Good afternoon. Thank you all for joining us today for the Lytham Partners Fall 2024 Investor Conference. My name is Joe Dorame, Managing Partner of Lytham Partners. I would like to welcome InfuSystem Holdings, a leading healthcare service provider. The ticker symbol is I-N-F-U on the NYSE American. Joining us today from the company is Rich DiIorio, Chief Executive Officer. I would also like to welcome Brooks O'Neil, Senior Research Analyst at Lake Street Capital Markets. Brooks covers healthcare companies, including InfuSystem. I have asked Brooks to moderate today's call. Before I turn it over to Brooks, InfuSystem will be available for one-on-one meetings. If you'd like to sign up, please visit lythampartners.com/fall2024 and click the Investor and Attendee Registration button. With that, Brooks and Rich, please introduce yourselves.
Thank you very much. Good afternoon, Joe. Good afternoon, Rich. My name is Brooks O'Neil. I do research on healthcare companies, and I have been involved in following InfuSystem for a number of years.
Good afternoon, everyone. I'm Rich DiIorio. I'm the CEO at InfuSystem. I've been with the company for, shoot, almost 21 years, and I've been in this role now for just about seven, I think, as of next month.
Great. With that, Rich, why don't you provide a brief overview of InfuSystem and what you think makes the company unique?
Yeah, that's a great question. So, InfuSystem is really a healthcare services company. We don't manufacture our equipment, we just wrap services around it on both of our segments, which I'm sure we'll get into later. I think we're unique in that, we provide clinical care. We have over eight hundred revenue cycle contracts. We have a really kind of gold standard for biomedical technicians and abilities, and logistics. A lot of companies have pieces of that, but very few have all of them and can bring them all to kind of the life cycle of a pump and the treatment cycle for a patient, where we can take the device from the manufacturer, take it to the provider, to the patient, and eventually bill the insurance company back for it.
We can take it all the way through that process, and we do that hundreds of thousands of times a year. That's a very unique skill set to have, and that's why a lot of companies have come to us in the last couple of years to ask for help, which I know we'll get into later with some of those agreements. I think it's really unique, and if there's one single thing that kind of sets us apart, I think it's the 800-plus payer contracts. You know, basically every payer in the country or the vast majority of them, we have an agreement with.
So it allows us to layer in additional products or services into those existing contracts and get paid for them, which ultimately is the most important part for us to be able to provide those services to the patients.
Great. So you mentioned you have two business segments, patient services and device solutions. Let's start with patient services. Tell us a little bit about that segment, and what are you most excited about in that segment right now?
Yeah, so patient services is kind of where we were born, which is where our oncology business sits. It's also where our pain management and wound care businesses are. That is very much where we wrap those services around the equipment. So we're device agnostic in all those businesses. We can carry any piece of equipment, and that's where we wrap our clinical, our biomed, our logistics, and our revenue cycle capabilities around. What's exciting is a couple things. So our oncology business is super stable. We have roughly two-thirds of the market. It's been around for almost four decades. It's where we started 38 years ago. Very stable, very profitable.
Really helps fund a lot of the other businesses, including the pain program, where we treat post-surgical pain, as well as our wound care business through our joint venture with Sanara, so not only are we stable in the oncology business, which is still about half of our revenue, probably slightly more than that, and patient services as a whole, by the way, is about two-thirds of the company's revenue, with oncology making up the vast majority of that, but then we have our pain business, where we treat people after surgery, hopefully reduce or eliminate, opioid use, which is a really nice business to have. It's still really small.
It's still in the single-digit millions for us, but it's a really good program and service for the patients so that they can reduce the amount of opioids they have to take after surgery. And then, probably the most exciting thing in that segment is wound care. We entered the wound care market a few years back with negative pressure devices through Cardinal. That device is no longer on the market, but we shifted to a couple other devices, as well as a joint venture with Sanara. And we kind of have three pieces of the wound care business that we're targeting, all within our core strengths, which is nice. So the first piece, which is where the JV started, that's where our negative pressure piece is. So advanced wound care products is what we call it.
It's the negative pressure business, it's the Sanara products, and it's ancillary products to treat wounds. The type of wounds, diabetic foot ulcers, pressure wounds, bedsores, those kinds of things. That's where we call on skilled nursing facilities, traveling physician groups, other distributors out there. We provide the products, we bill their insurance company, just like we do in oncology. It's just a different product that we've added to our contracts with the payers. The other piece is with our partner in Sanara, they're looking at a value-based care model to launch it next year. We'll likely be their DME kind of wing of that. So when they have a patient that needs any of the products we provide, we'll provide that service to the patient, and that'll go through the joint venture.
That's kind of the second avenue we're going to go. The third piece is other types of wounds. We've announced a couple of weeks ago our agreement as an exclusive distributor for Chemo Mouthpiece. In August, on our earnings call, we talked about a product for radiodermatitis. The product is RadioDerm. Different types of wounds, radiation burns, and oral mucositis is basically sores in the mouth. Not your standard diabetic foot ulcers or bedsores, but wounds that are in the oncology business, which makes it a nice fit for us because that's where we're strong, right? We have 2,200 clinics or so, 20-plus salespeople there. It's a channel we know really well. Like I mentioned, that's where we started as a company.
So it makes sense for us to get into that and hopefully make a difference for patients in that market. That's the patient services business. Device solutions is a lot more simple, straightforward distribution, so we're looking at selling and renting devices, almost all infusion pumps. We sell some consumables that go with it, so the tubing that goes with it when the customer needs it, and then we also. That's where our biomedical services business sits. You know, most people think of it as our GE contract, which is certainly the biggest piece of it. But it's pretty straightforward. We don't bill payers in that business.
We bill the hospital or the home infusion provider directly, and the way to think about it is, really, device solutions, we bill direct to the customer. Most of the time on the patient service side, we're billing insurance, not 100% of the time, but most of the time we are, and that's the easiest way to think of the two segments.
Right. That's a great overview, Rich. Thanks a lot. So let's just talk a little bit about the joint venture with Sanara. I have some sense that you, you're excited about the revenue opportunity from that joint venture in 2025. What do you think it's gonna be that'll lift the contribution of that effort as it relates to Infu and your overall results?
Yeah, we're definitely excited about that joint venture. I mean, they're great partners and have been since the first time we chatted with those guys four years ago. I think what we're looking for, at least for 2025, is two of those three lanes that we talked about. The value-based care piece, we don't really have a lot of control, right? It's based on when they launch and how successful they are. Obviously, we wanna be right next to them on their side and help them where we can, but we have much more control over the advanced wound care products and the kind of non-traditional wounds in oncology.
I think both of those opportunities should grow in 2025 and really accelerate kind of through 2025 into 2026, and that's the negative pressure piece, the other advanced wound care products we have, as well as the Chemo Mouthpiece and RadioDerm. So that's what we're really looking for going into next year, to launch Chemo Mouthpiece, which we just signed the agreement a couple weeks ago. We'll be training everyone the rest of this year and hitting our top-tier accounts in the next couple of months. But that should really hopefully take hold next year. It has tremendous potential, and we'll see how the market takes on the product. And then our advanced wound care products, they're growing now.
Last year, so in 2023, a lot of the growth on that side was through a lease with one big distributor, which was nice to have, for sure, and to continue that relationship, but that's not really the future growth of the company. The future growth in that business is really the advanced wound care products, which, again, is negative pressure, the Sanara products, BIAKŌT and HYCOL, as well as other advanced wound care products. As we come out of 2024, that should continue to ramp into 2025 and beyond, and then obviously, the two new products that Sanara did bring us, by the way, that came through the joint venture, both RadioDerm and Chemo Mouthpiece. They're a phenomenal product development company.
They find great products, they develop great products, and we're fortunate to be able to put those into a market that we're really strong in.
Great. So let's just talk in a tiny bit more detail about the partnerships you have with Smith+Nephew, with the negative pressure and Chemo Mouthpiece in particular. When we were talking a couple of weeks ago, you gave me a sense that Chemo Mouthpiece could really be a significant opportunity for you if it comes to fruition the way you think.
Yeah. Yeah, definitely. So, so with Smith+Nephew, they approached us, I guess it was back in the summer, early summer. They have a great negative pressure vac. We have two other devices. We have a Cork Medical device and a Genadyne device, so we had a couple options already for customers, and we like to be device-agnostic, just like we are in oncology, for two reasons. Number one, the patient or and the clinic get their choice of device, right? They're not stuck with just something one device. It also mitigates our risk on the supply chain side, so that if one of them has a supply chain issue, we have a backup device to continue to treat patients. Smith+Nephew was kind of the third product in that, and they came to us.
What's nice about it is they had patients that were gonna use their device, but they had no means to get them the device and have someone get paid for it, so the patients were gonna, in theory, not be able to get treated. So they came to us with a bunch of patients that they needed help with. They have been a great partner. For as big of a company as they are, they've been great to work with and really easy and quick and nimble, which has been nice for us to see. So, you know, they came to us with revenue. We started seeing revenue in the second quarter, and that's certainly still on pace where we expected it, even today. So that's all good news with Smith+Nephew.
Obviously, a great company to be partners with. Chemo Mouthpiece, you're right. You know, Chemo Mouthpiece has tremendous potential. It's an approved device to treat oral mucositis, which, as I mentioned, is really mouth sores, right? So think about having a mouth sore, but having multiple of them and having them be really, really bad. It's a problem in the market. Right now, the gold standard is chewing on ice chips, so if you've ever had a family member or friend that's been going through chemo, and they sit in the chair, and the nurse comes over with a cup of ice, it's a little bit for hydration, but it's really to cool down their mouth, and the idea behind it, behind cryotherapy, is you cool down the mouth, you create the blood, your, your...
The blood vessels constrict so that it doesn't take up the chemo, so in theory, it doesn't kill the cells that it can't get to, right? No, no different than scalp cooling and other types of cooling, cooling devices in the market. Ice chips don't do a great job, but it's better than nothing, and up until Chemo Mouthpiece, there really wasn't anything that did this. The device got approved earlier in the year. There was actually a CPT code approval in the summer for the clinics to get paid, so it's reimbursement for the doctor to dispense it and train the patient and teach them how to use it, which is nice, so now the doctors will be incentivized to do it.
We have exclusive rights in the United States, for the next, I think, five, just over five years or so. Again, a really good partner brought to us through Sanara. The product works. It should really mitigate the amount of oral mucositis, and oral mucositis is a problem in a couple ways. Number one, it's quality of life is terrible. You know, anyone that's ever had one mouth sore knows what that's like. Imagine having 10 or 12 in your mouth. So quality of life is, it is impacted greatly. Patients end up having to pause in some cases or even stop their chemo, 'cause it gets so bad that they can't drink, eat, or take medicine, 'cause it's so bad, so you end up admitted to the hospital in some cases.
So it's not just the quality of life, which is obviously a huge impact, but it can actually affect their chemo regimen, and either pause or stop it in some cases. So then you end up with hydration issues, nutrition issues. I mean, the effect of oral mucositis when it gets bad is really devastating to the patient. So we're hopeful that this product. You know, it, it's pretty easy to use. It's super simple. Think about it as like a baby bottle with a mouthpiece on the end of it, and it gets frozen. So you put it in your mouth, it freezes your oral cavity. You use it as much as you can to keep your mouth cool so that the vasoconstriction continues and the chemo doesn't get taken up into those cells. We believe it's gonna work.
We believe there's a definite need in the market. It's much better than ice chips. They've shown that to be true. So it's exciting. You know, about 500,000 patients or more a year, of potential patients for this, that could benefit from it. It's in oncology, which obviously we're strong in, and we already have a sales team, so we don't have to stand up a sales team. We didn't have to go out and buy millions of dollars in product. It's a direct sale, so there's not a lot of back-end support for this. There's no biomed cost for us. There's not a lot of revenue cycle cost.
It fits right into our wheelhouse and our strength, and it's a product that should really make a difference in oncology for those patients, and it's, there's just nothing else out there that I think is gonna be as good as this.
Great. That's fantastic. So let's just talk quickly about pain. You said a single-digit million business but fast-growing. I have a sense that perhaps the NOPAIN Act coming in 2025 could be a catalyst for that business. Can you just give us a quick overview of how that might affect you next year?
Yeah, so pain's doing a good job this year. They've opened up some nice, you know, a handful of nice, big teaching institutions, which continues to validate the program we have and how good it is, which is nice to see. The NOPAIN Act, you know, at its core, is gonna do a great job of creating awareness, both with physicians and patients, that there are alternatives to opioids to treat post-surgical pain. So just at its baseline, the government's done a good job by implementing this. The proposed list of approved devices and medications and different modes of delivery was put out recently. Electronic pumps actually weren't on it. We expect they will be. We're working with our biggest pump manufacturer to get electronic devices on there.
It's not an InfuSystem thing, it's just the type of device. We expect it to get on there, and then once that happens, which we expect to happen, it really comes down to reimbursement, right? If the reimbursement rate is a good number, that'll drive behavior for the physicians. If it's not, then you know the order of magnitude and effect will be a little bit lower. But you know that we just have to wait and see how that plays out over the next few months.
Okay, cool. So let's shift gears to the device solution segment. How are you doing in that area, and how do you see that business growing as we move forward?
Yeah, so that's been a great business for us. You know, the rental business is kind of one of our core businesses, very profitable, very stable. Doesn't grow a ton, but it is profitable and can fund the other businesses, similar to oncology on the patient services side. The real exciting part in device solutions is the biomedical business. You know, we had a small biomed business. We made a couple acquisitions a couple years ago. It brought us the GE agreement, which is now up and running, and really, the GE agreement helped us build out our national team of technicians. So we have regional technicians stationed all around the country. We have a traveling team that flies in for a couple weeks, does a bunch of preventative maintenance, flies to the next hospital.
So it allowed us to build all that out. What's exciting about that is, that's just the first big agreement we have. We believe we'll end up, and we have had a couple smaller ones with GE already, so it's not the only thing that GE has for us. They do have other opportunities for us, not to the order of magnitude of $10 million-$12 million like that first agreement, but there's some nice, profitable smaller projects we've done before and other ones that, you know, we could potentially do in the future, and then outside of GE, there's other manufacturers, there's other hospitals that are non-GE hospitals that need work to be done.
Whether it's 400 devices or 4,000 devices, some of them are regional, some are national, but we can really leverage the team we've built and the skill sets we've built through GE to execute on those agreements, which should be super profitable for us. You know, we might have to supplement a team here and there, but we should be able to leverage that team to a degree for future deals on the biomed business. So we see the biomed business really being the driver on the device solution side in 2025 and beyond.
Great, and you've talked a little bit about it, but tell us exactly what you do for GE and what it means for them? A nd for the hospitals as well.
Yeah, so GE goes out and gets big contracts to service, you know, effectively all the equipment or the majority of the equipment in the hospital. Everything from, you know, imaging equipment, like MRIs and CAT scans, all the way down to the smaller mobile stuff like infusion pumps, which obviously we've been servicing our own fleet of 110,000 devices or so for years. So they came to us. We're basically, they outsourced that piece of the business to us. So, you know, if you have a hospital where GE's in, and they're fixing all types of devices, and they can't, they don't have the capacity, the team, or whatever to get to the infusion pumps, our team will initially fly in. We'll spend a couple weeks there.
We'll get all the pumps up, up to par, so we'll do a preventative maintenance as required by the manufacturer and the FDA. We get it up to a certain standard, and then we have a local technician that stays there all year, and as pumps break, we repair them. We're basically their outsourced biomed team in those specific hospitals. So it's pretty simple stuff, 'cause it's what we've done. The logistics of it has been a challenge, right? Getting teams in and out as fast as possible to be profitable. Where do you station the regional technicians? Those sorts of things. But, I think we're in a pretty stable spot right now. There's still improvement to be made from an efficiency standpoint. I think there always will be. We'll never stop getting better from an efficiency standpoint.
All the pumps are up and running. We've hit all the original devices. Everything is onboarded. As of, I guess it was the first quarter of this year, we got everything onboarded. So now we're working through the second time around, 'cause you have to go through all those devices every year, based on the manufacturer guidelines. So, it's been a great business. They've been a good partner. There should be more to come on the GE side. Again, nothing as big as this opportunity, but, they've definitely asked us to do other things.
Great. So let's turn our attention to margins for a second. Can you talk about the margin profile in the two businesses, and maybe how you think about Adjusted EBITDA margin going forward?
Sure. On the patient service side, the margins are definitely higher, gross margins. And you've probably seen over the last, you know, year-and-a-half or so, our gross margins as a company have come down, and that's largely driven by device solutions. It's a lower gross margin in general, but biomed is even lower. The good news is, about biomed, is there's very little SG&A associated with it. So although it's a lower gross margin, a big chunk of it will drop to Adjusted EBITDA for us. So it's still a good business, even though the gross margin has come down because of that mix. From an Adjusted EBITDA standpoint, you know, we talk a lot about this internally.
We think our business at its core, now that we've made the investments in wound care and the GE team and all that, and the revenue is starting to come in with it, you know, we think at our core, we're a 20-plus% Adjusted EBITDA company. Probably low 20s is a good number. If we don't have other things to invest in in the short term, you'll probably see that over the next year or two, and you'll certainly see it in certain quarters, right, where we'll get up over 20% for a quarter. Q1 is always low for us. That's where we have to pay our audit fees, our sales meeting is there, our insurance premiums. So Q1 is always a lower Adjusted EBITDA margin for us.
But what you saw in the second quarter this year is what we typically see, which is that margin snaps right back, because those costs aren't there in the second quarter anymore. So it's just a timing thing of some of our expenses. But I think at our core, we're a 20-plus% Adjusted EBITDA company.
Great. That's very helpful. And then just talk a little bit about the capital intensity of the businesses and how you think about that, and whether you have the balance sheet and ability to invest in the growth of the company going forward.
Yeah, so the capital intensity, as a whole, has come down. So when we were just oncology years ago, every time we had to sign up a new customer or get a new patient on, we had to go buy equipment. So that was very capital-intensive, and still is. So when oncology grows, we still have to buy pumps. When pain management grows, we have to buy. On the negative pressure side, we have to buy some equipment. But with the mix change, with a lot of our revenue going into biomed now, there's no capital expense on that side. So as a percentage of our revenue, the capital expense has come down quite a bit over the last couple of years, and we'll probably expect to see that continue.
The good news is, Barry, our CFO, has put us in a great spot from a liquidity standpoint. You know, we have $40-plus million available, so we can pretty much do anything we want to do. We have access to it. It's an all-revolver deal. I think $20 million of our $30 or so is locked in at a lower interest rate through a swap, so we're protected there on two-thirds of our debt. He's put us in an awesome position to really do whatever we need to do in the business and not have to worry about, you know, the availability of cash.
Yeah, that's fantastic. Okay, so let's wrap up here. And looking forward, what do you think are the keys to success that investors should be looking for as you finish out 2024 and head into 2025?
Yeah, so I think what people should look for is continued growth in wound care. I think people over the next year or so will see additional contracts on the biomed side. Those are gonna be the two big growth drivers, wound care and biomed. And the biomed side, again, is within GE and outside of GE with other manufacturers and other customers. Those will be two keys. I think you'll see our, our margins continue to improve, again, outside of the Q1 kind of number that's always a little bit lower. But I think you'll see our margins improve, I think you'll see growth come out of those two new businesses, and then the potential Chemo Mouthpiece over the next year or two.
If it's the product we think it is, and if the market kind of adopts it the way we think it will, that could be a significant driver for us in 2025 and beyond.
Great. Sounds exciting. Can't wait to see it unfold. Thanks so much for your time today.
Thanks, Brooks.
All right, Rich and Brooks, thank you very much for your time. It's been a pleasure having both of you with us today. Again, if you'd like to sign up for a one-on-one meeting, please visit lythampartners.com/fall2024 and click the Investor and Attendee Registration button. We wish you all a good day. Enjoy the conference.