6,122 |
| Device Solutions (inclusive of inter-segment revenues) | 41,541 | 34,684 | 6,857 |
| Less: elimination of inter-segment revenues | (4,909) | (4,860) | (49) |
| Total | 94,014 | 81,084 | 12,930 |
| Gross profit (inclusive of certain inter-segment allocations) (a): |  |  |  |
| Patient Services | 35,223 | 32,251 | 2,972 |
| Device Solutions | 13,005 | 14,236 | (1,231) |
| Total | 48,228 | 46,487 | 1,741 |
| Selling, general and administrative expenses |  |  |  |
| Provision for doubtful accounts | (122) | (84) | 38 |
| Amortization of intangibles | 743 | 2,125 | 1,382 |
| Selling and marketing | 8,937 | 9,296 | 359 |
| General and administrative | 35,832 | 34,525 | (1,307) |
| Total selling, general and administrative expenses | 45,390 | 45,862 | 472 |
| Operating income | 2,838 | 625 | 2,213 |
| Other expense | (1,714) | (1,045) | (669) |
| Income (loss) before income taxes | 1,124 | (420) | 1,544 |
| (Provision for) benefit from income taxes | (324) | 331 | (655) |
| Net income (loss) | $800 | $(89) | $889 |
| Net income (loss) per share: |  |  |  |
| Basic | $0.04 | $— | $0.04 |
| Diluted | $0.04 | $— | $0.04 |
| Weighted average shares outstanding: |  |  |  |
| Basic | 20,968,711 | 20,625,826 | 342,885 |
| Diluted | 21,615,706 | 20,625,826 | 989,880 |
| (a) Inter-segment allocations are for cleaning and repair services performed on medical equipment. |  |  |  |

26

#### Net Revenues

Net revenues for the nine-month period ended September 30, 2023 (“nine-month period of 2023”) were $94.0 million, an increase of $12.9 million, or 15.9%, compared to $81.1 million for the nine-month period ended September 30, 2022 (“nine-month period of 2022”). The increase included higher net revenues for both the Patient Services and Device Solutions segments.

#### Patient Services

Patient Services net revenue of $57.4 million increased $6.1 million, or 11.9%, during the nine-month period of 2023 compared to the same prior year period. This increase was primarily attributable to additional treatment volume in the Oncology Business and Pain Management, revenue from sales-type leases of NPWT pumps, improved third-party payer collections on billings and higher average prices. Net revenue in Oncology for the nine-month period of 2023 represented the largest increase, totaling $3.4 million, or a 7.2% increase, compared to the same prior year period. This was followed by an increase in revenue for Wound Care, which increased by $2.6 million, or 305%, compared to the same prior year period, mainly due to an increase in sales of equipment on sales-type leases, partially offset by lower treatment volumes. Pain Management net revenue during the nine-month period of 2023 increased by $0.2 million, which represented an increase of 7.2% compared to the nine-month period of 2022.

#### Device Solutions

Device Solutions net revenue of $36.6 million (exclusive of inter-segment revenues) increased $6.8 million, or 22.8%, during the nine-month period of 2023 compared to the same prior year period. This increase included higher biomedical services revenue, which increased by $6.7 million, or 136%, and higher sales of medical equipment, which increased by $0.6 million, or 16%, compared to the same prior year period. These increases were partially offset by lower sales of disposable medical supplies and lower equipment rentals, which, on a combined basis, decreased by $0.7 million. The increased biomedical revenue was mainly attributable to increased revenue from the master services agreement that we entered into in April 2022 described above.

#### Gross Profit (inclusive of certain inter-segment allocations)

Gross profit of $48.2 million for the nine-month period of 2023 increased $1.7 million, or 3.7%, from $46.5 million for the nine-month period of 2022. This increase was due to the increase in net revenues offset by a lower gross margin. Gross margin decreased to 51.3% during the nine-month period of 2023 compared to 57.3% during the same prior year period. This decrease was due to a decrease in gross margin for both the Patient Services and Device Solutions segments.

#### Patient Services

Patient Services gross profit was $35.2 million during the nine-month period of 2023, representing an increase of $3.0 million, or 9.2%, compared to the same prior year period. The improvement reflected an increase in net revenue, partially offset by a lower gross margin, which decreased from the prior year by 1.5% to 61.4%. The lower gross margin was the result of an unfavorable product mix favoring lower margin revenues partially offset by improved third-party payer collections on billings and improved coverage of fixed costs from the higher net revenue. The unfavorable gross margin mix was mainly related to the increase in revenue related to NPWT equipment leases, which have a lower average gross margin than other Patient Services revenue categories.

#### Device Solutions

Device Solutions gross profit during the nine-month period of 2023 was $13.0 million, representing a decrease of $1.2 million, or 8.6%, compared to the same prior year period. This decrease was due to a decrease in gross margin, which was partially offset by higher net revenue. The Device Solutions gross margin was 35.5% during the current period, which was 12.2% lower than the same prior year period. This decrease was due to an increase in labor costs related to an increase in the number of biomedical technicians and other expenses associated with the rapid on-boarding of the master services agreement described above. Some of the additional labor costs include training activities and other labor expenses associated with building a larger team in order to have the capacity required to support much higher planned revenue volume. Over time, higher revenue levels are expected to absorb a portion of the increased labor costs resulting in an improved gross margin. Other increased expenses associated with the on-boarding ramp, which include increased travel expenses and employee acquisitions costs, are expected to decrease in the future. We currently estimate that the additional expenses incurred during the nine-month period of 2023 that will either be absorbed or reduced totaled approximately $3.5 million.

#### Selling and Marketing Expenses

Selling and marketing expenses for the nine-month period of 2023 were $8.9 million, representing a decrease of $0.4 million, or 3.9%, compared to selling and marketing expenses for the nine-month period of 2022. Selling and marketing expenses consist of sales personnel salaries, commissions and associated fringe benefit and payroll-related items, marketing, travel and entertainment and other miscellaneous expenses. Selling and marketing expenses as a percentage of net revenues decreased to 9.5% compared to 11.5% in the same prior year period. This decrease was mainly attributable to a reduction in sales team members and a higher coverage of fixed expenses related to the higher revenue.

#### General and Administrative Expenses

G&A expenses for the nine-month period of 2023 were $35.8 million, an increase of $1.3 million, or 3.8%, from the nine-month period of 2022. 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 $1.3 million was due to an increase in short-term incentive plan compensation totaling $0.6 million, $0.2 million in additional audit expenses associated with additional requirements to comply with the Sarbanes-Oxley Act of 2002 and other increased expenses totaling $0.9 million associated with revenue volume growth and included the cost of additional personnel, information technology and general business expenses, including inflationary increases. These increases were partially offset by a decrease in stock-based compensation expense of $0.4 million. G&A expenses as a percentage of net revenues for the nine-month period of 2023 decreased to 38.1% compared to 42.6% for the same prior year period.

#### Other Expenses

During the nine-month period of 2023, other income and expense included interest expense of $1.7 million, which was $0.7 million higher than interest expense for the nine-month period of 2022. This increase was due to an increase in outstanding borrowings on the 2021 Credit Agreement, as amended, (defined below) revolving line of credit and higher average interest rates.

#### (Provision For) Benefit From Income Taxes

During the nine-month period of 2023, the Company recorded a provision for income taxes totaling $0.3 million on pre-tax income of $1.1 million, representing an effective tax rate of 28.8%. This rate differed from the U.S. statutory rate mainly due to the effects of local, state and foreign jurisdiction income taxes. During the nine-month period of 2022, the Company recorded a benefit from income taxes totaling $0.3 million on pre-tax losses of $0.4 million, representing an effective tax rate of 78.6%. This rate differed from the U.S. statutory rate mainly due to the effects of local, state and foreign jurisdiction income taxes and a benefit related to permanent differences between expense recognized for book purposes versus tax purposes associated with equity compensation expense. The impact of permanent differences weigh heavier on the effective tax rate when pre-tax earnings are close to break even.

### 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 (the “Agent”), and the lenders party thereto, which replaced our then existing credit facility, dated March 23, 2015. On April 26, 2023, the Company entered into a First Amendment to the 2021 Credit Agreement (the “First Amendment”) with the Agent and the lenders party thereto, which amended the 2021 Credit Agreement. See Note 7 (Debt) in the notes to the accompanying unaudited condensed consolidated financial statements for additional information regarding the First Amendment.

The following table summarizes our available liquidity (in millions):

| Liquidity | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Cash and cash equivalents | $0.2 | $0.2 |
| Revolving line of credit | 41.6 | 41.2 |
| Available liquidity | $41.8 | $41.4 |

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 12 (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 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, as amended. 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 following table illustrates the net availability under the revolving credit facility (“Revolving Facility”) under the 2021 Credit Agreement, as amended, as of the applicable balance sheet date (in thousands):

| Revolving Facility: | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Gross availability | $75,000 | $75,000 |
| Outstanding draws | (33,013) | (33,384) |
| Letters of credit | (400) | (400) |
| Availability on Revolving Facility | $41,587 | $41,216 |

As of September 30, 2023, amounts outstanding under the Revolving Facility provided under the 2021 Credit Agreement, as amended, bear interest at a variable rate equal to, at the Company’s election, Adjusted Term SOFR for Term Benchmark loans or an Alternative Base Rate for ABR loans, as defined by the First Amendment, plus a spread that will vary depending upon the Company’s leverage ratio. The spread ranges from 2.00% to 3.00% for Term Benchmark Loans and 1.00% to 2.00% for base rate loans. The weighted-average Term Benchmark loan rate at September 30, 2023 was 7.68% (Adjusted Term SOFR of 5.43% plus 2.25%). The actual ABR loan rate at September 30, 2023 was 9.75% (lender’s prime rate of 8.50% plus 1.25%). As of September 30, 2023, the Company was in compliance with all debt-related covenants under the 2021 Credit Agreement, as amended.

#### 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, as amended. 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 at the discretion of the Board.

As of September 30, 2023, the Company had repurchased and retired approximately $6.2 million, or 553,149 shares, of the Company's outstanding common stock under the Share Repurchase Program.

### Cash Flows:

The following table summarizes our cash flows (in millions):

*In millions*

|  | Nine Months Ended September 30, 2023 | 2022 | 2023 vs. 2022 |
| --- | ---: | ---: | ---: |
| Net cash provided by operating activities | $6.6 | $13.0 | $(6.4) |
| Net cash used in investing activities | $(5.7) | $(8.4) | $2.7 |
| Net cash used in financing activities | $(0.9) | $(4.3) | $3.5 |

***Operating Cash Flow***. Operating cash flows totaled $6.6 million during the nine-month period of 2023 and $13.0 million for the nine-month period of 2022. This $6.4 million decrease was attributable to a decrease in net income adjusted for non-cash items, which was $12.6 million during the nine-month period of 2023 compared to $13.1 million during the nine-month period of 2022, a decrease of $0.6 million, and due to cash used to fund increased working capital items totaling $6.0 million during nine-month period of 2023 compared to cash used for working capital items totaling $0.2 million during nine-month period of 2022, a change of $5.8 million. The decrease in net income adjusted for non-cash items was primarily attributable to the increased expenses associated with on-boarding the biomedical master services agreement described above. The use of cash for working capital items during the nine-month period of 2023 included a $1.0 million increase in accounts receivable, a $1.3 million increase in inventories, a $1.1 million increase in other current assets, a $2.3 million increase in other assets, and a $0.3 million decrease in accounts payable and other liabilities net of capital items. The cash used for working capital items during the nine-month period of 2022 included a $0.6 million increase in accounts receivable and a $0.9 million increase in inventories. These were partially offset by a $1.2 million increase in accounts payable and other liabilities net of capital items and a $0.2 million decrease in other current assets. The increase in accounts receivable during the nine-month period of 2023 was mainly due to the increase in revenue during 2023. A portion of the increased revenue was attributable to sales-type leases, which resulted in higher lease receivables (of which the long-term portion is included in other assets versus accounts receivable) and to the biomedical master services agreement described above, a part of which increased the related contract asset (which is included in other current assets versus accounts receivable). During 2022, revenue increased by a lower amount and most of the increase resulted in only a higher accounts receivable balance. Accounts payable and other liabilities net of capital items decreased by $0.3 million during the nine-month period of 2023 and increased $1.2 million during the nine-month period of 2022, representing a $1.5 million unfavorable 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 2023 for the 2022 short-term incentive bonus plan. The increase in inventories in both 2023 and 2022 reflected the higher revenue volumes in both periods. The increase in other assets was due to higher long-term lease receivables due to an increase in the amount of equipment sales on leases during 2023 as compared to 2022.

***Investing Cash Flow.*** Net cash used in investing activities was $5.7 million for the nine-month period of 2023 compared to $8.4 million for the nine-month period of 2022, a decrease of $2.7 million. The decrease was due to a decrease totaling $1.9 million in cash used to purchase medical equipment and other property and equipment during the nine-month period of 2023 compared to the nine-month period of 2022. Purchases of medical equipment were lower during 2023 compared to 2022 because a higher portion of the increased revenue in 2023 came from biomedical services and sales-type leases that do not require capital equipment purchases.

***Financing Cash Flow.*** Net cash used in financing activities for the nine-month period of 2023 was $0.9 million compared to net cash used of $4.3 million for the nine-month period of 2022. The amount of cash used in financing activities during nine-month period of 2023 included net revolving line of credit repayments under the 2021 Credit Agreement, as amended, totaling $0.4 million and cash used to satisfy statutory withholding on employee stock based compensation plans totaling $1.2 million. These cash uses were partially offset by cash proceeds from employee stock option exercises and employee stock purchase plan proceeds, combined totaling $1.0 million. Amounts of cash used in financing activities during the nine-month period of 2022 primarily related to $5.4 million to buy back the Company's common stock and $0.8 million in cash paid for contingent consideration related to the 2021 acquisition of OB Healthcare. These were partially offset by net revolving line of credit borrowings under the 2021 Credit Agreement totaling $1.3 million and $1.2 million in cash proceeds from employee stock option exercises and employee stock purchase plan proceeds, combined.

### 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, 2022 filed with the SEC on March 16, 2023. 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, 2022.

## Market risk

As filed, 5,539 characters.

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 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 (“USD”) 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 and nine months ended September 30, 2023. 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 both September 30, 2023 and December 31, 2022.

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 sheets. When the underlying hedge transaction is realized, the gain or loss included in accumulated other comprehensive income is recorded in earnings in the condensed consolidated statements of operations and comprehensive 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 8 to our condensed consolidated financial statements for information related to the fair values of derivative instruments in our condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, 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 and nine months ended September 30, 2023 and 2022, 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, the Financial Conduct Authority (the authority that regulates the London Interbank Offered Rate (“LIBOR”) 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 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. On April 26, 2023, the Company amended its 2021 Credit Agreement with the First Amendment, discussed in Note 7 to the condensed consolidated financial statements, to provide for the replacement of LIBOR with Term SOFR as a benchmark interest rate. Prior to the First Amendment, net revolving loans under the 2021 Credit Agreement were indexed to USD LIBOR. As discussed in Note 8 to the condensed consolidated financial statements, on May 11, 2023, the Company settled its two outstanding interest rate swap agreements, which were indexed to USD LIBOR, and entered into a new interest rate swap agreement indexed to SOFR to coincide with the index change in the 2021 Credit Agreement, as amended. The new swap agreement has a notional value of $20 million, which is equal to the combined notional value of the two settled swap agreements. The term of the new swap agreement, which matches the April 26, 2028 expiration date of the 2021 Credit Agreement, as amended, extends past the term of the settled swap agreements by approximately 26 months.

## Controls and procedures

As filed, 3,752 characters.

### Evaluation of Disclosure Controls and Procedures

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 not effective due to material weaknesses in internal control over financial reporting that were disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

### Ongoing Remediation of Previously Identified Material Weaknesses

As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, we are implementing measures designed to ensure that control deficiencies contributing to the previously disclosed material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively. The Company is continuing to assess the completeness and accuracy of data used in performance of controls by reviewing the origin and design of reports used in the performance of controls. Each report has been identified and the Company is working to verify the source data for each report to ensure the completeness and accuracy of data. The Company is continuing to assess the access rights and remove segregation of duties conflicts where they had previously existed. Several of these accesses have been removed and several processes have been redesigned to ensure that segregation of duties conflicts have been resolved. The Company will continue to update access rights to the appropriate access levels for key individuals until all conflicts have been resolved. The Company has identified and implemented several procedural changes to address the sufficiency of the documentation related to approved pricing. The Company is continuing to assess where additional improvements can be made in the controls within this area as well as the support for customer orders and pricing determinations. The remediation actions, including those listed above, remain in process where further modifications are necessary to address the material weaknesses. We expect these changes to materially improve our internal controls.

The weaknesses will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Management believes the remediation of these material weaknesses will be completed prior to the end of fiscal year 2023. However, there is no assurance as to when such remediation will be completed.

### Changes in Internal Control over Financial Reporting

The Company has been implementing measures to remediate the material weaknesses in our internal control over financial reporting. Other than the remediation efforts underway, there were no changes in the Company's internal control over financial reporting during the three-month period ended September 30, 2023, which were identified in connection with management's evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 286 characters.

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, 2022 filed with the SEC on March 16, 2023.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001628280-23-038294. Last ingested by Listed: Oct 27, 2026, 06:32 ET. No prices; not investment advice.