InfuSystem Holdings, Inc: Form 10-Q for the period ended Jun 30, 2025

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 disruptions caused by public health emergencies or extreme weather or other climate change-related events 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, 2024 filed on March 11, 2025, 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 (http://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 healthcare service provider, facilitating outpatient care for Durable Medical Equipment manufacturers and healthcare providers. We provide our products and services to hospitals, oncology practices, ambulatory surgery centers, and other alternate site healthcare providers. Our headquarters is in Rochester Hills, Michigan, and we operate our business from a total of seven locations in the U.S. 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 is accredited by the Community Health Accreditation Partner (CHAP) and is ISO 9001 certified at our Kansas, Michigan, Massachusetts, Canada and Santa Fe Springs, California locations as well as 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 healthcare 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; (vi) growing team of field-based and traveling biomedical technicians; and (vii) a wide array of pump repair and service capabilities. We do not perform any research and development on pumps, but we have made, and continue to make investments in our information technology.

Patient Services Segment

Our Patient Services segment’s core purpose is to seek opportunities to leverage our unique know-how in clinic-to-home healthcare 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 or acquisitions. The leading service within our Patient Services segment is our Oncology Business. Colorectal cancer is the third most prevalent form of cancer in the U.S., 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 which present opportunities for growth. There are also a number of other drugs currently approved by 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.

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 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.

The use of continuous infusion has been demonstrated to decrease or alter the toxicity of a number of cytotoxic, or cell killing agents. Higher doses of drugs can be infused over longer periods of time, leading to improved tolerance and decreased toxicity. Nausea, vomiting, diarrhea and decreased white blood cell and platelet counts are all affected by duration of delivery. Continuous infusion can lead to improved tolerance and patient comfort while enhancing the patient’s ability to remain on the chemotherapy regimen. Additionally, the lower toxicity profile and resulting reduction in side effects enables patients undergoing continuous infusion therapy to continue a relatively normal lifestyle, which may include continuing to work, going shopping, and caring for family members. We believe that the partnering of physician management and patient autonomy provide for the highest quality of care with the greatest patient satisfaction.

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 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 Healthcare Technologies, LLC (“SI Healthcare”), with Sanara MedTech Inc. (“Sanara”). The partnership focuses 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 enables InfuSystem to offer innovative products including Cork and Genadyne Biotechnologies Inc. NPWT devices and supplies 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 healthcare service providers, in whole or in 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 net revenues less 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 recertification, maintenance and repair services for oncology practices as well as other healthcare site settings, including, home care and home infusion providers, skilled nursing and acute care facilities, pain centers and others. 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 acquisition of FilAMed, a privately-held biomedical services company, on January 31, 2021 has supplemented 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. Our acquisition of OB Healthcare, a privately-held biomedical services company, on

April 18, 2021 further develops and expands InfuSystem’s Device Solutions segment by adding field service capabilities and complements the Company’s purchase of FilAMed.

InfuSystem Holdings, Inc. Results of Operations for the Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024

The following represents the Company’s results of operations for the three months ended June 30, 2025 and 2024:

(in thousands, except share and per share data)

Net Revenues

Net revenues for the quarter ended June 30, 2025 (“second quarter of 2025”) were $36.0 million, an increase of $2.3 million, or 6.8%, compared to $33.7 million for the quarter ended June 30, 2024 (“second quarter of 2024”). The increase included higher net revenues for both the Patient Services and Device Solutions segments.

Patient Services

Patient Services net revenue of $21.5 million increased $1.3 million, or 6.3%, during the second quarter of 2025 compared to the prior year period. This increase was primarily attributable to additional treatment volume and increased third- party payer collections in Oncology and Wound Care, offset partially by lower revenue volume in Pain Management. The improved volume and collections benefited Oncology revenue by $0.7 million, or 4.0% and Wound Care by $0.8 million, or 175%. Pain Management revenue decreased by $0.2 million, or 15.4%. Pain management was lower mainly due to timing of shipments to a large customer.

Device Solutions

Device Solutions net revenue of $14.5 million increased $1.0 million, or 7.7%, during the second quarter of 2025 compared to the prior year period. This increase included increased medical equipment sales of $0.6 million, or 40.0%, and higher rental revenue totaling $0.5 million, or 10.5%. Higher medical equipment sales were due to rental buyouts by certain existing rental customers and sales to new customers. The increase in rental revenue was mainly attributable to new customers added since the second quarter of 2024.

Gross Profit

Gross profit for the second quarter of 2025 of $19.9 million increased by $3.2 million, or 19.2%, compared to the second quarter of 2024. This increase was due to the increase in net revenues and by a higher gross profit percentage of net revenue (“gross margin”). Gross margin was 55.2% during the second quarter of 2025 compared to 49.5% during the prior year period, an increase of 5.7%. Gross profit was higher in both the Patient Services and Devices Solutions segments whereas gross margin was lower in the Patient Services segment and higher in the Device Solutions segment.

Patient Services

Patient Services gross profit was $13.8 million during the second quarter of 2025, representing an increase of $0.4 million, or 2.7%, compared to the prior year period. The increase reflected the higher net revenue offset partially by lower gross margin, which decreased from the prior year by 2.3% to 64.1%. The decrease in gross margin reflected a change in revenue mix offset partially by lower missing pump reserve expense and improved coverage of fixed costs from higher net revenue. The unfavorable revenue mix impacting gross margin was mainly related to the increase in revenue related to the higher wound care net revenue, which has a lower average gross margin than other Patient Services revenue categories.

Device Solutions

Device Solutions gross profit during the second quarter of 2025 was $6.1 million, representing an increase of $2.8 million, or 88.3%, compared to the prior year. This increase was partially due to a $0.6 million error correction during the prior year which did not repeat in the current year. The remaining $2.2 million increase was due to the increase in net revenue and an increased gross margin. The Device Solutions gross margin was 41.9% during the current quarter, which was 17.9% higher than the prior year period. A portion of the increase was due to the error correction in the prior year which reduced gross margin during that period by 4.1%. The remaining 13.8% increase was due to improved procurement costs for materials, increased biomedical productivity and favorable sales mix involving higher margin products including rental revenue and sales of used medical equipment.

Selling and Marketing Expenses

Selling and marketing expenses were $2.7 million for the second quarter of 2025, representing a decrease of 11.1%, compared to the prior year. Selling and marketing expenses as a percentage of net revenues decreased to 7.5% compared to 9.0% 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 second quarter of 2025 were $13.1 million, an increase of $1.6 million, or 14.1%, from the second quarter of 2024. 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 over the prior year included $0.6 million of expenses related to information technology and business applications upgrades in 2025 as part of a project that began in the second half of 2024. Additional expenses above 2024 levels included personnel directly related to the increased net revenue including revenue cycle personnel totaling $0.8 million and a $0.4 million higher expense accrual for short-term incentive compensation. Other increased expenses totaling $0.2 million were indirectly associated with revenue volume growth including the cost of information technology, general business expenses and included inflationary increases. These increases were partially offset by a $0.3 million reduction in stock-based compensation mainly related to the forfeiture of stock-based awards by the outgoing CEO. G&A expenses as a percentage of net revenues for the second quarter of 2025 increased to 36.5% from 34.2% for the prior year period.

Other Expenses

During the second quarter of 2025, other expense included interest expense of $0.4 million, which was $0.1 million lower than interest expense for the second quarter of 2024. Interest expense includes interest and other fees paid in relation to borrowings under the 2021 Credit Agreement partially offset by amounts received on interest rate swap derivatives. The decrease resulted from lower average outstanding debt balances during the second quarter of 2025 compared to the second quarter of 2024, partially offset by higher commitment fees on a higher unused revolving line availability.

Provision For Income Taxes

During the second quarter of 2025, the Company recorded a provision for income taxes totaling $0.8 million on pre-tax income of $3.4 million, representing an effective tax rate of 25%. During the second quarter of 2024, the Company recorded a provision for income taxes of $0.6 million on a pre-tax income of $1.3 million, representing an effective tax rate of 45%. 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, management compensation and 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.

InfuSystem Holdings, Inc. Results of Operations for the Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024

The following represents the Company’s results of operations for the six months ended June 30, 2025 and 2024:

(in thousands, except share and per share data)

Net Revenues

Net revenues for the six-month period ended June 30, 2025 (“first half of 2025”) were $70.7 million, an increase of $5.0 million, or 7.6%, compared to $65.7 million for the six-month period ended June 30, 2024 (“first half of 2024”). The increase included higher net revenues for both the Patient Services and Device Solutions segments.

Patient Services

Patient Services net revenue of $42.3 million increased $3.5 million, or 8.9%, during the first half of 2025 compared to the same prior year period. This increase was primarily attributable to additional treatment volume and increased third-party payer collections totaling $3.7 million offset partially by $0.2 million lower revenue from sales-type leases of NPWT pumps.

The improved volume and collections benefited Oncology revenue by $2.5 million or 7.0%, and Wound Care treatment revenue by $1.3 million, or 155.3%. These increases were partially offset by lower Pain Management revenue $0.1 million, or 4.3%, which was mainly due to shipment timing to a large customer.

Device Solutions

Device Solutions net revenue of $28.4 million increased $1.6 million, or 5.8%, during the first half of 2025 compared to the same prior year period. This increase included higher rental revenue totaling $1.4 million, or 14.7% and higher medical equipment sales, which increased by $0.3 million, or 9.2%. These increases were partially offset by lower biomedical services revenue, which decreased by $0.2 million, or 2.1%. The increase in rental revenue was mainly attributable to new customers added during and since the second quarter of 2024. Higher medical equipment sales were due to rental buyouts by certain existing rental customers and sales to new customers. Lower biomedical services revenue reflected a reduction in devices under contract with GE Healthcare offset partially by additional volume with other customers.

Gross Profit

Gross profit of $39.0 million for the first half of 2025 increased $5.9 million, or 17.8%, from $33.1 million for the first half of 2024. This increase was due to the increase in net revenues and by a higher gross margin. Gross profit increased for both the Patient Services and Device Solutions segments. Gross margin increased to 55.2% during the first half of 2025 compared to 50.4% during the same prior year period. Gross margin was lower for the Patient Services segment and higher for the Device Solutions segment.

Patient Services

Patient Services gross profit was $27.0 million during the first half of 2025, representing an increase of $1.3 million, or 4.9%, compared to the same prior year period. The improvement reflected increased net revenue offset partially by a lower gross margin, which decreased from the prior year by 2.4% to 63.8%. The decrease in gross margin reflected higher pump disposal expenses and unfavorable product mix favoring lower gross margin revenues. These impacts were partially offset by increased third-party payer collections and improved coverage of fixed costs from higher net revenue. The unfavorable gross margin mix was mainly related to the increase in revenue related to wound care treatment revenue, which has lower average gross margin than other Patient Services revenue categories. Pump disposal expenses, which include retirements of damaged pumps and reserves for missing pumps, increased by $0.2 million during the first half of 2025 compared to the prior year period.

Device Solutions

Device Solutions gross profit during the first half of 2025 was $12.1 million, representing an increase of $4.6 million, or 62.4%, compared to the same prior year period. The increase was partially due to a $0.6 million error correction during the prior year which did not repeat in the current year. The remaining $4.0 million improvement reflected increased net revenue and higher gross margin. The Device Solutions gross margin was 42.4% during the current period, which was 14.8% higher than the same prior year period. A portion of this increase was due to the error correction in the prior year which reduced gross margin during that period by 2.3%. The remaining 12.5% increase was attributable to improved procurement costs for materials, increased biomedical productivity and favorable product mix favoring higher gross margin revenues, such as rental revenue and sales of used equipment.

Selling and Marketing Expenses

Selling and marketing expenses for the first half of 2025 were $5.7 million, representing a decrease of $0.7 million, or 11.4%, compared to selling and marketing expenses for the first half of 2024. 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 was 8.0% representing a decrease from the prior year period amount of 9.8%. This decrease reflected a reduction in sales team members and improved coverage of fixed costs from higher net revenues.

General and Administrative Expenses

G&A expenses for the first half of 2025 were $28.5 million, an increase of $3.2 million, or 12.9%, from the first half of 2024. 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. Additionally, the amount for 2025 included a one-time accrued severance expense of $1.0 million for the Company's outgoing CEO, which was substantially in accordance with his employment agreement. This amount was higher than the total of one-time expenses in 2024 which included a $0.6 million payment to a former member of the board of directors related to a Cooperation Agreement and a one-time payment to the Company's former audit firm for services related to their consent to include their prior year audit report in our 2023 annual report totaling $0.3 million. The remaining increase, net of these amounts of $3.2 million, included $1.1 million of expenses related to information technology and business applications upgrades in 2025 as part of a project that began in the second half of 2024. Additional expenses above 2024 levels included personnel directly related to the increased net revenue including revenue cycle personnel and general business expenses totaling $2.2 million and a $0.2 million increase in the company's bad debt accrual which was a benefit in the prior year but an expense amount during 2025. These increases were partially offset by a $0.3 million reduction in stock-based compensation mainly related to the forfeiture of stock-based awards by the outgoing CEO. G&A expenses as a percentage of net revenues for the first half of 2025 increased to 40.2% compared to 38.4% for the same prior year period.

Other Expenses

During the first half of 2025, other income and expense included interest expense of $0.7 million, which was $0.2 million lower than interest expense for the first half of 2024. This decrease was due to a decrease in average outstanding borrowings on the 2021 Credit Agreement revolving line of credit partially offset by higher commitment fees on a higher unused revolving line availability.

Provision For Income Taxes

During the first half of 2025, the Company recorded a provision for income taxes totaling $1.4 million on pre-tax income of $3.7 million representing an effective tax rate of 37%. The pre-tax income amount included significant non-deductible expenses including the severance expense for the outgoing CEO which exceeded the annual deduction limitation for officer compensation. Non-deductible expenses also included a shortfall in the amount of stock compensation expense recognizable for tax purposes verses the amount recognized for book purposes. Together, these items impacted tax expense by $0.5 million, or 12% of pre-tax income. During the first half of 2024, the Company recorded a provision for income taxes totaling $0.4 million on a slight amount of pre-tax income. These amounts differed from the U.S. statutory amounts mainly due to the effects of local, state and foreign jurisdiction income taxes, limitations on the deductions of certain expenses including meals and entertainment expense and management compensation and differences between expense recognized for book purposes versus tax purposes associated with equity compensation expense. The impact of permanent differences weighs 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. 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 8 (Debt) in the notes to the accompanying unaudited condensed consolidated financial statements for additional information regarding the 2021 Credit Agreement and the First Amendment.

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

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 medical equipment, 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 14 (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. 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 of the applicable balance sheet date (in thousands):

As of June 30, 2025, 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 June 30, 2025 was 6.41% (Adjusted Term SOFR of 4.31% plus 2.10%). The actual ABR loan rate at June 30, 2025 was 8.50% (lender’s prime rate of 7.50% plus 1.00%). As of June 30, 2025, the Company was in compliance with all debt-related covenants under the 2021 Credit Agreement, as amended.

On July 15, 2025, the Company entered into a Second Amendment to the 2021 Credit Agreement (the "Second Amendment") with the Agent and the lenders party thereto, which amended the 2021 Credit Agreement, to provide for, among other things, an extension of the maturity date for the 2021 Credit Agreement to July 15, 2030.

Share Repurchase Program:

On May 16, 2024, 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, 2026. The Share Repurchase Program superseded the previous authorization, which expired on 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 at the discretion of the Board.

As of June 30, 2025, the Company had repurchased and retired approximately $7.6 million, or 1,150,112 shares, of the Company's outstanding common stock under the Share Repurchase Program.

Cash Flows:

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

In millions

Operating Cash Flow. Operating cash flows provided $8.8 million in cash during the first half of 2025 and $2.7 million of cash during the first half of 2024. This $6.1 million favorable difference was attributable to an increase in net income (loss) adjusted for non-cash items and a reduction in cash used to fund working capital items. During the first half of 2025 net income (loss) adjusted for non-cash items was $10.9 million, an increase of $3.7 million compared to net income (loss) adjusted for non-cash items of $7.1 million during the first half of 2024. Also during the first half of 2025 cash used to fund working capital items was $2.1 million, a decrease of $2.4 million compared to $4.4 million during first half of 2024. The increase in net income (loss) adjusted for non-cash items, was primarily attributable to higher revenue and gross profit in 2025, offset partially by increased general and administrative expenses described above. The use of cash for working capital items during the first half of 2025 included a $2.1 million increase in accounts receivable and a $2.0 million decrease in accounts payable and other liabilities net of capital items. These cash flow uses were partially offset by a $1.1 million decrease in other assets and a $0.9 million decrease in inventories. The cash used for working capital items during the first half of 2024 included a $3.3 million decrease in accounts payable and other liabilities net of capital items, a $1.2 million increase in accounts receivable and a $0.4 million increase in other current assets. These uses of cash were partially offset by a $0.9 million decrease in other assets and a $0.4 million increase in inventories.

The increase in accounts receivable during both periods was mainly due to the sequential increase in quarterly revenue during each period. This increase was greater during the first half of 2024 when the revenue increased by a higher amount. Accounts payable and other liabilities net of capital items decreased by $2.0 million during the first half of 2025 and decreased $3.3 million during the first half of 2024, representing a $1.3 million unfavorable cash flow swing, mainly due to timing of payments to suppliers, a lower amount of fourth quarter commission accrual as of December 31, 2023 as compared to December 31, 2024 and other timing differences. The increase in inventories during 2024 reflected the higher revenue growth during that period. The increase in other assets during 2024 was due to an increase in long-term lease receivables due to equipment sales on leases during 2025. Equipment sales on leases during 2024 were minimal.

Investing Cash Flow. Net cash used in investing activities was $4.3 million for the first half of 2025 compared to $7.1 million for the first half of 2024, a decrease of $2.8 million. The decrease was due to a decrease totaling $4.7 million in cash used to purchase medical equipment and other property and equipment during the first half of 2025 compared to the first half of 2024. Purchases of medical equipment were higher during 2024 compared to 2025 because a higher portion of the revenue growth in 2024 came from rental revenues that require capital equipment purchases. This decrease was partially offset by cash used in 2025 to acquire certain assets of Apollo Medical Supply (“Apollo”), a privately-held wound care service company totaling $1.4 million and a $0.5 million decrease in proceeds from sale of medical equipment, property and equipment. There were no acquisitions in 2024. The decrease in proceeds from sale of medical equipment, property and equipment reflects a lower allocation of equipment sales taken from the Company’s existing fleet versus purchased for sale in 2025 as compared to 2024.

Financing Cash Flow. Cash flow used in financing activities during first half 2025 totaled $4.3 million, included $6.4 million in cash used to repurchase the Company's common stock and cash used to satisfy statutory withholding on employee stock-based compensation plans totaling $0.5 million. These amounts were partially offset by net revolving line of credit borrowings under the 2021 Credit Agreement totaling $2.5 million and proceeds from employee stock option exercises and employee stock purchase plan proceeds totaling $0.2 million, combined. Cash provided by financing activities during first half 2024 was $4.3 million and primarily related to net revolving line of credit borrowings under the 2021 Credit Agreement totaling $5.0 million and both $0.2 million in cash proceeds from employee stock option exercises and employee stock purchase plan proceeds, combined. These amounts were partially offset by cash used to satisfy statutory withholding on employee stock based compensation plans totaling $0.6 million and $0.3 million in cash used to repurchase the Company's common stock.

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, 2024 filed with the SEC on March 11, 2025. 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, 2024.

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 six months ended June 30, 2025. 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 June 30, 2025 and December 31, 2024.

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 condensed 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 (loss) 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 condensed consolidated statements of operations and comprehensive income. See Note 9 to our condensed consolidated financial statements for information related to the fair values of derivative instruments in our condensed consolidated balance sheets as of June 30, 2025 and December 31, 2024, 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 gains or (losses) associated with our interest rate derivatives reported in accumulated other comprehensive income that was reclassified into earnings during the three and six months ended June 30, 2025 and 2024, respectively. Because of the hedging relationships, a change of 50% in the market rate of SOFR would not have a material impact on our financial results.

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.

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.

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, 2024 filed with the SEC on March 11, 2025.